Ala. Admin. Code r. 482-3-003-.10

Current through Register Vol. 42, No. 10, July 31, 2024

Section 482-3-003-.10 - Certificate Of Authority - Financial Requirements

(1) An applicant for a preneed certificate of authority must meet, and a certificate holder must maintain, the financial requirements set forth in this Rule demonstrating its ability to discharge its liabilities as they become due in the normal course of business, and must have sufficient funds available to perform its obligations under its existing preneed contracts.

(2) Unless exempted under paragraph (8), a preneed seller must file with the Department a financial statement in order to apply for a certificate of authority or renew an existing certificate of authority. The financial statement shall, at the preneed seller's option, be

(a) a financial statement accompanied by a compilation, review or audit report from a licensed certified public accountant prepared in conformity with GAAP, or

(b) a financial statement in the form furnished by the Department and published on the Department's website using the alternate basis of accounting described in paragraph (5).

(3) The financial statement must be for the preneed seller holding a certificate of authority or the applicant seeking a certificate of authority. Information in the financial statement must be accurate and contain all relevant notes and disclosures appropriate to the accounting basis used. The financial statement must be signed by the certificate holder or applicant and, if prepared by a certified public accountant or public accountant, by the accountant.

(4) Financial statements prepared in conformity with GAAP that are consolidated must include supplementary consolidating schedules to provide supporting detail for each consolidated financial statement presented.

(5) The financial statement form developed by the Department reflects a basis of accounting adopted by the Department as an alternative to GAAP reporting. This alternative basis differs from the measurements and disclosures required by GAAP in the following respects:

(a) GAAP requires consolidation of certain equity investments and of variable interest entities under FIN 46(R), entitled Consolidation of Variable Interest Entities. The Department requires that only the primary reporting entity's accounts and activities be reported. Investment in trusts are to be marked-to-market as of the financial statement date. Closely-held investments should be recorded using the equity method.

(b) Deferred revenue for preneed contracts incurred prior to May 1, 2002 (the Act's effective date), is to be equal to the current cost of providing the preneed services and merchandise.

(c) A noncurrent receivable is to be recorded for the face amount of life insurance policies used to fund preneed contracts, with the offset being a credit to deferred revenue.

(6) The financial statement of an applicant or certificate holder (in the case of annual renewals) must demonstrate the following levels of equity determined on the basis of the accounting method used in the financial statement:

(a) An applicant or certificate holder with total preneed deferred revenue of $100,000 or less must have a minimum of $10,000 equity.

(b) An applicant or certificate holder with total preneed deferred revenue of $100,001 to $1,000,000 must have equity in an amount not less than ten percent (10%) of the total preneed deferred revenue.

(c) An applicant or certificate holder with total preneed deferred revenue in excess of $1,000,000 must have a minimum of $100,000 equity.

(7) On either a financial statement prepared using GAAP or the alternative form, the Department and the Commissioner will disregard any figure included for "good will" as an intangible asset in determining whether the statutory requirements or equity requirements in rule 482-3-003-.10(6) above are met. The Department and the Commissioner may assess other forms of intangible assets against the statutory requirements and equity requirements in rule 482-3-003-.10(6).

(8)

(a) If, based on the accounting method used in its financial statement, the certificate holder or applicant does not meet the requirements of paragraph (6), the certificate holder or applicant may voluntarily submit to the Commissioner additional evidence or enter into written agreements intended to demonstrate the certificate holder's or applicant's ability to meet the requirements of Code OF Ala. 1975, § 27-17A-ll (2014), and as a condition for receiving and/or retaining a certificate of authority.

(b) The Commissioner, in his discretion, may issue or renew a certificate of authority if the Commissioner determines based on such additional information or agreement(s) that the applicant or certificate holder meets the requirements of Code OF Ala. 1975, § 27-17A-ll (2014), in which event the certificate may be expressly conditioned on satisfactory continued compliance with any and all terms or conditions set forth in any agreement(s) entered into by the person or entity receiving the certificate.

(9) Upon receipt of a written request on a form or in a format prescribed by the Commissioner, which must be received by the Department on or before April 1 of each year, the Commissioner may exempt a certificate holder from filing financial statements at renewal.

Ala. Admin. Code r. 482-3-003-.10

Adopted by Alabama Administrative Monthly Volume XXXIII, Issue No. 02, November 26, 2014, eff. 1/1/2015.

Amended by Alabama Administrative Monthly Volume XXXVIII, Issue No. 04, January 31, 2020, eff. 3/16/2020.

Author: Commissioner of Insurance

Statutory Authority:Code of Ala. 1975, §§ 27-2-17, 2 7-17A-1 to -57 (2014).