REINSURANCE AGREEMENT
Between
MEMORIAL INSURANCE COMPANY OF AMERICA
and
SECURITY NATIONAL LIFE INSURANCE COMPANY
TABLE OF CONTENTS
ARTICLES
I. GENERAL PROVISIONS................................................ 1
II. DURATION OF RISK.................................................. 3
III. PREMIUMS AND CONSIDERATIONS....................................... 4
IV. BENEFIT PAYMENTS.................................................. 4
V. ACCOUNTING AND SETTLEMENTS........................................ 5
VI. ARBITRATION....................................................... 6
VII. INSOLVENCY........................................................ 6
VIII. DAC TAX PROVISION................................................. 7
IX. MISCELLANEOUS PROVISIONS.......................................... 8
X. EXECUTION AND EFFECTIVE DATE...................................... 9
SCHEDULES
A. POLICIES AND RISKS REINSURED
B. REINSURANCE PREMIUMS
C. COMMISSION AND EXPENSE ALLOWANCE
D. MONTHLY REPORT OF ACTIVITY AND SETTLEMENTS
EXHIBITS
1. TRUST AGREEMENT
REINSURANCE AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into, effective this
29th day of December, 2005, by and between MEMORIAL INSURANCE COMPANY OF
AMERICA, an Arkansas domiciled insurance company (hereinafter referred to as the
"Company") and SECURITY NATIONAL LIFE INSURANCE COMPANY, a Utah domiciled
insurance company (hereinafter referred to as the "Reinsurer").
The Company and the Reinsurer mutually agree to reinsure on the terms and
conditions stated herein. This Agreement is an indemnity reinsurance agreement
solely between the Company and the Reinsurer, and performance of the obligations
of each party under this Agreement shall be rendered solely to the other party.
ARTICLE I
GENERAL PROVISIONS
1. Contracts and Risks Reinsured. The Reinsurer agrees to indemnify and the
Company agrees to transfer risk to the Reinsurer, according to the terms and
conditions hereof, the risks described in Schedule A hereto, which are in force
on the effective date (the "Effective Date") of this Agreement; subject,
however, to the same rights, offsets, counterclaims, cross claims and defenses
as are available to the Company. The Reinsurer agrees to assume all of the risk
relating to the policies transferred hereunder on the Effective Date and any new
business written after the Effective Date, except for certain policies to be
retained by the Company. No such offsets, counterclaims, cross claims or
defenses are waived but the same are expressly preserved, and Reinsurer is and
shall be fully subrogated thereto, either in its own name or in the name of the
Company, and whether the name be now known to exist or may hereafter be
discovered.
2. Coverages and Exclusions. Only risks under the life insurance policies
referred to in Schedule A are reinsured under this Agreement.
3. Plan of Reinsurance. This indemnity reinsurance shall be on the coinsurance
plan. The Company and the Reinsurer shall establish, maintain, and place all
assets held in relation to the reserves in trust in accordance with the terms of
a certain Trust Agreement, a copy of which is attached hereto as Exhibit _1_ and
by this reference is made a part hereof. The assets are to be accounted for
using statutory accounting principles of the state of Arkansas. On the Effective
Date of this Agreement, the assets to be transferred into the trust pursuant to
the Trust Agreement shall be equal to the amount of reserves transferred
thereunto.
4. Reserves. The word reserves, whenever used, shall mean the statutory reserves
held by the Company, or as should be held by the Company, on its NAIC Convention
Blank, with respect to the policies reinsured hereunder. The Company certifies,
to the best of its knowledge and belief, the actuarial accuracy of the reserves
based upon the appropriate mortality table, interest assumptions, and method of
calculation relating to each of the policies reinsured hereunder, and the
accuracy of the outstanding balances of the policy loans, dividend deposits and
coupon deposits, if any, applicable to each of the policies reinsured hereunder;
provided, however, that in the event of a breach of these policies or the
discovery by the Company or the Reinsurer of an error in calculation or
actuarial inaccuracies, any such breach or error may be cured by the Company or
the Reinsurer making a cash payment to the other, as the case may be, of the
amount of any such error in calculation or actuarial inaccuracy.
5. Extracontractual Damages. In no event shall the Reinsurer indemnify nor be
liable for any extracontractual damages or liability of any kind whatsoever
resulting from, but not limited to, the Company's negligent, reckless or
intentional wrongs, fraud, oppression, bad faith or strict liability. The
Reinsurer shall indemnify the Company for any extracontractual damages or
liability of any kind whatsoever resulting from but not limited to, the
Reinsurer's or its agents' neglect, reckless or intentional wrong, fraud,
oppression, bad faith or strict liability. The following liabilities are
examples of liabilities that would be considered extracontractual: compensatory
damages, damages for emotional distress, and punitive or exemplary damages.
6. Contract Administration. The Reinsurer shall administer the contracts
reinsured hereunder and shall perform all accounting and other administrative
functions. The Company shall make the use of its name available in such
administration and shall otherwise make available all records and other material
needed in such administration.
7. Inspection. At any reasonable time, the Reinsurer may inspect, during normal
business hours at the principal office of the Company, the papers and any other
books or documents of the Company relating to reinsurance under this Agreement.
At any reasonable time, the Company may inspect, during normal business hours at
the principal office of the Reinsurer, the papers and any and all other books or
documents of the Reinsurer relating to reinsurance under this Agreement. Neither
the Company nor the Reinsurer will use any information obtained through any
inspection pursuant to this section for purposes not relating to reinsurance
under this Agreement.
8. Taxes. The allowance, if any, for any premium taxes paid in connection with
the contracts reinsured hereunder shall be granted as part of the commission and
expense allowance as defined in Article V below.
9. Condition. The reinsurance hereunder is subject to the same limitations and
conditions as the contracts written by the Company that are reinsured hereunder,
except as otherwise provided in this Agreement.
10. 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 and oversight, the Company and the Reinsurer will adjust the
situation to what it would have been had the misunderstanding or oversight not
occurred.
11. Age Adjustment. If the Company's liability under any of the contracts
reinsured under this Agreement is changed because of a misstatement of age, the
Reinsurer will share in the change proportionately to the amount reinsured
hereunder, and the Company and the Reinsurer will make any and all proportional
adjustments thereunto.
12. Reinstatements. If a contract reinsured hereunder that was reduced,
terminated, or lapsed, and is subsequently reinstated, the reinsurance for such
contract under this Agreement will be reinstated automatically to the amount
that would be in force if the contract had not been reduced, terminated, or
lapsed. The Company will pay to the Reinsurer the Reinsurer's proportionate
share of all amounts collected from, or charged to, the insured.
13. Amendments. This Agreement shall be amended only by written agreement of the
parties.
14. Policies, Contracts. The words policy or policies, and contract or contracts
as used herein shall have the same meaning.
15. Policyholder Information. The Company shall not sell, distribute or in any
way use the policyholder information on contracts reinsured hereunder without
the prior approval of the Reinsurer, except for purposes of executing its duties
under this Agreement.
16. Reinsurance With Other Companies. Existing reinsurance with other insurance
companies on the policies specified in Schedule A shall be retained by the
Company, except as agreed upon in writing by the Reinsurer and the Company. Any
amounts paid to other reinsurance companies shall be fully reimbursed by the
Reinsurer. Any amounts received by the Company from other insurance companies
will be paid to the Reinsurer.
ARTICLE II
DURATION OF RISK
1. Duration. Except as otherwise provided herein, this Agreement shall be
unlimited in duration, and the Company and the Reinsurer shall have no right to
terminate it.
2. Reinsurer's Liability. The liability of the Reinsurer with respect to any
contract reinsured hereunder will begin simultaneously with that of the Company,
but not prior to the Effective Date of this Agreement. The Reinsurer's liability
with respect to any contract reinsured hereunder will terminate with that of the
Company on the date the Company's liability on such contract is terminated.
3. Recapture. Contracts reinsured under this Agreement are not eligible for
recapture, unless the Reinsurer becomes insolvent or is placed in receivership
or ceases to exist as a life insurance company.
4. Contract Changes. The Company will not make any contract changes in any
policies reinsured hereunder except as required by law or as mutually agreed to
by the Company and the Reinsurer. See Schedule C in reference to increases in
coverage amounts.
ARTICLE III
PREMIUM AND CONSIDERATIONS
1. Net Reserves. On the Effective Date of this Agreement, the Company agrees to
transfer into the trust pursuant to the Trust Agreement as a reserve transfer an
amount equal to the net reserves on the Effective Date of this Agreement with
respect to the liabilities reinsured as of such date and described in Schedule
A, less the ceding allowance. Net reserves are calculated as statutory reserves
minus net due and deferred premiums minus policy loans, plus advance premiums.
2. Ceding Allowance. On the Effective Date of this Agreement, the Reinsurer
agrees to pay the Company a ceding allowance equal to ten dollars ($10.00).
3. Reinsurance Premiums. The Company agrees to pay the Reinsurer reinsurance
premiums in accordance with Schedule B. For each contract, the amount of
reinsurance premium will be the amount which corresponds to the portion of the
contract reinsured. The Company makes no representations or warranties with
respect to future lapses and surrenders of the contracts reinsured.
ARTICLE IV
BENEFIT PAYMENTS
1. Notice. The Reinsurer will notify the Company promptly after receipt of any
information as to a claim on a policy to the extent reinsured hereunder. The
reinsurance claim form and any copies of notifications, claim papers and proofs
will be furnished to the Company as soon as possible.
2. Liability and Payment. The Company will accept the decision of the Reinsurer
on payment of a claim or surrender on a policy reinsured hereunder. The
Reinsurer agrees to utilize to the extent possible the claims practices of the
Company. The Reinsurer will pay such claim based upon the form of claim
settlement determined. In no instance shall anyone other than the Company or the
Reinsurer have any rights under this Agreement, and the Company shall be and
remain solely liable to any insured, policyowner, or beneficiary under any
policy reinsured hereunder.
3. Contract Claims. The Company will not contest, compromise or litigate a claim
involving a policy reinsured hereunder without the prior approval of the
Reinsurer. The Reinsurer will pay to the Company any litigation or investigative
expenses incurred on contested claims.
ARTICLE V
ACCOUNTING AND SETTLEMENT
1. Agreement Accounting Period. This Agreement shall be on a monthly accounting
period for all accounting settlements.
2. Monthly Accounting Reports. Accounting reports shall be submitted to the
Reinsurer by the Company and by the Reinsurer to the Company, not later than 15
business days after the end of each calendar month. Such reports shall include
information on the amount of reinsurance premiums, policy loans and policy loan
interest, the commission and expense allowance, claims, and reserves on the
contract reinsured for the preceding calendar month.
3. Monthly Accounting Period. The monthly accounting shall be on a
calendar-month basis, except that the initial monthly accounting period shall
run from the Effective Date of this Agreement, after the initial accounting has
occurred, through the last day of the calendar month in which the Effective Date
of this Agreement falls. The final monthly accounting period shall run from the
end of the preceding calendar month until the termination of this Agreement but
prior to actual termination of this Agreement.
4. Monthly Settlements.
(a) Within 15 business days after the end of each calendar month, the
Company will pay the Reinsurer the sum of: (i) the reinsurance premiums for the
preceding month, determined in accordance with Article III, plus (ii) the policy
loan repayments and policy loan interest paid in the preceding month, plus (iii)
any amounts received from other reinsurance companies.
(b) Simultaneously, the Reinsurer will pay the Company the sum of: (i) the
amount of benefits paid during the preceding month on the policies reinsured
hereunder, plus (ii) the commission and expense allowance determined in
accordance with Schedule C, plus (iii) new policy loans paid to policyholders in
the preceding calendar month, plus (iv) any amounts paid to other reinsurance
companies.
5. Amounts Due Monthly. Except as otherwise specifically provided in this
Agreement, all amounts due to be paid to either the Company or the Reinsurer
under this Agreement on a monthly basis shall be determined on a net basis as of
the last day of each calendar month and shall be due and payable as of such
date.
6. Estimations. If the amounts, as defined in Paragraph 4 above, cannot be
determined at such dates, as defined in Paragraph 5 above, on an exact basis,
such payments will be paid in accordance with a mutually agreeable formula that
will approximate the actual payments.
7. Offset of Payments. All monies due to either the Company or the Reinsurer
under this Agreement may be offset against each other, dollar for dollar,
regardless of the insolvency of either party.
8. Accounting Reports. Annual reports shall be submitted to the Company by the
Reinsurer not later than 20 business days after the end of each calendar year.
Such reports shall include information for the analysis of increase in reserves
and the exhibit of life insurance of the NAIC Convention Blank based on the
contracts reinsured hereunder. Quarterly accounting reports shall be submitted
to the Reinsurer by the Company not later than 20 business days after the end of
each calendar quarter and shall include information for pages 2, 3, 4, and 5 of
the NAIC Quarterly Blank.
ARTICLE VI
ARBITRATION
1. General. All disputes and differences between the Company and the Reinsurer
on which an agreement cannot be reached will be decided by arbitration. The
arbitrators will regard this Agreement from the standpoint of practical business
and equitable principles rather than that of strict law.
2. Method. Three arbitrators will decide any differences. They must be officers
of life insurance companies other than the two parties to this Agreement or any
Company owned by, or affiliated with, either party. One of the arbitrators is to
be appointed by the Reinsurer, another by the Company, and they shall select a
third before arbitration begins. Should one of the two parties decline to
appoint an arbitrator or should the two arbitrators not be able to agree upon
the choice of a third arbitrator, the appointment(s) shall be left to the
President of the American Council of Life Insurance or its successors. The
arbitrators are not bound by any rules of evidence. They shall decide by a
majority of votes and their decision will be final and binding. The cost of
arbitration, including the fees of the arbitrators, shall be shared equally by
the parties unless the arbitrators decide otherwise.
ARTICLE VII
INSOLVENCY
1. General. In the event of the Company's insolvency, liquidation, entry into
rehabilitation, change of control, bankruptcy, or other significant adverse
financial event, this Agreement will be deemed to convert, pending approval by
the Arkansas Insurance Department but without any action on the part of any
party, to an assumption reinsurance agreement as of the day prior to such
insolvency, change of control, or other adverse event. Following such
conversion, the Reinsurer is hereby empowered without any need of action on the
part of the Company, to take all other steps necessary for such conversion
including the issuance of assumption certificates. Notwithstanding the forgoing,
the Reinsurer may elect not to have such automatic conversion occur. In the
event the Reinsurer elects not to have such automatic conversion to assumption
reinsurance, then the Reinsurer's contractual liability on contracts reinsured
hereunder shall continue to be determined by all the terms, conditions and
limitations under this Agreement, but the Reinsurer will make settlement (i)
directly to the Company's liquidator, receiver or statutory successor, and (ii)
without increase or diminution because of the Company's insolvency. The
liquidator, receiver or statutory successor of the Company shall give the
Reinsurer written notice of the pendency of a claim against the Company on any
contract reinsured within reasonable time after such claim is filed in the
insolvency proceeding. During the pendency of any such claim, the Reinsurer
shall investigate such claim and interpose in the Company's name (or in the name
of the Company's liquidator, receiver or statutory successor) in the proceeding
where such claim is to be adjudicated, any defense or defenses that the
Reinsurer may deem available to the Company or its liquidator, receiver or
statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to court approval, against the Company as a part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer. In the event of the Reinsurer's insolvency, liquidation, entry
into rehabilitation, change of control, bankruptcy, or other significant adverse
financial event, the assets and liabilities held by the trustee pursuant to the
Trust Agreement shall be held for purposes of administration of such assets and
liabilities with respect to such insolvency.
ARTICLE VIII
DAC TAX PROVISION
1. The Company and Reinsurer hereby agree to abide by Section 1.848-2(g)(8) of
the Income Tax Regulations under Section 848 of the Internal Revenue Code of
1986, as amended. The terms used in this Article are defined by reference to
Regulation 1.848-2. The term "net consideration" will refer to either net
consideration as defined in Regulation Section 1.848-2(f) or amount of premiums
collected and other considerations as defined in Regulation Section 1.848-3(b),
as appropriate.
2. Each party shall attach a schedule to its federal income tax return that
identifies the relevant reinsurance agreements for which the joint election
under the Regulation has been made.
3. The party with net positive consideration, as defined in the Regulation
promulgated under Code Section 848, for such Agreement for each taxable year,
shall capitalize specified policy acquisition expenses with respect to such
Agreement without regard to the general deductions limitation of Section 848
(c)(1).
4. Each party agrees to exchange information pertaining to the amount of net
consideration under such Agreement each year to ensure consistency.
5. This election shall be effective for the year that the Agreement was entered
into and for all subsequent years that such Agreement remains in effect.
6. The Company will submit to the Reinsurer by May 1 of each year its
calculation of the net consideration for the preceding calendar year. This
schedule of calculations will be accompanied by a statement signed by an officer
of the Company stating that the Company will report such net consideration in
its tax return for the preceding calendar year.
7. The Reinsurer may contest such calculation by providing an alternative
calculation to the Company in writing within 30 days of the Reinsurer's receipt
of the Company's calculation. If the Reinsurer does not so notify the Company in
the Reinsurer's tax return for the previous calendar year.
8. If the Reinsurer contests the Company's calculation of the net consideration,
the parties will act in good faith to reach an agreement as to the correct
amount within 30 days of the date the Reinsurer submits its alternative
calculation. If the Company and the Reinsurer reach agreement on the net amount
of consideration, each party shall report such amount in their respective tax
returns for the previous calendar year.
ARTICLE IX
MISCELLANEOUS PROVISIONS
1. All Schedules referred to in this Agreement are attached hereto and
incorporated herein by reference.
2. Neither this Agreement nor any reinsurance under this Agreement shall be
sold, assigned or transferred by the Company without prior written consent of
the Reinsurer. Such approval shall not unreasonably be withheld. The provisions
of this section are not intended to preclude the Reinsurer from retroceding the
reinsurance on an indemnity basis.
3. This Agreement, including any of the schedules and amendments thereto,
constitutes the entire agreement between the parties with respect to the
business being reinsured hereunder, and there are no understandings between the
parties other than as expressed in this Agreement. Any changes in this Agreement
shall be null and void unless such changes are made by written amendment to this
Agreement, signed by both parties.
4. Any notice or notification required under this Agreement requires written
notice or notification mailed or delivered to the Company at its home office in
Blytheville, Arkansas, or to the Reinsurer at its administrative office in Salt
Lake City, Utah.
5. If any provision of this Agreement is determined to be invalid or
unenforceable, such determination will not impair or affect the validity or the
enforceability of the remaining provisions of the Agreement.
6. The Company agrees to assist the Reinsurer in maintaining, where applicable,
any existing policies reinsured under this Agreement and to avoid replacing any
of such policies with policies of the Company, or its subsidiaries, or any other
insurance companies. In addition, the Company agrees to use its best reasonable
efforts to keep the policies reinsured in force and to support the business and
operations of the Reinsurer, including, where applicable, in maintaining a
satisfactory business relationship with the Reinsurer.
ARTICLE X
EXECUTION AND EFFECTIVE DATE
This Agreement shall be effective on and after December 29, 2005. In the
event of a death or other occurrence giving rise to a claim under one of the
policies, which death or occurrence occurred prior to the Effective Date,
regardless of whether the death claim or occurrence is reported prior to or
subsequent to the effective date, the Company shall be solely liable for the
payment of any claim made on account of any such death or occurrence and
Reinsurer shall pay to the Company the amount of the reserve of the policy with
respect to which the claim is paid, to the extent that such reserve is reduced
as a result of such payment.
IN WITNESS of the above, this Agreement is executed effective as of this
29th day of December, 2005.
SECURITY NATIONAL LIFE INSURANCE COMPANY
By: /s/ Scott M. Quist
------------------
Title: President
---------
MEMORIAL INSURANCE COMPANY OF AMERICA
By: /s/ Larry N. Perrin
-------------------
Title: Treasurer
---------
SCHEDULE A
POLICIES AND RISKS REINSURED
Under this Agreement, the Reinsurer reinsures all policies in force as of
the Effective Date of this Agreement and any new business written after the
Effective Date, except for certain policies to be retained by the Company.
Following the transfer of reserves and related assets pursuant to this
Agreement, the Company's capital and surplus shall not be less than $1,000,000.
SCHEDULE B
REINSURANCE PREMIUMS
1. Reinsurance Premiums. The Company shall pay the Reinsurer a reinsurance
premium on all policies in effect from time to time under this Agreement in an
amount equal to the premium collected by the Company corresponding to the amount
and policies reinsured hereunder.
2. Mode of Payment. The Premium paid to the Reinsurer by the Company will be
paid as collected by the Company.
SCHEDULE C
COMMISSIONS AND EXPENSE ALLOWANCE
1. Ceding Commission Fee on Individual Life Insurance
Plan Description Ceding Commission Fee
---------------- ----------------------
All plans reinsured hereunder An amount equal to the actual sales
commissions paid on policies
reinsured hereunder
2. Expense Allowance for Premium Taxes, Including All Other Licenses and Fees.
An expense allowance equal to the actual premium taxes paid on collected
premiums plus other licenses and fees will be paid by reinsurer in addition to
all other allowances.
3. Any Other Administrative Expenses Will Be Paid by the Reinsurer.
All administrative expenses to include, but not be limited to, policy
administration, accounting, financial statement preparation, and policyholder
services.
SCHEDULE D
MONTHLY SETTLEMENT
FROM
MEMORIAL INSURANCE COMPANY OF AMERICA
TO SECURITY NATIONAL LIFE INSURANCE COMPANY
AND FROM
SECURITY NATIONAL LIFE INSURANCE COMPANY
TO
MEMORIAL INSURANCE COMPANY OF AMERICA
Reporting Month: ________________/ ____________/ ___________
Date Report Completed: ________________/ ____________/ ___________
1) Direct Premiums ____________
Less Other Reinsurance Premiums Paid ____________
Total Premiums ____________
Total ____________
2) Policy Loans ____________
Policy Loans Repaid ____________
Policy Loan Interest Paid in Cash ____________
Total ____________
3) Benefits
Surrenders ____________
Deaths ____________
Other ____________
Less Other Reinsurance Recoveries ____________
Total ____________
4) Commissions and Expense Allowance (Schedule C) ____________
Less Other Reinsurance Allowances ____________
Net Commission and Expense Allowance ____________
Total ____________
5) New Policy Loans Paid Out in Cash ____________
6) Net Due Equals (1) + (2) - (3) - (4) - (5) = ____________
SCHEDULE D CONTINUED
Supplemental Information
Direct
Policy
# of Policies Reserves Face Amount
Beg. of Period ___________ ____________ _____________
+Additions ___________ ____________ _____________
- -Terminations ___________ ____________ _____________
End of Period ___________ ____________ _____________
Reinsurance Ceded
Policy
# of Policies Reserves Face Amount
Beg. of Period ____________ ____________ _____________
+Additions ____________ ____________ _____________
- -Terminations ____________ ____________ _____________
End of Period ____________ ____________ _____________
Direct Gross Net
- ------ ----- ---
Deferred Premiums: _____________ ____________
Due Premiums: _____________ ____________
Advance Premiums: _____________
Reinsurance Ceded
Deferred premiums: _____________ ____________
Due Premiums: _____________ ____________
Advance Premiums: _____________
Coinsurance Allowances on Reinsurance Ceded
Deferred Premium ____________
Due Premium ____________
Advance Premium ____________
Policy Loan Interest Due: ____________
Policy Loan Interest Accrued: ____________
Policy Loan Interest Unearned: ____________
Policy Loan Beginning of Period: ____________
+ New Loans Paid in Cash: ____________
+ New Loans to Cover Interest: ____________
+ New Loans to Pay Premiums: ____________
- - Loans Paid Off: ____________
Policy Loans End of Period: ____________
Policy Loans Interest Paid in Cash: ____________
Policy Loans Interest Added to Loan: ____________
Total Policy Loan Interest: ____________
EXHIBIT 1
TRUST AGREEMENT