Untitled Texas Attorney General Opinion ( 1957 )

October 29, 1957 Mr. William A. Harrison Opinion NO. ``-289 Commissioner of Insurance State Board of Insurance Re: Whether, fn the light of Austin 14, Texas Article 14,62 of the Code and Opinion No. W-139, a mutual assessment company may spend one hundred per- cent of its mortuary fund for a reinsurance contract with another company which provides something less than one hundred percent refnsurance on all policy- Dear Mr. Harrison: holders or members, You have requested our opinion as to whether a mutual assessment company may spend 100% of fts mortuary fund for a reinsurance contract with another company which provides some- thing less than 100% reinsurance on all policyholders or mem- bers in the light of Article 14.62, Texas Insurance Code, and Attorney General's Opinion No. WW-139, Article 14.62, Texas Insurance Code, provides that no company or association shall pay more out of its mortuary or claim fund under reinsurance contracts or agreements than is currently received by the mortuary or claim fund on the policies of members reinsured, This limitation has been discussed in Opinion WW-139, which held that if only 50% of the policies of its members are reinsured then the company could not pay more out of the mortuary fund for such refnsurance than such fund was currently receiving from the premfums from such 50% of such poli- cies, for the reason that each policyholder or member has a cer- tain interest in the mortuary or claim fund and is protected by it. Under the situation contained in your request ft is apparent that each member would receive equal proteotfon under the reinsurance contract, although such protection would not be a full or 100% protection, but the entire mortuary fund would be pafd out to the reinsuring company as a consideration for the partial reinsurance of the policyholders, Article lb-62 places no additional limitation as to the amount of such reinsurance contracts or agreements other than that such contracts or - . - : Mr. William A. Harrison, page 2 (WW - 289) agreements are subject to the approval of the Commissioner of Insurance. However, Article 14.23, Texas Insurance Code, provides that when and if, in the course of operation, it shall be appar- ent that the claims cannot be met in full from current assess- ments and funds on hand, the amount must be increased until they are adequate to meet such claims, and the Board shall so order. From the factual situation contained in your request, although all of the members would receive equal protection un- der the reinsurance contract, the amount for which each member was protected would be less than lOO$, or full protection on the policy, It would therefore be necessary for the Commfssfoner of Insurance to increase the assessment of the members so as to provide for 100% coverage in the mortuary fund to meet the defi- ciency between 100% and the amount of refnsurance covering each policyholder. It is our opinion that the granting or withholding of approval of the proposed reinsurance contracts is wholly within the discretion of the Commissioner of Insurance, subject only to the limitation contained in Article 14.62 construed in Opfn- ion W-139, and to the limitation contained in Article l&,23 just discussed, provided that all of the polfcyholders subject to the reinsurance contracts have equal protection with each other. SUMMARY A contract of insurance made by a mutual assess- ment company doing a life, health and accident busi- ness under the provisfons of Chap. 14, Texas Insurance Code, which provides for the payment of the entire mortuary fund as a consideration for only partial re- insurance of the policies of all fts members does not violate the provisions of Arts, 14,62 and 14,2x, Texas Insurance Code, as a matter of law, and the approval or disapproval thereof by the Commfssioner of Insurance is a matter resting solely in his discretion, Yours very truly, WILL WILSON CKR:wb Assistant Mr. William A. Harrison, page 3 MJ-289) APPROVED: OPINION COMMITTEE Geo. P. Blackburn, Chairman Wallace P. Finfrock L, P. Lollar J. Arthur Sandlln Richard B. Stone