Exhibit 10(i)
COINSURANCE AGREEMENT
This Coinsurance Agreement (this "Agreement"), effective as of October 31,
2012, is by and between CMFG Life Insurance Company, a stock insurance
corporation organized under the laws of the State of Iowa (hereinafter referred
to as the "Reinsurer"), and MEMBERS Life Insurance Company, a stock insurance
corporation organized under the laws of the State of Iowa {hereinafter referred
to as the "Company").
The Company and the Reinsurer mutually agree to enter into a reinsurance
transaction under the terms and conditions stated herein. This Agreement is an
indemnity reinsurance agreement solely between the Company and the Reinsurer,
and the performance of the obligations of each party under this Agreement shall
be rendered solely to the other party. In no instance, except as set forth in
the insolvency provisions of this Agreement, shall anyone other than the Company
or the Reinsurer have any rights under this Agreement, and the Reinsurer shali
have no obligation or liability to any insured, owner, beneficiary or other
third party under the policies reinsured hereunder.
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (definitions are applicable to both the singular and the plural forms
of each term defined in this Article):
1.1 "Business Day" means any day that is not a Saturday, Sunday or other day
on which national banking institutions are required or permitted by law or
executive order to be closed.
1.2 "Effective Date" shall have the meaning set forth in Section 2.1.
1.3 "Expense Allowance" shall have the meaning set forth in Section 4.3.
1.4 "Insurance Taxes and Charges" means all premium taxes and other insurance
taxes (not including any federal, state or local tax measured by income)
and guaranty fund assessments payable by the Company on account of the
Reinsured Policies.
1.5 "Policy Benefits" shall mean all annuity payouts, partial surrenders, full
surrenders, death claims (if applicable), and all other contractual
benefits or liabilities of any kind payable under the Reinsured Policies,
including, without limitation, any extracontractual liabilities related
thereto.
1.6 "Premiums" means the gross consideration payable on account of the
Reinsured Policies.
1.7 "Monthly Accounting Period" means the period from the Effective Date
through November 30, 2012 and each calendar month thereafter.
1.8 "Quota Share Percentage" shall have the meaning set forth in Section 2.1.
1.9 "Reinsured Policies" shall mean all (i) policies and annuity contracts of
any kind written or issued by the Company prior to the Effective Date and
any amendments, riders or endorsements attached thereto and any
reinstatements thereof, and (ii) all Supplementary Contracts.
1.10 "Reserves" means, as of any date, all reserves, deposit fund liabilities
and any other liabilities whatsoever for or under the Reinsured Policies
calculated consistent with the reserve requirements, statutory accounting
rules, and actuarial principles applicable to the Company and/or the
Reinsurer.
1.11 "Settlement Amount" means the net amount due and payable to either party
with respect to any Monthly Accounting Period as set forth in Section 6.1.
1.12 "Supplementary Contracts" means all supplementary contracts, whether with
or without life contingencies, issued by the Company in exchange for a
Reinsured Policy, whether prior to or after the Effective Date.
ARTICLE II
COVERAGE
2.1 Coverage. Upon the terms and subject to the conditions of this Agreement,
as of 11:59 p.m., Central Time, on October 31, 2012 (the "Effective
Date"), the Company shall cede to the Reinsurer, and the Reinsurer shall
assume from the Company, all liabilities (including any prior-year loss
reserve development) under the Reinsured Policies on a ninety-five percent
(95%) coinsurance basis (the "Quota Share Percentage"). The liability of
the Reinsurer hereunder with respect to the Reinsured Policies shall begin
simultaneously and automatically with that of the Company, but not prior
to the Effective Date.
2.2 Conditions. All coinsurance for which the Reinsurer is liable hereunder
shall be subject to the same rates, terms, conditions, waivers,
modifications, alterations, cancellations, limitations and restrictions as
are contained in or otherwise apply to the Reinsured Policies, except as
otherwise provided in this Agreement. Whenever a change is made in the
status, plan, amount or other material feature of a Reinsured Policy, the
Reinsurer will provide adjusted reinsurance coverage in accordance with
the provisions of this Agreement.
2.3 New Business. This Agreement excludes all new policies or contracts
written or issued by the Company after the Effective Date (the "New
Business"). For the avoidance of doubt, all of the Company's New Business
will be reinsured by the Reinsurer on a one hundred percent (100%)
coinsurance basis pursuant to that certain Coinsurance Agreement, to
become effective as of January 1, 2013, by and between the Company and the
Reinsurer, which agreement shall provide coverage for all covered
liabilities with respect to New Business. The Company will not write any
new business between the Effective Date and January 1, 2013.
ARTICLE III
GENERAL PROVISIONS
3.1 Inspection. Either party or its designated representative may, upon
reasonable advance notice and during normal business hours at the offices
of the Company or the Reinsurer, as the case may be, conduct reasonable
inspections of the books and records of the other party reasonably
relating to the Reinsured Policies or this Agreement for such period as
this Agreement remains in effect and as long thereafter as the Company or
the Reinsurer, as the case may be, has any outstanding obligation under
this Agreement.
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3.2 Setoff and Recoupment. Any debts or credits incurred or arising on or
after the Effective Date in favor of or against either the Company or the
Reinsurer with respect to this Agreement are deemed mutual debts or
credits, as the case may be, and shall be set off, and only the net
balance shall be allowed or paid; provided, however, that in the event of
the insolvency of a party hereto, offsets shall only be allowed in
accordance with the provisions of applicable law.
3.3 Compliance with Applicable Laws. The Company and the Reinsurer shall
maintain all licenses, obtain all regulatory approvals and comply with all
applicable laws and regulatory requirements necessary to perform their
respective obligations under this Agreement.
ARTICLE IV
PAYMENTS
4.1 Premiums. On the Effective Date, and as consideration for the coinsurance
of the Reinsured Policies provided under this Agreement, the Company shall
pay the Reinsurer an amount equal to the Quota Share Percentage of the
estimated Reserves as of the Effective Date, which payment shall be made
in the form of cash, securities or other assets acceptable to the
Reinsurer. Within thirty (30) days following the Effective Date, the
Company and Reinsurer shall calculate the actual Reserves as of the
Effective Date based on data available after the Effective Date and, based
upon such calculation, make any corresponding true-up payment to the
appropriate party. In addition to the foregoing, the Company shall pay the
Reinsurer the Quota Share Percentage of all Premiums payable on account of
the Reinsured Policies on and after the Effective Date as such Premiums
are due and received. Premiums received by the Company and payable to the
Reinsurer shall be reflected in the Monthly Accounting Reports prepared by
the Company and included in the calculation of the applicable Settlement
Amount pursuant to Section 6.1.
4.2 Policy Benefits. The Reinsurer shall pay its Quota Share Percentage of all
Policy Benefits paid by the Company during the current Monthly Accounting
Period. Policy Benefits payable to the Company shall be reflected in the
Monthly Accounting Reports prepared by the Company and included in the
calculation of the applicable Settlement Amount pursuant to Section 6.1.
4.3 Expense Allowance. As reimbursement for expenses and costs incurred by the
Company on and after the Effective Date on account of the Reinsured
Policies, including but not limited to (i) commissions, (ii) acquisition
expenses, (iii) expenses incurred in the provision of policyholder and
benefit payment services, and (iv) Insurance Taxes and Charges, the
Reinsurer shall pay to the Company a monthly expense allowance in an
amount equal to the Quota Share Percentage of the actual allocated
expenses and costs incurred by the Company with respect to the Reinsured
Policies for the monthly period at issue (the "Expense Allowance"). The
Expense Allowance shall be reflected in the Monthly Accounting Reports
prepared by the Company and included in the calculation of the applicable
Settlement Amount pursuant to Section 6.1.
4.4 Payments, Unless otherwise stated, all payments pursuant to this Agreement
shall be made in U.S. Dollars and immediately available funds.
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ARTICLE V
ADMINISTRATION
5.1 Policy Administration. The Company shall provide all required, necessary
and appropriate claims, administrative and other services with respect to
the Reinsured Policies. The Company shall use reasonable care in its
administration and claims practices with respect to the Reinsured Policies
and in administering and performing its duties under this Agreement and
such practices, administration and performance shall (a) conform with
applicable law; (b) not be fraudulent; and (c) be no less favorable than
those used by the Company with respect to other policies of the Company
not reinsured by the Reinsurer.
5.2 Record Keeping. The Company shall maintain appropriate books and records
relating to the Reinsured Policies in accordance with industry standards
of insurance record keeping. In the event of the termination of this
Agreement and upon the request of the Company, any records in the
possession of the Reinsurer related to the Reinsured Policies shall be
duplicated and forwarded to the Company. The Company shall establish and
maintain an adequate system of internal controls and procedures for
financial reporting relating to the Reinsured Policies and shall make such
documentation available for examination and inspection by the Reinsurer
upon request.
ARTICLE VI
ACCOUNTING AND SETTLEMENT
6.1 Monthly Accounting Reports. Within thirty (30) calendar days following the
end of each Monthly Accounting Period, the Company shall provide the
Reinsurer with a monthly report which shall list each of the payment
obligations pursuant to Article IV for such Monthly Accounting Period and
such other information regarding the Reinsured Policies as may be mutually
agreed upon by the parties (the "Monthly Accounting Reports"). In addition
to the Monthly Accounting Reports, the Company shall provide the Reinsurer
with any additional information related to this Agreement or the Reinsured
Policies as is reasonably necessary for the Reinsurer to satisfy any
financial reporting or disclosure requirements or to comply with any
applicable laws. Each Monthly Account Report will include a calculation of
the Settlement Amount for that Monthly Accounting Period. The term
"Settlement Amount" for any Monthly Accounting Period shall mean an amount
equal to the difference between (i) Premiums payable pursuant to Section
4.1, less (ii) Policy Benefits payable pursuant to Section 4.2, less (in)
the Expense Allowance payable pursuant to Section 4,3.
6.2 Settlements. If the Settlement Amount prepared by the Company shows a net
balance payable to the Reinsurer, the Company shall remit such balance to
the Reinsurer within ten (10) Business Days following delivery of the
Monthly Accounting Report. If the Settlement Amount shows a net balance
payable to the Company, the Reinsurer shall remit such balance to the
Company within ten (10) Business Days following receipt of the Monthly
Accounting Report.
6.3 Reconciliation. Each party shall have the right to review and dispute
individual components of the transactions reflected in the Monthly
Accounting Reports, and
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to request adjustments, as appropriate. Any amount due either party in
connection with any adjustment shall be paid within ten (10) Business Days
following the parties' resolution of such adjustment.
ARTICLE VII
TERM AND TERMINATION
7.1 Term. The coinsurance provided under this Agreement shall remain
continuously in force for so long as the Company shall remain liable on
the Reinsured Policies or until terminated by either party by written
notice given to the other party at least twelve (12) months in advance of
the termination date, a copy of which shall be provided to the Iowa
Insurance Division.
7.2 Runoff Coverage. If this Agreement is terminated, the coinsurance
hereunder shall continue to apply to benefits and/or claims under all
Reinsured Policies (including any lapsed, surrendered, reinstated, renewed
or matured Reinsured Policy) until the Company's obligations under the
Reinsured Policies ceases. The parties hereto expressly covenant and agree
that, in the event of termination of this Agreement, they will cooperate
with each other in the handling of all such runoff insurance business
until the Company's obligations under the Reinsured Policies ceases. All
costs and expenses associated with the handling of such runoff business
shall be borne solely by the Reinsurer.
7.3 Recapture. The Policies are not eligible for recapture by the Company
except upon the mutual agreement of the Company and the Reinsurer.
ARTICLE VIII
INSOLVENCY
8.1 Insolvency of Ceding Company. In the event of insolvency and the
appointment of a conservator, liquidator, or statutory successor of the
Company, the reinsurance hereunder shall be payable directly to the
conservator, rehabilitator, liquidator, receiver or statutory successor of
the Company on the basis of claims allowed against the Company by any
court of competent jurisdiction or by any conservator, rehabilitator,
liquidator, receiver or statutory successor of the Company having
authority to allow such claims, without diminution because of that
insolvency, or because the conservator, rehabilitator, liquidator,
receiver or statutory successor of the Company has failed to pay all or a
portion of any claims. Payments by the Reinsurer, as set forth herein,
shall be made directly to the Company or to its conservator,
rehabilitator, liquidator, receiver or statutory successor, except where
this Agreement specifically provides another payee of such reinsurance in
the event of the insolvency of the Company. The conservator,
rehabilitator, liquidator, receiver or statutory successor of the Company
shall give written notice to the Reinsurer of the pendency of a claim
against the Company indicating the policy reinsured, within a reasonable
time after such claim is filed and the Reinsurer may investigate and
interpose, at its own expense, in any proceeding where such claim is to be
adjudicated, any defense or defenses that the Reinsurer may deem available
to the Company or to its conservator, rehabilitator, liquidator, receiver
or statutory successor.
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ARTICLE IX
DISPUTE RESOLUTION
9.1 Dispute Resolution. If a dispute, controversy, or claim arises out of or
relates to this Agreement, or an alleged breach thereof, and if said
dispute cannot be settled through direct discussions, the parties agree to
first endeavor to settle the dispute in an amicable manner by mediation
administered by the American Arbitration Association ("AAA") under its
Commercial Mediation Rules, before resorting to arbitration. If the matter
has not been resolved pursuant to mediation within thirty (30) calendar
days of the commencement of such mediation (which period may be extended
by mutual agreement in writing), then any unresolved dispute, controversy,
or claim arising out of or relating to this Agreement, its termination or
non-renewal, or any breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the AAA, and judgment
upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitration shall be conducted by a sole
arbitrator or, at the election of either party, before a panel of three
arbitrators. Selection of the arbitrator(s) shall be in accordance with
the Commercial Arbitration Rules of the AAA. The arbitrator(s) shall allow
each party to conduct limited relevant discovery. The arbitrator(s) shall
have no authority to award punitive damages or any damages not measured by
the prevailing party's actual damages, and may not, in any event, make any
ruling, finding or award that does not conform to the terms and conditions
of this Agreement and applicable state and federal laws. All fees and
expenses of arbitration shall be borne by the parties equally. However,
each party shall bear the expense of its own counsel, experts, witnesses,
and preparation and presentation of the arbitration matter. Any such
arbitration shall be conducted in Madison, Wisconsin.
ARTICLE X
DAC TAX
10.1 Party. The term "party" will refer to either contracting company as
appropriate.
10.2 Other Terms. The terms "Net Positive Consideration", "Specified Policy
Acquisition Expenses" and "General Deductions Limitation" used in this
Article are defined by reference to Regulation Section 1.848-2 and Code
Section 848.
10.3 DAC Tax Election. The parties to this Agreement make the election set
forth below pursuant to Section 1.848-2(g) (8) of the income Tax
Regulations issued under Section 848 of the Internal Revenue Code of 1986,
as amended (the "Code"). This election shall be effective for taxable year
2012 and for all subsequent taxable years for which this Agreement remains
in effect.
(a) 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 Code Section 848(c)(1).
(b) Both parties agree to exchange information pertaining to the amount
of net consideration under this Agreement each year, or as
otherwise required by the Internal Revenue Service, to ensure
consistency.
(c) The Company will submit a schedule to the Reinsurer by May 1 of each
year with its calculation of the net consideration for the preceding
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calendar year. This schedule will be accompanied by a statement
signed by an officer of the Company attesting to the calculation
contained in said schedule. The Reinsurer may contest such
calculation by providing an alternative calculation to the Company
in writing within thirty (30) calendar days of the Reinsurer's
receipt of the Company's calculation.
(d) If the Reinsurer contests the Company's calculation, the parties
will act in good faith to reach an agreement as to the correct
amount within thirty (30) calendar days of the date that the
Company receives the Reinsurer's alternative calculation. If the
parties reach an agreement on the net consideration calculation,
each party will report the agreed upon amount in its income tax
return for the preceding calendar year. If the parties are unable
to reach an agreement on the amount of net consideration, then the
dispute shall be resolved pursuant to Article IX of this Agreement.
If Reinsurer does not contest the Company's calculation the parties
will utilize the calculation provided by the Company for reporting
purposes in their respective income tax returns for the preceding
year.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Headings. Headings used herein are not a part of this Agreement or related
documents and shall not affect the terms hereof.
11.2 Notices. All notices and communications hereunder shall be in writing and
shall become effective when received. Any written notice shall be sent by
either certified or registered mail, return receipt requested, overnight
delivery service (providing for delivery receipt), electronic facsimile
transmission, or delivered by hand. All notices or communications under
this Agreement shall be addressed as follows: If to the Company:
MEMBERS Life Insurance Company
5910 Mineral Point Rd.
Madison, Wl 53705
Attention: Treasurer
If to the Reinsurer:
CMFG Life Insurance Company
5910 Mineral Point Rd.
Madison, Wl 53075
Attention: Treasurer
11.3 Successors and Assigns. This Agreement and related documents cannot be
assigned by either party without the prior written consent of the other
and the prior approval of the Iowa Insurance Division. The provisions of
this Agreement and related documents 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.
11.4 Execution in Counterparts. 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.
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11.5 Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto with respect to the business being reinsured hereunder
and there are no understandings between the parties other than those
expressed in this Agreement. Any change or modification to this Agreement
shall be null and void unless made by amendment to this Agreement and
signed by both parties hereto.
11.6 Regulatory Approval of Amendments. When and if, under applicable laws or
regulations, the approval of any amendment to this Agreement or related
documents by one or more federal, state or local regulatory authorities is
required, the amendment shall not take effect unless and until all such
necessary approvals have been received by the Company.
11.7 Governing Law. This Agreement and related documents shall be governed by
and construed in accordance with the laws of the State of Iowa.
11.8 Severability. In the event any section or provision of this Agreement or
related documents is found to be void and unenforceable by a court of
competent jurisdiction, the remaining sections and provisions of this
Agreement or related documents shall nevertheless be binding upon the
parties with the same force and effect as though the void or unenforceable
part had not been severed or deleted.
[Remainder of page left intentionally blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative.
MEMBERS LIFE INSURANCE COMPANY
By: /s/ Robert N. Trunzo
--------------------
Name Robert N. Trunzo
Title: President
Date: November 12, 2012
CMFG LIFE INSURANCE COMPANY
By: /s/ Thomas J. Merfeld
---------------------
Name: Thomas J. Merfeld
Title: SVP, Chief Risk Officer
Date: November 12, 2012
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