No. V-0863 (1949).

• Case Date: July 27, 1949
• Court: Texas

Texas Attorney General Opinions 1949. No. V-0863 (1949). 1July 27, 1949Hon. George B. Butler, ChairmanBoard of Insurance CommissionersLand Office BuildingAustin, TexasOpinion No. V-863Re: Authority of a stock fire and casualty insurance company and a county mutual insurance company to enter into a mutual reinsurance agreement, and related questions.Dear Mr. Butler:By letter of April 18, 1949, you request an opinion concerning the legality of a proposed reinsurance agreement between Alamo Casualty Company, a capital stock company incorporated under the provisions of Chapters 2, 11, and 18 of Title 78, Vernon's Civil Statutes, and Bexar County Mutual Insurance Company, a county mutual insurance company incorporated and licensed under the provisions of Article 4860a-20, as amended, Vernon's Civil Statutes. Your letter raises these specific questions:

1. Is each company authorized to enter into the agreement?

2. If so, what "character of risks" of the stock company may the mutual company assume to reinsure under the agreement?

3. Will the agreement, if authorized, relieve the stock company of the reinsurance or unearned premium reserve requirement imposed by Sections 7, 8, and 9 of Article 4682, Vernon's Civil Statutes, as to the business so reinsured?

4. If so, will the assumption by the mutual company to reinsure the risks of the stock company impose a statutory obligation on the former to maintain such a reserve on the business so reinsured by it?

25. If authorized, will the assumption by the mutual company to reinsure risks of the stock company impose on the latter a statutory obligation to maintain a reserve in the amount of $1.00 per hundred of the total exposure reinsured by the mutual company as a contingent liability of the stock company as a policy-holder of the mutual company by virtue of or in lieu of the assessment liability of policy-holders of the mutual under the terms of article 4860a-20, Vernon's Civil Statutes?

The conditional nature of the various questions is apparent, and their pertinence is indicated by the terms of the agreement and the various applicable statutes. The agreement is essentially a predetermined plan designed to establish mutual obligations of the companies to each other as to individual risks or portions thereof selected by each as original or direct insurer and shifted or "ceded" to the other as reinsurer, as evidence by a list, called a "bordereau," prepared monthly and passed by the direct writing insurer to the other as reinsurer. Each company obligates itself to accept such risks as are imposed upon it by the other in consideration of the mutual obligations undertaken and in consideration of the relinquishment or "cession" of the premium charged by the direct writing company for that portion of each risk "ceded," minus a stipulated "commission." The contract is subject to cancellation upon stipulated notice by either party. All statutory references will be to Vernon's Civil Statutes unless otherwise indicated. We will initially consider your first question from the standpoint of the stock company. An exhibit from its last annual statement indicates that it writes the kinds of insurance classified as "fire and Marine" under Article 4919, as well as a number of casualty lines, including auto and other liability and workmen's compensation insurance. Article 4919, dealing with companies writing so-called fire and marine lines, expressly authorizes such a company "to cause itself to be so insured against any loss or risk it may have incurred in the course of its business... ." To the same effect is...