COINSURANCE AGREEMENT
THIS COINSURANCE AGREEMENT (the "Agreement") is made and entered into effective
as of the ___ day of December, 2002 (the "Execution Date"), by and between
SECURITY NATIONAL LIFE INSURANCE COMPANY, a corporation organized under the laws
of the state of Utah (hereinafter referred to as "Coinsurer") and ACADIAN LIFE
INSURANCE COMPANY, a corporation organized under the laws of the state of
Louisiana (hereinafter referred to as "Ceding") (Coinsurer and Ceding
collectively, the "Parties").
WITNESSETH:
WHEREAS, Ceding and Coinsurer desire to enter into a Coinsurance Agreement
pursuant to which Ceding and Coinsurer will agree to reinsure all of the assumed
liabilities relating only to Policies included within the Reinsured Policies as
defined in Section 1.1(d) below;
NOW, THEREFORE, in consideration and mutual promises and covenants contained
herein, and in reliance upon representations, warranties, conditions and
covenants contained herein, and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Terms Defined.
When used in this Agreement, the following terms shall have the
meanings set forth below:
(a) "Extra-Contractual Obligations" shall mean any amount awarded
against Ceding or for which Ceding is in any way liable that
exceeds the amount that Ceding is contractually obligated to pay.
The foregoing includes, without limitation, damages awarded in
addition to policy benefits, as well as tort damages, awarded as
a result of conduct by Ceding or its agents or employees. The
foregoing includes, without limitation, any amounts paid by
Ceding over and above the contract liability as part of a
settlement. Without limitation of the foregoing,
"Extra-Contractual Obligations" include punitive damages (as
commonly understood and which in any event are damages awarded as
a penalty or as damage for certain conduct) and compensatory
damages (amounts awarded to compensate for the actual damages
sustained). Nothing in this paragraph is intended to include the
trust agreements as described in the Asset Purchase Agreement
dated June 15, 2001, among Gulf National Life Insurance Company,
Gulf Holdings, Inc., the Gulf Group, Inc., Acadian Life Insurance
Company and Acadian Financial Group, Inc. (the "Trust
Agreements") that, while not part of the policy language, do
constitute an obligation requiring additional reserves. Said
Trust Agreements are being assigned by Ceding to, and accepted
by, Coinsurer.
(b) "Policies" shall mean the contracts of insurance issued or
assumed by Ceding in respect of which reinsurance is applied for
and/or placed pursuant to this agreement in whole or in part.
(c) "Coinsurance Cession" shall mean the insurance transferred to
Coinsurer by Ceding on a policy.
(d) "Reinsured Policies" shall mean all the insurance policies in
force to be transferred to Coinsurer that are listed and
described on the compact disk (CD) attached hereto as Exhibit I.
The Policies in Exhibit I include in force policies (including
policies which may be lapsed subject to the right of
reinstatement, policies not lapsed but in arrears, and policies
in force and in effect as paid up and extended term policies)
with premiums paid and their face amounts, insured, and all other
characteristics are accurately reflected. Reinsured Policies
shall also include all policies written by Ceding under similar
terms and conditions, in the state of Mississippi from the
Effective Date through termination of this treaty.
ARTICLE II
REINSURANCE CEDED AND ACCEPTED
2.1. Effective Date
The Effective Date shall be September 30, 2002, at 11:59:59 p.m. (CDT)
subsequent to Ceding's recapture of the insurance in force from
Scottish Re (U.S.), Inc. on September 30, 2002, at 11:59 p.m. (CDT).
Notwithstanding anything in this agreement to the contrary, Coinsurer
shall incur no liability hereafter until the Initial Coinsurance
Premium has been paid. If any amounts due under this treaty, including
those due under paragraph 4.1, 5.3, and 2.7 are not paid, Coinsurer's
liability shall be reduced accordingly.
2.2. Reinsurance Ceded and Accepted
Subject to paragraph 2.1, Coinsurer hereby agrees to assume all of the
risks (including deaths, surrenders, disability, accidental deaths and
dismemberment) only on the Reinsured Policies listed and described in
Exhibit I as of the Effective Date of this Agreement. Ceding
represents and warrants that each of the Policies in Exhibit I are in
force (including policies which may be lapsed subject to the right of
reinstatement, policies not lapsed but in arrears, and policies in
force and in effect as paid up and extended term policies) with
premiums paid and its face amount, insured, and all other
characteristics is accurately reflected. The acceptance of risks under
this Agreement will create no right or legal relation between the
Coinsurer and the insured policy owner or beneficiary of any insurance
policy or other contract of Ceding.
2.3. Liability
Coinsurer accepts liability for all of the risks under the Reinsured
Policies on eligible lives for all benefits occurring on or after the
Effective Date of this Agreement. The liability of Coinsurer on any
policy shall commence on the Effective Date of this Agreement and end
simultaneously with that of Ceding. Notwithstanding anything which may
be to the contrary, Coinsurer shall not be liable at any time for
Extra-Contractual Obligations. It is understood and agreed that Ceding
is ceding all of the Reinsured Policies to Coinsurer as of the
Effective Date. Notwithstanding Coinsurer's obligations in the
Agreement, including the first sentence of this paragraph 2.3, from
the Effective Date of this Agreement until the last day of the month
in which the Execution Date occurs, Ceding will be wholly responsible
for any and all risks related to the Reinsured Policies and shall
operate in the ordinary course of business. Coinsurer shall be wholly
responsible for any and all risks related to the Reinsured Policies
following the last day of the month in which the Execution Date
occurs, including any potential or actual decline in the level or
number of insurance Policies included within the Reinsured Policies.
2.4. Errors and Omissions
It is expressly understood and agreed that if failure to comply with
any terms of this Agreement is shown to be unintentional and the
result of errors or omissions on the part of either Ceding or
Coinsurer, both Ceding and Coinsurer shall be restored to the position
they would have occupied had no such error or omission occurred. If it
is not possible to restore each party to the position that it would
have occupied, the parties will endeavor in good faith to resolve the
situation in a manner that is fair and reasonable and most closely
approximates the intent of this Agreement.
2.5. Currency
All figures and premiums in this Agreement are in U.S. dollars.
2.6. Right to Assume Reinsured Policies
Coinsurer reserves the right to assume all right, title and interest
to the Reinsured Policies listed and described on Exhibit I, as well
as all other similar policies written by Ceding under similar terms
and conditions, in the state of Mississippi from the Effective Date
through termination of this treaty, with an assumption reinsurance
agreement (the "Assumption Reinsurance Agreement") in the form
attached hereto as Exhibit II at any time but in any event not later
than nine (9) months subsequent to the Execution Date of this
Agreement, subject to all regulatory approvals as required by law of
the insurance department of the State of Louisiana. In the event (i)
Ceding comes under any supervision by a state regulator or in the
event Ceding shall (ii) apply for or consent in the appointment of, or
the taking of possession by, a receiver, custodian, regulator trustee
or liquidator of itself or of all or a substantial part of its assets,
(iii) make a general assignment for the benefit of its creditors, (iv)
commence a voluntary case under the Federal Bankruptcy Code, (v) file
a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization or winding up, or (vi) take any
action for the purpose of effecting any of the foregoing, or a
proceeding or case shall be commenced without the application or
consent of Ceding in any court or forum of competent jurisdiction
seeking (a) its liquidation, reorganization, dissolution or
winding-up, (b) the appointment of a trustee, receiver, custodian,
liquidator or the like of Ceding or of all or any substantial part of
its assets, or (c) similar relief in respect of Ceding under any law
relating to bankruptcy, insolvency, reorganization or winding up,
Coinsurer and Ceding shall be deemed to have converted this Agreement
to the Assumption Reinsurance Agreement one day prior to such
insolvency or other actions described in this Paragraph 2.6, and
Coinsurer shall be deemed to have assumed the Reinsured Policies as of
one day prior to the date thereof.
2.7. Transfer of Assets
On or before the expiration of ninety (90) days following the last day
of the month in which the Execution Date occurs, Ceding shall deliver
or cause to be delivered to Coinsurer any additional assets as may be
necessary to result in final delivery to Coinsurer of assets equal to
the total reserves applicable to the Reinsured Policies as of the last
day of the month in which the Execution Date occurs. Conversely, if
the assets delivered by Ceding to Coinsurer on the Execution Date
exceed the total reserves applicable to the Reinsured Policies as of
the last day of the month in which the Execution Date occurs,
Coinsurer shall return to Ceding assets having a statutory value equal
to such excess, on or before the expiration of ninety (90) days
following the last day of the month in which the Execution Date
occurs. Ceding shall be entitled to the income received from the
Reinsured Policies, including the net investment income, through the
last day of the month in which the Execution Date occurs.
ARTICLE III
ACTUARIAL RESERVES
3.1. Statutory Reserves Basis
On the Effective Date and throughout the duration of this Agreement,
the reserves (the "Coinsurance Reserves") shall be those used by
Ceding and approved by Coinsurer and the insurance departments of the
States of Louisiana and Utah in the calculation as of September 30,
2002, at 11:59p.m. (CDT)) as they appear in the NAIC Quarterly
Statement filed by Ceding. To the extent approval cannot be obtained
from any of such insurance departments, Ceding shall have presented
the methodology for the calculation of reserves to such insurance
departments and received no objection thereto.
ARTICLE IV
TRANSACTIONS
4.1. Initial Coinsurance Premium
On the last Execution Date, Ceding shall pay Coinsurer an initial
coinsurance premium in cash or assets acceptable to Coinsurer in an
amount equal to the full Coinsurance Reserves (as defined in Paragraph
3.1), including the Incurred But Not Reported (IBNR) reserve as of the
Effective Date.
4.2. Ceding Commission
The ceding commission to be paid by Coinsurer to Ceding for the
Reinsured Policies shall be the recapture amount to be paid by Ceding
to Scottish Re (U.S.), Inc. currently estimated to be $10,254,803
pursuant to the Automatic Coinsurance Agreement dated June 1, 2001
(Treaty No. 1001), between Ceding and Scottish Re (U.S.), Inc., but in
any event such commission shall not exceed $10,300,000.
ARTICLE V
ADMINISTRATION, PREMIUMS, ALLOWANCES AND BENEFITS
5.1. General
Coinsurer shall provide all of the administrative services and assumes
all liability for the payment of all legal obligations, including
claims, commissions, and expenses, not otherwise excluded herein, for
the Reinsured Policies following the last day of the month in which
the Execution Date occurs. Ceding agrees to provide any necessary
accommodations or assignments to effectuate the intent of this
Agreement, including premium collections, billings, and use of
licenses to insure that all premiums are paid to Coinsurer following
the last day of the month in which the Execution Date occurs.
Coinsurer agrees to perform the administrative services with a level
of skill, diligence, care and expertise that is consistent with
industry standards for an administrator of the types of policies
coinsured hereunder and shall also comply in all material respects
with all applicable laws and the terms of the Reinsured Policies.
Coinsurer hereby covenants that it will employ and retain staff with
the experience, skill and expertise to perform the administrative
services in a manner consistent with the standards set forth herein.
Unless specifically mutually agreed otherwise, Coinsurer shall follow
the standard industry practices with respect to premium collections,
changes, reductions, terminations, reinstatements, and the calculation
and payment of non-forfeiture benefits. Ceding shall deliver the
policy forms and policy jackets of the Reinsured Policies, and all
other procedures, documents and systems relating to the Reinsured
Policies. Coinsurer will be responsible for negligent acts or for
errors while providing administrative services during the term of the
Agreement.
5.2. Policy Loans
Coinsurer shall be responsible to calculate, dispense and account for
all policy loans, following the last day of the month in which the
Execution Date occurs.
5.3. Coinsurance Premiums
The Coinsurance premiums payable by Ceding to Coinsurer shall be equal
to all of the premiums collected by Ceding on the Reinsured Policies
following the last day of the month in which the Execution Date
occurs.
5.4. Allowances
Allowances to be paid to Ceding (which include reimbursement for state
premium tax) shall be equal to the gross premium taxes due on premiums
collected following the last day of the month in which the Execution
Date occurs. Reinsurer shall also reimburse Ceding for any actual
expenses incurred by Ceding in order to comply with this Agreement,
provided the Parties have agreed in writing in advance for such
reimbursements.
5.5. Claims and other Policy Benefits
Coinsurer will be liable for all of the policy benefits on Policies
ceded hereunder to the same extent as Ceding is liable for such
benefits toward the insured. Coinsurer is not liable for and Ceding is
not ceding any policy issued to an insured whose death occurred prior
to the Effective Date and for which a death claim has been received by
Ceding prior to the Effective Date. All claims of every nature and
description originating and arising prior and including the last day
of the month in which the Execution Date occurs under policies
included in the Reinsured Policies shall be paid and discharged by
Ceding. All claims originating and arising after the last day of the
month in which the Execution Date occurs and relating to the Reinsured
Policies shall be paid by Coinsurer. Coinsurer will receive the
Incurred But Not Reported (IBNR) reserve to cover its liability
following the last day of the month in which the Execution Date
occurs.
5.6. Dividends
For policyholders' dividends, Coinsurer shall be liable for all of
such dividends, provided such dividends have been declared by the
board of directors of Ceding on the basis of recommendations made by
Coinsurer, or are contractually guaranteed prior to Effective Date.
5.7. Authorization for Payment
Coinsurer will follow usual and customary procedures and decisions on
all claims and settlements, and it agrees to hold harmless Ceding for
any and all damages related to the payment of any such claims or
settlements. Ceding agrees to hold harmless Coinsurer from (i) any
claims by any third parties to the ownership or options to acquire the
ownership of any of the assets, tangible, intangible, movable or
immovable, covered by this Agreement, (ii) any claims to be paid or
discharged by Ceding and (iii) any and all monetary damages,
liabilities, fines, fees, penalties, interest obligations,
deficiencies, losses, costs, and expenses (including reasonable fees
and expenses of attorneys, accountants, actuaries, and other experts)
solely related to the Reinsured Policies resulting from any breach of
Ceding of any representation, warranty, covenant or agreement made by
Ceding in this Agreement. The indemnity provisions provided in
subsection (iii) of the preceding sentence shall only apply to such
claims presented in writing to Ceding on or after the Execution Date.
5.8. Reporting
All the amounts referred to in Paragraphs 5.3, 5.4, 5.5 and 5.6 shall
be reported to Coinsurer by Ceding on a bulk basis at the end of each
quarter. When an amount is due to Coinsurer according to the quarterly
report, payment will accompany the report. When an amount is due to
Ceding, Coinsurer shall pay it within thirty (30) days of the receipt
of such report.
ARTICLE VI
REPORTING AND ACCOUNTING
6.1. Accounting Period
Each accounting period under this Agreement will be a calendar
quarter, except that: (a) the initial accounting period will run from
the Effective Date of this Agreement through the last day of the
calendar quarter during which the Effective Date of this Agreement
falls, and (b) the final accounting period will run from the end of
the preceding accounting period until the assumption date of this
Agreement as described in Paragraph 2.6, if any, or until the
termination of the last policy in force, whichever occurs first.
6.2. Quarterly Accounting Reports
Ceding and Coinsurer shall prepare quarterly accounting reports and
submit them to each other within thirty (30) days of the end of each
calendar quarter.
6.3. Inspection of Records
Ceding and Coinsurer shall each have the right to inspect at any
reasonable time, at the office of the other party, all files and
documents relating to the reinsurance under this Agreement.
ARTICLE VII
RECAPTURE
7.1. Recapture
Ceding shall not have the option to recapture the business reinsured
hereunder unless agreed to by Coinsurer in writing.
ARTICLE VIII
ARBITRATION
8.1. Principle
If Ceding and Coinsurer cannot mutually resolve a dispute that arises
out of, or relates to, this Agreement, the dispute will be decided
through binding arbitration. To initiate arbitration either Ceding or
Coinsurer will notify the other party in writing of its desire to
arbitrate stating generally the nature of the dispute and the relief
sought. The party to which the written notice is sent shall respond to
the notification in writing within fourteen (14) days of its receipt.
8.2. Arbitration.
Unless the parties otherwise agree in writing, there will be three
arbitrators. Each party will designate one arbitrator within thirty
(30) days after the first written notice is given of arbitration. If
either party refuses or neglects to appoint an arbitrator within the
original thirty (30) day period or within twenty (20) days after the
other party has given written notice to the other of its arbitrator
appointment, whichever later occurs, the party that has already
selected an arbitrator will appoint a second arbitrator. The two
arbitrators shall endeavor to select a third arbitrator. If the two
arbitrators cannot agree on the third arbitrator within twenty (20)
days of the appointment of the second arbitrator then Ceding and the
Coinsurer will each name three candidates to serve as the third
arbitrator. Beginning with the party that did not initiate
arbitration, each party will eliminate one candidate form the six
until one remains. If this candidate declines to serve as the
arbitrator, then the candidate last eliminated will be approached to
serve. This process will be repeated until a candidate has agree to
serve as the third arbitrator. The three arbitrators are to be
impartial regarding the dispute. Each of the arbitrators will be a
current of former executive officer of a life insurance or a life
reinsurance company other that the parties to this agreement, their
affiliates or subsidiaries or any other company which would have and
involvement with the parties to the extent that the arbitrate would
not be impartial.
8.3 Procedures
The arbitrators will base their decision on the terms and conditions
of this Agreement and the customers and practices of the insurance and
reinsurance industries along with statutory and decisional law of the
state of Utah, or if there is not applicable decisional law in the
state of Utah, then the arbitrators may refer to other decisional law
within the United States as the arbitrators deem appropriate. The
arbitration hearing will be held in Jackson, Mississippi. A hearing
will commence no later than one hundred eighty (180) days after the
appointment of the third arbitrator unless otherwise agreed to by the
parties in writing. As soon as reasonably possible the arbitrators
will establish arbitration procedures as warranted by the facts and
issues of the particular case. The arbitrators may utilize those
procedures which appear to be appropriate from the commercial rules of
the American Arbitration Association. A date will be established prior
to the arbitration hearing when each party is to provide the other
party and the arbitrators a statement of the facts and arguments to be
presented at the arbitration hearing. The arbitrators will have the
power to decide all substantive procedural rules of the arbitration,
including but not limited to inspection of documents, examination of
witnesses and any other matter relating the conduct of the
arbitration.
8.4 Decision
The decision of the arbitrators is to be made a majority rule and will
be submitted in the writing and will be final and binding on the
Parties, subject to any appeal or motion to vacate or modify. Any such
appeal or motion to vacate or modify must be filed with the United
States District Court for the District of Utah and the basis for any
such appeal of motions is limited to that set for the in Sections
78-31a-14,15 of the Utah Arbitration Act. The parties agree that the
determination of the arbitrators and award, if any, may be entered
with the federal court located in Salt Lake County, State of Utah and
the determination and award, if any, may then be enforced amount the
Parties, as if entered by a court at the conclusion of a judicial
proceeding at which no appeal was taken. When seeking to enter the
award with a court, the applicable Utah arbitration or statutory law
or Federal Arbitration Act, as appropriate, will govern as the
procedure and what may be brought to the attention of the court.
8.5. Costs
Unless the arbitrators decide otherwise, each party will bear the
expense of its own arbitration activities, including its appointed
arbitrator and witness fees. The parties will jointly bear the expense
of the third arbitrator. Each Party is to bear its own attorney's
fees.
8.6. Applicable Law
Should there be improprieties in the arbitration process or if one of
the Parties objects to the implementation of the arbitration process,
the laws of the State of Mississippi shall then apply.
ARTICLE IX
INSOLVENCY
9.1. Payment of Claims
In the event of insolvency of Ceding, any amounts owed by Coinsurer
under this Agreement shall be paid by Coinsurer directly to Ceding,
its liquidator, receiver or statutory successor, and Coinsurer shall
be deemed to have converted this Agreement to the Assumption
Reinsurance Agreement one day prior to such insolvency pursuant to
Paragraph 2.6.
9.2. Right to Offset
In the event of the insolvency of either Coinsurer or Ceding, any
amounts owed by Coinsurer to Ceding and by Ceding to Coinsurer with
respect to this and all other reinsurance agreements between Coinsurer
and Ceding, shall be offset against each other with the balance to be
paid by the appropriate party.
9.3. Insolvency Definition
For purposes of this Article IX, "insolvency" encompasses the items
set forth in Section 2.6(i), (ii), (iii), (iv), (v) and (vi) and
Section 2.6(a), (b) and (c).
ARTICLE X
DEFERRED ACQUISITION COST TAX
Coinsurer and Ceding mutually agree to the following pursuant to Section
1.848-2(g)(8) of the Income Tax Regulations issued on December 29, 1992 of the
Internal Revenue Code of 1986.
(a) The Party with net positive consideration for the Agreement(s)
for each taxable year shall compute specified policy acquisition
expenses without regard to the general deductions limitation of
Section 848(c)(1).
(b) Coinsurer and Ceding agree to exchange information pertaining to
the amount of net consideration as determined for all reinsurance
Agreements in force between them to ensure consistency or as may
otherwise be required by the Internal Revenue Service.
(c) Ceding will submit a schedule to Coinsurer by April 1st of its
calculation of the net consideration for the preceding calendar
year. This calculation shall be accompanied by a statement signed
by an officer of Ceding stating that it will report such net
consideration in its tax return for the preceding calendar year.
(d) Coinsurer shall advise Ceding if it disagrees with the amounts
provided and Ceding and Coinsurer agree to amicably resolve any
difference. The amounts provided by Ceding shall be presumed
correct if it does not receive a response from Coinsurer within
30 days after receipt by Coinsurer of these amounts or by May 30
of the current year.
ARTICLE XI
EXECUTION
11.1. Parties to the Agreement
This is an Agreement solely between Ceding and Coinsurer. There will be no
legal relationship between Coinsurer and any person having an interest of
any kind in any of Ceding's insurance, or between Coinsurer and any other
Coinsurer, or between Coinsurer and any other third party.
11.2. Waiver
Any term or condition of this Agreement may be waived at any time by the
party that is entitled to benefit thereof. Such waiver must be in writing
and must be executed by an executive officer of such party. A waiver on one
occasion will not be deemed to be a waiver of the same or any other breach
or nonfulfillment on a future occasion. All remedies, either under this
Agreement, or by law or, otherwise afforded, will be cumulative and not
alternative.
11.3. Amendment
This Agreement may be modified or amended only in writing duly executed by
each of the Parties.
11.4. Counterparts
This Agreement may be executed simultaneously in counterparts, each of
which will be deemed an original, but all of which, when taken together,
will constitute one and the same instrument.
11.5. Governing Law
This Agreement will be governed by and construed and enforced in accordance
with the laws of the State of Mississippi (without regard to the principles
of conflicts of law) applicable to a contract executed and performable in
such state.
11.6. Binding Effect
This Agreement is binding upon and will inure to the benefit of the Parties
and their respective successors and permitted assigns.
11.7. No Assignment
Neither this Agreement nor any right or obligation hereunder or part hereof
may be assigned by any party hereto without the prior written consent of
the other party hereto (and any attempt to do so will be void).
11.8. Entirety
This Agreement shall constitute the entire Agreement between Ceding and
Coinsurer with respect to the business reinsured hereunder. There are no
understandings between Ceding and Coinsurer other than as expressed in this
Agreement.
11.9. Due Diligence
Each party to this Agreement hereby acknowledges that it has received from
the other party all information requested and has had an adequate
opportunity to investigate all aspects of this transaction. Each party has
done its own due diligence with respect to this transaction, and each has
hired and relied upon the advice of its own attorneys, financial advisors,
and such other advisors as such party has deemed necessary to evaluate
properly all aspects of this transaction. Each party further acknowledges
that no representations have been made by any party concerning this
transaction, except as specifically set forth herein or in one or more
written agreements between the parties.
11.10. Invalid Provisions
If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under any present or future law, and if the rights or
obligations under this Agreement will not be materially and adversely
affected thereby, (i) such provision will be fully severable; (ii) this
Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and (iii) the
remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid, or unenforceable
provision or by its severance from this Agreement.
IN WITNESS WHEREOF, each of the Parties hereto, intending to be legally bound
hereby, have duly executed this Agreement as of the date first written.
ACADIAN LIFE INSURANCE COMPANY
By:____________________________________
Its:_____________________________
SECURITY NATIONAL LIFE INSURANCE COMPANY
By:______________________________________
Its: _____________________________