| (a) Definitions. Definitions of words and terms in
Finance Code, §154.002, are incorporated in this section by reference.
The following words and terms have the following meanings when used
in this section, unless the context clearly indicates otherwise.
(1) Aggregate trust funds--The trust funds to be transferred
with respect to an individual prepaid contract as of the transfer
date, comprised of the paid-in principal plus the earnings attributable
to that prepaid contract. As the context may require, the term also
refers to the sum of the aggregate trust funds for all prepaid contracts
subject to conversion.
(2) Applicant--A permit holder under Finance Code,
Chapter 154, who files an application under this section.
(3) Contract beneficiary--The person named in a prepaid
contract as the intended recipient of contracted funeral merchandise
and services.
(4) Conversion--A transaction under Finance Code, §154.204,
and this section, to convert all outstanding trust-funded prepaid
funeral benefits under existing prepaid contracts administered by
the applicant to insurance-funded prepaid funeral benefits to be administered
by the post-conversion permit holder after conversion.
(5) Insurance company--The insurance company designated
in an application filed under this section to issue the annuities
required for the conversion. The insurance company may also be the
post-conversion permit holder if permitted under applicable insurance
law and regulations.
(6) Paid-in principal--The amount required to be deposited
in trust by the applicant with respect to an individual prepaid contract
pursuant to Finance Code, §154.253. As the context requires,
the term may also refer to the total amount deposited in trust by
the applicant for all prepaid contracts.
(7) Post-conversion permit holder--The permit holder
designated in an application filed under this section to hold and
administer the prepaid contracts after conversion. The post-conversion
permit holder may also be the insurance company if permitted under
applicable insurance law and regulations.
(8) Prepaid contract--A contract for prepaid funeral
benefits under Finance Code, Chapter 154.
(9) Purchaser--An individual who purchased a trust-funded
prepaid contract that is the subject of an application filed under
this section. The purchaser may also be the contract beneficiary.
If permitted by the context, the term includes the purchaser's authorized
agent.
(10) TDI--Texas Department of Insurance.
(11) Unpaid principal balance--The unpaid portion of
the purchase price of a prepaid contract.
(b) Standards for approval and eligibility. The department
will not approve a proposed conversion unless the following general
requirements have been met.
(1) Standards for approval. The proposed insurance-funded
benefits arrangement must safeguard the rights and interests of the
purchasers to substantially the same degree as the trust-funded benefits
arrangement sought to be replaced, as provided by Finance Code, §154.204,
and this section. An application may be approved or denied without
the necessity of a hearing, subject to the right of the applicant
or the post-conversion permit holder to request a hearing. Without
limiting its ability to consider any matter relevant to the determination
of substantial equivalency, the department will not approve a proposed
conversion unless:
(A) the form(s) of insurance policy proposed for use
in the conversion is a single or flexible premium deferred fixed (not
variable) annuity that is structured to protect and preserve the existing
rights and interests of the purchaser, including the amount of funds
the purchaser would be entitled to receive upon cancellation of the
prepaid contract and the amount of funds payable upon maturity of
the prepaid contract;
(B) the post-conversion permit holder directly or indirectly
controls, is controlled by, or is under common control with the insurance
company;
(C) neither the applicant nor the post-conversion permit
holder have a record of noncompliance with respect to the requirements
of Finance Code, Chapter 154, and this chapter, as evidenced by paragraph
(2) of this subsection;
(D) the post-conversion permit holder accepts responsibility
for verifying that the prepaid contracts proposed for conversion are
performed in accordance with their terms, and undertakes to maintain
the records the department requires to determine compliance with Finance
Code, Chapter 154, and this chapter; and
(E) the post-conversion permit holder demonstrates
the organizational and financial capability to discharge its accepted
responsibilities.
(2) Eligibility. At the time the application is filed,
processed and approved, the applicant and the post-conversion permit
holder must each be in good standing with the department. To be in
good standing with the department, the department's most recent report
of examination of either permit holder must not cite any violation
of applicable laws and regulations or other material deficiencies
that have not been remedied or corrected to the satisfaction of the
department, and the permit holder must not be delinquent with respect
to any fees or filings due to the department. Within 45 days after
an application for conversion is filed with the department, the department
may conduct an examination of the applicant or the post-conversion
permit holder or both before approving or denying the application
if an examination has not been conducted within the preceding 12 months
or for the purpose of verifying that previously cited violations or
other deficiencies have been satisfactorily eliminated or corrected.
(c) Contents of application. An application for conversion
must respond to each paragraph of this subsection by number. Overlapping
or duplicate responses may be cross-referenced for brevity.
(1) Letter requesting conversion. The applicant shall
submit a letter to the commissioner, signed by a duly authorized officer,
that:
(A) requests approval of the conversion of the applicant's
prepaid contracts;
(B) requests authorization to transfer the applicant's
responsibility for the prepaid contracts to the post-conversion permit
holder;
(C) summarizes the amount of aggregate trust funds
by depository and account number and the component amounts of paid-in
principal and earnings, and requests authorization to transfer the
aggregate trust funds from the currently approved depository or trustee
to the insurance company;
(D) represents that the applicant is in compliance
with Finance Code, §154.301, regarding prepaid contracts presumed
to be abandoned, and has filed the reports and delivered funds as
required by Finance Code, §154.304; and
(E) if the applicant is not an individual, includes
a certified resolution of the applicant's board authorizing the conversion,
the application, and the execution of related documents by the submitting
officer.
(2) Agreement regarding conversion. The applicant must
submit an original, signed copy of the agreement among the applicant,
the post-conversion permit holder, and the insurance company regarding
the transfer, receipt, and application of trust funds upon conversion
that, among other matters, contains the following provisions:
(A) agreement of the parties that all prepaid contracts
of the applicant in existence as of the date of the application will
be subject to conversion, excluding prepaid contracts that are presumed
abandoned under Finance Code, §154.301;
(B) agreement of the insurance company that:
(i) the formula for determining the cash surrender
value or cancellation benefit of each annuity to be issued in the
conversion will be at least as generous to the purchaser as the formula
that would have applied under Finance Code, §154.155, had the
prepaid contract not been converted from trust-funded to insurance-funded;
(ii) the face amount of the annuity to be issued with
respect to each prepaid contract will not be less than the amount
of aggregate trust funds transferred for that prepaid contract;
(iii) for any prepaid contract which is not fully paid
and the balance due not included in the annuity described in clause
(ii) of this subparagraph, the face amount of the supplemental annuity
to be issued may not be less than the unpaid principal balance, and
no credit or reduction will be applied to the unpaid principal balance
for earnings attributable to paid-in principal under the prepaid contract;
(iv) upon request, a copy of the specifications page
of the funding annuity or annuities will be furnished to the purchaser
of the prepaid contract to be funded; and
(v) no commissions or other compensation will be paid
out of or deducted from the aggregate trust funds to be transferred
in the proposed conversion.
(C) agreement of the post-conversion permit holder
with respect to the converted prepaid contracts to:
(i) maintain all records required by §25.10 of
this title (relating to Recordkeeping Requirements for Insurance-Funded
Contracts);
(ii) verify that each death or cancellation benefit
claim under a converted prepaid contract is paid in accordance with
Finance Code, Chapter 154, and this chapter;
(iii) verify that each prepaid contract is performed
by the funeral provider at maturity in accordance with its terms;
(iv) verify that any additional charges imposed by
the funeral provider and collected from the decedent's representatives
are for additional services or merchandise not otherwise contemplated
by and funded under the prepaid contract and, if not, promptly refund
or require the funeral provider to refund any prepaid contract overcharges
to the decedent's representatives; and
(v) if within the five-year period following approval
of the conversion a purchaser presents a fully executed prepaid contract
that was not listed in the applicant's pre-conversion or post-conversion
summaries and provides proof of payments made on the contract, take
action to cause the insurance company to issue one or more annuities
with respect to the previously omitted prepaid contract as if it had
originally been included in the conversion or, if cancellation is
requested by the purchaser, pay or take action to cause the purchaser
to be paid the cancellation benefit due. The maximum potential responsibility
imposed by this clause is 5.0% of the aggregate trust funds transferred,
except that if 5.0% of the aggregate trust funds is:
(I) less than $5000, the maximum potential responsibility
imposed by this clause is $5,000;
(II) greater than $20,000, the maximum potential responsibility
imposed by this clause is $20,000.
(3) Compensation to insiders. The applicant must submit
a written disclosure of the estimated total commissions and other
compensation to be paid by the insurance company in connection with
the conversion to each insurance agent that controls, is controlled
by, or is under common control with the applicant or a funeral provider
under any of the prepaid contracts to be converted, expressed as a
percentage, dollar amount, or both, and the identity of each such
agent.
(4) Agreement of post-conversion permit holder and
applicant. The applicant must submit a written agreement between the
post-conversion permit holder and the applicant that, at a minimum,
requires the applicant to relinquish the individual prepaid contract
ledgers formerly maintained by the applicant under §25.11 of
this title (relating to Recordkeeping Requirements for Trust-Funded
Contracts) and obligates the post-conversion permit holder to maintain
such ledgers to reflect the paid-in principal and the unpaid principal
balance under each converted prepaid contract.
(5) Agreements between post-conversion permit holder
and funeral providers. The applicant must submit the written agreement
between the post-conversion permit holder and each person designated
as the funeral provider under any prepaid contract to be converted
that, at a minimum:
(A) sets forth the nature and scope of the relationship
between the permit holder and the funeral provider and the respective
rights and responsibilities of the parties with respect to the prepaid
contracts of that funeral provider, including allocation of responsibilities
for refunding any prepaid contract overcharges identified by the permit
holder or the department;
(B) requires the funeral provider to perform and deliver
the funeral benefits under each converted prepaid contract of that
funeral provider in accordance with its terms;
(C) requires the funeral provider to provide the post-conversion
permit holder with the documentation necessary to enable the permit
holder to maintain the records required by Finance Code, Chapter 154,
and §25.10 of this title; and
(D) obligates the parties to protect any nonpublic
personal financial or health information of the purchaser and contract
beneficiary under the prepaid contract in compliance with applicable
law.
(6) Agreement of post-conversion permit holder and
insurance company. If the proposed post-conversion permit holder is
not the insurance company, the applicant must submit a written agreement
between the post-conversion permit holder and the insurance company
that, at a minimum, requires the insurance company to provide the
post-conversion permit holder with the documentation necessary to
enable the permit holder to maintain the records required by §25.10
of this title. The agreement must also obligate the parties to protect
any nonpublic personal Cont'd... |
