THEATTORNEY GENERAL
OFTEXAS
AUETIN 11. TEXAB
WILL WIJA3ON
ATTORNECY GffiNEZ:HAX.
bY 22, 1957
Honorable John Osorio, Chairman Opinion No. WW-139
Board of Insurance Commissioners
International Life Building Re: Whether a mutual assessment
Austin, Texas association under Article 14.62,
Insurance Code of Texas, may
reinsure a certain percentage
or portion of its policies or
members, and pay for such re-
insurance with more than a pro
rata share of its morturary
Dear Sir: fund.
You have requested our opinion a8 to whether a mutual assessment
association may reinsure a certain percentage or portion of its business
with another company under the provisions of Article 14.62 of the Insur-
ance Code of Texas, and pay for such reinsurance with more than a pro
rata share of the mortuary fund held by the association under Article
14.25 of the Insurance Code.
You cite as an example whether a company may reinsure 56 of
its policyholders and pay for such reinsurance with 100% of the mortuary
or claim fund.
Article 14.62 is as follows:
"Companies and associations operating under the provi-
sions of this Act may enter into reinsurance contracts or
agreements with legal reserve companies authorized to write
life, health, and accident insurance in this State with capi-
tal or surplus of at least One Hundred Thousand Dollars
($lOO,OOO), and pay the premiums for such reinsurance out
of the mortuary or claim funds. Provided, that such rein-
surance contracts or agreements shall be subject to the ap-
proval of the Board of Insurance Commiesioners of Texas,
and that no company or association shall pay more out of
its mortuary or claim fund for such reinsurance than is
currently received by the mortuary or claim fund on the
policies or members reinsured. . . ."
You will note that the statute provides that the premiuma for
reinsurance shall be uaid out of the mortuarv or claim funds. but that
"no company or association shall pay more out of the mortuary or claim
fund for such reinsurance than is currently received by the mortuary
Honorable John Osorio, page 2 (UW-139)
or claim fund on the policies or membera reinsured." The mortuary or
claim fund is required by Article 14.25 to be set aside and held by the
company for the purpose of paying clalme of policyholders or members
of the association. The mortuary fund is for the protection of all the
policyholders and members. Each policyholder or member has a certain
interest in the mortuary or claim fund and is protected by it. If an
association be allowed to reinsure half of its policyholders and use
all the mortuary fund to pay for this reinsurance, then one-half of
its policyholders would have lost their interest in or protection by
the mortuary fund to the benefit of the reinsured group.
The quoted language above ia unambiguous and is clear. The
statute says that no association shall pay more out of its mortuary fund
for reinsurance than the mortuary fund is currently receiving on the
policies or members being reinsured. This means if the association re-
insures fifty percent of its policies or members, then it cannot pay
more out of the mortuary fund for such reinsurance than the mortuary
fund is currently receiving from the premiums on such fifty percent of
its policies or members. Therefore, your question is answered in the
negative, and we hold that a mutual assessment company cannot reinsure
a certain portion or percentage of its policies or members under the
provisions of Article 14.62 and pay for such reinsurance with more than
the amount of the premiums currently being received by the mortuary fund
on such policies or members being reinsured.
SJMMARY
No mutual assessment company shall pay more
out of its mortuary fund for reinsurance
than the mortuary fund is currently receiv-
ing on the policies or members being rein-
sured.
WDD:lm Very truly yours,
APPROVED:
OPINION COMMITTEE WILL WILSON
H. Grady Chandler, Chairman Attorney General
Lenny Zwiener
Wallace Finfrock
Houghton Brownlee, Jr.
Will D. Davis
REVIEWED FOR TRE ATTORNEY GENERAL Assistant
BY: Gee. P. Blackburn