                      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
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                                                            -     :




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
