REINSURANCE AGREEMENT
between
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Phoenix, Arizona,
and
ANLIC INSURANCE COMPANY (HAWAII), LTD.
Honolulu, Hawaii
Dated as of August 1, 1999
TABLE OF CONTENTS
Page
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ARTICLE I
Definitions and Interpretation
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. Other Definitional Provisions . . . . . . . . . . . . . . . 11
ARTICLE II
General Provision
Section 2.1. Risks Reinsured . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.2. Coverages and Exclusions. . . . . . . . . . . . . . . . . . 11
Section 2.3. Plan of Reinsurance; Modified Coinsurance . . . . . . . . . 11
Section 2.4. Plan of Reinsurance; Yearly Renewable Term. . . . . . . . . 12
Section 2.5. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.6. Extra-Contractual Liability . . . . . . . . . . . . . . . . 12
Section 2.7. Annuity Administration. . . . . . . . . . . . . . . . . . . 12
Section 2.8. Inspection. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.10. Proxy Tax Reimbursement . . . . . . . . . . . . . . . . . . 12
Section 2.11. Election to Determine Specified Policy Acquisition Expenses 13
Section 2.12. Condition . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.13. Misunderstandings and Oversights. . . . . . . . . . . . . . 13
Section 2.14. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.15. Reinstatements. . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.16. Currency. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.17. Maintenance of CG YRT Retrocession Agreement; Successor YRT
Retrocession Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III
Payments by Anchor
Section 3.1. Initial Consideration . . . . . . . . . . . . . . . . . . . 15
Section 3.2. Modco Reinsurance Premiums; Recapture Fee; YRT Reinsurance
Premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.3. Payment of Charges and Fixed Account Investment Spread. . . 15
Section 3.4. Net Separate Account Transfer CARVM Reserve Adjustment. . . 15
ARTICLE IV
Payments by ANLIC (Hawaii): Commissions and Expenses
Section 4.1. Ceding Commission . . . . . . . . . . . . . . . . . . . . . 16
Section 4.2. Premium Tax . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.3. Allowance for Commissions . . . . . . . . . . . . . . . . . 16
Section 4.4. Allowance for Expenses. . . . . . . . . . . . . . . . . . . 16
Section 4.5. Anchor YRT Expense Recovery . . . . . . . . . . . . . . . . 17
Section 4.6. Anchor YRT Reinsurance Premium Refund . . . . . . . . . . . 17
Section 4.7. Net Fixed Account Transfer CARVM Reserve Adjustment . . . . 17
Section 4.8. Negative Fixed Account Investment Spread. . . . . . . . . . 17
TABLE OF CONTENTS (Continued)
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ARTICLE V
Payments by ANLIC (Hawaii): Benefit Payments
Section 5.1. Death Benefit Claim . . . . . . . . . . . . . . 17
Section 5.2. Total Surrender . . . . . . . . . . . . . . . . 17
Section 5.3. Partial Withdrawal. . . . . . . . . . . . . . . 18
Section 5.4. Payout Annuity Payment; Annuity Benefit Payment 18
Section 5.5. Claims Settlements. . . . . . . . . . . . . . . 18
Section 5.6. Contested Death Benefit Claims. . . . . . . . . 18
ARTICLE VI
Reserve Adjustments
Section 6.1. Initial Reserve Adjustment. . . . . . . . . . . 19
Section 6.2. Modified Coinsurance Reserve Adjustment . . . . 19
ARTICLE VII
[Reserved]
ARTICLE VIII
Accounting and Settlements
Section 8.1. Monthly Accounting Periods. . . . . . . . . . . 20
Section 8.2. Reinsurance Servicer Reports. . . . . . . . . . 20
Section 8.3. Initial Settlement. . . . . . . . . . . . . . . 20
Section 8.4. Monthly Settlements . . . . . . . . . . . . . . 20
Section 8.5. Amounts Due . . . . . . . . . . . . . . . . . . 21
Section 8.6. Annual Accounting Reports . . . . . . . . . . . 21
Section 8.7. Estimations . . . . . . . . . . . . . . . . . . 21
Section 8.8. Delayed Payments. . . . . . . . . . . . . . . . 21
Section 8.9. Form of Payment; Offset . . . . . . . . . . . . 21
ARTICLE IX
Duration and Recapture
Section 9.1. ANLIC (Hawaii)'s Liability. . . . . . . . . . . 22
Section 9.2. Termination . . . . . . . . . . . . . . . . . . 22
Section 9.3. Recapture . . . . . . . . . . . . . . . . . . . 23
Section 9.4. Recapture Payment . . . . . . . . . . . . . . . 23
Section 9.5. Reduction of Reinsurance Percentage . . . . . . 23
Section 9.6. No Deemed Recapture . . . . . . . . . . . . . . 23
TABLE OF CONTENTS (Continued)
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ARTICLE X
Terminal Accounting and Settlement
Section 10.1. Terminal Accounting. . . . . . . . . . . . . . . . 23
Section 10.2. Date . . . . . . . . . . . . . . . . . . . . . . . 23
Section 10.3. Settlement . . . . . . . . . . . . . . . . . . . . 24
Section 10.4. Supplementary Accounting and Settlement. . . . . . 24
ARTICLE XI
Insolvency
Section 11.1. In General . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XII
Conditions to Effective Time
Section 12.1. Effective Time . . . . . . . . . . . . . . . . . . 25
Section 12.2. Condition Precedent to Reinsurance . . . . . . . . 25
Section 12.3. Additional Conditions Precedent to Effective Time. 26
ARTICLE XIII
Representation and Warranties
Section 13.1. Representations and Warranties of Anchor . . . . . 26
Section 13.2. Representations and Warranties of ANLIC (Hawaii) . 29
ARTICLE XIV
Covenants
Section 14.1. Anchor Internal Replacements . . . . . . . . . . . 30
Section 14.2. Anchor Current Practices . . . . . . . . . . . . . 31
Section 14.3. Anchor Other Reinsurance . . . . . . . . . . . . . 31
Section 14.4. Affirmative General Covenants of Anchor. . . . . . 31
Section 14.5. Reporting Requirements of Anchor . . . . . . . . . 33
Section 14.6. Negative Covenants of Anchor . . . . . . . . . . . 35
Section 14.7. Anchor Changes in Investment Funds, etc. . . . . . 35
Section 14.8. Negative Covenants of ANLIC (Hawaii) . . . . . . . 36
ARTICLE XV
Reserve Credit
Section 15.1. Security . . . . . . . . . . . . . . . . . . . . . 37
Section 15.2. Letters of Credit. . . . . . . . . . . . . . . . . 37
Section 15.3. Letters of Credit; Return of Excess Security . . . 37
TABLE OF CONTENTS (Continued)
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ARTICLE XVI
Events of Recapture
Section 16.1. Definition . . . . . . . . . . 37
ARTICLE XVII
Miscellaneous
Section 17.1. Parties to this Agreement. . . 38
Section 17.2. Assignment . . . . . . . . . . 38
Section 17.3. Counterparts . . . . . . . . . 38
Section 17.4. Notices. . . . . . . . . . . . 38
Section 17.5. Further Assurances . . . . . . 39
Section 17.6. No Waiver; Cumulative Remedies 39
Section 17.6 Amendment and Waiver . . . . . 39
Section 17.8. Entire Agreement . . . . . . . 39
Section 17.9. Governing Law. . . . . . . . . 40
Section 17.10.Consent to Jurisdiction. . . . 40
Section 17.11.Special Service of Process . . 40
Section 17.12 WAIVER OF JURY TRIAL . . . . . 40
Section 17.13 Headings . . . . . . . . . . . 40
SCHEDULES
2.1 Annuities
3.3-1 Contractual Charges
4.1 Form of ANLIC (Hawaii) Note
4.3 Commission Schedule
8.2 Reinsurance Servicer Report
12.2 Opinion of Counsel for Anchor
13.1-1 Forms of Annuity Agreements
13.1-2 Standing Instructions
13.1-3 Methodology for Calculating CARVM Reserve
14.4 Fixed Account Segregated Asset Requirements and Procedures
14.6-1 Collection Procedures
14.6-2 Allocation Procedures
REINSURANCE AGREEMENT, dated as of August 1, 1999 (the "Agreement"),
---------
between Anchor National Life Insurance Company, an Arizona stock life insurance
company ("Anchor"), and ANLIC Insurance Company (Hawaii), Ltd., a Hawaii stock
------
captive insurance company ("ANLIC (Hawaii)").
---------------
WHEREAS, Anchor desires to reinsure certain risks under the Annuities (such
term and other capitalized terms are defined in Section 1.1), other than the Net
Amount at Risk with respect to the Annuities, with ANLIC (Hawaii) on a modified
coinsurance basis as set forth more fully in this Agreement;
WHEREAS, Anchor desires to reinsure the Net Amount at Risk under the
Annuities with ANLIC (Hawaii) on a yearly renewable term basis as set forth more
fully in this Agreement;
WHEREAS, ANLIC (Hawaii) intends to pay a Ceding Commission to Anchor by
delivery of the ANLIC (Hawaii) Note referred to in Section 4.1;
WHEREAS, ANLIC (Hawaii) intends to retrocede all the risks reinsured under
this Agreement with respect to the Annuities pursuant to a retrocession
agreement (the "AIC Retrocession Agreement") with Anchor Insurance Company
----------------------------
(Hawaii), Ltd. ("AIC");
---
WHEREAS, AIC will further retrocede the Net Amount at Risk reinsured under
the AIC Retrocession Agreement with respect to the Annuities pursuant to a
retrocession agreement (the "ANLIC (Hawaii) YRT Retrocession Agreement") with
-----------------------------------------
ANLIC (Hawaii) on a yearly renewable term basis;
WHEREAS, ANLIC (Hawaii) intends to further retrocede the risks reinsured
under the ANLIC (Hawaii) YRT Retrocession Agreement pursuant to an agreement
with Connecticut General Life Insurance Company on a yearly renewable term basis
(the "CG YRT Retrocession Agreement") or a Successor YRT Retrocession Agreement;
-----------------------------
WHEREAS, the Servicer will perform certain services pursuant to a servicing
agreement dated as of the date hereof (the "Servicing Agreement");
--------------------
WHEREAS, ANLIC (Hawaii) will designate Citicorp North America, Inc. as its
agent for certain purposes under this Agreement pursuant to a consent and
agreement dated as of the date hereof; and
WHEREAS, the foregoing transactions will take place at the same time and in
the order in which they are described above.
1
NOW, THEREFORE, in consideration of the representations and warranties made
herein and the mutual covenants contained herein, the Parties hereto agree as
follows:
ARTICLE I
Definitions and Interpretation
------------------------------
Section 1.1. Definitions. As used herein for purposes of this Agreement
-----------
and the Schedules hereto, the following terms have the following respective
meanings:
"Accounting Period": as defined in Section 8.1.
------------------
"Adverse Claim": any lien, pledge, hypothecation, security interest or
--------------
other charge or encumbrance, any reinsurance agreement or any other type of
preferential arrangement that prefers one creditor of a Person to another.
"Affiliate": of a Person means a Person that directly or indirectly
---------
controls, is con-trolled by, or is under common control with, the first Person.
"Agreement": as defined in the recitals to this Agreement.
---------
"AIC": as defined in the recitals to this Agreement.
---
"AIC Retrocession Agreement": as defined in the recitals to this
----------------------------
Agreement.
---
"Allocation Procedures": those administration procedures specified in
----------------------
Schedule 14.6-2 in effect on the date hereof as modified from time to time in
compliance with Section 14.6(d).
"Allowances for Commissions": the payment for reimbursement of commissions
--------------------------
as set forth in Section 4.3.
"Allowance for Expenses": the payment for Annuity servicing as set forth
------------------------
in Section 4.4.
"Alternate Base Rate": for any period, a fluctuating interest rate per
---------------------
annum as shall be in effect from time to time, which rate per annum shall at all
times be equal to the higher of:
(a) the rate of interest announced publicly by Citibank in New York, New
York, from time to time as Citibank's base rate; or
(b) 1/2 of one percent above the latest three-week moving average of
secondary market morning offering rates in the United States for three-month
certificates of deposit of major United States money market banks, such
three-week moving average being determined weekly on each Monday (or, if such
day is not a Business Day, on the next succeeding Business Day) for the
three-week period ending on the previous Friday by Citibank (i) on the basis of
such rates reported by certificate of deposit dealers
2
to and published by the Federal Reserve Bank of New York or (ii) if such
publication shall be suspended or terminated, on the basis of quotations for
such rates received by Citibank from three New York certificate of deposit
dealers of recognized standing selected by Citibank, in the case of clause (i)
or (ii), adjusted to the nearest 1/4 of one percent or, if there is no nearest
1/4 of one percent, to the next higher 1/4 of one percent.
"Anchor": as defined in the introductory paragraph of this Agreement.
------
"Anchor Annual Reports": as defined in Section 13.1(e).
-----------------------
"Anchor's Knowledge": the knowledge (other than imputed or constructive
-------------------
knowledge) of any authorized officer of Anchor who has the title of vice
president or higher or an officer performing substantially the same function of
such officer.
"Anchor Payment Amounts": the sum of (i) the amounts payable pursuant to
------------------------
Section 3.2(b), (ii) Charges payable pursuant to Section 3.3(i), (iii) any Fixed
Account Investment Spread payable pursuant to Section 3.3(ii), (iv) any
Recapture Payment payable pursuant to Section 9.4, and (v) any Replacement Fee
payable pursuant to Section 14.1.
"Anchor Quarterly Reports": as defined in Section 13.1(e).
--------------------------
"Anchor Statutory Financial Statements": as defined in Section 13.1(e).
----------------------------------------
"Anchor YRT Expense Recovery": as defined in Section 2.6.
------------------------------
"Anchor YRT Reinsurance Premium Refund": as defined in Section 4.6
-----------------------------------------
"ANLIC (Hawaii)": as defined in the introductory paragraph of this
---------------
Agreement.
-
"ANLIC (Hawaii) Note": as defined in Section 4.1.
---------------------
"ANLIC (Hawaii) YRT Retrocession Agreement": as defined in the recitals to
-----------------------------------------
this Agreement.
"Annuities": the (i) individual variable annuity contracts and group
---------
variable annuity certificates identified in Schedule 2.1, as such contracts and
certificates are in effect and are reinsured hereunder from time to time,
subject to Section 2.15, and (ii) the other annuity contracts reinsured pursuant
to Section 14.1.
"Annuity Benefit Payment": as defined in Section 5.4.
-------------------------
"Annuity Benefits": amounts paid by Anchor on annuitization under an
-----------------
Annuity.
"Benefit Payments": the amounts paid by Anchor for (i) Death Benefit Claim
----------------
Payments, (ii) Total Surrender Payments, (iii) Partial Withdrawal Payments; (iv)
Payout Annuity Payments; and (v) Annuity Benefit Payments.
3
"Business Day": each day on which (i) dealings are carried on in the
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London interbank market, and (ii) all of the following are open for business at
their principal offices in the cities designated: (x) Anchor in Los Angeles;
(y) the Custodian in North Quincy, Massachusetts, and (z) the New York Stock
Exchange trading floor in New York City.
"CARVM Reserve": the statutory Commissioners Annuity Reserve Valuation
--------------
Method reserve required to be held by Anchor with respect to the Annuities under
the laws of the State of Arizona.
"Ceding Commission": as defined in Section 4.1.
------------------
"CG YRT Retrocession Agreement": as defined in the recitals to this
--------------------------------
Agreement.
"Change": as defined in Section 14.7.
------
"Charges": the charges and deductions relating to the Annuities identified
-------
in Schedule 3.3-1 in the column labeled "Charges."
"Citibank": Citibank, N.A., a national banking association.
--------
"Code": the Internal Revenue Code of 1986, as amended.
----
"Collection Procedures": those administration procedures specified in
----------------------
Schedule 14.6-1 in effect on the date hereof as modified from time to time in
compliance with Section 14.6(c).
"Collections": with respect to any Charge, all cash collections and other
-----------
cash proceeds of each Charge, provided that no amount earned or deemed to have
--------
been earned by Anchor on or with respect to any Charges prior to their payment
to ANLIC (Hawaii) pursuant to Section 8.4. shall be deemed to be "Collections."
"Contract Change": as defined in Section 14.7.
----------------
"Contractholder": the Person who is the owner of an Annuity.
--------------
"Contract Value": for an Annuity, the sum of the Fixed Account Value and
---------------
the Separate Account Value.
"Convention Statement": each annual and quarterly financial statement of
---------------------
Anchor as filed with the appropriate Governmental Authority of its state of
domicile, as such form may be amended from time to time pursuant to the
requirements of such Governmental Authority.
"Custodian": State Street Bank and Trust Company.
---------
"Death Benefit Claim Payment": as defined in Section 5.1.
------------------------------
"Death Benefit Claim": a claim for death benefits during the accumulation
--------------------
phase in respect of an Annuity.
4
"Death Benefit Surrender Value": the accumulation value of the Annuity
--------------------------------
reduced by the surrender charge which would be applicable to the Annuity if the
Annuity were surrendered on the same date the death benefit liability is
incurred.
"Department": the Governmental Authority responsible for the regulation of
----------
the insurance business of Anchor in its state of domicile.
"Determination Date": as defined in the definition of Fixed Account
-------------------
Coverage Percentage.
"Effective Time": as defined in Section 12.1.
---------------
"Event of Recapture": as defined in Section 16.1.
--------------------
"Excess Fixed Account Transfers": in the event that the Fixed Account
---------------------------------
Coverage Percentage changes from a zero to a positive number in an Accounting
Period, an amount, determined at the end of such Accounting Period, equal to the
product of (i) and (ii), where:
(i) is the Reinsurance Percentage.
(ii) equals the amount by which the aggregate Net Fixed Account Transfers
for all Annuities from the Determination Date to the end of such Accounting
Period is greater than zero.
"Excess Separate Account Transfers": in the event that the Fixed Account
-----------------------------------
Coverage Percentage changes from a positive number to zero in an Accounting
Period, an amount, determined at the end of such Accounting Period, equal to
(ii) minus (i), where:
-----
(i) equals the product of (x) and (y), where:
(x) equals the Fixed Account Coverage Percentage at the end of the next
preceding Accounting Period.
(y) equals the Fixed Account Values for all Annuities plus
----
(ii) equals the Net Separate Account Transfers for such Accounting Period.
"Extra-Contractual Liability": liability (i) arising from the practices of
---------------------------
Anchor, its agents or representatives, in the marketing, sale, issuance,
cancellation or administration of any Annuity, including, liability arising from
advertising claims, errors or omissions relating to annuity information
disclosure, engaging in unfair methods of competition or deceptive acts or
practices and replacement transactions, (ii) arising from the handling of claims
by Anchor, including liability arising from failure by Anchor to settle within
the limit of any Annuity, or by reason of alleged or actual negligence or bad
faith, failure to exercise good faith or tortious conduct of Anchor in rejecting
an offer of settlement or in the preparation of defense or in the trial of any
action by or against any Contractholder or Person insured by Anchor or in the
preparation or prosecution of an appeal consequent upon such action,
5
(iii) fine or other statutory penalties assessed against Anchor, its agents or
representatives arising from items (i) and (ii), and (iv) consequential,
compensatory, exemplary or punitive damages assessed against Anchor, its agents
or representatives arising from items (i) and (ii).
"Fixed Accounts": the accounts under the Annuities in which amounts are
---------------
allocated to and made part of the general account of Anchor.
"Fixed Account Coverage Percentage": an amount expressed as a percentage,
----------------------------------
equal to the greater of zero or (i) over (ii), where:
----
(i) equals (x) the product of (A) and (B), plus (y) (C), where
----
(A) is equal to the Fixed Account Coverage Percentage at the end of next
preceding Accounting Period.
(B) is equal to the Fixed Account Value for all Annuities determined at the
end of the Accounting Period, less the Net Fixed Account Transfers for all
----
Annuities for the Accounting Period.
(C) is equal to the Net Fixed Account Transfers for all Annuities for the
Accounting Period; and
(ii) equals the Fixed Account Value for all Annuities determined at the end
of the Accounting Period;
provided that from the later of (i) the Effective Time, or (ii) the end of the
- --------
next Accounting Period in which the Fixed Account Coverage Percentage changes
from a positive percentage to zero (the "Determination Date"), the Fixed Account
- - ------------------
Coverage Percentage shall remain zero until the end of the next succeeding
Accounting Period when the aggregate Net Fixed Account Transfers for all
Annuities from the Determination Date to the end of such Accounting Period is
greater than zero. The Fixed Account Coverage Percentage will be determined as
of the end of each Accounting Period, except that the Fixed Account Coverage
------
Percentage will be determined as of the end of the next preceding Accounting
Period for purposes of (i) determining any Benefit Payment, (ii) calculating the
Fixed Account Investment Spread, and (iii) determining the Allowance for
Expenses in Section 4.4.
"Fixed Account Credited CARVM Reserve Interest": for all Annuities, the
------------------------------------------------
interest credited by Anchor on the Reinsurance Percentage of the Transferred
Fixed Account CARVM Reserve for all Annuities.
"Fixed Account Investment Spread": for all Annuities, the lesser of (i)
----------------------------------
the Fixed Account Net Investment Income less the Fixed Account Credited CARVM
----
Reserve Interest, or (ii) the product of .0152 per annum (computed on the basis
of a 360-day year of twelve 30-day months) and the Reinsurance Percentage of the
Transferred Fixed Account Value for all Annuities.
"Fixed Account Net Investment Income": for all Annuities, the sum of all
-------------------------------------
accrued investment income, including realized capital gains and
6
losses, as reflected in Anchor's Convention Statement and unrealized capital
gains and losses, as reflected in Exhibit 4 of Anchor's Convention Statement,
actually earned on the Fixed Account Segregated Assets, net of investment
expenses.
"Fixed Account Segregated Assets": those assets supporting the Reinsurance
-------------------------------
Percentage of the Transferred Fixed Account CARVM Reserve for all Annuities,
segregated by Anchor.
"Fixed Account Transfer": any amount transferred from a Separate Account
------------------------
to a Fixed Account.
"Fixed Account Value": for an Annuity, the accumulation value in any Fixed
-------------------
Account allocated to such Annuity.
"Fund": as defined in Section 14.7.
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"Fundamental Investment Objectives and Policies": the investment
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restrictions set forth in the Prospectus dated (i) April 1, 1999 for the Polaris
---
variable annuity under the headings "SunAmerica Series Trust; Trust Highlights;
Q. What are the Portfolio's investment goals and principal investment
strategies?," "SunAmerica Series Trust; More Information About the Portfolios,"
"Anchor Series Trust; Trust Highlights; Q. What are the Portfolio's investment
goals and strategies?" and "Anchor Series Trust; More Information About the
Portfolios; Investment Strategies," and (ii) January 29, 1999 for the American
Pathway II variable annuity under the headings "American Pathway Fund; Fund
Highlights; Q. What are the Series' investment goals and strategies?" and
"American Pathway Fund; More Information About the Series; Investment
Strategies," each as amended from time to time pursuant to Section 14.7.
"GAAP": generally accepted accounting principles.
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"Governmental Authority": any nation or government, any state or other
-----------------------
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of government.
"Gross Amounts Payable": every amount payable to ANLIC (Hawaii) and its
-----------------------
successors and assigns under this Agreement, including the Charges and
Collections thereof and the Fixed Account Investment Spread, without regard to
the netting provisions set forth in Article VIII of this Agreement.
"Initial Accounting Period": as defined in Section 8.1.
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"Initial Consideration": as defined in Section 3.1.
----------------------
"Initial Reserve Adjustment": as defined in Section 6.1.
----------------------------
"Internal Replacement": any instance in which an Annuity or any portion
---------------------
of the cash value of an Annuity is exchanged for another life
7
insurance policy or annuity contract, not reinsured under this Agreement, which
is written by Anchor, its Affiliates, successors or assigns.
"Modco Benefit Payments": as defined in Section 2.3.
------------------------
"Modco Reinsurance Premium": as defined in Section 3.2.
---------------------------
"Modified Coinsurance Reserve": an amount equal to the Reinsurance
------------------------------
Percentage of the CARVM Reserve with respect to all Modco Benefit Payment
-
obligations of Anchor.
"Modified Coinsurance Reserve Adjustment": the amount determined pursuant
----------------------------------------
to Section 6.2.
"Modified Coinsurance Reserve Investment Credit": an amount equal to the
------------------------------------------------
sum of (i) the Reinsurance Percentage of the sum of all accrued investment
income and capital gains and losses, realized and unrealized, on the assets held
by Anchor equal to the CARVM Reserve with respect to the Separate Account Value
for all Annuities for the current Accounting Period after deducting all costs,
expenses and deductions of Funds and their respective advisors and
subcontractors properly allocable to such assets to the extent that same have
not been deducted at the Fund level, and (ii) the Fixed Account Credited CARVM
Reserve Interest. For the Annuities, the Modified Coinsurance Reserve
Investment Credit will be reduced for Charges for the current Accounting Period.
The Modified Coinsurance Reserve Investment Credit may be positive, zero or
negative.
"Net Amount at Risk": in the case of a death benefit being payable under
--------------------
an Annuity during the accumulation phase of an Annuity, an amount, if any, equal
to (i) the minimum guaranteed death benefit under such Annuity, less (ii) the
----
Death Benefit Surrender Value of such Annuity.
"Net Fixed Account Transfers": for each Accounting Period, an amount equal
---------------------------
to the (i) the Fixed Account Transfers for all Annuities for such Accounting
Period, over (ii) the Separate Account Transfers for all Annuities for such
----
Accounting Period, provided that, following any Determination Date, such an
--------
amount will be accumulated for all Accounting Periods until the end of the next
succeeding Accounting Period when such cumulative amount is greater than zero,
and, provided further, that on any Determination Date, the Net Fixed Account
-----------------
Transfers will be deemed to be equal to the negative of the amount of the Excess
Separate Account Transfers, and provided further that, in the event that the
----------------
Fixed Account Coverage Percentage changes from a zero to a positive number in an
Accounting Period, then the Net Fixed Account Transfers will be deemed to be
equal to the amount of the Excess Fixed Account Transfers. The amount of Net
Fixed Account Transfers may be positive, zero or negative.
"Net Fixed Account Transfer CARVM Reserve Adjustment": as defined in
Section 4.7.
"Net Separate Account Transfers": for each Accounting Period, an amount,
not less than zero, equal to the (i) Separate Account Transfers for all
Annuities for such Accounting Period, minus (ii) the Fixed Account Transfers for
all Annuities for such Accounting Period.
8
"Net Separate Account Transfer CARVM Reserve Adjustment": as defined in
Section 3.4.
"Obligor": each Person from whom Anchor has the right to receive any
-------
Charges pursuant to an Annuity.
"Other Charges": the charges and deductions relating to the Separate
--------------
Accounts identified in Schedule 3.3-1 in the column labeled "Other Charges."
"Partial Withdrawal Payment": as defined in Section 5.3.
----------------------------
"Party": Anchor or ANLIC (Hawaii).
-----
"Payment Date": the twenty-third calendar day after the end of each
-------------
Accounting Period if such day falls on a Business Day, if not, then the first
Business Day thereafter.
"Payout Annuity Payment": as defined in Section 5.4.
------------------------
"Person": an individual, a partnership, a corporation, a limited liability
------
company, a trust (including any beneficiary thereof) or other entity, including
any unincorporated organization or government or agency or political subdivision
thereof. The term "corporation" for the purposes of the preceding sentence
shall mean a corporation, joint stock company, business trust or other similar
association.
"Policy Change": as defined in Section 14.7.
--------------
"Prospectus": at any time, the prospectus (as such term is defined in the
----------
Securities Act of 1933, as amended) under which the Annuities are sold.
"Recapture Payment": as defined in Section 9.4.
------------------
"Recapture Percentage": as defined in Section 9.3.
---------------------
"Reinsurance Percentage": 100 percent, as adjusted pursuant to Section
-----------------------
9.5.
"Reinsurance Servicer Report": as defined in Section 8.2.
-----------------------------
"Replacement Fee": as defined in Section 14.1.
----------------
"SAP": statutory accounting practices prescribed or permitted by the state
---
insurance regulator of the state of domicile of Anchor.
"Separate Account": each segregated asset account of Anchor identified in
-----------------
Schedule 2.1 to which amounts under the Annuities are allocated by Anchor.
"Separate Account Transfer": any amount transferred from the Fixed Account
-------------------------
to a Separate Account.
9
"Separate Account Value" for an Annuity, the sum of the values of the
------------------------
accumulation units in the Separate Account allocated to such Annuity.
"Servicer": as defined in the Servicing Agreement.
--------
"Standing Instructions": the irrevocable standing instructions in
----------------------
substantially the form of Schedule 13.1-2.
--
"Subsidiary": a corporation of which more than 50% of the outstanding
----------
capital stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the time
capital stock of any class or classes of such corporation shall or might have
voting power upon the occurrence of any contingency) is at the time directly or
indirectly owned by Anchor, by Anchor and one or more other Subsidiaries, or by
one or more other Subsidiaries.
"Successor Servicer": as defined in the Servicing Agreement.
-------------------
"SunAmerica": SunAmerica Inc.
----------
"Successor YRT Retrocession Agreement": as defined in Section 2.17.
---------------------------------------
"Terminal Accounting and Settlement": as defined in Section 10.1.
-------------------------------------
"Terminal Accounting Date": as defined in Section 10.2.
--------------------------
"Total Surrender Payment": as defined in Section 5.2.
-------------------------
"Transferred Fixed Account Value": for an Annuity, an amount equal to the
--------------------------------
product of (i) Fixed Account Coverage Percentage, and (ii) the Fixed Account
Value of such Annuity.
"Transferred Fixed Account CARVM Reserve": for an Annuity, the amount of
-----------------------------------------
the CARVM Reserve with respect to the Transferred Fixed Account Value of such
Annuity.
"Unearned Ceding Commission Amount": an amount equal to (i) $155,000,000
-----------------------------------
reduced by (x) the amount of all prior Recapture Payments, and (y) the amount of
---------
all prior Unearned Ceding Commission Reduction Amounts, and increased by (ii) an
------------
amount equal to the Unearned Ceding Commission Rate per annum on the amount in
Item (i) above applied in arrears on Payment Date for the period from and
including the later of the Effective Time or the most recent Payment Date to but
excluding the Payment Date in which the amount determined under this Item (ii)
is applied; provided that, on any Payment Date, the then Unearned Ceding
--------
Commission Amount will first be increased by the application of Item (ii) above
and then reduced for any Unearned Ceding Commission Reduction Amount.
"Unearned Ceding Commission Rate": the percentage rate identified in Item
--------------------------------
173 of the Reinsurance Servicer Report.
"Unearned Ceding Commission Reduction Amount": the amount identified in
----------------------------------------------
Item 182 of the Reinsurance Servicer Report, without regard to any Recapture
Payment.
10
"Waiver Allowance": as defined in Section 14.2.
-----------------
"YRT Reinsurance Premium": as defined in Section 3.2(c).
-------------------------
Section 1.2. Other Definitional Provisions. (a) The headings of the
-------------------------------
sections of this Agreement are solely for convenience of reference and shall not
affect the meaning, construction or effect of this Agreement.
(b) All terms defined in this Agreement shall have the defined meaning when
used in any Schedule, certificate or other documents attached hereto or made or
delivered pursuant hereto unless otherwise defined therein.
(c) As used herein, and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined in Section
1.1, and accounting terms partly defined in Section 1.1 to the extent not
defined, shall have the respective meanings given to them under SAP in effect on
the date hereof. To the extent that the definitions of accounting terms are
inconsistent with the meanings of such terms under SAP, the definitions
contained herein shall control. The term "including" means "including but not
limited to."
(d) Any reference herein to any statute, agreement or document, or any
section thereof, shall, unless otherwise expressly provided, be a reference to
such statute, agreement, document or section as amended, modified or
supplemented (including any successor section) and in effect from time to time.
ARTICLE II
General Provisions
------------------
Section 2.1. Risks Reinsured. ANLIC (Hawaii) will indemnify Anchor for,
----------------
and Anchor will reinsure with ANLIC (Hawaii), according to the terms and
conditions hereof, the Benefit Payments under the Annuities.
Section 2.2. Coverages and Exclusions. Only the Annuities are reinsured
-------------------------
under this Agreement. Except for the Net Amount at Risk and except as provided
in Article V, all liabilities in respect of the Fixed Accounts are excluded from
this Agreement. Liabilities in respect of Separate Account Transfers and Net
Fixed Account Transfers are reinsured under this Agreement.
Section 2.3. Plan of Reinsurance; Modified Coinsurance. The portion of
-------------------------------------------
this indemnity reinsurance with respect to all Benefit Payments other than
payments with respect to the Net Amount at Risk portion of Death Benefit Claim
Payments with respect to the Annuities (the "Modco Benefit Payments") will be on
-----------------------
a modified coinsurance basis. Anchor will retain, control and own all assets
held in relation to the Modified Coinsurance Reserve. ANLIC (Hawaii) agrees to
establish a separate account governed by the laws of Hawaii and the obligations
of ANLIC (Hawaii) under this Agreement with respect to the Separate Account
portion of the Modco Benefit Payments will be obligations of such separate
account. Furthermore, the obligations of ANLIC (Hawaii) under this Agreement
with respect to the Fixed Account portion of the Modco Benefit Payments will
be obligations of the
11
general account of ANLIC (Hawaii). Notwithstanding the preceding two sentences,
all the assets of ANLIC (Hawaii) will be available to meet ANLIC (Hawaii)'s
obligations under this Agreement.
Section 2.4. Plan of Reinsurance; Yearly Renewable Term. The portion of
-------------------------------------------
this indemnity reinsurance with respect to the Net Amount at Risk portion of
Death Benefit Claim Payments with respect to the Annuities will be on a yearly
renewable term reinsurance basis.
Section 2.5. Expenses. ANLIC (Hawaii) will bear no part of the expenses
--------
incurred in connection with the Annuities reinsured hereunder, except as
specifically provided herein.
Section 2.6. Extra-Contractual Liability. ANLIC (Hawaii) does not
----------------------------
indemnify Anchor for, and will not be liable for, any Extra-Contractual
Liability, provided that ANLIC (Hawaii) shall be liable for costs and expenses
--------
of Anchor with respect to the same liability for Extra-Contractual Liability of
Anchor, its agents and representatives as are indemnified by the reinsurer
pursuant to the CG YRT Retrocession Agreement or any Successor YRT Retrocession
Agreement but only to the extent payment is actually received by ANLIC (Hawaii)
under the CG YRT Retrocession Agreement or any Successor YRT Retrocession
Agreement, such payment is actually received by AIC under the ANLIC (Hawaii) YRT
Retrocession Agreement and such payment is actually received by ANLIC (Hawaii)
under the AIC Retrocession Agreement (the "Anchor YRT Expense Recovery").
---------------------------
Section 2.7. Annuity Administration. Anchor will administer the Annuities
----------------------
reinsured hereunder and will perform all accounting for such Annuities, all in
accordance with Articles VIII, X, XIV and XV.
Section 2.8. Inspection. At any time during normal business hours upon
----------
reasonable notice, ANLIC (Hawaii) and its agents and representatives shall each
have the right to inspect, at the principal office of Anchor or such other
location as Anchor designates in writing to ANLIC (Hawaii) and its agents and
representatives, the original papers and any and all other books or documents
relating to or affecting the Annuities and the reinsurance under this Agreement.
Neither ANLIC (Hawaii) nor its agents and representatives will use any
information obtained through any inspection pursuant to this Section 2.8 for any
purpose not relating to the reinsurance hereunder. ANLIC (Hawaii) shall hold
all such information derived from such records in confidence and shall not
disclose it to any other Person without Anchor's prior written consent.
Section 2.9. Taxes. Premium taxes will not be reimbursed in connection
-----
with the Annuities reinsured hereunder but are included in the Ceding
Commission. ANLIC (Hawaii) will not reimburse or be liable to Anchor for any
other taxes payable by Anchor in connection with the Annuities reinsured
hereunder. Anchor shall be liable for U.S. federal excise tax, if any, on the
Initial Consideration, the Modco Reinsurance Premiums, the YRT Reinsurance
Premiums and any other amounts paid by Anchor to ANLIC (Hawaii) under this
Agreement.
Section 2.10. Proxy Tax Reimbursement. Pursuant to Code Section 848,
-------------------------
insurance companies are required to capitalize and amortize specified policy
12
acquisition expenses. The amount capitalized is determined by proxy based on a
percentage of "net premiums" as defined in the regulations relating to Code
Section 848. ANLIC (Hawaii) will not reimburse or be liable to Anchor for any
costs which result from the application of Code Section 848.
Section 2.11. Election to Determine Specified Policy Acquisition Expenses.
-----------------------------------------------------------
Anchor and ANLIC (Hawaii) agree that the Party with net positive consideration
for any tax year under this Agreement will capitalize specified policy
acquisition expenses with respect to Annuities reinsured under this Agreement
without regard to the general deductions limitation of Code Section 848(c)(1).
Anchor and ANLIC (Hawaii) will exchange information pertaining to the amount of
net consideration under this Agreement each year to ensure consistency. Anchor
will submit a schedule to ANLIC (Hawaii) by May 1 of each year presenting its
calculation of the net consideration for the preceding taxable year. ANLIC
(Hawaii) may contest the calculation in writing within 30 days of receipt of
Anchor's schedule referred to in the preceding sentence. Any differences will
be resolved between the Parties so that consistent amounts are reported on the
respective tax returns for the preceding taxable year. This election to
capitalize specified policy acquisition expenses without regard to the general
deductions limitation is effective for all taxable years during which this
Agreement remains in effect.
Section 2.12. Condition. The reinsurance hereunder is subject to the same
---------
limitations and conditions as the Annuities which are reinsured hereunder,
except as otherwise provided in this Agreement.
Section 2.13. Misunderstandings and Oversights. If any failure to pay
----------------------------------
amounts due or to perform any other act required by this Agreement is
unintentional and caused by misunderstanding or oversight, Anchor and ANLIC
(Hawaii) will promptly adjust the situation to what it would have been had the
misunderstanding or oversight not occurred.
Section 2.14. Adjustments. If Anchor's liability under any of the
-----------
Annuities is changed because of a misstatement of age, sex or any other material
fact, ANLIC (Hawaii) will (i) assume that portion of any increase in Anchor's
liability resulting from the change which corresponds to the Reinsurance
Percentage of the risks reinsured under the Annuities hereunder, and (ii)
receive credit for that portion of any decrease in Anchor's liability resulting
from the change which corresponds to the Reinsurance Percentage of the risks
reinsured under the Annuities hereunder.
Section 2.15. Reinstatements. If an Annuity is surrendered and is
--------------
subsequently reinstated while this Agreement is in effect, the reinsurance for
such Annuity will not be reinstated. If an Annuity is surrendered, or is
annuitized and is not reinsured under Section 5.4, then such contract shall no
longer be deemed to be an "Annuity" for purposes of this Agreement.
Section 2.16. Currency. All of the provisions of this Agreement are
--------
expressed in terms of United States dollars and all amounts shall be paid in
United States funds in same day funds.
Section 2.17 Maintenance of CG YRT Retrocession Agreement; Successor YRT
------------------------------------------------------------
Retrocession Agreement. (a) ANLIC (Hawaii) has entered into and will
----------------------
13
maintain in effect the CG YRT Retrocession Agreement until all obligations of
ANLIC (Hawaii) hereunder have terminated, provided that:
--------
(i) If the insurer financial strength rating assigned by Standard & Poor's
Rating Services or Moody's Investors Service of the reinsurer under the CG YRT
Retrocession Agreement (or the reinsurer under a Successor YRT Retrocession
Agreement entered into pursuant to this Section 2.17(a)), to the extent so
rated, drops below BBB- or Baa3, respectively, then (x) Anchor may, and if such
a successor reinsurer is available, shall (A) designate a successor reinsurer to
replace the reinsurer under the CG YRT Retrocession Agreement) that has an
insurer financial strength rating assigned by Standard & Poor's Rating Services
and Moody's Investors Service of a least A and that will provide reinsurance on
substantially the same terms and conditions as the CG YRT Retrocession Agreement
(the "Successor YRT Retrocession Agreement"), and (B) instruct ANLIC (Hawaii) in
------------------------------------
writing to terminate the CG YRT Retrocession Agreement (or such Successor YRT
Retrocession Agreement) and enter into the Successor YRT Retrocession Agreement
(or a new Successor YRT Retrocession Agreement), and (y) ANLIC (Hawaii) shall so
terminate the CG YRT Retrocession Agreement (or such Successor YRT Retrocession
Agreement) and enter into the Successor YRT Retrocession Agreement.
(ii) During any period that ANLIC (Hawaii) may terminate the CG YRT
Retrocession Agreement (or any Successor YRT Retrocession Agreement) without
breach thereunder and enter into a Successor YRT Retrocession Agreement, then
(x) Anchor may (A) designate a successor reinsurer to replace the reinsurer
under the CG YRT Retrocession Agreement (or such Successor YRT Retrocession
Agreement) that has an insurer financial strength rating assigned by Standard &
Poor's Rating Services and Moody's Investors Service of a least A and that will
enter into a Successor YRT Retrocession Agreement, and (B) instruct ANLIC
(Hawaii) in writing to terminate the CG YRT Retrocession Agreement (or such
Successor YRT Retrocession Agreement) and enter into the Successor YRT
Retrocession Agreement, and (y) ANLIC (Hawaii) shall so terminate the CG YRT
Retrocession Agreement (or such Successor YRT Retrocession Agreement) and enter
into the Successor YRT Retrocession Agreement.
(b) Anchor shall act as the agent of ANLIC (Hawaii) with respect to the CG
YRT Retrocession Agreement and any Successor YRT Retrocession Agreement to the
extent expressly provided therein, and ANLIC (Hawaii) shall have the right to
cause Anchor to take such actions and maintain in effect such practices of
Anchor as are expressly provided by the CG YRT Retrocession Agreement and any
Successor YRT Retrocession Agreement or in this Agreement.
(c) ANLIC (Hawaii) shall have the right pursuant to the CG YRT Retrocession
Agreement or any Successor YRT Retrocession Agreement to delegate to the
reinsurer thereunder ANLIC (Hawaii)'s right of access to Anchor records, to the
extent such records directly pertain to the CG YRT Retrocession Agreement and
any Successor YRT Retrocession Agreement.
(d) ANLIC (Hawaii) hereby assigns its rights and delegates its duties to
Anchor with regard to arbitration against the reinsurer under the CG YRT
Retrocession Agreement or any Successor YRT Retrocession Agreement. Anchor
14
hereby accepts such assignment and delegation. Anchor shall conduct any
arbitration within its sole discretion and shall (i) have full power and right
to prosecute, settle or abandon any such dispute, and (ii) bear all costs of
arbitration incurred by it.
(e) To the extent that ANLIC (Hawaii) is obligated to indemnify, defend and
hold harmless the reinsurer under the CG YRT Retrocession Agreement or any
Successor YRT Retrocession Agreement (other than for liability with respect to
the Net Amount at Risk under the Annuities), Anchor shall so indemnify, defend
and hold harmless ANLIC (Hawaii).
(f) To the extent that ANLIC (Hawaii) is obligated to prepare and deliver
accounting and premium reports under the CG YRT Retrocession Agreement or any
Successor YRT Retrocession Agreement, Anchor or its agent or representative
shall prepare and deliver such reports in the form and by the time required
under the CG YRT Retrocession Agreement or any Successor YRT Retrocession
Agreement, as the case may be.
ARTICLE III
Payments by Anchor
------------------
Section 3.1. Initial Consideration. At the Effective Time, Anchor will
----------------------
pay ANLIC (Hawaii) an initial consideration equal to 100 percent of the Modified
Coinsurance Reserve calculated as of August 1, 1999 (the "Initial
-------
Consideration").
Section 3.2. Modco Reinsurance Premiums; Recapture Fee; YRT Reinsurance
------------------------------------------------------------
Premiums. (a) Anchor will pay ANLIC (Hawaii) reinsurance premiums on all
------
Annuities in effect under this Agreement in an amount equal to the sum of (i)
----
the Reinsurance Percentage of that portion of the gross deposits and premiums
collected by Anchor during an Accounting Period which are to be allocated to the
Separate Accounts for the Annuities, and (ii) the Reinsurance Percentage of the
Fixed Account Coverage Percentage of that portion of the gross deposits and
premiums collected by Anchor during an Accounting Period which are to be
allocated to the Fixed Accounts for the Annuities (the "Modco Reinsurance
-----------------
Premium").
-
(b) Anchor will also pay ANLIC (Hawaii) an amount equal to any recapture
fee payable by ANLIC (Hawaii) under the CG YRT Retrocession Agreement or any
Successor YRT Retrocession Agreement.
(c) Included in the amount payable by Anchor to ANLIC (Hawaii) under
Section 3.3 is an amount equal to the actual reinsurance premium required to be
paid from time to time by ANLIC (Hawaii) under the CG YRT Retrocession Agreement
or any Successor YRT Retrocession Agreement, including any interest due with
respect thereto (the "YRT Reinsurance Premium").
-------------------------
Section 3.3. Payment of Charges and Fixed Account Investment Spread.
-----------------------------------------------------------
Anchor will pay to ANLIC (Hawaii) (i) the Reinsurance Percentage of all Charges
for all Annuities, and (ii) the Fixed Account Investment Spread if such amount
is a positive amount.
Section 3.4. Net Separate Account Transfer CARVM Reserve Adjustment.
----------------------------------------------------------
15
In the event that (i) the Fixed Account Coverage Percentage is zero, and (ii)
Net Separate Account Transfers is greater than zero, then Anchor will pay to
ANLIC (Hawaii) an amount equal to the Reinsurance Percentage of the CARVM
Reserve with respect to Net Separate Account Transfers (the "Net Separate
------------
Account Transfer CARVM Reserve Adjustment"), provided that, in the event that
-------------------------------------- --------
the Fixed Account Coverage Percentage changes from a positive number to zero in
an Accounting Period, then the Net Separate Account Transfer CARVM Reserve
Adjustment shall be deemed to be an amount equal to the Reinsurance Percentage
of the CARVM Reserve with respect the Excess Separate Account Transfers.
ARTICLE IV
Payments by ANLIC (Hawaii): Commissions and Expenses
----------------------------------------------------
Section 4.1. Ceding Commission. At the Effective Time and simultaneously
-----------------
with the payment of the Initial Consideration, ANLIC (Hawaii) will pay a ceding
commission (the "Ceding Commission") to Anchor by delivery of a note in the
------------------
principal amount of $155,000,000 in the form attached hereto as Schedule 4.1,
with such changes therein as the Parties may agree upon prior to the Effective
Time (the "ANLIC (Hawaii) Note").
---------------------
Section 4.2. Premium Tax. ANLIC (Hawaii) shall not reimburse Anchor for
------------
any premium taxes on the Modco Reinsurance Premiums or the YRT Reinsurance
Premiums; these costs are included in the Ceding Commission.
Section 4.3. Allowance for Commissions. ANLIC (Hawaii) will reimburse
---------------------------
Anchor for all the Reinsurance Percentage of commissions (other than trail
commissions) incurred on the Modco Reinsurance Premiums. Reimbursement of trail
commissions on the Annuities is included in the amount paid under Section
4.4(i). No commission reimbursement shall be made for amounts paid by Anchor to
ANLIC (Hawaii) or ANLIC (Hawaii) to Anchor for Separate Account Transfers or
Fixed Account Transfers. Schedule 4.3 shows the commission schedules for the
Annuities reinsured hereunder as of August 1, 1999.
Section 4.4. Allowance for Expenses. ANLIC (Hawaii) will pay to Anchor as
----------------------
reimbursement for servicing the Annuities pursuant to Section 2.7 and for
managing the assets in the Separate Accounts pursuant to Section 2.3, (i) the
sum of (x) an amount equal to the product of the Reinsurance Percentage times 13
basis points per anum of the sum of (A) the aggregate average daily Separate
Account Value of all Annuities, and (B) the aggregate Transferred Fixed Account
Values of all Annuities determined at the end of the Accounting Period less the
----
Fixed Account Coverage Percentage of any Fixed Account Transfers for the
Accounting Period plus the Fixed Account Coverage Percentage of any Separate
----
Account Transfers for the Accounting Period, and (y) the greater of (A) an
amount equal to the product of the Reinsurance Percentage times 13 basis points
per anum of the sum of (xx) the aggregate average daily Separate Account Value
of all Annuities, and (yy) the aggregate Transferred Fixed Account Values of all
Annuities determined at the end of the Accounting Period less the Fixed Account
----
Coverage Percentage of any Fixed Account Transfers for the Accounting Period
plus the Fixed Account Coverage Percentage of any Separate Account Transfers for
-
the Accounting Period, or (B) $55.00 for each Annuity per anum, and (ii)
the
16
Reinsurance Percentage of the amount of the Other Charges, provided, however,
-------- -------
that in the event that a Successor Servicer is appointed pursuant to the
Servicing Agreement and the Department approves a lower amount to be paid to
Anchor by virtue of the responsibilities then being performed by the Successor
Servicer, the amount payable to Anchor pursuant to Section 4.4(i) shall be the
product of the Reinsurance Percentage times the lower amount approved by the
Department.
Section 4.5. Anchor YRT Expense Recovery. ANLIC (Hawaii) will pay to
------------------------------
Anchor the Anchor YRT Expense Recovery but only to the extent actually received
under the AIC Retrocession Agreement.
Section 4.6. Anchor YRT Reinsurance Premium Refund. In the event that
----------------------------------------
(i) the YRT Reinsurance Premium is less than (ii) an amount equal to the sum of
(x) 8 basis points per annum of the Reinsurance Percentage of the aggregate
average daily Separate Account Values of all Annuities, and (y) 8 basis points
per annum (computed on the basis of a 360-day year of twelve 30-day months) of
the Reinsurance Percentage of the Transferred Fixed Account Values of all
Annuities, then ANLIC (Hawaii) will pay Anchor and amount equal to (ii) less (i)
----
(the "Anchor YRT Reinsurance Premium Refund").
-----------------------------------------
Section 4.7. Net Fixed Account Transfer CARVM Reserve Adjustment. In the
---------------------------------------------------
event that (i) the Fixed Account Coverage Percentage is zero, and (ii) Net Fixed
Account Transfers is greater than zero, then ANLIC (Hawaii) will pay to Anchor
an amount equal to the Reinsurance Percentage of the CARVM Reserve with respect
to Net Fixed Account Transfers (the "Net Fixed Account Transfer CARVM Reserve
----------------------------------------
Adjustment"), provided that, in the event that the Fixed Account Coverage
-------- --------
Percentage changes from a zero to a positive number in an Accounting Period,
----
then the Net Fixed Account Transfer CARVM Reserve Adjustment shall be deemed to
-
be an amount equal to the Reinsurance Percentage of the CARVM Reserve with
respect the Excess Fixed Account Transfers.
Section 4.8. Negative Fixed Account Investment Spread. In the event that
----------------------------------------
the Fixed Account Investment Spread is negative, ANLIC (Hawaii) will pay Anchor
the absolute value of such amount.
ARTICLE V
Payments by ANLIC (Hawaii): Benefit Payments
--------------------------------------------
Section 5.1. Death Benefit Claim. ANLIC (Hawaii)'s obligation for a Death
-------------------
Benefit Claim paid by Anchor on an Annuity reinsured hereunder will be satisfied
in full by the payment to Anchor of the sum of (i) an amount equal to the
Reinsurance Percentage of the CARVM Reserve with respect to the Separate Account
Value of such Annuity, (ii) an amount equal to the Reinsurance Percentage of the
Transferred Fixed Account CARVM Reserve with respect to such Annuity, and (iii)
the Net Amount at Risk with respect to such Annuity, each determined as of the
date the Death Benefit Claim is determined under such Annuity (the "Death
-----
Benefit Claim Payment").
-----------------
Section 5.2. Total Surrender. On a complete surrender by the
----------------
Contractholder of an Annuity during the accumulation phase of such Annuity,
ANLIC (Hawaii) will pay Anchor the Reinsurance Percentage of the sum of (i)
17
the Separate Account Value, and (ii) the Transferred Fixed Account Value of such
Annuity, as paid by Anchor on an Annuity reinsured hereunder adjusted for any
required market value adjustment under such Annuity, each less any applicable
----
charges and deductions (the "Total Surrender Payment").
-------------------------
Section 5.3. Partial Withdrawal. On a withdrawal by the Contractholder
-------------------
under an Annuity during the accumulation phase of such Annuity of part but not
all of the Separate Account Value or Fixed Account Value, ANLIC (Hawaii) will
pay Anchor the Reinsurance Percentage of the sum of (i) such partial withdrawal
in respect of the Separate Account Value, if any, and (ii) such partial
withdrawal in respect of the Transferred Fixed Account Value, if any, as paid by
Anchor on an Annuity reinsured hereunder adjusted for any required market value
adjustment under such Annuity, each less any applicable charges and deductions
----
(the "Partial Withdrawal Payment").
-----------------------------
Section 5.4. Payout Annuity Payment; Annuity Benefit Payment. (a) ANLIC
------------------------------------------------
(Hawaii) will be liable for the Reinsurance Percentage of its portion (described
below) of Annuity Benefits made on an Annuity reinsured hereunder if the Annuity
Benefits are based on the fixed settlement options at terms guaranteed in such
Annuity at the time of issue of such Annuity (the "Payout Annuity Payment"),
----------------------
provided that ANLIC (Hawaii) shall not be so liable if and to the extent that,
-----
prior to or upon receiving notice of the decision by a Contractholder to choose
such settlement option, Anchor notifies ANLIC (Hawaii) that it has elected to
recapture such Annuity upon the effective date of such settlement option, at
which time such Annuity will be considered surrendered and ANLIC (Hawaii)'s
obligation for Annuity Benefits paid by Anchor on such an Annuity reinsured
hereunder will be satisfied in full by the payment to Anchor of the Annuity
Benefit Payment (as defined in Section 5.4(b)) therefore. The notice of
election to recapture by Anchor referred to in the preceding sentence may
provide that it applies to one or more Annuities or all the Annuities and may
recite that the election to recapture will remain in effect until written notice
is given by Anchor to ANLIC (Hawaii) revoking the prior election to recapture,
in whole or in part with respect to future Annuity Benefits made on an Annuity
reinsured hereunder. In the event that ANLIC (Hawaii) is liable for the
Reinsurance Percentage of its portion of Annuity Benefits under this Section
5.4(a), then such portion shall be a percentage equal to (i) the Reinsurance
Percentage of the sum of (x) the Separate Account Value of such Annuity and (y)
the Transferred Fixed Account Value of such Annuity adjusted for any required
market value adjustment under such Annuity, each less any applicable charges and
----
deductions (but not premium taxes), divided by (ii) the Contract Value of such
Annuity adjusted for any required market value adjustment under such Annuity,
each less any applicable charges and deductions (but not premium taxes), each
----
determined as of the date the proceeds of such Annuity are applied to purchase
Annuity Benefits.
(b) ANLIC (Hawaii) will not be liable for the reinsurance of an Annuity
annuitizing at terms more favorable than those guaranteed at the time of issue
of such Annuity. In the event that Anchor allows annuitization at terms more
favorable than those guaranteed in an Annuity at the time of issue of such
Annuity, such Annuity will be considered surrendered and ANLIC (Hawaii)'s
obligation for Annuity Benefits paid by Anchor on such an Annuity reinsured
hereunder will be satisfied in full by
18
the payment to Anchor of the "Annuity Benefit Payment," which shall be an amount
-----------------------
equal to the Reinsurance Percentage of the sum of (i) the Separate Account Value
of such Annuity, and (ii) the Transferred Fixed Account Value of such Annuity
adjusted for any required market value adjustment under such Annuity, each less
----
any applicable charges and deductions, determined as of the date the proceeds of
such Annuity are applied to pay for the Separate Account and Fixed Account
amounts applied to purchase Annuity Benefits.
Section 5.5. Claims Settlements. The procedures for settlement of claims
------------------
under this Agreement with respect to the Annuities shall conform to the
procedures set forth in the CG YRT Retrocession Agreement (including Article VII
thereunder) or any Successor YRT Retrocession Agreement so that ANLIC (Hawaii)
may comply with all claim settlement procedures under the CG YRT Retrocession
Agreement or any Successor YRT Retrocession Agreement. ANLIC (Hawaii) will
accept the decision of Anchor with respect to Benefit Payments on Annuities
reinsured hereunder. Except as specifically provided in this Agreement or
otherwise provided under the Annuities reinsured hereunder, ANLIC (Hawaii) will
pay the Benefit Payments in a lump sum to Anchor. Anchor must determine all
Death Benefit Claims within the period of time specified under the CG YRT
Retrocession Agreement or any Successor YRT Retrocession Agreement.
Section 5.6. Contested Death Benefit Claims. Anchor hereby grants to
---------------------------------
ANLIC (Hawaii) the same rights the reinsurer has under the CG YRT Retrocession
Agreement (including Articles VII and X thereunder) or any Successor YRT
Retrocession Agreement with respect to ANLIC (Hawaii) with respect to contested
Death Benefit Claims. Such rights may be delegated by ANLIC (Hawaii) to such
reinsurer.
ARTICLE VI
Reserve Adjustments
-------------------
Section 6.1. Initial Reserve Adjustment. Simultaneously with the payment
--------------------------
of the Initial Consideration by Anchor to ANLIC (Hawaii) at the Effective Time,
ANLIC (Hawaii) will pay Anchor an initial reserve adjustment in an amount that
is equal to the Modified Coinsurance Reserve determined as of August 1, 1999
(the "Initial Reserve Adjustment").
----------------------------
Section 6.2. Modified Coinsurance Reserve Adjustment. (a) The Modified
----------------------------------------- --------
Coinsurance Reserve Adjustment" will be computed as of the end of each
------------------------------
Accounting Period equal to the result of (i) less (ii) less (iii), where:
------- ---- ----
(i) equals the Modified Coinsurance Reserve determined at the end of such
Accounting Period;
(ii) equals the Modified Coinsurance Reserve determined at the end of the
preceding Accounting Period; and
(iii) equals the Modified Coinsurance Reserve Investment Credit determined
as of the end of such Accounting Period.
(b) For any Accounting Period in which the amount computed in Section
19
6.2(a) is positive, ANLIC (Hawaii) will pay Anchor the absolute value of such
amount. For any Accounting Period in which the amount computed in Section
6.2(a) is negative, Anchor will pay ANLIC (Hawaii) the absolute value of such
amount.
ARTICLE VII
[Reserved]
----------
ARTICLE VIII
Accounting and Settlements
--------------------------
Section 8.1. Monthly Accounting Periods. Each accounting period under
----------------------------
this Agreement (an "Accounting Period") will be a calendar month, except that:
-----------------
(i) the initial Accounting Period runs from August 1, 1999 through August 31,
1999 (the "Initial Accounting Period"), and (ii) the final Accounting Period
---------------------------
runs from the end of the preceding Accounting Period until the Terminal
Accounting Date.
Section 8.2. Reinsurance Servicer Reports. A servicer report in the form
----------------------------
attached hereto as Schedule 8.2 (the "Reinsurance Servicer Report") will be
---------------------------
provided by the Servicer to ANLIC (Hawaii) and Anchor for each Accounting Period
as provided in the Servicing Agreement not later than two Business Days prior to
the Payment Date immediately following such Accounting Period.
Section 8.3. Initial Settlement. At the Effective Time:
-------------------
(i) Anchor will settle its obligation to pay ANLIC (Hawaii) the Initial
Consideration.
(ii) ANLIC (Hawaii) will settle its obligation to pay Anchor: (x) the
Initial Reserve Adjustment, and (y) the Ceding Commission.
(iii) A settlement as provided in Section 8.4 will be computed for the
Initial Accounting Period for each calendar month thereof.
Section 8.4. Monthly Settlements. (a) On or prior to each Payment Date
--------------------
immediately following each monthly Accounting Period, Anchor will settle its
obligation to pay ANLIC (Hawaii) for such Accounting Period the sum of:
(i) the Modco Reinsurance Premiums, determined in accordance with Section
3.2(a); plus
----
(ii) any Net Separate Account Transfer CARVM Reserve Adjustment, determined
in accordance with Section 3.4; plus
----
(iii) any Modified Coinsurance Reserve Adjustment payable to ANLIC
(Hawaii), determined in accordance with Section 6.2; plus
----
(iv) the Anchor Payment Amounts.
20
(b) Simultaneously with the payments in Section 8.4(a), ANLIC (Hawaii) will
settle its obligation to pay Anchor the sum of:
(i) the amount of Benefit Payments, as described in Article V; plus
----
(ii) the Allowance for Commissions, determined in accordance with Section
4.3; plus
----
(iii) the Allowance for Expense, determined in accordance with Section 4.4;
plus
- ----
(iv) the Anchor YRT Reinsurance Premium Refund, if any, determined in
accordance with Section 4.6; plus
----
(v) any Net Fixed Account Transfer CARVM Reserve Adjustment, determined in
accordance with Section 4.7; plus
----
(vi) any amount determined in accordance with Section 4.8; plus
----
(vii) any Modified Coinsurance Reserve Adjustment payable to Anchor,
determined in accordance with Section 6.2; plus
----
(viii) any Anchor YRT Expense Recovery.
Section 8.5. Amounts Due. Except as provided in Section 8.9 and as
------------
otherwise specifically provided in this Agreement, all amounts due to be paid to
either Anchor or ANLIC (Hawaii) under this Agreement will be determined on a net
basis as of the last day of each monthly Accounting Period and will be due as of
such date and payable on or prior to the Payment Date immediately following such
Accounting Period.
Section 8.6. Annual Accounting Reports. Anchor will provide ANLIC
---------------------------
(Hawaii) with annual accounting reports within 30 days after the end of the
calendar year for which such reports are prepared. These reports will contain
sufficient information about the portion of all Annuities reinsured hereunder to
enable ANLIC (Hawaii) to prepare its annual financial reports and to verify the
information reported in Anchor annual financial reports relating to the portion
of all Annuities reinsured hereunder.
Section 8.7. Estimations. If the amounts under Section 8.4 cannot be
-----------
precisely determined by the date described in Section 8.5, such payments will be
paid in accordance with a formula mutually agreed upon by the Parties in writing
which will approximate the actual payments. Adjustments will then be made to
reflect actual amounts promptly after they become available.
Section 8.8. Delayed Payments. Interest shall accrue on the amounts
-----------------
payable under Sections 8.4, 9.4 and 14.1 at the Alternate Base Rate, payable on
demand, provided that (i) interest shall not accrue on the amounts payable by
--------
ANLIC (Hawaii) to Anchor relating to reinsurance of the Fixed Account of all
Annuities under this Agreement for any Accounting Period until ANLIC (Hawaii)
receives a Reinsurance Servicer Report for the settlement of amounts relating to
reinsurance of the Fixed Account of all Annuities under this Agreement for such
Accounting Period, and (ii) interest
21
shall accrue on the amounts payable by Anchor to ANLIC (Hawaii) relating to
reinsurance of the Fixed Account of all Annuities under this Agreement beginning
August 1, 1999 unless ANLIC (Hawaii) receives the Reinsurance Servicer Reports
for the settlement of amounts relating to reinsurance of the Fixed Account of
all Annuities under this Agreement for all Accounting Periods from the Effective
Time to the end of the Accounting Period ending November 30, 1999 within two
Business Days prior to the Payment Date immediately following the Accounting
Period ending November 30, 1999.
Section 8.9. Form of Payment; Offset. Each Party hereto shall have, and
------------------------
may exercise at any time and from time to time, the right to offset any balance
or balances due from such Party to the other Party under this Agreement. The
Party asserting the right of offset shall have and may exercise such right
whether the balance or balances due or to become due to such Party from the
other Party are on account of indemnity payments, reinsurance premiums,
allowances, commissions or otherwise and regardless of the capacity, whether as
assuming reinsurer or as ceding company, in which each Party acted under the
agreement or, if more than one, the different agreements involved. The
application of this Section 8.9 shall not be deemed to constitute diminution in
the event of insolvency.
ARTICLE IX
Duration and Recapture
----------------------
Section 9.1. ANLIC (Hawaii)'s Liability. The liability of ANLIC (Hawaii)
--------------------------
with respect to any Annuity will begin simultaneously with that of Anchor or as
of 12:01 a.m., Los Angeles, California local time, August 1, 1999, whichever
occurs later. ANLIC (Hawaii)'s liability with respect to each Annuity will
terminate on the earliest of (i) the date such Annuity is recaptured in full in
accordance with Section 9.3, (ii) the date Anchor's liability on such Annuity is
terminated, (iii) the date this Agreement is terminated in accordance with
Section 9.2, or (iv) the date such Annuity is recaptured in full under Section
14.1. Termination of ANLIC (Hawaii)'s liability under clause (i) or (iii) of
the preceding sentence is subject to payments in respect of such liability in
accordance with the provisions of Article X.
Section 9.2. Termination. (a) If an Event of Recapture exists, ANLIC
-----------
(Hawaii) may terminate this Agreement on no less than 5 day's prior written
notice to Anchor.
(b) This Agreement shall terminate automatically on the earlier of (i) the
close of business on September 30, 1999 if the Effective Time has not yet
occurred, and (ii) the date that ANLIC (Hawaii)'s liability terminates with
respect to all Annuities.
(c) Anchor may terminate this Agreement on prior written notice to ANLIC
(Hawaii) on or after the date the Unearned Ceding Commission Amount is reduced
to zero.
(d) Prior to the date the Unearned Ceding Commission Amount is reduced to
zero, this Agreement may be terminated by the mutual written agreement of Anchor
and ANLIC (Hawaii).
22
(e) The obligation of Anchor to pay the Anchor Payment Amounts to ANLIC
(Hawaii) in accordance with this Agreement shall survive the termination of this
Agreement pursuant to Section 9.2(a) until all obligations of Anchor under this
Agreement, including the obligation to pay Recapture Payments pursuant to
Section 9.4, have been satisfied.
Section 9.3. Recapture. (a) Anchor may at any time recapture all or any
---------
percentage (the "Recapture Percentage") of the risks reinsured under the
---------------------
Annuities upon not less than 10 days' prior written notice to ANLIC (Hawaii).
(b) Any notice given pursuant to Section 9.3(a) shall specify the Recapture
Percentage.
(c) In the event that ANLIC (Hawaii) does not pay the entire amount due
under the ANLIC (Hawaii) Note by September 15, 1999, then Anchor may recapture a
Reinsurance Percentage of 100% of the risks reinsured under the Annuities as of
August 1, 1999 upon delivery of the ANLIC (Hawaii) Note to ANLIC (Hawaii),
without any additional payment by Anchor.
Section 9.4. Recapture Payment. If this Agreement is terminated by ANLIC
-----------------
(Hawaii) pursuant to Section 9.2(a) or if any portion of the Annuities are
recaptured pursuant to Section 9.3(a), Anchor shall, on the effective date of
such termination or recapture, remit by wire transfer to ANLIC (Hawaii) an
amount (the "Recapture Payment") equal to the sum of a notional amount
------------------
determined by multiplying the Recapture Percentage by the Unearned Ceding
Commission Amount on the effective date of termination or recapture (in the
event of a termination, the Recapture Percentage shall be 100%).
Section 9.5. Reduction of Reinsurance Percentage. Upon the effective date
-----------------------------------
of any recapture in which the Recapture Percentage is less than 100%, the
Reinsurance Percentage shall be reduced to that percentage equal to the product
of (i) 100% less the Recapture Percentage, and (ii) the Reinsurance Percentage
----
in effect immediately before such recapture.
Section 9.6. No Deemed Recapture. No transaction pursuant to Section 5.4
-------------------
shall be deemed to be a recapture pursuant to this Article IX.
ARTICLE X
Terminal Accounting and Settlement
----------------------------------
Section 10.1. Terminal Accounting. In the event that this Agreement is
--------------------
terminated in accordance with Section 9.2, all reinsurance under this Agreement
is recaptured in accordance with Section 9.3, or the Parties mutually agree to
terminate this Agreement, a final accounting and settlement (the "Terminal
--------
Accounting and Settlement") will take place in accordance with the provisions of
--------------------
this Article X. Article X of this Agreement will remain in effect following
termination until all obligations under Article X are satisfied in full.
Section 10.2. Date. The terminal accounting date will be the earliest of:
----
(i) the effective date of recapture pursuant to any notice of 100% recapture
given under this Agreement, (ii) the effective date of
23
termination pursuant to any notice of termination given under this Agreement, or
(iii) or any other date mutually agreed to by the Parties in writing (the
"Terminal Accounting Date").
---------------------
Section 10.3. Settlement. The Terminal Accounting and Settlement will
----------
consist of:
(i) the monthly settlement as provided in Section 8.4, computed as of the
Terminal Accounting Date as if this Agreement were still in effect;
(ii) payment by Anchor to ANLIC (Hawaii) of a terminal reserve equal to the
Modified Coinsurance Reserve as of the Terminal Accounting Date; and
(iii) payment by ANLIC (Hawaii) to Anchor of a terminal reserve adjustment
equal to the Modified Coinsurance Reserve as of the Terminal Accounting Date.
If the calculation of the Terminal Accounting and Settlement produces an amount
owing to Anchor, such amount will be paid by ANLIC (Hawaii) to Anchor. If the
calculation of the Terminal Accounting and Settlement produces an amount owing
to ANLIC (Hawaii), such amount will be paid by Anchor to ANLIC (Hawaii).
Section 10.4. Supplementary Accounting and Settlement. In the event that,
---------------------------------------
subsequent to the Terminal Accounting and Settlement as provided above, a change
is made with respect to any amounts due, a supplementary accounting will be made
by Anchor in the form of an accounting of the items specified in Section 10.3.
Any amount owed to Anchor or to ANLIC (Hawaii) by reason of such supplementary
accounting will be paid promptly upon the completion thereof.
ARTICLE XI
Insolvency
----------
Section 11.1. In General. In the event of Anchor's insolvency, any
-----------
payments due Anchor from ANLIC (Hawaii) pursuant to the terms of this Agreement
will be made directly to Anchor or its liquidator, receiver or statutory
successor. The reinsurance will be payable by ANLIC (Hawaii) on the basis of
the liability of Anchor under the Annuities reinsured without diminution because
of the insolvency of Anchor. The liquidator, receiver or statutory successor of
Anchor will give ANLIC (Hawaii) written notice of the pendency of a claim
against Anchor on any Annuity reinsured within a reasonable time after such
claim is filed in the insolvency proceeding. During the pendency of any such
claim, ANLIC (Hawaii) may investigate such claim and interpose in Anchor's name
(or in the name of Anchor's liquidator, receiver or statutory successor), in the
proceeding where such claim is to be adjudicated, any defense or defenses which
ANLIC (Hawaii) may deem available to Anchor or its liquidator, receiver or
statutory successor. The expense thus incurred by ANLIC (Hawaii) will be
chargeable, subject to court approval, against Anchor as a part of the expense
of liquidation to the extent of a proportionate share of the benefit which may
accrue to Anchor solely as a result of the defense undertaken by ANLIC
(Hawaii).
24
ARTICLE XII
Conditions to Effective Time
----------------------------
Section 12.1. Effective Time. The obligation of ANLIC (Hawaii) to
---------------
reinsure the Annuities and to perform its obligations hereunder relating thereto
shall take effect as of August 1, 1999 at the time, which must occur prior to
the close of business on September 30, 1999, at which all of the conditions set
forth in Sections 12.2 and 12.3 have been satisfied or, in the discretion of
ANLIC (Hawaii), waived (the "Effective Time").
---------------
Section 12.2. Condition Precedent to Reinsurance. (a) ANLIC (Hawaii)
-------------------------------------
shall have received on or before the Effective Time the following, each (unless
otherwise indicated) dated such date, in form and substance satisfactory to
ANLIC (Hawaii):
(i) Certified copies of the resolutions or rules adopted by the Board of
Directors or an authorized committee thereof of Anchor granting the appropriate
officers the authority to approve, execute and deliver this Agreement on behalf
of Anchor.
(ii) A certificate of the secretary or assistant secretary of Anchor
certifying the names and true signatures of the officers of Anchor authorized to
sign this Agreement and the other documents to be delivered by it hereunder.
(iii) A certificate of an authorized officer of Anchor certifying as to
satisfaction of the conditions set forth in Section 12.3.
(iv) Favorable opinions of Barger & Wolen, Low & Childers, Char Hamilton
Campbell & Thom, each counsel for Anchor, and Susan Harris, general counsel of
SunAmerica, each substantially in the form attached hereto as Schedule 12.2, as
to such matters as ANLIC (Hawaii) may reasonably request.
(v) Evidence that authorization or approval or other action by, and notice
to or filing with, the following Governmental Authorities shall have been
obtained or made to the extent required for the due execution, delivery and
performance by Anchor of this Agreement, or for the exercise by ANLIC (Hawaii)
of its rights and remedies under this Agreement: the Department.
(vi) Evidence that all conditions precedent to the obligations of all
parties under the AIC Retrocession Agreement, the ANLIC (Hawaii) YRT
Retrocession Agreement, the CG YRT Retrocession Agreement and the Servicing
Agreement have been satisfied.
(b) Anchor shall have received on or before the Effective Time the
following, each (unless otherwise indicated) dated such date, in form and
substance satisfactory to Anchor:
(i) Evidence that authorization or approval or other action by, and notice
to or filing with, the following Governmental Authorities shall have been
obtained or made to the extent required for the due execution,
25
delivery and performance by ANLIC (Hawaii) of this Agreement: the Hawaii
Insurance Commissioner.
(ii) Evidence that all conditions precedent to the obligations of all
parties under the AIC Retrocession Agreement, the ANLIC (Hawaii) YRT
Retrocession Agreement, the CG YRT Retrocession Agreement and the Servicing
Agreement have been satisfied and all covenants required to have been performed
have been performed.
Section 12.3. Additional Conditions Precedent to Effective Time. The
-----------------------------------------------------
Effective Time shall be subject to the further conditions precedent that at the
Effective Time the following statements shall be true (and the acceptance by
Anchor of the Ceding Commission shall constitute a representation and warranty
by Anchor that at the Effective Time such statements are true):
(i) the representations and warranties contained in Section 13.1 are
correct at, as of and immediately after the Effective Time, as though made on
and as of the Effective Time; and
(ii) no event has occurred and is continuing, or would result from the
reinsurance hereunder or from the application of the proceeds therefrom, that
constitutes an Event of Recapture or would constitute an Event of Recapture but
for the requirement that notice be given or time elapse or both;
and ANLIC (Hawaii) shall have received such other approvals, opinions or
documents as ANLIC (Hawaii) may reasonably request.
ARTICLE XIII
Representations and Warranties
------------------------------
Section 13.1. Representations and Warranties of Anchor. Anchor represents
----------------------------------------
and warrants as of the date hereof as follows:
(a) Anchor is a stock life insurance company duly incorporated, validly
existing and in good standing under the laws of Arizona and is duly qualified
and licensed in the District of Columbia and all states of the United States of
America except for the State of New York and in good standing as a foreign
insurer in each jurisdiction where the failure to be so qualified would have a
material adverse effect on the interests of ANLIC (Hawaii) hereunder or the
ability of ANLIC (Hawaii) to enforce its rights hereunder or the ability of
Anchor to perform its obligations under the Annuities and this Agreement.
(b) The execution, delivery and performance by Anchor of this Agreement and
Anchor's use of the proceeds of the Ceding Commission, are within Anchor's
corporate powers, have been duly authorized by all necessary corporate action,
do not contravene (i) Anchor's articles of incorporation or by-laws or (ii) law
or any regulation or contractual restriction binding on or affecting Anchor, and
do not result in or require the creation of any Adverse Claim (other than
pursuant hereto) upon or with respect to the Separate Accounts or Annuities or
any of its
26
properties; and no transaction contemplated hereby requires compliance with any
bulk sales act or similar law (other than California Civil Code 3440.1, which
has been duly complied with).
(c) No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required for the due execution,
delivery and performance by Anchor of this Agreement, or for the exercise by
ANLIC (Hawaii) of its rights and remedies under this Agreement, except for (i)
those set forth in Section 12.2(a)(v), and (ii) such filings with and approvals
of such Governmental Authorities as will have been duly made and obtained prior
to the Effective Time.
(d) This Agreement is the legal, valid and binding obligation of Anchor
enforceable against Anchor in accordance with its terms. This Agreement has
been duly executed and delivered by Anchor.
(e)(i) The annual Convention Statement of Anchor, including the provisions
made therein for investments and the valuation thereof, reserves, policy and
contract claims and statutory liabilities, as filed with the Department and
delivered to ANLIC (Hawaii) prior to the execution and delivery of this
Agreement, as of and for the years ended December 31, 1996, 1997 and 1998
(collectively, the "Anchor Statutory Financial Statements"), have been prepared
-------------------------------------
in accordance with SAP applicable thereto applied on a consistent basis (except
as noted therein). Each such Anchor Statutory Financial Statement was in
compliance with applicable law when filed. According to the best of Anchor's
information, knowledge and belief, the Anchor Statutory Financial Statements are
a full and true statement of all the assets and liabilities and of the condition
and affairs of Anchor as of the respective dates thereof and of its income and
deductions therefrom for the respective years ended on such dates and have been
completed in accordance with the NAIC annual statement instructions and
accounting practices and procedures manuals except to the extent that state law
may differ or that state rules or regulations require differences in reporting
not related to accounting practices and procedures.
(ii) Anchor has delivered to ANLIC (Hawaii) complete and correct copies of
the annual reports for the fiscal years ended September 30, 1997 and 1998 on
Form 10-K (collectively, the "Anchor Annual Reports") and all quarterly reports
---------------------
on Form 10-Q of Anchor for periods ending after September 30, 1998, in each case
as filed with the Securities and Exchange Commission (collectively, the "Anchor
------
Quarterly Reports"). The Anchor Annual Reports and the Anchor Quarterly Reports
- -----------------
correctly describe, as of their respective dates, the business then conducted
and proposed to be conducted by Anchor. There are included in the Anchor
Quarterly Reports and the Anchor Annual Reports consolidated financial
statements at and for the periods specified therein. Anchor has also delivered
to ANLIC (Hawaii) complete and correct copies of all current reports on Form
8-K, proxy statements, registration statements and prospectuses, if any, filed
by Anchor with the Securities and Exchange Commission since September 30, 1998.
All financial statements delivered to ANLIC (Hawaii) in the foregoing materials
(except as otherwise specified therein) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods specified with respect
to each
27
consolidated entity, and present fairly the financial position of the
corporation or corporations to which they relate as of the respective dates
specified and the results of its or their operations and changes in financial
position for the respective periods specified.
(f)(i) The value of the assets of Anchor calculated in accordance with SAP
is greater than the total amount of its liabilities, including contingent
liabilities, (ii) the present fair salable value of the assets of Anchor
calculated in accordance with SAP is not less than the amount that will be
required to pay all probable liabilities of Anchor on its debts as they become
absolute and matured, (iii) Anchor does not intend to, and does not believe that
it will incur debts or liabilities beyond Anchor's ability to pay such debts and
liabilities as they mature, (iv) Anchor is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction, for
which Anchor's property would constitute unreasonably small statutory surplus;
and (v) Anchor's Total Adjusted Capital is greater than the product of 2.5 times
Anchor's Authorized Control Level Risk-Based Capital (where "Total Adjusted
Capital" and "Authorized Control Level Risk-Based Capital" have the meanings
given those terms in the Risk-Based Capital (RBC) for Insurer Model Act adopted
by the National Association of Insurance Commissioners).
(g) There is no pending or, to the knowledge of Anchor, threatened action
or proceeding against or involving Anchor before any court, Governmental
Authority or arbitrator that may materially adversely affect (i) the financial
condition or operations of Anchor or (ii) the ability of Anchor to perform its
obligations under this Agreement, or that purports to affect the legality,
validity or enforceability of this Agreement.
(h) Anchor is the legal and beneficial owner of the right to receive
payment of the Charges free and clear of any Adverse Claim. No effective
financing statement or other instrument similar in effect covering any rights of
Anchor in any Separate Account or Annuity or any Charges or the Collections with
respect thereto or any proceeds thereof is on file in any recording office.
(i) Each Prospectus, information, exhibit, financial statement, document,
book, record or report (but in each case excluding any projections or forecasts
contained therein) furnished or to be furnished at any time by Anchor to ANLIC
(Hawaii) in connection with this Agreement is or will be accurate in all
material respects as of its date, and (except as otherwise disclosed to ANLIC
(Hawaii) at such time) as of the date so furnished, Anchor will have no
knowledge of a material inaccuracy as of the date thereof contained therein, and
no such document contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained therein, in the light of the circumstances under which
they were made, not misleading.
(j) The chief place of business and chief executive office of Anchor and
the office where Anchor keeps its records concerning the Annuities and Gross
Amounts Payable, including the original copies of each of the
28
Annuities and the Charges are located at the address specified in Section 17.4
(or, solely with respect to where Anchor keeps such records, Storeretrieve, Inc,
1150 South Taylor Avenue, Montebello, California) or in each case at such other
locations, notified to ANLIC (Hawaii) in accordance with Section 17.4. The
Obligors are the Separate Account and the Funds.
(k) All the Charges are Eligible Charges.
(l) The Charges are legal, valid and binding as to the Obligors and the
Contractholders and are enforceable in accordance with their terms against the
Obligors and no payment of any charge is past due.
(m) Schedule 13.1-1 contains true, correct and complete copies of each of
the forms of Annuity agreements (including the form of each endorsement included
in any Annuity) and such forms of Annuity contracts have been furnished to
Connecticut General Life Insurance Company in connection with the CG YRT
Retrocession Agreement.
(n) Anchor, each Fund and the Separate Account have irrevocably instructed
the Custodian to make all payments on account of Charges directly to ANLIC
(Hawaii) as and when required in the Standing Instructions.
(o) Schedule 13.1-3 sets forth the CARVM reserve methodology in use by
Anchor, as approved by the Department and in use in other applicable
jurisdictions.
(p) All of the Annuities reinsured under this Agreement are
non-participating.
(q) None of the Annuities reinsured under this Agreement provide for policy
loans.
Section 13.2. Representations and Warranties of ANLIC (Hawaii). ANLIC
----------------------------------------------------
(Hawaii) represents and warrants as of the date hereof as follows:
(a) ANLIC (Hawaii) is a stock captive insurance company duly incorporated,
validly existing and in good standing under the corporate laws of Hawaii.
(b) The execution, delivery and performance by ANLIC (Hawaii) of this
Agreement are within ANLIC (Hawaii)'s corporate powers, have been duly
authorized by all necessary corporate action, do not contravene (i) ANLIC
(Hawaii)'s articles of incorporation or by-laws or (ii) law or any regulation or
contractual restriction binding on or affecting ANLIC (Hawaii).
(c) No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required for the due execution,
delivery and performance by ANLIC (Hawaii) of this Agreement except for (i)
those set forth in Section 12.2(b)(i), and (ii) such filings with, and approvals
of such Governmental Authorities as will have been made and obtained prior to
the Effective Time.
29
(d) This Agreement is the legal, valid and binding obligation of ANLIC
(Hawaii) enforceable against ANLIC (Hawaii) in accordance with its terms.
(e) ANLIC (Hawaii) has provided to Anchor a true and correct copy of the CG
YRT Retrocession Agreement as the same will be in effect at the time provided in
the recitals to this Agreement.
ARTICLE XIV
Covenants
---------
Section 14.1. Anchor Internal Replacements. (a) Anchor will not permit an
----------------------------
Internal Replacement to occur except (i) an Internal Replacement made in the
ordinary course of business that is not described in subparagraph (i) or (ii) of
paragraph (b) of this Section 14.1, (ii) pursuant to paragraph (b) of this
Section 14.1, and (iii) an Internal Replacement as to which Anchor has obtained
the prior written consent of ANLIC (Hawaii). Anchor shall report all Internal
Replacements in the Reinsurance Servicer Report.
(b) If an Internal Replacement
(i) results from a program of Internal Replacement initiated or promoted by
(x) Anchor, its Affiliates, successors or assigns, or (y) an insurance agency,
an insurance or securities broker, or a bank or other organization authorized by
Anchor, its Affiliates, successors or assigns to sell fixed or variable life
insurance policies or annuity contracts, or
(ii) involves the issue, in substitution for or replacement of an Annuity,
of a fixed or variable life insurance policy or annuity contract by Anchor or
its Affiliates, successors or assigns that is not on a fixed or variable life
insurance policy or annuity contract form available for sale in substantially
all states in which Anchor is licensed to do an insurance business at the
Effective Time, and if such new form contains significant features that are not
features of the Annuity being replaced,
then Anchor must elect one of the following options with respect to such
Internal Replacement:
Replacement Option A - Anchor reinsures the replacement policy or contract
issued by Anchor with ANLIC (Hawaii) under this Agreement on terms and
conditions specified and agreed to by ANLIC (Hawaii).
Replacement Option B - (i) Anchor recaptures the Annuity subject to such an
Internal Replacement prior to its surrender, (ii) Anchor remits to ANLIC
(Hawaii) an amount (the "Replacement Fee") equal to the product of (x) an amount
---------------
equal the Unearned Ceding Commission Amount as of the beginning of the current
monthly Accounting Period, and (y) a fraction (A) the numerator of which is the
sum of (xx) the aggregate Separate Account Values, and (yy) the aggregate
Transferred Fixed Account Values for all Annuities so replaced during the period
from the end of the last monthly Accounting Period when a Replacement Fee was
last payable to the end of the current monthly Accounting Period (the
"Replacement Period"),
-----------
30
and (B) the denominator of which is the sum of (xx) the Separate Account Values,
and (yy) the Transferred Fixed Account Values of all Annuities at the end of the
current monthly Accounting Period without deduction for the aggregate Separate
Account Values and aggregate Transferred Fixed Account Values for all Annuities
so replaced during the Replacement Period, provided that the fraction in Item
--------
(ii)(y) is equal to or greater than 0.01 (one-one-hundredth), and provided
--------
further that any Replacement Fee due on August 1, 2019 shall be remitted
immediately notwithstanding the immediately preceding proviso, and (iii) the
payment to be made by ANLIC (Hawaii) under Section 5.2 for an Annuity subject to
such an Internal Replacement is reduced by the amount of any contingent deferred
sales charge waived by Anchor.
Section 14.2. Anchor Current Practices. While this Agreement is in
--------------------------
effect, Anchor will not, without the prior written consent of ANLIC (Hawaii),
(i) materially change or alter (x) its claims paying or administrative practices
with respect to the Annuities, or (y) its reserving practices with respect to
the Fixed Accounts or the Separate Accounts (including the methodology for
calculating the CARVM Reserve as set forth on Schedule 13.1-3), other than as
specifically required to satisfy the law or regulations of its state of domicile
or the directive of the director, commissioner of equivalent official thereof,
or with respect to any required filing in a non-domiciliary state, pursuant to
the laws, regulations or directives thereof, and then only if it gives prior
written notice to ANLIC (Hawaii), provided that such prior notice requirement
--------
will not apply if inconsistent with compliance with such law, regulation or
directive, or (ii) agree to adjust, settle, waive, compromise or make any change
in the terms or conditions of any Annuity, allow a credit or discount thereon,
or release wholly or partially the Custodian or any Obligor thereunder, provided
--------
that Anchor may, in the ordinary course of business consistent with its
administrative practices in effect at the Effective Time, adjust, settle, waive
or compromise the amount or payment of any Charges, allow a credit or discount
thereon, or release wholly or partially the Custodian or any Obligor thereunder
in an aggregate amount not to exceed (x) $100,000 in any monthly Accounting
Period, or (y) $500,000 in any calendar year, to be pro-rated for any portion of
a calendar year this Agreement is in effect (the "Waiver Allowance").
-----------------
Section 14.3. Anchor Other Reinsurance. While this Agreement is in
--------------------------
effect, Anchor will not reinsure any risks under the Annuities reinsured
hereunder other than pursuant to the reinsurance provided under this Agreement.
Section 14.4. Affirmative General Covenants of Anchor. Until the Terminal
---------------------------------------
Accounting and Settlement, Anchor will, unless ANLIC (Hawaii) shall otherwise
consent in writing:
(a) Performance. Duly and punctually observe and perform each and every
-----------
obligation on its part to be observed or performed under this Agreement, as
modified or amended from time to time as permitted herein.
(b) Compliance with Laws, Etc. Comply in all material respects with all
---------------------------
applicable laws, rules. regulations and orders with respect to (i) it and its
business and properties, except to the extent noncompliance would
31
not, individually or in the aggregate, have a material adverse effect on the
interest of ANLIC (Hawaii) hereunder or in the Gross Amounts Payable, or the
ability of Anchor to perform its obligations hereunder or under the Annuities
and (ii) all Charges and related Annuities and Collections with respect thereto.
(c) Preservation of Corporate Existence. Preserve and maintain its
--------------------------------------
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each other jurisdiction, where the failure to preserve
and maintain such existence, rights, franchises, privileges and qualifications
would materially adversely affect the interest of ANLIC (Hawaii) hereunder or in
the Gross Amounts Payable, or the ability of Anchor to perform its obligations
hereunder or under the Annuities.
(d) Audits. At any time and from time to time during regular business
------
hours, permit ANLIC (Hawaii) or its agents or representatives (including any
Successor Servicer), upon reasonable advance notice (i) to examine and make
copies of and abstracts from all books, records and documents (including
computer tapes and disks) in the possession or under control of Anchor relating
to the Annuities and the Gross Amounts Payable, and (ii) to visit the offices
and properties of Anchor for the purpose of examining such materials described
in clause (i) above, and to discuss matters relating to the Annuities and the
Gross Amounts Payable or Anchor's performance hereunder or under the Annuities
with any of the officers or employees of Anchor having knowledge of such
matters, provided that by exercising any such rights ANLIC (Hawaii) agree that
--------
they will hold in confidence all information so obtained and will use the same
only for the purposes contemplated by this Agreement.
(e) Maintenance of Separate Existence. Do all things reasonably necessary
---------------------------------
to maintain its corporate existence separate and apart from SunAmerica and other
Affiliates of Anchor, including (i) maintaining corporate records and books of
account separate from those of its Affiliates; (ii) except as otherwise provided
in this Agreement, not commingling its assets and funds with those of its
Affiliates; (iii) holding such appropriate meetings or obtaining such
appropriate consents of its board of directors as are necessary to authorize all
Anchor's corporate actions required by law to be authorized by the board of
directors, keeping minutes of such meetings and of meetings of its
stockholder(s) and observing all other customary corporate formalities; and (iv)
at all times holding itself out to the public under Anchor's own name as a legal
entity separate and distinct from its Affiliates.
(f) Keeping of Records and Books of Account. (i) Keep, or cause to be
-------------------------------------------
kept, proper books of record and account, which shall be maintained or caused to
be maintained by Anchor and shall be separate and apart from those of any
Affiliate of Anchor, in which (x) full and correct entries shall be made of all
financial transactions and the assets and business of Anchor in accordance with
SAP, and (y) it is clearly shown that the Annuities have been reinsured under
this Agreement, and (ii) maintain and implement administrative and operating
procedures (including an ability to recreate records evidencing the
Annuities and the Gross Amounts
32
Payable in the event of the destruction of the originals thereof), and keep and
maintain all documents, books, records and other information reasonably
necessary or advisable for the collection of all Gross Amounts Payable
(including records adequate to permit the daily identification of each new
Charge and all Collections of and adjustments to each existing Charge and all
Gross Amounts Payable), and (iii) mark its master data processing records
evidencing such the Annuities and the Gross Amounts Payable with a legend,
acceptable to ANLIC (Hawaii), evidencing that such Gross Amounts Payable is
subject to this Agreement.
(g) Performance and Compliance. At its expense timely and fully perform
----------------------------
and comply with all material provisions, covenants and other promises required
to be observed by it under the Annuities and the Gross Amounts Payable.
(h) Location of Records. Keep its chief place of business and chief
---------------------
executive office and the office where it keeps the originals of its records
concerning the Annuities and the Gross Amounts Payable at the address of Anchor
referred to in Section 13.1(j) or, upon 30 days' prior written notice to ANLIC
(Hawaii), at any other locations in a jurisdiction where all action required by
Section 17.5 shall have been taken.
(i) Collection Procedures, Allocation Procedures and Standing Instructions.
----------------------------------------------------------------------
Implement and comply at all times with the Collection Procedures, the Allocation
Procedures and the Standing Instructions.
(j) Payment of Taxes, Etc. Pay promptly when due all taxes, assessments
-----------------------
and governmental charges or levies imposed upon it or any Annuity or the Gross
Amounts Payable (including any intangibles, property or similar tax), or in
respect of its income or profits therefrom, any and all claims of any kind
(including claims for labor, materials and supplies), except for such taxes,
assessments, governmental charges or levies and claims as are being contested in
good faith by proper proceedings and against which adequate reserves shall have
been established, unless and until any Adverse Claim resulting from the failure
to pay such taxes, assessments, governmental charges or levies and claims shall
have attached and become enforceable against its other creditors.
(k) Fixed Account Segregated Assets. Establish and maintain the Fixed
----------------------------------
Account Segregated Assets in accordance with the requirements and procedures set
forth in Schedule 14.4.
Section 14.5. Reporting Requirements of Anchor. Until the Terminal
-----------------------------------
Accounting and Settlement, Anchor will, unless ANLIC (Hawaii) shall otherwise
consent in writing, furnish to ANLIC (Hawaii):
(a)(i)(x) promptly upon becoming available, but in any event within 75 days
after the end of each calendar year, a copy of the annual Convention Statements
of Anchor for such calendar year, and (y) promptly upon becoming available, but
in any event within 60 days after the end of each of the first three calendar
quarters, a copy of the quarterly Convention Statements of Anchor for such
quarter, in each case as filed by Anchor
33
with the Department and executed by the appropriate officer under the laws of
the state of domicile of Anchor, prepared in accordance with SAP and accompanied
by the certification of the chief financial officer or chief executive officer
or controller or treasurer of Anchor that such annual or quarterly Convention
Statement presents, to the best of his or her information, knowledge and belief,
a full and true statement of all the assets and liabilities and of the condition
and affairs of Anchor as of the date thereof and of its income and deductions
therefrom for the period ended on such date and have been completed in
accordance with the NAIC statement instructions and accounting practices and
procedures manuals except to the extent that state law may differ or that state
rules or regulations require differences in reporting not related to accounting
practices and procedures;
(ii)(x) promptly upon becoming available, but in any event within 75 days
after the end of each calendar year, a copy of the annual report on Form 10-K of
Anchor for such calendar year, and (y) promptly upon becoming available, but in
any event within 60 days after the end of each of the first three calendar
quarters, a copy of the quarterly report on Form 10-Q of Anchor for such
quarter, in each case prepared in accordance with GAAP and accompanied by the
certification of the chief financial officer or chief executive officer or
controller or treasurer of Anchor that such annual or quarterly financial
statement presents fairly, in accordance with GAAP, the financial position and
results of operations of Anchor as at and for the period ending on the date of
such financial statement;
(b) Within 90 days after the end of each calendar year, a copy of each
"Statement of Actuarial Opinion" that is provided to the Department (or
equivalent information should the Department no longer require such a statement)
as to the adequacy of aggregate reserves for life policies and contracts of
Anchor;
(c) as soon as possible and in any event within 5 Business Days after
Anchor's Knowledge of the occurrence of each Event of Recapture or each event
that, with the giving of notice or lapse of time or both, would constitute an
Event of Recapture, the statement of an authorized officer of Anchor setting
forth details of such Event of Recapture and the action that Anchor proposes to
take with respect thereto;
(d) as soon as possible and in any event within 5 Business Days after the
occurrence of any adjustment, settlement, waiver, compromise or change in the
terms or conditions of any Annuity or any credit, discount or release in respect
thereof, other than (i) that which is permitted by the Waiver Allowance, and
(ii) any adjustments, settlements, waivers, compromises or changes in the terms
or conditions of any Charges or any credits, discounts or releases in respect
thereof which, in the aggregate, exceeds $500,000 in excess of the Waiver
Allowance in any calendar year (such amount to be pro-rated for any portion of a
calendar year this Agreement is in effect), the statement of the general counsel
or chief financial officer of Anchor setting forth details thereof;
(e) promptly after the receipt thereof and in any event within 5 Business
Days, copies of each communication received by Anchor from the
34
Securities and Exchange Commission or the National Association of Securities
Dealers reporting the final results of, any audit or other investigation related
to the Annuities or any aspect of the sale, maintenance, investment or
administration thereof; and
(f) promptly, from time to time, such other information, documents, records
or reports respecting the Annuities the Gross Amounts Payable or the conditions
or operations, financial or otherwise, of Anchor, as ANLIC (Hawaii) may from
time to time reasonably request in writing in order to protect ANLIC (Hawaii)'s
interests under or contemplated by this Agreement.
Section 14.6. Negative Covenants of Anchor. Until the Terminal Accounting
----------------------------
and Settlement, Anchor will not, without the written consent of ANLIC (Hawaii):
(a) Sales, Liens, Etc. Except as otherwise provided herein, (i) sell,
-------------------
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, or create or suffer to exist any Adverse Claim upon or
with respect to, any interest in any Annuity or the Gross Amounts Payable, other
than, in the case of a Contractholder's interest in an Annuity, a lien,
encumbrance or assignment made or suffered by a Contractholder on such interest,
or (ii) assign any right of Anchor to receive income in respect of any thereof.
(b) Extension or Amendment of Annuities. Cancel or terminate any Annuity
------------------------------------
except pursuant to the request of a Contractholder (other than in connection
with an Internal Replacement), or amend or otherwise modify or waive the terms
of any Annuity, including any Charge, except as permitted by the Waiver
Allowance.
(c) Change in Collection Procedures. Make or consent to any change in the
-------------------------------
Collection Procedures, which change would be reasonably likely to impair the
collectibility of any Gross Amounts Payable, except as permitted by the Waiver
Allowance.
(d) Change in Allocation Procedures. Make or consent to any change in the
-------------------------------
Allocation Procedures, except with the prior written consent of ANLIC (Hawaii).
(e) Grant a Security Interest in the Gross Amounts Payable. Grant a
------------------------------------------------------------
security interest in the Annuities or the Gross Amounts Payable to any Person.
Section 14.7. Anchor Changes in Investment Funds, etc. (a) Except as
permitted by this Section 14.7, Anchor shall not agree to or permit to exist (i)
any termination, modification or amendment (a "Change") in any investment
------
management or advisory agreement under which any of the assets of the Separate
Accounts are managed (a "Contract Change"), or (ii) a Change in the Fundamental
---------------
Investment Objectives and Policies of any fund in which the assets of the
Separate Account are managed (a "Policy Change"), or (iii) the elimination of
-------------
any portfolio in which the assets of the Separate Account are managed (a "Fund")
----
or the addition of any new Fund, all except as required by Section 15 of the
Investment Company Act of 1940.
35
(b) Anchor may agree to or permit to exist any Contract Change or Policy
Change (i) with the prior consent of ANLIC (Hawaii), or (ii) of which Anchor has
given ANLIC (Hawaii) prior notice and which does not result in a reasonable
probability of a material adverse change in the Charges (other than an increase
in the payment of contingent deferred sales charges due to an increase in
surrenders resulting from the Contract Change or Policy Change) to which the
Contract Change or Policy Change relates, such probability to be measured as of
the date of the Contract Change or Policy Change, or (iii) if Anchor elects to
make a partial recapture under Section 14.7(d).
(c) Anchor may agree to the addition or elimination of any Fund if Anchor
has given ANLIC (Hawaii) prior notice of the circumstances of such addition or
elimination and any replacement Fund, and (i) Anchor obtains the prior consent
of ANLIC (Hawaii), or (ii) in the case of the elimination of any Fund, if such
Fund is replaced contemporaneously by another Fund with substantially similar
fundamental investment objectives and policies, or (iii) if such addition or
elimination does not result in a reasonable probability of a material adverse
change in the Charges (other than an increase in the payment of contingent
deferred sales charges due to an increase in surrenders resulting from the
Contract Change or Policy Change) to which the addition or elimination relates,
such probability to be measured as of the date of such addition or elimination,
or (iv) if Anchor elects to make a partial recapture under Section 14.7(d).
(d) If Anchor elects to make a partial recapture under Section 14.7(b) or
Section 14.7(c), it shall recapture under Section 9.3 (subject to the terms
thereof) a Recapture Percentage of the risks reinsured hereunder equal to that
percentage which the portion of the aggregate Separate Account Values of all
Annuities attributable to the Fund to which the Contract Change, Policy Change
or the addition or elimination of a Fund relates bears to the aggregate Separate
Account Values of all Annuities, such values to be determined as of the close of
business on the Business Day on which the notice of recapture is received by
ANLIC (Hawaii).
(e) Anchor shall inform ANLIC (Hawaii) and the reinsurer under the CG YRT
Retrocession Agreement or any Successor YRT Retrocession Agreement of any change
in any Fund, including the addition or elimination of any Fund.
(f) Notwithstanding the provisions of this Section 14.7, Anchor shall not
eliminate any Fund without adding another Fund except as permitted under the CG
YRT Retrocession Agreement or any Successor YRT Retrocession Agreement.
Section 14.8. Negative Covenants of ANLIC (Hawaii). Until the Terminal
--------------------------------------
Accounting and Settlement, ANLIC (Hawaii) will not, without the written consent
of Anchor, make or consent to any change to the AIC Retrocession Agreement, the
ANLIC (Hawaii) YRT Retrocession Agreement, the CG YRT Retrocession Agreement or
any Successor YRT Retrocession Agreement that would either (i) increase an
amount that is payable, directly or indirectly, by Anchor, or (ii) reduce any
obligation to pay an amount that will be payable, directly or indirectly, to
Anchor, by any party to such agreements.
36
ARTICLE XV
Reserve Credit
--------------
Section 15.1. Security. ANLIC (Hawaii) shall comply with Section 15.2 for
--------
the purpose of qualifying the reinsurance provided under Section 2.4 for
statutory financial statement credit by Anchor under the credit for reinsurance
rules applicable in Arizona.
Section 15.2. Letters of Credit. ANLIC (Hawaii) must apply for and
-------------------
provide to Anchor one or more letters of credit that meet the requirements of
Arizona laws and regulations in an amount equal to or greater than the reserves
ceded by Anchor with respect to the reinsurance provided under Section 2.4.
Such letter of credit may be drawn upon at any time and be used by Anchor or any
successor by operation of law of Anchor, including any liquidator,
rehabilitator, receiver or conservator of Anchor, without diminution because of
insolvency of Anchor or ANLIC (Hawaii), for the following purposes but only as
they relate to the reinsurance provided under Section 2.4:
(a) to reimburse Anchor for ANLIC (Hawaii)'s share of premiums returned to
the owners of the Annuities on account of cancellations of the Annuities;
(b) to reimburse Anchor for ANLIC (Hawaii)'s share of surrenders and
benefits paid by Anchor under the Annuities;
(c) to fund an account with Anchor in an amount at least equal to the
deduction, for reinsurance ceded, from Anchor's liabilities for the Annuities.
Interest on the amount of funds in such account shall accrue to the benefit of
ANLIC (Hawaii) at a rate not in excess of the prime rate of interest. Such an
amount shall include, but not be limited to, amounts for policy reserves,
reserves for claims and losses incurred (including losses incurred but not
reported), loss adjustment expenses and unearned premiums; and
(d) to pay any other amounts Anchor claims are due under this Agreement.
Section 15.3. Letters of Credit; Return of Excess Security. Anchor shall
--------------------------------------------
return any amounts drawn on letters of credit in excess of the actual amounts
required under Sections 15.2(a) through 15.2(c) and amounts under Section
15.2(d) that are subsequently determined not to be due.
ARTICLE XVI
Events of Recapture
-------------------
Section 16.1. Definition. If any of the following events shall occur and
----------
be continuing, an "Event of Recapture" shall exist:
--------------------
(a) Anchor fails to perform or observe any material term or agreement
hereunder (other than those terms and agreements set forth in Sections 3.3,
14.5(c) and 14.6(a)) on its part to be performed or observed and
37
such failure remains unremedied for 10 days.
(b) Anchor fails to perform or observe any material term, covenant or
agreement hereunder on its part to be performed or observed, other than those
which constitute an Event of Recapture under Section 16.1(a) or Section 16.1(c).
(c) Anchor fails to make any payment or deposit required under this
Agreement when due except with respect to an adjustment made under Section 2.13,
provided that payment by Anchor with respect to such adjustment is made within 3
- --------
Business Days after discovery thereof.
(d) Any representation or warranty or statement made by Anchor under this
Agreement was false in any material respect when made.
(e) There shall occur, without the consent of ANLIC (Hawaii), any
termination, modification or amendment in the terms and conditions applicable to
the Charges, except as permitted by the Waiver Allowance.
ARTICLE XVII
Miscellaneous
-------------
Section 17.1. Parties to this Agreement. This Agreement is solely between
-------------------------
Anchor and ANLIC (Hawaii), and performance of the obligations of each Party
under this Agreement shall be rendered solely to the other Party. In no instance
shall anyone other than Anchor or ANLIC (Hawaii) and their respective successors
and assigns have any rights under this Agreement. The acceptance of reinsurance
hereunder shall not create any right or legal relation whatever between ANLIC
(Hawaii) and the Contractholder, the insured or any beneficiary under any
Annuity reinsured hereunder and Anchor shall be and remain solely liable to such
Contractholder, insured or beneficiary under any such Annuity.
Section 17.2. Assignment. Anchor may not assign any of its rights, duties
----------
or obligations under this Agreement without prior written consent of ANLIC
(Hawaii), except as permitted hereby. ANLIC (Hawaii) may (i) grant a security
interest in all its right, title and interest in this Agreement, and (ii)
retrocede the risks reinsured hereunder but solely as contemplated by the AIC
Retrocession Agreement and by Section 2.17.
Section 17.3. Counterparts. This Agreement may be executed in any number
------------
of counterparts by the Parties on separate counterparts, each of which, when so
executed and delivered, shall be deemed an original, but all such counterparts
shall together constitute one and the same instrument.
Section 17.4. Notices. (a) Except as otherwise expressly provided herein,
-------
all notices, requests, demands, instructions, consents or other communications
provided for hereunder shall be in writing and delivered or mailed by registered
or certified mail or by overnight courier or by facsimile communication, in each
case prepaid and addressed to the intended recipient at its address for notices
specified in Section 17.4(b).
38
(b) All notices, requests, demands, consents, approvals or other
communications under this Agreement shall be addressed as follows (or to any
other address as may be designated in writing by the recipient):
If to Anchor:
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, CA 90067-6022
Attention: Lawrence M. Goldman, Associate General Counsel and James R. Belardi,
Senior Vice President
Facsimile: 310-772-6574
Telephone: 310-772-6000
If to ANLIC (Hawaii):
ANLIC Insurance Company (Hawaii), Ltd.
c/o 50th State Risk Management Services, Inc.
Six Waterfront Plaza, Room 405
500 Ala Moana Boulevard
Honolulu, HI 96813
Attention: Ann Nakagawa
Facsimile: 808-524-9526
Telephone: 808-543-9737
Section 17.5. Further Assurances. Anchor will do and perform, from time
-------------------
to time, any and all acts and execute any and all further instruments required
or reasonably requested by ANLIC (Hawaii) more fully to effect the purposes of
this Agreement.
Section 17.6. No Waiver; Cumulative Remedies. No failure to exercise and
------------------------------
no delay in exercising, on the part of ANLIC (Hawaii), any right, remedy, power
or privilege hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges therein
provided are cumulative and not exhaustive of any rights, remedies, powers and
privileges provided by law.
Section 17.7. Amendment and Waiver. No amendment, modification or
----------------------
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the Party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the Party
granting such waiver in any other respect or at any other time.
Section 17.8. Entire Agreement. The terms expressed herein constitutes
-----------------
the entire agreement between the Parties with respect to the Annuities reinsured
hereunder. There are no understandings between the Parties with respect to the
Annuities reinsured hereunder other than as expressed in this Agreement.
39
Section 17.9. Governing Law. This Agreement shall be governed by,
--------------
interpreted, construed and enforced by and in accordance with the internal laws
of the State of Arizona without regard to its choice-of-law rules.
Section 17.10. Consent to Jurisdiction. (a) Each Party hereto hereby
-------------------------
irrevocably submits to the exclusive jurisdiction of any State or Federal court
sitting in the State of Delaware, or, if no court in Delaware will exercise
jurisdiction, Arizona, and any appellate court from any thereof in any action or
proceeding arising out of or relating to this Agreement or any other instrument
or document furnished pursuant hereto, and each such Party hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such Delaware or Arizona State court, as the case may be, or in
such Federal court sitting in Delaware or Arizona, as the case may be. Each
such Party hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action or
proceeding. Each such Party irrevocably consents to the service of copies of
the summons and complaint and any other process that may be served in any such
action or proceeding by the mailing of copies of such process to such Party at
its address specified pursuant to Section 17.4. Each such Party agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(b) Nothing in this Section 17.10 shall affect the right of any such Party
to serve legal process in any other manner permitted by law or affect the right
of any such Party to bring any action or proceeding against any other such Party
or their respective property in the courts of other jurisdictions other than the
State of New York if no court in the States of Delaware or Arizona will exercise
jurisdiction.
Section 17.11. Special Service of Process. Pursuant to any statute of any
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state, territory or district of the United States which makes provision
therefore, ANLIC (Hawaii) hereby designates the Superintendent, Commissioner or
Director of Insurance, or other officer specified for that purpose in the
statute, or the successor or successors in office as its true and lawful
attorney upon whom may be served any lawful process in any action, suit or
proceeding instituted by or on behalf of Anchor or any beneficiary hereunder
arising out of this Agreement, and hereby designates the person specified for
ANLIC (Hawaii) pursuant to Section 17.4 as the person to whom the said officer
is authorized to mail such process or a true copy thereof.
Section 17.12. WAIVER OF JURY TRIAL. ANCHOR AND ANLIC (HAWAII) HEREBY
-----------------------
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 17.13. Headings. The headings contained in this Agreement are for
--------
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
and delivered as of the date first above written.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By________________________________
Name:
Title:
ANLIC INSURANCE COMPANY (HAWAII), LTD.
By_________________________________
Name:
Title:
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