Ala. Admin. Code r. 395-X-9-.08

Current through Register Vol. 43, No. 1, October 31, 2024

Section 395-X-9-.08 - 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 Board 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 Board and published on the Board'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 Board reflects a basis of accounting adopted by the Board 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 Board 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 or greater must have equity in an amount not less than ten percent (10%) of the total preneed deferred revenue.

(7) On either a financial statement prepared using GAAP or the alternative form, the Board will disregard any figure included for "good will" as an intangible asset in determining whether the statutory requirements or equity requirements in Rule 395-X-9-. 08(6) above are met. The Board may assess other forms of intangible assets against the statutory requirements and equity requirements in Rule 395-X-9-.08(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 Board 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, § 34-13-191, and as a condition for receiving and/or retaining a certificate of authority.

(b) The Board, in his discretion, may issue or renew a certificate of authority if the Board determines based on such additional information or agreement(s) that the applicant or certificate holder meets the requirements of Code of Ala. 1975, § 34-13-191, 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) The Board may exempt a certificate holder from filing financial statements and from the equity requirements in 395-X-9-. 08(6) at renewal, provided that the following conditions are met:

(a) The certificate holder demonstrates that 100% of the net amount of each of the certificate holder's preneed contract(s) are funded by trust or life insurance.

(b) At minimum, the certificate holder must submit the following documentation to the Board on or before July 1st of each year for the Board's approval:

1. A written request for an exemption from filing financial statements at renewal.

2. An annual financial summary which must include the certificate holder's:

(i) Total Assets

(ii) Total Liabilities

(iii) Equity

(iv) Total net amount of Preneed Contracts

(v) Total amount of Preneed Contract Funds collected.

(vi) Total funded amount of Preneed Contract Funds.

3. A sworn written statement affirming the accuracy of the submitted information.

(c) If payments are being made by the purchaser to the seller, the seller must submit 100% of the payment collected to the trust or insurance company within the required timeframe established by law to be eligible for exemption of financial statements and equity requirements.

(d) An exemption will not be granted if the certificate holder has any preneed contracts, that fall under the jurisdiction of the board, that are not 100% funded by trust or insurance.

(e) For the purpose of this chapter, assets, liabilities and equity shall be defined according to GAAP, except as modified in 395-X-9-.08(5).

Ala. Admin. Code r. 395-X-9-.08

Adopted by Alabama Administrative Monthly Volume XLII, Issue No. 06, March 29, 2024, eff. 5/13/2024.

Author: Charles M. Perine

Statutory Authority:Code of Ala. 1975, §§ 34-13-26, 34-13-27, 34-13-170 to -277.