Each contract of reinsurance entered into by companies or associations operating under the Insurance Code, Chapter 14, with legal reserve companies under the provisions of the Insurance Code, Article 14.62, shall become effective only after such contract has been approved by the commissioner of insurance. The commissioner of insurance shall not approve any such contract of reinsurance unless it be shown at a public hearing that the following conditions exist:
  (1) that the legal reserve company is authorized to write life, health, and accident insurance in Texas and that such company has capital or surplus of at least $100,000;
  (2) that such contract will be to the benefit of the members of the company operating under the provisions of the Insurance Code, Chapter 14;
  (3) that upon cancellation of such contract the cancellation thereof shall not apply to risks theretofore assumed by the reinsurer for which premiums have been paid or become due;
  (4) that reinsurance premiums may be paid from the mortuary fund or expense fund, or both; however, any premium paid from the mortuary fund shall not exceed the amount of premium currently received in the mortuary fund from the policies being reinsured but calculated separately upon each individual policy, and, additionally, the amount of such premium so paid from the mortuary fund shall not exceed the percentage of the total mortuary fund premium so individually calculated as the percentage of the risk reinsured applies to the total of the risk insured by the mutual assessment company. For example, if the mortuary fund portion of the annual premium of $10 for a $1,000 mutual assessment policy and one-half of the risk ($500) is reinsured, only $5.00 annually may be paid from the mortuary fund for the reinsurance;
  (5) that the ceding company or association will set up and maintain current and adequate records which will reflect the true status of all policies or risks reinsured;
  (6) that no officer, director, agent, or employee of the ceding company shall receive any commission or remuneration in any manner for procuring a reinsurance agreement between the ceding company and a reinsurer, except that dividends or profit sharing agreements may be effected whereby the mortuary or claim fund shall be the recipient; and
  (7) that no credit shall be allowed to any ceding insurer for reinsurance made, ceded or renewed, as an admitted asset or as a reduction of liability, unless by the terms of the written reinsurance agreement the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding insurer under any policy or contract reinsured without diminution because of the insolvency of the ceding insurer, nor unless under the contract or contracts of reinsurance the liability of such reinsurance is assumed by the assuming insurer or insurers as of the same effective date.

Source Note: The provisions of this §13.18 adopted to be effective January 1, 1976; amended to be effective April 11, 1983, 8 TexReg 1025.