| (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 financial or health information of the purchaser
and contract beneficiary under each converted prepaid contract and
the owner and insured under each annuity issued in the proposed conversion
in compliance with applicable law.
(7) Commitment of insurance company. If the post-conversion
permit holder is not the insurance company and is unable to independently
demonstrate that it has the organizational and financial resources
to discharge its permit holder responsibilities, or otherwise intends
to rely on the insurance company to provide such resources, the insurance
company or its insurance holding company must commit to the department
in writing to take all necessary steps to maintain the existence of
the current or a successor post-conversion permit holder, cause such
permit holder to maintain a permit, and provide adequate resources
to such post-conversion permit holder to enable it to maintain the
financial condition and general fitness necessary to discharge the
post-conversion permit holder's responsibilities under Finance Code,
Chapter 154, and this chapter.
(8) Commitment of applicant. The applicant must commit
to the department in writing to obtain and maintain a permit under
Chapter 154 and assume the post-conversion permit holder's responsibilities
with respect to each converted contract for any year in which any
converted contract remains outstanding. The commitment must obligate
the applicant to submit its completed application with all required
fees not later than the 31st day after the date the department notifies
the applicant in writing of the facts that require licensure under
the commitment.
(9) Form of annuity. The applicant must submit a copy
of the form(s) of annuity proposed to be issued as part of the conversion.
The submitted form(s) must be accompanied by a copy of the TDI notice
of action approval letter. The applicant and not TDI is responsible
for ensuring that the form of annuity complies with this section.
Among other matters, the annuity must:
(A) provide guaranteed growth of the death benefit
based on a fixed annual interest rate, compounded annually on gross
premiums paid beginning in the first year of the policy, that is at
least equal to a rate determined as the lesser of:
(i) 3.0%; and
(ii) the average of the five-year Constant Maturity
Treasury Rate reported by the Federal Reserve Board of Governors for
the 90 calendar day period ending not more than 30 days prior to the
date of the commissioner's order of approval, rounded to the nearest
1/20th of one percent, less 125 basis points, but not less than 1.0%;
(B) provide a formula for determining cash surrender
value or cancellation benefit that 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;
(C) provide a death benefit for the duration of the
prepaid contract that equals the sum of the aggregate trust funds
transferred at conversion, all future premiums paid, and accumulated
growth thereon as provided by subparagraph (A) of this paragraph,
provided that the death benefit can never be less than the amount
that would have been available under the prepaid contract on the date
of conversion had the prepaid contract not been converted from trust-funded
to insurance-funded; and
(D) not include any provision that allows for contesting
coverage or limiting death benefits, refers to or requires a physical
examination, or otherwise operates as an exclusion, limitation, or
condition on payment of death benefits other than provisions requiring
submission of proof of death or surrender of the annuity at the time
the annuity matures or is canceled.
(10) Federal income tax treatment. The applicant must
submit a written summary describing the pre-conversion, federal income
tax status of the purchasers' trusts, in the aggregate, as either
qualified funeral trusts under 16 U.S.C. §685 or grantor trusts,
for the preceding taxable year. Disclosure of differing treatment
of individual purchaser trusts is not required if the summary identifies
and quantifies the percentage of purchaser trusts treated as grantor
trusts and qualified funeral trusts. The applicant must also describe
the post-conversion manner in which taxable income arising from the
annuities will be reported for federal income tax purposes, including
taxable income arising from payment of cash surrender value.
Cont'd... |
