COINSURANCE AGREEMENT
between
UNIVERSAL GUARANTY LIFE INSURANCE COMPANY
and
FIRST INTERNATIONAL LIFE INSURANCE COMPANY
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS 2
ARTICLE II - COVERAGE 5
ARTICLE III - GENERAL PROVISIONS 5
ARTICLE IV - REINSURANCE AND POLICY PREMIUMS 9
ARTICLE V - EXPENSE ALLOWANCE 11
ARTICLE VI - DEATH BENEFITS AND OTHER PAYMENTS 11
ARTICLE VII - DIVIDENDS 12
ARTICLE VIII - ACCOUNTING 12
ARTICLE IX - DURATION AND TERRITORY 13
ARTICLE X - INSOLVENCY 14
ARTICLE XI - ARBITRATION 14
ARTICLE XII - REINSURING CLAUSE AND CONTRACTUAL
CONDITIONS 16
ARTICLE XIII -EXECUTORY CONTRACT AND INSOLVENCY-SETOFF. 17
ARTICLE XIV - REPRESENTATIONS AND WARRANTIES 18
ARTICLE XV - CONDITIONS PRECEDENT 19
ARTICLE XVI - ASSUMPTION REINSURANCE 20
ARTICLE XVII - INDEMNIFICATION 21
ARTICLE XVIII - ESTABLISHMENT OF AN ASSET TRUST 21
ARTICLE XIX - MISCELLANEOUS PROVISIONS 22
SCHEDULE A - ADMINISTRATIVE SERVICE
AND STANDARDS A-1
SCHEDULE B - EXPENSE ALLOWANCE B-1
SCHEDULE C - INITIAL REINSURANCE REPORT C-1
SCHEDULE D - PART I - MONTHLY PERIOD REINSURANCE
REPORTS D-1
SCHEDULE D - PART II - QUARTERLY POLICY EXHIBIT D-2
SCHEDULE D - PART III - ANNUAL REPORTS D-3
SCHEDULE E - RECAPTURE PROVISIONS E-1
SCHEDULE F - DAC TAX ELECTION F-1
EXHIBIT 1 - ASSUMPTION REINSURANCE AGREEMENT [ ]
COINSURANCE AGREEMENT
This Coinsurance Agreement (the "Agreement") is made and
entered into as of the 30th day of September, 1996 between UNIVERSAL
GUARANTY LIFE INSURANCE COMPANY, a life insurance company (the
"Company"), and FIRST INTERNATIONAL LIFE INSURANCE COMPANY, a
life insurance company (the "Reinsurer").
WHEREAS, the Company has agreed to cede to the Reinsurer,
and the Reinsurer has agreed to accept on a coinsurance basis, 100% of
the Reserves and Liabilities (as hereinafter defined) arising under or
with respect to the Reinsured Policies (as hereinafter defined) issued
by the Company on or before the Effective Date (as hereinafter
defined); and
WHEREAS, the Reinsurer, is simultaneously entering into an
Assumption Reinsurance Agreement (the "Assumption Reinsurance
Agreement") with the Company, pursuant to which, contingent upon
certain events specified in Article XVI below, the Reinsurer may elect
to assumption reinsure the Reinsured Policies, with a concurrent
novation and complete release of the Company from any liability under
such Reinsured Policies, on a state by state basis upon the receipt of
any and all applicable regulatory approvals and notice to relevant
Policyholders followed by expiration of the applicable period with no
opt out by such Policyholders or the obtaining of required consents
from such Policyholders, as the case may be; and
WHEREAS, should the Reinsurer elect to assumption reinsure
the Reinsured Policies pursuant to the Assumption Reinsurance
Agreement, certain of the Company's Policyholders may opt out of or not
consent to the assumption of their policies by the Reinsurer, in which
event the Company will remain primarily obligated to such Policyholders
under the Non-Assumed Policies (as hereinafter defined); and
WHEREAS, the Reinsurer acknowledges and agrees that it
shall be bound to perform its obligations as Reinsurer to the Company
as primary insurer under this Agreement with respect to the Non-Assumed
Policies subsequent to the Effective Date of the Assumption Reinsurance
Agreement;
WHEREAS, the Reinsurer acknowledges and agrees that it shall
be bound to perform its obligations as Reinsurer to the Company as
primary insurer under this Agreement with respect to the Non-Assumed
Policies subsequent to the Effective Date of the Assumption Reinsurance
Agreement;
NOW, THEREFORE, in consideration of the foregoing the
Company and the Reinsurer mutually agree that they shall enter into
this Agreement under the terms and conditions stated herein.
This Coinsurance Agreement is between the Company and the
Reinsurer, or their assignees or successors, and the performance of the
obligations of each party under this Agreement shall be rendered solely
to the other party or parties. In no instance shall anyone other than
the Company or the Reinsurer, or their assignees or successors, have
any rights under this Agreement. Until the Reinsurer has reinsured a
Reinsured Policy on an assumption reinsurance basis pursuant to Article
XVI below, the Reinsurer shall not be liable to any insured, contract
owner, or beneficiary under any insurance policy or contract reinsured
hereunder.
ARTICLE I
DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the following meanings (definitions are applicable to both
the singular and the plural forms of each term defined in this
Article):
"Accounting Period" means the calendar month, except that
the first Accounting Period shall be the period commencing with the
Effective Date and ending with the last day of the then current
calendar month, and the final Accounting Period shall be the period
commencing with the first day of the calendar month that includes the
day on which the last Reinsured Policy terminates, and ending on such
day.
"Administration Cost" shall have the meaning set forth in
Section 3.01.
"Annual Report" means the report required to be prepared in
accordance with Section 8.05 and providing the data as shown on
Schedule D - Part III.
"Benefits" shall have the meaning set forth in Section
6.01.
"Business Day" means any day other than a Saturday, Sunday
or a day on which banking institutions in the States of New York, Ohio
and Delaware are permitted or obligated by law to be closed.
"Closing Date" shall be that date ten (10) Business Days
following receipt of notice from the Company to the Reinsurer that all
of the conditions in Article XV hereunder have been satisfied.
"Effective Date" means the date specified in Section 2.01.
"Expense Allowance" shall mean the ceding commission
payable in connection with the acquisition of the Reinsured Policies
and as described in Schedule B.
"Extra Contractual Liabilities" means all liabilities,
other than the express obligations set forth in the Reinsured Policies,
including, without limitation, any liability for consequential,
exemplary, punitive or similar damages, relating to the Reinsured
Policies, which liability arises from any act, error or omission by the
Company, its directors, officers, employees or agents prior to the
Effective Date, whether intentional or otherwise, or from any bad faith
prior to the Effective Date in connection with the handling of any
claim or obligation under any of the Reinsured Policies or in
connection with the issuance, delivery or cancellation of any of the
Reinsured Policies.
"Dividends" shall have the meaning set forth in Section
7.01.
"Gross Premiums" means the premiums collected on or after
the Effective Date from Policyholders for the Reinsured Policies.
"Initial Reinsurance Consideration" shall mean the
difference between the Initial Reinsurance Premium and the Expense
Allowance, as described in Schedule B.
"Initial Reinsurance Premium" shall have the meaning set
forth in Section 4.02.
"Initial Reinsurance Report" shall have the meaning set
forth in Section 8.02.
"Insolvency Proceedings" shall have the meaning set forth
in Section 13.05.
"Monthly Report" means the report required to be prepared
in accordance with Section 8.03 and providing the data as shown on
Schedule D - Part I.
"Monthly Settlement" means the net amount due and payable
to either party with respect to any Accounting Period.
"Non-Assumed Policies" means Reinsured Policies that shall
not have been novated to the Reinsurer under the terms of the
Assumption Reinsurance Agreement, and under which the Company retains
primary liability.
"Other Amounts" shall have the meaning set forth in Section
4.02.
"Policyholder" means the holder of any Reinsured Policy.
"Policy Loan" shall have the meaning set forth in Section
2.05.
"Policy Loan Interest or Repayments" shall have the
meaning set forth in Section 2.05.
"Quarterly Report" means the report required to be prepared
in accordance with Section 8.04 and providing the data as shown on
Schedule D - Part II.
"Reinsurance Agreement" means any reinsurance agreement
between the Company as cedent and any third party reinsurer under which
the Company's Reserves and Liabilities with respect to the Reinsured
Policies or some portion thereof are transferred, whether or not such
contract of reinsurance is also applicable to business other than the
Reinsured Policies.
"Reinsurance Premiums" shall have the meaning set forth in
Section 4.02.
"Reinsured Policies" means all paid-up insurance policies,
contracts, binders or certificates of insurance, and all riders,
endorsements and amendments thereto, whether written or oral, issued or
assumed by the Company, that are in force on the Effective Date, except
those offered in settlement to so called "HIV" policyholders and paid-up
business associated with the Company's Jr./Sr. Plan Single Premium
Interest Sensitive Whole Life policies, including, without limitation,
policy loans.
"Reserves and Liabilities" means the statutory reserves
required to be held by the Company as of the Effective Date (subject to
the provisions of Section 4.01 hereof)in support of the policy
liabilities arising under the Reinsured Policies and payable after the
Effective Date (determined by reference to lines 1, 5, 7 and 8 on page
3 of the 1995 Annual Statement Blank) less Policy Loans.
"Risk Based Capital" shall mean the National Association
of Insurance Commissioners Risk Based Capital Model Act as codified in
the Ohio Insurance Code at Sections 3903.81 to 3903.93.
ARTICLE II
COVERAGE
2.01. Coverage. As of September 30, 1996 (the
"Effective Date"), upon the terms and conditions, including, but not
limited to, the Company's satisfaction on or before the Closing Date of
all the conditions contained in Article XV hereunder, and for the
considerations hereinafter contained, the Company agrees to cede and
transfer to the Reinsurer, and the Reinsurer agrees to accept and
reinsure, 100% of the Reserves and Liabilities, which excludes all
claim liabilities, arising under the Reinsured Policies.
2.02. Conditions. The reinsurance hereunder is subject
to the same limitations, terms and conditions as the Reinsured
Policies, except as otherwise provided in this Agreement.
2.03. Exclusions. This Agreement does not apply to and
specifically excludes from coverage any Extra Contractual Liabilities.
2.04. Plan of Reinsurance. This reinsurance shall be on
the coinsurance basis.
2.05. Policy Loans. The Reinsurer shall participate in
any policy loan ("Policy Loan") effected by the Company with respect
to a Reinsured Policy, and shall receive all policy loan repayments and
interest ("Policy Loan Repayments and Interest") thereon.
2.06. Maintenance of Licenses. The Company shall use its
reasonable efforts to maintain its licenses and other approvals in all
jurisdictions to the extent necessary for the Company to insure and
cede the Reinsured Policies.
ARTICLE III
GENERAL PROVISIONS
3.01. Administration. (a) So long as this Agreement is
in effect, the Company shall remain responsible for the administration
of each and every Reinsured Policy reinsured hereunder. The Company
shall be compensated at the rate of $7.50 per Reinsured Policy per
calendar year (the "Administration Cost"), payable at the rate of
$0.625 per policy per month based upon the beginning of quarter in
force.
(b) Should the Reinsurer exercise its rights under Article
XVI to assumption reinsure the business reinsured hereunder, the
Reinsurer shall then be responsible for the administration and shall no
longer be obligated to pay the Administration Cost for such policies.
The Reinsurer reserves the right to appoint a subcontractor to perform
part or all of the services set forth above as the agent of the
Reinsurer.
(c) Notwithstanding 3.01(a), above, should service
standards not meet those specified in Schedule A, the Reinsurer shall
notify the Company as to which standards the Company has not satisfied.
The Company shall have thirty (30) days to meet standards specified in
such notice. Should any such standards not be met within the thirty
(30) day cure period, the administration fee shall be reduced to $7.00
per Reinsured Policy per year. If standards are not met for any three
(3) consecutive months in a calendar year or four (4) months in any
rolling twelve (12) month ending period the Reinsurer shall have the
right to take over administration.
(d) Notwithstanding any other provisions of this Section
3.01, the Reinsurer reserves the right to purchase the administrative
capabilities of the Company, for a price to be agreed upon by the
parties hereto, if the Reinsurer determines that administration of the
Reinsured Policies should be transferred from the Company.
3.02. Inspection. The Reinsurer or its designated
representative may inspect, at the offices of the Company where such
records are located, the papers and any and all other books or
documents of the Company reasonably relating to the Reinsured Policies,
during normal business hours for such period as this Agreement is in
effect or for as long thereafter as the Company seeks performance by
the Reinsurer pursuant to the terms of this Agreement. The information
obtained shall be used only for purposes relating to reinsurance under
this Agreement. The Reinsurer's rights under this Section shall
survive termination of this Agreement.
3.03. Misunderstandings and Oversights. If any delay,
omission, error or failure to pay amounts due or to perform any other
act required by this Agreement is unintentional and caused by
misunderstanding or oversight, the Company and the Reinsurer will
adjust the situation to what it would have been had the misunderstanding
or oversight not occurred. The party first discovering such
misunderstanding or oversight, or act resulting from the
misunderstanding or oversight, will notify the other party in writing
promptly upon discovery thereof, and the parties shall act to correct
such misunderstanding or oversight within twenty (20) Business Days of
receipt of such notice. However, this Section shall not be construed
as a waiver by either party of its right to enforce strictly the terms
of this Agreement.
3.04. Age, Sex and Other Adjustments. If the Company's
liability under any of the Reinsured Policies is changed because of a
misstatement of age or sex or any other material fact, the Reinsurer
will share in the change proportionately to the amount reinsured
hereunder.
3.05. Reinstatements. If a Reinsured Policy that is or
has been put on paid-up status is reinstated to a premium paying basis
while this Agreement is in force, the reinsurance for such Reinsured
Policy shall be recaptured under the terms specified in Schedule E
attached.
3.06. Non-Compete. The Company shall take no direct or
indirect action to induce any policyholder of a Reinsured Policy to
terminate, reinstate, lapse or exchange such policy.
3.07. Contract Changes or Reserve Assumption Changes.
The Company, on its own initiative, shall not change (i) the terms and
conditions of any Reinsured Policies or (ii) the assumptions, including
the statutory reserve accumulation rate assumption, used by the Company
to establish the Reserves and Liabilities with respect to such
Reinsured Policies. The Reinsurer shall share proportionately in any
change in contract or in Reserves and Liabilities required by any
regulatory authority having jurisdiction over the Company in the
ordinary course of exercising its powers or otherwise required by law
and in any such changes made by the Company and consented to by the
Reinsurer.
3.08. Compliance with Applicable Laws and Regulations.
(a) Intent of Parties. It is the intention of the
parties that this Agreement shall be interpreted in accordance with the
laws as of the date of execution hereof by both parties and comply with
all existing applicable state and federal laws and regulations, and as
from time to time are or may be in effect, in such a way that the
Reinsured Policies remain reinsured on the coinsurance plan.
(b) Procedures to Reflect Changes in Laws or
Regulations. In the event that it is determined by an insurance
regulatory authority or the Internal Revenue Service or by either party
upon the advice of an insurance regulatory authority or the Internal
Revenue Service that this Agreement fails to conform to the
requirements of existing applicable laws and regulations and that the
Agreement may be brought into conformity with said requirements only by
means of a material change to the Agreement, or in the event that such
laws or regulations are changed subsequent to the Effective Date and
such change has a material adverse affect on either party or requires a
material change to the Agreement in order for the Agreement to conform
with applicable laws and regulations, the parties shall exercise
reasonable efforts to reach an agreement to amend the Agreement so as
to return the parties to the economic position that they would have been
in had no such change occurred or so that both parties share the
economic position that they would have been in had no such change
occurred or so that both parties share the economic detriment of such
change equally. If the parties are unable to reach an agreement to
amend the Agreement, then the differences between the parties shall be
resolved through arbitration in accordance with the provisions of
Article XI. In the event that any change required to conform the
Agreement to the requirements of applicable law or regulation is not
material, the Agreement shall be amended accordingly. In no event,
however, shall this provision prevent either party from exercising any
right it otherwise has under this Agreement. For purposes of this
Section 3.08(b), the word "material" shall mean, when used with
respect to (i) any change in law or regulation, or any change into the
Agreement necessary to bring the Agreement into conformity with the
requirements of any law or regulation; or (ii) any delay, omission,
error or failure to pay amounts due or to perform any other act required
under this Agreement; or (iii) any default, that the effect or effects
of any of (i), (ii) or (iii) above (either individually or
cumulatively) results in a deviation from a projected return under
this Agreement (absent the occurrence of (i), (ii) or (III) above,
either individually or cumulatively) by at least five percent (5%),
measured from the first day that the occurrence of (i), (ii) or (iii)
above, or series thereof, taken into account on a cumulative basis,
occurred or becomes effective.
(c) Notification of Disapproval or Change in Law.
The Company shall promptly notify the Reinsurer of any disapprovals,
recommended changes or statements regarding the Agreement that are made
by any insurance regulatory or tax authorities and of any change in
law, regulation or rulings affecting the Agreement. The Reinsurer
shall be allowed to make its own defense of the Agreement with said
authorities.
3.09. Payments. All payments made pursuant to this
Agreement (other than the Initial Reinsurance Premium described in
Section 4.01 of this Agreement) shall be made in immediately available
funds.
3.10. Investigations. The Company shall notify the
Reinsurer immediately, in writing, of any and all investigations of the
Company or its principal officers or shareholders conducted by any
federal, state or local governmental or regulatory agency.
3.11. Conduct of Business. Between the Effective Date
and the Closing Date, the Company shall continue the operations of its
business with respect to the Reinsured Policies in accordance with
prior practices and will not engage in any additional Reinsurance
Agreements.
3.12. Duty of Cooperation. Each party hereto shall
cooperate fully with the other in all reasonable respects in order to
accomplish the objectives of, and consummate the transactions
contemplated under, this Agreement. This duty to cooperate shall
include, but not be limited to, making all necessary insurance
regulatory filings and obtaining all insurance regulatory approvals
required, making available any Reinsured Policy records which either
party subsequently may require to resolve issues related to claims or
Reserves and Liabilities.
3.13. Compliance. The Company covenants to maintain the
Reinsured Policies in compliance with all applicable requirements of
law and on forms approved in all material respects by the appropriate
governmental authorities except to the extent that such failure to be in
compliance therewith does not have a material adverse effect.
ARTICLE IV
REINSURANCE AND POLICY PREMIUMS
4.01. Initial Reinsurance Consideration. On the Closing
Date, as consideration for the assumption by the Reinsurer of the
Reserves and Liabilities under the Reinsured Policies, the Company
shall transfer to the Reinsurer assets ("Assets") with an aggregate
market value equal to one hundred percent (100%) of Reserves and
Liabilities as of the Effective Date, which excludes all claim
liabilities, (the "Initial Reinsurance Premium"), less the Expense
Allowance described in Article V below (such net amount being the
"Initial Reinsurance Consideration" as described in Schedule C
attached hereto). The Assets being transferred shall be based upon
valuations and estimates made three (3) Business Days prior to the
Closing Date. Both the Assets and the Initial Reinsurance Premium
(shown on Schedule C) shall be subject to further and final adjustment
as follows: (1) within 90 days after the Closing Date, the Reinsurer
shall send a notice to the Company advising the Company of the final
valuation of both the Assets (valued as of the Closing Date) and the
Initial Reinsurance Premium (valued as of the Effective Date), (2)
the Company shall then have five (5) Business Days from receipt of the
aforementioned notice to make an adjustment to the Assets, including
any additional transfers to the Reinsurer, in order to reflect the
final valuation of the Assets and Initial Reinsurance Consideration
pursuant to this Section 4.01.
4.02. Reinsurance Premium. As additional consideration
for the assumption by the Reinsurer of the Reserves and Liabilities
under the Reinsured Policies, the Reinsurer shall be entitled to
collect and retain 100% of all Gross Premiums, Policy Loan Interest or
Repayments and any other amounts ("Other Amounts") received from
Policyholders or others on and after the Effective Date with respect to
the Reinsured Policies less Dividends paid in cash, as described in
Article VII, less reinsurance premiums payable under the Reinsurance
Agreements, less Administration Costs, as described in Article III.
The Company will promptly remit to the Reinsurer all other amounts that
may be remitted to it by Policyholders or others with respect to the
Reinsured Policies. Furthermore, with respect to any such
remittances, the Company shall also promptly furnish the Reinsurer with
all pertinent information that the Company receives on and after the
Effective Date pertaining thereto (e.g., the nature of payment, source
of funds, policy number or agreement (as appropriate) and period(s) to
which it relates and any instructions accompanying same), in a form
acceptable to the Reinsurer.
4.03. Credit for Recoverables from Ceded Reinsurance.
From the Effective Date, in any Monthly Settlements, the computation
of Benefits paid on Reinsured Policies shall include a credit in favor
of the Reinsurer in the amount of reinsurance that is recoverable
pursuant to the terms of any Reinsurance Agreement for any payments
made to Policyholders pursuant to the terms of the Reinsured Policies.
The Company shall continue to pay any premiums or other charges for any
such Reinsurance Agreements until termination of this Agreement, and
the Company shall continue to collect reinsurance recoverables, if any,
made pursuant to such Reinsurance Agreements.
4.04. Reserves. The Reinsurer shall establish and
maintain appropriate reserves with respect to the Reinsured Policies.
ARTICLE V
EXPENSE ALLOWANCE
5.01. Expense Allowance. On the Closing Date, the
Reinsurer shall pay the Company an expense allowance (the "Expense
Allowance") in the amount as set forth in Schedule B.
ARTICLE VI
DEATH BENEFITS AND OTHER PAYMENTS
6.01. Death Benefits and Payments under Settlement
Options. The Reinsurer shall assume liability for, subject to Section
2.03, all death benefits, all periodic or lump sum payments on
settlement options or withdrawals from Dividends on deposit, and all
surrender and endorsement payments to Policyholders with respect to
Reinsured Policies (such death benefits and other payments are referred
to collectively as "Benefits"), and shall indemnify the Company with
respect to any such Benefits paid by the Company incurred after the
Effective Date.
6.02. Claims. The reinsurance claim and copies of
notification, claim papers, and proofs will be furnished by the Company
to the Reinsurer upon request.
6.03. Liability and Payment. The Reinsurer shall be
responsible for the handling of, and all costs and expenses relating
to, the contest, compromise or litigation of claims under the Reinsured
Policies which arise after the Effective Date. The Company will not
contest, compromise, or litigate a claim with respect to a Reinsured
Policy unless delegated to do so in writing by the Reinsurer.
Notwithstanding the foregoing, the Reinsurer shall have no liability
for costs and expenses for any litigation arising out of or based on any
bad faith claims practices, willful misconduct, fraud or gross
negligence of the Company (without attributing to the Company the
actions of the Reinsurer).
ARTICLE VII
DIVIDENDS AND COUPONS
7.01. Participation. The Reinsurer shall participate in
the dividend and coupon ("Dividends") scales in effect on the
Effective Date of this Agreement. Should the Company desire to change
said scales, it shall do so only upon the consent of the Reinsurer,
which shall not be unreasonably withheld. The Reinsurer shall only
reimburse those Dividends that are incurred after the Effective Date.
7.02. Options. The Reinsurer shall participate in all
Dividend options provided under Reinsured Policies.
ARTICLE VIII
ACCOUNTING
8.01. Amounts Due the Reinsurer or the Company. Except
as otherwise specifically provided herein, all amounts due the
Reinsurer or the Company under this Agreement shall be determined on a
net basis, giving full effect to Article XII hereof.
The Initial Reinsurance Premium, as described on the
Initial Insurance Report described below, is due on the Closing Date.
If positive the Initial Reinsurance Premium shall be paid to the
Reinsurer, and if negative it shall be paid to the Company. The
Initial Reinsurance Premium is subject to further and final adjustment
pursuant to the procedures set forth in Section 4.01 hereunder.
The Monthly Settlement shall be paid to the party to whom a
balance is owed within seven (7) days of receipt of the Monthly Report
described below.
8.02. Initial Reinsurance Report. The Company shall
deliver to the Reinsurer, on or before the Closing Date, a report (the
"Initial Reinsurance Report") that shall provide the data required in
Schedule C.
8.03. Monthly Reports. Within seven (7) Business Days
of the end of each Accounting Period the Company shall supply the
Reinsurer with a report that shall provide the data required in
Schedule D - Part I, attached hereto (the "Monthly Report").
8.04. Quarterly Reports. Within ten (10) Business Days
after the end of each calendar quarter the Company shall supply the
Reinsurer with a report that shall provide the data required in
Schedule D- Part II, attached hereto (the "Quarterly Report").
8.05. Annual Reports. Within ten (10) Business Days
after the end of each calendar year the Company shall supply the
Reinsurer with a report that shall provide the data required in
Schedule D - Part III, attached hereto (the "Annual Report").
8.06. Best Efforts to Supply Actual Data. In preparing
all Reports required in this Agreement, the Company shall make its best
efforts to supply the actual data. If the actual data cannot be
supplied with the appropriate Report, the Company shall produce best
estimates, and shall provide amended reports based on actual data no
more than twenty (20) Business Days after such Report was originally
due.
8.07. Survival of Article. This Article shall survive
termination of this Agreement.
ARTICLE IX
DURATION AND TERRITORY
9.01. Duration. Except as otherwise provided herein,
this Agreement shall be unlimited in duration.
9.02. The Reinsurer's Liability. The Reinsurer's
liability hereunder with respect to any Reinsured Policy will terminate
on the earlier of the date on which the Reinsured Policy is terminated
by death, recapture, surrender, lapse or expiry.
9.03. New Business. This Agreement shall not apply to
any business of the Company entered into after the Effective Date or
entering paid-up status after the Effective Date.
9.04. Novated Policies. This Agreement shall cease to
apply to any Reinsured Policy on the date that such Reissued Policy
becomes assumed by the Reinsurer by novation pursuant to the Assumption
Reinsurance Agreement.
9.05. Territory. This Agreement shall apply to Reinsured
Policies covering lives and risks wherever resident or situated.
9.06. Recapture. Upon a Reinsured Policy reinstating to
a premium paying basis, such Reinsured Policy shall be recaptured based
upon the terms in Schedule E.
ARTICLE X
INSOLVENCY
10.01. Payments by the Reinsurer. The Reinsurer hereby
agrees that, as to all reinsurance made, ceded or otherwise becoming
effective hereunder, the reinsurance shall be payable by the Reinsurer
on the basis of the liability of the Company under the Non-Assumed
Policies, without diminution because of the insolvency, liquidation or
rehabilitation of the Company or the appointment of a conservator,
receiver, liquidator or statutory successor of the Company, directly to
the Company or to its conservator, liquidator, receiver or other
statutory successor.
10.02. Claims. It is agreed that the conservator,
receiver, liquidator or statutory successor of the Company shall give
prompt written notice to the Reinsurer of the pendency or submission of
a claim under any Non-Assumed Policies. During the pendency of such
claim, the Reinsurer may investigate such claim and interpose, at its
own expense, in the proceeding where such claim is to be adjudicated
any defense available to the Company or its conservator, receiver,
liquidator or statutory successor. The expense thus incurred by the
Reinsurer is chargeable against the Company as a part of the expense of
insolvency, liquidation or rehabilitation to the extent of a
proportionate share of the benefit which accrues to the Company solely
as a result of the defense undertaken by the Reinsurer. If two or more
assuming reinsurers are involved in the same claim and a majority in
interest elect to interpose defenses to such claim, the expense shall
be apportioned in accordance with the terms of this Agreement as though
such expense had been incurred by the Company.
ARTICLE XI
ARBITRATION
11.01. Appointment of Arbitrators. In the event of any
disputes or differences arising under or relating in any way to this
Agreement as to which agreement between the parties hereto cannot be
reached, then either party can give notice, pursuant to Section 19.02
hereunder, to the other party that such dispute or difference shall be
decided by arbitration. Three arbitrators will decide any dispute or
difference. The arbitrators must be disinterested officers or retired
officers of life insurance or life reinsurance companies other than the
two parties to this Agreement or their affiliates. Each of the
contracting parties agrees to appoint one of the arbitrators with the
third, the "Umpire," to be chosen by the two party-appointed
arbitrators. In the event that either party should fail to choose its
arbitrator within twenty (20) Business Days following written
notification by the other party to do so, the requesting party may
choose the second arbitrator before entering upon arbitration. The two
arbitrators shall select a third arbitrator to act as "Umpire." In the
event that the two arbitrators shall not be able to agree on the choice
of the Umpire within twenty (20) Business Days following the
appointment of the second, each arbitrator shall nominate candidates
within the five (5) Business Days thereafter, four of whom the other
shall decline, and the Umpire shall be chosen from the two remaining
candidates by drawing lots. Should the chosen Umpire decline to serve,
the candidate whose lot was not drawn shall be appointed. This process
shall continue until a candidate has agreed to serve.
11.02. Decision. The arbitrators shall consider
customary and standard practices in the life reinsurance business.
They shall decide by a majority vote of the arbitrators. There shall
be no appeal from their written decision. Judgment may be entered on
the decision of the arbitrators by any court having jurisdiction.
11.03. Expenses of Arbitration. Each party shall bear
the expense of its own arbitrator (whether selected by that party, or
by the other party pursuant to the procedures set out in Section
11.01) and related outside attorneys' fees, and shall equally bear
with the other party the expenses of the third arbitrator and of the
arbitration.
11.04. Site and Applicable Rules of Arbitration. Any
arbitration instituted pursuant to this Article shall be held in New
York, New York and, to the extent applicable, the Federal Arbitration
Act shall govern the interpretation and application of this Article.
11.05. Survival of Article. This Article shall survive
termination of this Agreement.
ARTICLE XII
REINSURING CLAUSE AND CONTRACTUAL CONDITIONS
12.01. Reinsuring Clause. The amount owed the Company
for any accounting period shall be the excess, if any, of Benefits less
Reinsurance Premiums, and the amount owed the Reinsurer for any
accounting period shall be the excess, if any, of Reinsurance Premiums
over Benefits. If such amounts cannot be determined at such date on an
exact basis, such payments may be determined on an estimated basis and
any final adjustments are to be made within twenty (20) Business Days
after the end of the Accounting Period.
12.02. Consideration. The performance of all promises of
one party shall be deemed the consideration for the performance of all
the promises of the other party.
12.03. Conditions Precedent. It is a condition precedent
to the Reinsurer's liability to pay any amount for the current or
future Monthly Settlements that the Company shall pay all amounts due
the Reinsurer from prior Monthly Settlements.
12.04 Utmost Good Faith. Both parties promise "utmost
good faith" and each is under the affirmative duty to report any
adverse information with respect to its solvency or with respect to the
particular facts which relate to the Reinsured Policies.
12.05. Recoupment and Failure of Consideration. If
either party to this Agreement fails to perform this Agreement in full,
then the other party has the right to suspend performance, and if the
defaults cannot be cured, within one hundred and twenty (120) days
following delivery of written notice from the non-defaulting party to
the defaulting party, to terminate this Agreement. Alternatively, the
non-defaulting party can recoup damages (including, without limitation,
the amount owed plus interest from the date owed and calculated at the
Chase Bank prime rate plus two points) from future Monthly
Settlements.
12.06. Gain or Loss Clause. The various items of
account (e.g., Reinsurance Premium and Benefits) shall not be deemed
to be separate debts but shall be used to determine the Monthly
Settlements.
12.07. No Waiver. The acceptance of the net accounting
reports and the sums due under this Agreement shall never constitute a
waiver by either party with regard to fraud or other rights.
12.08. Limitations on Assignment. No assignment of
rights or delegation of duties of the Company shall be effective unless
approved by the other party in writing, signed in duplicate.
Furthermore, such assignment shall not operate as a novation, but
merely as a delegation of duties, and the assignor shall remain liable
to the other party as a surety and such other party shall have no duties
to the assignee beyond that as specified in this Agreement.
ARTICLE XIII
EXECUTORY CONTRACT AND INSOLVENCY-SETOFF
13.01. Insolvency-Setoff (or Offset). In the event
either party to the Agreement shall be the subject of insolvency
proceedings ("Insolvency Proceedings") all independent debts on
unrelated contracts between the parties shall be setoff to the extent:
(a) the debt from the creditor to the insolvent arose
pre-petition.
(b) the debt from the insolvent to the creditor arose
pre-petition.
(c) the debts are mutual, meaning they are between the two
parties to this Agreement, and in the same right and the same capacity.
The cash payment due on each reinsurance agreement between the parties
shall constitute the "debt" on such agreement.
13.02. Adequate Assurance. In the event of Insolvency
Proceedings involving the Company, the Reinsurer's future performance
is conditioned on receiving adequate assurance of future performance,
as defined in the Uniform Commercial Code, 2-206, and the Official
Comments thereunder.
13.03. Ipso Facto Clause. If the receiver, including
any liquidator or rehabilitator, of one of the parties assigns the
rights or delegates the duties of this Agreement, and the assignee is
the subject of Insolvency Proceedings then the other party may
immediately terminate the Agreement without further performance.
13.04. Executory Contract. In the event either party to
the Agreement is the subject of Insolvency Proceedings, the receiver of
the insolvent, with respect to future Monthly Settlements, may affirm
or reject the Agreement, but not affirm the rewards and reject the
burdens. If this Agreement is neither affirmed nor rejected within one
hundred and twenty (120) days after a party becomes the subject of
Insolvency Proceedings, then the Agreement shall be deemed to be
rejected.
If either party is the subject of Insolvency Proceedings
other than liquidation proceedings, then the other party may request
adequate assurance of continued performance and the first priority
administrative expense with respect to future performance prior to the
time the Agreement is either affirmed or rejected, and if such is not
provided, then, after one hundred and twenty (120) days, the other
party may treat its future performance as terminated.
13.05. Insolvency Proceedings. For purposes of this
Agreement the term "Insolvency Proceedings" shall include, but not be
limited to, any action by a state insurance regulatory authority to
place a party in, or the actual commencement of, delinquency
proceedings, including conservatorship, receivership, rehabilitation,
reorganization, "adjustment of debts," "voluntary supervision," or
liquidation.
ARTICLE XIV
REPRESENTATIONS AND WARRANTIES
14.1. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Reinsurer that:
14.1.a. The Company has made available to the
Reinsurer copies of all forms, applications, rates, and values with
respect to the policies and shall keep the Reinsurer promptly informed
with respect to any changes or modifications to such forms,
applications, or rates;
14.1.b. The Company is licensed in good standing in
all jurisdictions in which Reinsured Policies were issued or assumed
and all Policies are in full compliance with applicable laws,
regulations and rules. The Company has not been placed in, nor does it
have any reason to believe that it is about to be placed in
supervision, rehabilitation, receivership, revocation, suspension or
liquidation by any insurance department;
14.1.c. The Company is duly organized, validly
existing and in good standing under the laws of the State of Ohio, and
has all necessary corporate power and authority to entitle it to use its
name, to own, lease or otherwise hold its properties and assets, to
carry on its business as currently conducted, and to perform its
obligations;
14.1.d. The Reinsured Policies are in compliance
with all applicable requirements of law and are on forms approved in all
material respects by the appropriate governmental authorities except to
the extent that failure to be in compliance therewith does not have a
material adverse effect; and
14.1.e. Appropriate, reasonable and adequate
statutory reserves are being held by the Company in support of the
Reinsured Policies.
14.2. Representations and Warranties of the Reinsurer.
The Reinsurer hereby represents and warrants to the Company that:
14.2.a. The Reinsurer is duly organized, validly
existing and in good standing under the laws of its state of domicile,
and has all necessary corporate power and authority to entitle it to use
its name, to own, lease or otherwise hold its properties and assets, to
carry on its business as currently conducted, and to perform its
obligations; and
14.2.b. The Reinsurer is an authorized reinsurer in
the State of Ohio.
ARTICLE XV
CONDITIONS PRECEDENT
15.1. Conditions. The obligations of the Company and the
Reinsurer to consummate the transactions described hereunder are
expressly subject to:
15.1.a. On or before the Closing Date, except for
the assumption reinsurance contemplated under Article XVI hereunder,
the approvals of the insurance commissioners, directors, or
superintendents, as the case may be, of the insurance regulatory
authorities necessary for the consummation of the transactions
contemplated by the Agreement, and such approvals shall be in full
force and effect, and shall not impose upon either the Company or the
Reinsurer any material conditions or the requirements that would impose
upon either party any material additional costs;
15.1.b. On or before the Closing Date, the
Reinsurer having discovered no material errors, omissions or
liabilities previously undisclosed to it in the due diligence
investigation and documentation provided the Reinsurer by the Company
prior to the date hereof;
15.1.c. All of the representations and warranties
made by the parties hereto in Article XIV hereunder shall be true and
correct in all material respects on the date hereof and on the Closing
Date as if made on such date; and
15.1.d. On or before the Closing Date, each of the
parties obtaining full corporate power and authority to execute,
deliver and perform their respective obligations under this Agreement
and taking all necessary corporate and other action to authorize the
reinsurance of the Reinsured Policies under the terms of this
Agreement.
ARTICLE XVI
ASSUMPTION REINSURANCE
16.1. Conditions. Should any of the conditions outlined
below occur, the Reinsurer reserves the right to assumption reinsure
all covered policies. Such assumption shall take effect subject to the
terms of the Assumption Reinsurance Agreement executed and attached
hereto as Exhibit I:
16.1.a. The Company's total adjusted Risk Based
Capital becomes lower than 225% of the Company's authorized control
level and remains so for more than sixty (60) days;
16.1.b. Any state regulatory authority initiates
any proceeding against the Company on the ground that the Company is
impaired or insolvent or in hazardous financial condition;
16.1.c. The Company defaults on any obligation set
forth in this Agreement or any other contract or agreement to which it
is a party and fails to cure within ten (10) Business Days of receipt
of notice of such default;
16.1.d. The Company fails three (3) or more IRIS
ratios developed by the National Association of Insurance Commissioners
and utilized by any insurance regulatory authority;
16.1.e. The senior management team in place on the
Effective Date of this Agreement changes; or
16.1.f. The Company is technically insolvent or
admits in writing its inability to pay its debts as they mature.
ARTICLE XVII
INDEMNIFICATION
17.01. The Reinsurer. The Reinsurer hereby agrees on
demand to indemnify and hold harmless the Company and its respective
officers, directors and employees from and against any and all demands,
actions, proceedings, suits (by any person, entity or group,
including, without limitation, any governmental entity) and
liabilities, paid or incurred (including reasonable attorneys' fees),
resulting from or arising out of the breach of or failure to perform any
of the duties, obligations, covenants or agreements of the Reinsurer
contained in this Agreement.
17.02. The Company. The Company hereby agrees on
demand to indemnify and hold harmless the Reinsurer and its officers,
directors and employees from and against any and all demands, actions,
proceedings, suits (by any person, entity or group, including, without
limitation, any governmental entity) and liabilities, paid or incurred
(including reasonable attorneys' fees), resulting from or arising out
of the breach of or failure to perform any of the duties, obligations,
covenants or agreements of the Company contained in this Agreement.
17.03. Survival of Article. This Article shall survive
termination of this Agreement.
ARTICLE XVIII
ESTABLISHMENT OF AN ASSET TRUST
18.01. Asset Trust. If for any reason the Reinsurer
shall cease to be an authorized reinsurer in the Company's state of
domicile, or, if for any reason the Company is unable to offset its
primary reserve liability for the liabilities assumed by the Reinsurer
hereunder, then the Reinsurer shall place assets equal to the
liabilities assumed hereunder into a trust with provisions satisfactory
to the insurance regulators of the Company's state of domicile. Such
assets shall be satisfactory to such regulators.
ARTICLE XIX
MISCELLANEOUS PROVISIONS
19.01. Headings and Schedules. Headings used herein are
not a part of this Agreement and shall not affect the terms hereof.
The attached Schedules are a part of this Agreement.
19.02. Notices. All notices and communications hereunder
shall be in writing and shall be deemed to have been received three (3)
Business Days after mailing, or if by telefax or by hand, when
received, and if by overnight mail, on the next Business Day. Any
written notice shall be by either certified or registered mail, return
receipt requested, or overnight delivery service (providing for
delivery receipt) or delivered by hand. All notices or communications
with the Reinsurer under this Agreement shall be addressed as follows:
First International Life Insurance Company
c/o The Guardian Life Insurance Company of America
201 Park Avenue South
New York, New York 10003
Attention: Jeremy Starr
Telefax No.: (212) 598-8659
All notices and communications with the Company under this
Agreement shall be directed to:
Universal Guaranty Life Insurance Company
5250 South Sixth Street
Springfield, Illinois 62705-5147
Attention: James Melville
Telefax No.: (217) 786-4372
19.03. Severability. If any term or provision of this
Agreement shall be held void, illegal, or unenforceable, the validity
of the remaining portions or provisions shall not be affected thereby;
provided, however, that to the extent that such remaining portions or
provisions affect the economic positions of the parties hereunder, this
Agreement shall be amended by the parties so as to return the parties
to the economic positions that they would have been in had no such
severance occurred or so that both parties share the economic detriment
of such severance equally.
19.04. Successors and Assigns. This Agreement may not
be assigned by either party without the prior written consent of the
other. The provisions of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and assigns as permitted herein.
19.05. Execution in Counterpart. This Agreement may be
executed by the parties hereto in any number of counterparts, and by
each of the parties hereto in separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one
and the same instrument.
19.06. Currency. All payments and accounts shall be made
in United States Dollars, and all fractional amounts shall be rounded
to the nearest whole dollar. For the purposes of this Agreement, if
the Company receives premiums or pays Benefits in currencies other than
United States Dollars, such premiums and Benefits shall be converted
into United States Dollars at the actual rates of exchange at which
such premiums and Benefits are entered in the Company's books.
19.07. Amendments; Entire Agreement. This Agreement may
be amended only by written agreement of the parties. This Agreement,
the annexed Exhibit 1 and the Schedules, supersede all prior
discussions and written and oral agreements and constitute the sole and
entire agreement between the parties with respect to the subject matter
hereof.
19.08. Investigations. The Company will notify the
Reinsurer immediately, in writing, of any and all investigations of the
Company or its directors, principal officers or shareholders conducted
by any Federal, state or local governmental or regulatory agency other
than routine state insurance department examinations.
19.09. Governing Law and Forum. This Agreement shall be
governed by the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof. Both parties hereunder
hereby irrevocably and unconditionally submit themselves to the
exclusive jurisdiction of the courts of the State of New York for any
actions, suits or proceedings of or relating to this Agreement and the
transactions contemplated thereby that cannot be resolved pursuant to
the provisions of Article XI hereof.
19.10. Interpretation. No provision of this Agreement
shall be construed against any party on the ground that such party
drafted the provision or caused it to be drafted.
19.11. Confidentiality. Except as required by law or
regulatory authority, neither the Company nor the Reinsurer shall
publicly disclose the purchase price or other terms of the transfer
proposed herein, but this restriction shall terminate if such price and
terms shall otherwise become public knowledge. In the event that the
Reinsurer or its representatives are requested or required by oral
questions, interrogatories, requests for information or documents,
subpoena, civil investigation, demand or similar process to disclose
any terms or information regarding the herein transfer it may disclose
any terms or information regarding such transfer provided, however,
that to the extent practicable under the circumstances the Reinsurer
shall give the Company reasonable notice of the order or request before
making the disclosure provided that such notice can be provided without
cost to the Reinsurer. The provisions of this Section 19.11 shall
survive termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives on
the date first above written.
UNIVERSAL GUARANTY LIFE
INSURANCE COMPANY
By: James E. Melville
Title: President
Date: 10/18/96
Attest:
By: Theodore C. Miller
Title: Vice President
Date: 10/18/96
FIRST INTERNATIONAL LIFE
INSURANCE COMPANY
By: Jeremy Starr
Title: Vice President, Reinsurance
Date: October 18, 1996
Attest:
By: Benjamin H. Mitchell
Title: Actuary
Date: October 18, 1996
SCHEDULE A
ADMINISTRATIVE SERVICE AND STANDARDS
On and after the date hereof, the Company will continue to service
the Reinsured Policies by providing the following functions which shall
be performed by the Company in the same timely manner as currently
being performed and with the same diligence provided to the Company's
other policies:
Policy Service, Cash Loans and Cash Dividends, Change Dividend Option,
Address Change, Ownership Change, Assignment, Benefits Change,
Correspondence (to Policyholders), Coverage Changes and Conversions
(No Underwriting Required), Reinstatements, Cash Surrenders/Partial
Withdrawals, Coverage Changes and Conversions (Underwriting
Required), Claims, Noncontestable Life.
A. Policy Service
1. Receipt and processing of Reinsured Policy service requests within
the Service Standards specified herein.
2. Updating of computer record and other files as needed to reflect
requested changes.
3. Preparation and mailing of Reinsured Policy annual statement to
Policyholder for applicable plans of insurance.
B. Policy Loan and Surrender Processing
1. Receipt and processing of loan and surrender requests.
2. Updating of computer record and other files as needed to reflect the
change.
3. Preparation and mailing of checks to Policyholders.
4. Generation and mailing of IRS 1099 forms to Policyholders when
applicable.
C. Claims Adjudication/Complaints
1. Adherence to applicable state fair claims settlement regulations.
2. Receipt, review, and processing of all complaints filed with respect
to the Reinsured Policies with the various Departments of
Insurance.
3. Oversee appropriate action to be taken with regard to a complaint
within guidelines established by the Reinsurer.
D. Accounting/Banking/Auditing
1. Providing of all accounting functions related to Reinsured Policy
administration for the Reinsured Policies being serviced.
2. Processing of all receipts, disbursements, and associated Reinsured
Policy related accounting transactions.
3. Preparation of daily accounting reports reflecting monetary
transactions (checks received, checks paid, monies deposited,
etc.).
4. Managing the appropriate bank accounts, including balancing and
editing of daily bank deposits.
5. Retention of system generated accounting and Reinsured Policy
transaction data and reports on a mutually agreed upon schedule.
6. Access to Reinsured Policy, and payment information as needed to
support the Reinsurer's and regulatory audits.
7. Providing of information of annual statement schedules in annual
statement format (for the information to which the Company has
access).
8. Providing of information with respect to state business pages of
Annual Statement, and any other information required to prepare
premium tax returns.
9. Prepare cash trial balances and accrual trial balances on business
assumed.
E. Financial Reporting
1. Performance of all functions necessary to support statutory
reporting. Preparation of accounting reports on Policies in blue
book format to be used by the Reinsurer.
2. Performance of all functions necessary to support other regulatory
reporting requirements on the Policies to include:
. IRS Form 1099 (Reinsured Policy related)
. Other Policyholders IRS reporting requirements.
3. Performance of all reasonable analyses to assure accuracy of reported
information at monthly, quarterly, and year-end periods.
4. Assist the Reinsurer in interfacing with the Company systems and
processing to allow the Reinsurer to consolidate reported
results.
5. Capacity to download certain information (to be defined by mutual
agreement of the parties) into a personal computer to allow the
Reinsurer to perform forecasting of future experience.
6. Provide necessary support for GAAP reporting purposes.
F. Actuarial
1. Determination of statutory reserves on a quarterly basis for the
Policies.
2. Determination of tax reserves quarterly in accordance with factors
determined by the Reinsurer. On an annual basis, the Company
will provide the required reserve reporting with appropriate
reserve schedules summarized for tax returns.
3. Preparation of the agreed upon annual statement schedules in annual
statement format (for the information to which the Company has
access).
4. General support of Policyholder administration.
G. Reinsurance Processing
1. Maintenance of required reinsurance records on Reinsured Policies.
2. Receipt, reconciliation, and payment of invoices from reinsurers
assuming risk on Policies.
H. Compliance
1. Monitoring statutes and regulations of the Departments of Insurance
in the various states in which the owners of Reinsured Policies
are located to ensure continued compliance.
2. Monitoring the statutes and regulations of the Department of
Insurance in the various states in which the owners of Reinsured
Policies are located to ensure that any communications required
by such regulations or statutes are implemented.
3. Responding to inquiries from the Departments of Insurance of the
various states in which the owners of Reinsured Policies are
located.
SCHEDULE B
EXPENSE ALLOWANCE
Expense Allowance = Base Allowance - Closing Interest
Base Allowance = P x Reserves and Liabilities +
Interest Adjustment Factor
Interest Adjustment Factor = $1,600,000 x (A - B)
Closing Interest = (Reserves and Liabilities - Policy Loans
on the Effective Date - Base Allowance)
x D x B/365
Where:
P = 23.7% for Paid-up permanent policies
43.4% for Paid-up term policies
23.0% for Dividends on deposit, endowments
on deposit and reserves on Paid-up
additions bought by Dividends
0.0% for provisions for policyholder
Dividends payable in the following year
100.0% for immediate payment of claim
reserves
A = 30 Year Treasury Rate on the Closing Date
B = 30 Year Treasury Rate on September 6, 1996
(which is 7.12%)
D = Calendar Days between Closing Date and
Effective Date
Records with:
First Character In-Force
"class base" Code
Paid-up Term
ETI A,N,T D
Other Term 4,5,8 B or C
Paid-up Permanent 1,2,3 B or C
Dividend Options amounts in any record
SCHEDULE C
INITIAL REINSURANCE REPORT
1. In Force by Policy Form
i. Policy Count
ii. Amount Ceded
iii. Reserves
iv. Loans
2. Accounting Transaction - Initial Reinsurance
Consideration equals net of:
i. Due First International Life Insurance Company
Initial Reinsurance Premium
ii. Due Universal Guaranty Life Insurance Company
Expense Allowance
iii. Initial Reinsurance Consideration
= (i) - (ii)
SCHEDULE D - PART I
MONTHLY PERIOD REINSURANCE REPORT
From First International Life Insurance Company
to Universal Guaranty Life Insurance Company
for the Month ending .
REINSURANCE PREMIUMS
1. Gross Premiums
2. a. Policy Loan Interest
b. Policy Loan Repayments
c. Other Amounts
d. YRT Premiums Payable
Subtotal (a + b + c - d)
3. Dividends
4. Administration Costs
5. Reinsurance Premiums
(1)+(2)-(3)-(4)
BENEFITS
1. Death Benefits (net of reinsurance)
2. Other Benefits under Death
Benefit Settlement Options
3. Surrender and Endowment
Payments to Policyholders
4. Policy Loans Made
5. Dividend withdrawals ( = 2c + 2d
from Schedule D - Part I (Continued))
6. Benefits = (1) + (2) + (3) + (4) + (5)
MONTHLY SETTLEMENT
Reinsurance Premiums received by the
Company - Benefits paid by the
Company
NOTE: If Positive, payment to the Reinsurer
If Negative, payment to the Company
SCHEDULE D - PART I (Continued)
MONTHLY PERIOD REINSURANCE REPORT
1. Policy loans in force
2. a. Dividends on Deposit
Beginning of Period
b. Deposits made during
period
c. Withdrawal of
principle
d. Withdrawal of
interest
e. Dividends on Deposit
End of Period
3. Risk Based Capital
4. Number of IRIS Audits
failed (attach details)
SCHEDULE D - PART II
QUARTERLY POLICY EXHIBIT
Policies
a. In force beginning of year
b. Increases
c. Deaths
d. Surrenders
e. Maturities
f. Lapse
g. Expirations
h. Decreases
i. In force end of period
j. Reserves (attach details by basis)
SCHEDULE D - PART III
ANNUAL REPORTS
Analysis of Increase in Reserves
1. Reserve December 31 of prior year
2. Total Net Premiums
4. Tabular Interest
5. Tabular less Actual Reserves Released
11. Reserves Released by Other Termination (net)
12. Annuity, Supplementary contract, disability and accumulated
dividend payments
15. Reserves December 31 of current year
New York State Analysis of Reserves (Exhibit 8 with face amounts)
Total Industrial Ordinary Group
I. Annuities Res No. of Res. No. of Res. No. of Res. No. of
Pol. Pol. Pol. Pol.
A. Other than Co. Retirement Plan
B. Co. Retirement Plan
II. Supplemental Contracts
III. Deficiency and Miscellaneous Reserves
Tabular detail by Reinsured Policy showing age, sex, Reinsured Policy
number, annual income, reserve factor and reserves for all reserves
ceded on a coinsurance plan. Such detail shall be supplied in
duplicate in either paper, microfiche or machine readable. If the
latter is chosen, it must be formatted according to New York State
requirements.
Tax Reserves by Plan and Reserve Basis
DAC Charge Premiums by Plan
SCHEDULE E
RECAPTURE PROVISIONS
Should the provisions of Section 9.06 be invoked, the following
accounting would transpire for policies being recaptured:
Due to Company:
A. Reserves on Recaptured
Policies on the Effective Date
Due to Reinsurer:
B. Recapture fee
Net Due
(A - B)
Where:
B = A x C
C = Appropriate percentage from chart below:
Years from
Effective Date* Permanent Dividend Option Term
0 23.7% 23% 43.4%
1 21 20 35
2 18 18 29
3 15 15 23
4 13 13 19
5 11 11 15
6 9 9 12
7 7 7 9
8 5 5 6
9 3 3 3
10 0 0 0
* Years from Effective Date represents the integral number of years
since September 30, 1996. Thus, any recapture occurring before
September 30, 1997 will use the factor from the row marked 0.
SCHEDULE F
DAC TAX ELECTION
The Company and the Reinsurer hereby agree to the following pursuant to
Section 1.848-2(g)(8) of the Income Tax Regulations issued December
29, 1992, under Section 848 of the Internal Revenue Code 1986, as
amended. This election shall be effective for 1991 and all subsequent
taxable years for which this Agreement remains in effect.
a. The term "party" will refer to either the Company or the
Reinsurer as appropriate.
b. The terms used in this Schedule F are defined by
reference to Treasury Regulations Section 1.848-2 in
effect as of December 29, 1992.
c. The party with the net positive consideration for this
Agreement for each taxable year will capitalize
specified policy acquisition expenses with respect to
this Agreement without regard to the general deductions
limitation of IRC Section 848(c)(1).
d. Both parties agree to exchange information pertaining to
the amount of net consideration under this Agreement
each year to ensure consistency. The parties also agree
to exchange information which may be otherwise required
by the IRS.
e. The Company will submit a schedule to the Reinsurer by
April 1 of each year of its calculation of the net
consideration of the preceding calendar year. This
schedule 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.
f. The Reinsurer may contest such calculation by providing
an alternate 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, the Reinsurer will report the net
consideration as determined by the Company in the
Reinsurer's tax return for the previous calendar year.
F-1
g. 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
alternate calculation. If the Reinsurer and the Company
reach an agreement on an amount of net consideration,
each party shall report such amount in their respective
tax returns for the previous calendar year.
h. If the Company and the Reinsurer both disagree upon the
final net consideration then the parties shall seek a
remedy as set forth in Article XI of this Agreement.
F-2