Common use of True-Up Accounting Clause in Contracts

True-Up Accounting. 4.6.1. Within sixty (60) calendar days after the date that is one (1) year after the Effective Date, Reinsurer will prepare and deliver to Ceding Company a final accounting, in the same form as the Preliminary Effective Date Accounting and the Effective Date Accounting, of all Policy-Related Liabilities and Policy-Related Assets as of the Effective Date (the “True-Up Accounting”). Such accounting must be reviewed and accompanied by a certificate signed by Reinsurer’s chief actuary who is a Member of the American Academy of Actuaries, certifying that all items appearing on such accounting were: (i) correct to the best knowledge of such actuary and do not contain errors in calculation, methodology or application; (ii) based on the books and records of Reinsurer; (iii) calculated in accordance with applicable SAP; and (iv) to the best knowledge of such actuary, prepared using the same accounting and actuarial methodologies, assumptions and procedures, and the application thereof, that Ceding Company utilized in preparing its statutory Annual Statement as of December 31, 2000, the Indemnity Accounting, the Preliminary Effective Date Accounting and the Effective Date Accounting. The True-Up Accounting will include a statement comparing the values of the items set forth on the True-Up Accounting with the values of such items on the Effective Date Accounting and computing the difference in such values; provided, however, that the True-Up Accounting will make no true-up adjustment for items that customarily are included in Exhibit 8 and Exhibit 9 of the NAIC Annual Statement Blank (other than the A&H benefit reserves that are customarily included in Exhibits 8 and 9, which will be adjusted as part of the True-Up Accounting). With respect to the Reserves that have been estimated for claims for policy benefits under the Reinsured Policies, the True-Up Accounting will restate the liability for claims that were incurred before the Effective Time but not reported as of the Effective Time by replacing the estimated liability for such claims that was included in the Effective Date Accounting with the sum of (a) the actual runoff of such claims that were incurred before the Effective Time and that have been paid since the Effective Time, plus (b) an estimate for any such claims that were incurred before the Effective Time and may be unpaid as of the date that is one year after the Effective Time. To the extent that the actual amounts of any other Policy-Related Liabilities and Policy-Related Assets as of the Effective Date become determinable prior to the preparation of the True-Up Accounting, such items will be reflected on the True-Up Accounting as such actual amounts rather than estimations. Reinsurer will provide Ceding Company with a copy of all work papers and data used, and access to all personnel involved, in preparing the True-Up Accounting. 4.6.2. Ceding Company will have sixty (60) calendar days after receipt of the True-Up Accounting to review such accounting and suggest changes or corrections thereto. On or before the end of such period, Ceding Company will notify Reinsurer in writing whether or not it accepts the True-Up Accounting. If Ceding Company fails to so notify Reinsurer, Ceding Company will be deemed to have accepted the True-Up Accounting. If Ceding Company does not accept the True-Up Accounting, Ceding Company will set forth in reasonable detail its objections thereto and the reasons for such objections. The parties in good faith will discuss and negotiate any such objections in an effort to reach agreement on the True-Up Accounting. If despite good faith negotiations the parties are unable to reach agreement within thirty (30) calendar days after Reinsurer’s receipt of Ceding Company’s notice of objections, then the parties will submit the dispute to arbitration in accordance with Section 7, except that all arbitrators must be Members of the American Academy of Actuaries familiar with the types of policies included in the Reinsured Policies, and the arbitrators will determine the True-Up Accounting in accordance with the standards set forth in items (i) through (iv) of Section 4.6.1. 4.6.3. Within ten (10) calendar days after agreement is reached on the True-Up Accounting or the True-Up Accounting is determined by arbitration, as the case may be, the parties will settle any differences on such accountings as follows: (i) if the True-Up Value Difference is positive, then Ceding Company will pay such difference to Reinsurer in cash; and (ii) if the True-Up Value Difference is negative, then Reinsurer will pay such difference to Ceding Company in cash. “True-Up Value Difference” means the result of subtracting the value for the Adjusted Transfer Amount from the value for the Final Transfer Amount. Payment of the True-Up Value Difference will be accompanied by the payment of interest thereon from the Effective Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Effective Date.