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Financial Statements


**ATTENTION: BEGINNING WITH THE 2016 - 2017 RENEWAL YEAR, CERTIFICATE HOLDERS WILL NOT BE REQUIRED TO SUBMIT THEIR FINANICIAL STATEMENTS TO THE DEPARTMENT, UNLESS SPECIFICALLY REQUESTED TO DO SO. INSTEAD, KEY FINANCIAL FIGURES FROM THE CERTIFICATE HOLDERS’ MOST RECENT YEAR-END FINANCIAL STATEMENTS WILL BE ENTERED INTO ALDOI - PRENEED ONLINE AND SUBMITTED DURING THE ONLINE RENEWAL PROCESS. SEE RENEWAL FOR FURTHER DETAILS**

All entities applying for a Certificate of Authority must file financial statements with the Department. Information in the financial statements must be accurate and contain all relevant notes and disclosures appropriate to the accounting basis used. The financial statements must be signed by the Certificate Holder or Applicant and if prepared by a certified public accountant or public accountant, by the accountant. The financial statements shall be one of the following:

  1. Financial statements accompanied by a compilation, review or audit report from a licensed certified public accountant prepared in conformity with GAAP. The financial statements prepared in conformity with GAAP that are consolidated must include supplementary consolidating schedules to provide supporting detail for each consolidated financial statements presented.
    OR
  2. Financial statements in the form furnished by the Department. The financial statements 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:
    1. 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.
    2. 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.
    3. 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.

Financial Statements - The Department Form

Required Equity

The financial statements submitted by the Certificate Holder or Applicant for a Certificate of Authority must demonstrate that the entity’s ability to discharge its liabilities as they become due in the normal course of business, and that it has sufficient funds available to perform its obligations under any existing preneed contracts.

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:

  1. An Applicant or Certificate Holder with total preneed deferred revenue of $100,000 or less must have a minimum of $10,000 equity.
  2. 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.
  3. An Applicant or Certificate Holder with total preneed deferred revenue in excess of $1,000,000 must have a minimum of $100,000 equity.

If, based on the accounting method used in its financial statement, the Applicant or Certificate Holder does not meet the minimum equity requirements, then the Applicant or Certificate Holder may voluntarily submit to the Commissioner additional evidence or enter into written agreements intended to demonstrate its ability to meet the requirements of ALA. CODE § 27-17A-11, and as a condition for receiving and/or retaining a Certificate of Authority. 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 ALA. CODE § 27-17A-11, in which even 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.

Such additional evidence or agreements may include any or all of the following as deemed appropriate by the Commissioner:

  1. Submission of monthly or quarterly financial statements.
  2. Appraisal of the Applicant’s or Certificate Holder’s property and/or a broker's opinion of the value of the Applicant’s or Certificate Holder’s assets.
  3. A credit report on the Certificate Holder or Applicant or its principal owners (in the case of an entity).
  4. An agreement to subordinate debt, on a form approved by the Department, as to debts identified by the Department.
    Sample Subordination of Debt Agreement
  5. An indemnification/subrogation agreement binding the Certificate Holder or Applicant and its principal owners (in the case of an entity).
  6. Written explanation of past financial activity.
  7. Submission of a twelve month projected business plan which shall include all of the following:
    1. Statement of cash flows.
    2. Pro forma income statement with sources of revenue identified.
    3. Marketing initiatives.
  8. The Applicant’s or Certificate Holder’s agreement to make deposits to a merchandise and services trust and/or cemetery endowment care trust in amounts and at times which exceed the requirements of the Act, or Applicant’s or Certificate Holder’s agreement to use life insurance or annuities as their exclusive funding mechanism for preneed contracts.
  9. Posting of a Surety Bond or Letter of Credit acceptable to the Commissioner in addition to any Surety Bond or Letter of Credit provided to comply with the Act's security requirements.
  10. Such other conditions or agreements as the Commissioner may determine are warranted under the particular circumstances.

The above samples are for informational purposes only and do not replace the advice of an attorney. The Department of Insurance cannot provide legal advice nor make any representation that the sample documents are correct, complete or up-to-date. The Department of Insurance is not responsible for any loss, injury, claim, liability, or damage related to your use of these sample documents.