October 29, 1957 

Mr. William A. Harrison Opinion NO. ~~-289 

Commissioner of Insurance 

State Board of Insurance Re: 

Austin 14, Texas 

Whether, fn the light of 

Article 14,62 of the Code 

and Opinion No. W-139, a 

mutual assessment company 

may spend one hundred percent of its mortuary fund 

for a reinsurance contract 

with another company which 

provides something less 

than one hundred percent 

refnsurance on all policyDear 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 something less than 100% reinsurance on all policyholders or members 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 policies, for the reason that each policyholder or member has a certain 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 apparent that the claims cannot be met in full from current assessments 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 under 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 deficiency 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 Opfnion 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 assessment company doing a life, health and accident business 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 reinsurance 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