Automatic Coinsurance Agreement
Between
American Skandia Life Assurance Corporation
of Shelton, Connecticut U.S.A.
(Reinsured referred to as you, your or Reinsured)
and
The Prudential Insurance Company of America
of Newark, New Jersey, U.S.A.
(referred to as the Reinsurer)
Final Execution Version 10/1/2004
TABLE OF CONTENTS
ARTICLE I........................................................................3
AUTOMATIC REINSURANCE.........................................................3
ARTICLE II.......................................................................3
LIABILITY.....................................................................3
ARTICLE III......................................................................4
PLAN AND AMOUNT OF INSURANCE..................................................4
ARTICLE IV.......................................................................4
REINSURANCE PREMIUMS..........................................................4
ARTICLE V........................................................................4
PAYMENTS BY REINSURER.........................................................4
ARTICLE VI.......................................................................4
REPORTING AND CASH SETTLEMENT.................................................4
ARTICLE VII......................................................................5
DEPOSITS ON THE RESERVES......................................................5
ARTICLE VIII.....................................................................5
ACCOUNT PAYABLE LIABILITY AND RESERVE BASIS...................................5
ARTICLE IX.......................................................................5
GENERAL PROVISIONS............................................................5
ARTICLE X........................................................................7
DAC TAX AGREEMENT.............................................................7
ARTICLE XI.......................................................................8
RECAPTURE.....................................................................8
ARTICLE XII......................................................................8
ARBITRATION...................................................................8
ARTICLE XIII.....................................................................9
DURATION OF AGREEMENT.........................................................9
ARTICLE XIV......................................................................9
ENTIRE AGREEMENT..............................................................9
ARTICLE XV......................................................................10
EXECUTION....................................................................10
SCHEDULE A......................................................................11
BUSINESS REINSURED...........................................................11
SCHEDULE B......................................................................12
MONTHLY SETTLEMENT REPORT....................................................12
SCHEDULE C......................................................................13
MONTHLY BUSINESS MANAGEMENT REPORT...........................................13
SCHEDULE D......................................................................14
ANNUAL REPORT................................................................14
The Reinsured and the Reinsurer mutually agree to reinsure on the terms and
conditions set out below.
ARTICLE I
Automatic Reinsurance
1. Insurance. The Reinsured will cede and the Reinsurer will accept as
reinsurance the underlying benefit provided by the Guaranteed Minimum
Withdrawal Benefit (GMWB) written by the Reinsured as shown in Schedule
A.
2. Coverages. The underlying rider may be attached to any contract written
by the Reinsured issued between the dates specified in Schedule A.
ARTICLE II
Liability
1. Liability. The liability of the Reinsurer on any reinsurance under this
Agreement begins upon the effective date of this Agreement as set forth
in Article XV, Execution, and ends after all underlying insurance
contracts reinsured associated with the GMWB rider have been
terminated. The liability of the Reinsurer to the Reinsured under this
Agreement will be the remaining GMWB obligation to any covered
contractholder after the basic contract account value has been reduced
to zero.
2. The liability of the Reinsurer will be settled and paid to the
Reinsured monthly on the basis of the monthly reports prepared by the
Reinsured in the form of Schedule B. Payment of any amount due to be
paid by the Reinsurer or the Reinsured will be determined on a net
basis and will be paid within 5 business days after receipt of the
monthly report.
3. This is a contract solely between the Reinsured and the Reinsurer. The
obligations under this contract of the Reinsurer are solely to the
Reinsured and those of the Reinsured solely to the Reinsurer.
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ARTICLE III
Plan and Amount of Insurance
1. Plan. Reinsurance under this Agreement will be on the coinsurance basis
in accordance with the underlying GMWB rider issued by the Reinsured
and listed on Schedule A.
2. Reduction and Terminations. If any of the underlying insurance
contracts reinsured under this Agreement are terminated by payment of a
death benefit, surrender or annuitization, the reinsurance will be
reduced proportionately.
ARTICLE IV
Reinsurance Premiums
The premium Due Reinsurer by the Reinsured with respect to each insurance
contract reinsured is specified in Schedule A.
ARTICLE V
Payments by Reinsurer
Benefits. The Reinsurer will pay the Reinsured the remaining obligation under
the GMWB rider after permitted withdrawals have reduced the insurance contracts
account value to zero.
ARTICLE VI
Reporting and Cash Settlement
1. The Reinsured will provide the Reinsurer with information necessary to
properly account for the business reinsured.
2. Not later than ten (10) business days after the end of each month, the
Reinsured will submit a report substantially in accordance with
Schedule B. The Reinsured agrees to provide or make available to the
Reinsurer such documentation as may be necessary to support the items
reported.
3. Not later than ten (10) business days after the end of each month, the
Reinsured will submit a report substantially in accordance with
Schedule C.
4. Not later than ten (10) business days after the end of each calendar
year, the Reinsured will submit a report substantially in accordance
with Schedule D.
5. The Reinsurer and the Reinsured shall consider any balance due and
unpaid, whether on account of premiums, allowances, losses or claims
expenses, to be mutual debits or
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credits under this Agreement and will offset, if permitted under the
applicable law. Only the balance will be considered in determining the
liability of the Reinsurer.
6. Cash settlement of balances due between Reinsured and Reinsurer will be
made within five (5) business days of receipt of Schedule B each month.
7. Cash settlement of the balance due for the period since October 3, 2003
through the last day of the month immediately preceding the effective
date of this Agreement will be made within five (5) business days of
the effective date based on an estimated calculation of the amounts
that would have been due on a net basis under Schedule B for the
benefits covered, adjusted with interest at the rate of 3% annually.
ARTICLE VII
Deposits on the Reserves
The Reinsurer will hold reserves as required by the regulatory body for the
benefit covered.
ARTICLE VIII
Reserve Basis
The Statutory Reserve will be calculated by the Reinsured according to the
"Commissioner's Annuity Reserve Valuation Method" as prescribed in the Standard
Valuation Law.
ARTICLE IX
General Provisions
1. Reinsurance Conditions. The reinsurance is subject to the same
limitations and conditions as the benefit under the underlying GMWB
rider written by the Reinsured on which the reinsurance is based.
2. Expenses. In no event will the Reinsurer have any liability for any
extra-contractual damages which are rendered against the Reinsured as a
result of acts, omissions or course of conduct committed by the
Reinsured in connection with the annuity contracts reinsured under this
Agreement. In no event will the Reinsured have any liability for
extra-contractual damages against the Reinsurer as a result of acts,
omissions, or course of conduct committed by the Reinsurer in
connection with the reinsurance of the annuity contracts under this
Agreement.
3. Oversights. If failure to pay any premium due or to perform any other
act required by this Agreement is unintentional and is caused by
misunderstanding or oversight,
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the Reinsured and the Reinsurer will adjust the situation to what it
would have been had the misunderstanding or oversight not occurred.
4. Inspection. At any reasonable time, the Reinsurer and the Reinsured may
inspect the original papers and any other books or documents at the
Home Office of the other relating to or affecting reinsurance under
this Agreement.
It is mutually agreed by the Reinsured and the Reinsurer that any
information that is made available for inspection under this section of
the Agreement will be kept confidential and under no circumstances may
this information be disclosed to, or made available for inspection by,
any third party without the prior consent of the other contracting
party.
5. Assignment or transfer. In no event will either the Reinsured or the
Reinsurer assign any of its rights, duties and or obligations under
this Agreement without the prior written approval of the other party.
Such approval will not unreasonably be withheld.
In no event will either the Reinsured or the Reinsurer transfer either
the underlying insurance contracts reinsured under this Agreement or
the reinsurance without the prior written approval of the other party.
Such approval will not unreasonably be withheld.
6. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement will not be affected thereby. This Agreement will be
construed in accordance with the applicable federal law and the laws of
the State of Connecticut.
7. Premium Taxes. The Reinsurer will not be liable for premium taxes.
8. Insolvency. In the event of the declared insolvency of the Reinsured,
and the appointment of a domiciliary liquidator, receiver, conservator
or statutory successor for the Reinsured, this reinsurance will be
payable immediately upon demand, with reasonable provision for
verification, directly to the Reinsured or its domiciliary liquidator,
receiver, or conservator or statutory successor, on the basis of the
liability of the Reinsured without diminution because of the insolvency
of the Reinsured or because the liquidator, receiver, conservator or
statutory successor of the Reinsured has failed to pay all or a portion
of any claim.
Every liquidator, receiver, conservator or statutory successor of the
Reinsured or guaranty fund or association will give written notice to
the Reinsurer of the pendency of a claim involving the Reinsured
indicating which of the underlying insurance contracts would involve
possible liability on the part of the Reinsurer to the Reinsured or its
domiciliary liquidator, receiver, conservator or statutory successor,
within a reasonable amount of time after the claim is filed in the
conservation, liquidation, receivership or other proceeding.
During the pendency of any claim, the Reinsurer may investigate the
same and interpose, at its own expense, in the proceeding where that
claim is to be adjudicated, any defense or defenses that it may deem
available to the Reinsured, to its contract owner, or to any
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liquidator, receiver or statutory successor of the Reinsured or
guaranty fund or association. The expenses thus incurred by the
Reinsurer will be chargeable, subject to approval of the applicable
court, against the Reinsured as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may
accrue to the Reinsured as a result of the defense undertaken by the
Reinsurer.
This reinsurance will be payable directly to the Reinsurer to the
Reinsured or to its domiciliary liquidator, receiver, conservator or
statutory successor, except as expressly required otherwise by
applicable insurance law.
9. Insolvency of the Reinsurer. In the event of the insolvency,
bankruptcy, receivership, rehabilitation or dissolution of the
Reinsurer, the Reinsured may retain all or any portion of any amount
then due or which may become due to the Reinsurer under this Agreement
and use such amounts for the purposes of paying any and all liabilities
of the Reinsurer incurred under this Agreement. When all such liability
hereunder has been discharged, the Reinsured will pay the Reinsurer,
its successor or statutory receiver, the balance of such amounts
withheld as may remain.
ARTICLE X
DAC Tax Agreement
1. The Reinsured and the Reinsurer, herein collectively called the
"Parties", or singularly the "Party", hereby enter into an
election under Treasury Regulations Section 1.848-2(g) (8) as
promulgated under the Internal Revenue Code, as found in Title 26
of the United States Code, hereinafter referred to as the
Regulations and the IRC. Both parties agree to make the election
contemplated by this Section 14 by timely attaching to their U.S.
tax returns the schedule contemplated by Section 1.848-2(g)(8)(ii)
of the Regulations. Furthermore, the parties agree to the
following:
a. For each taxable year under this Agreement, the party with the
net positive consideration, as defined in the Regulations, will
capitalize specified policy acquisition expenses with respect to
this Agreement without regard to the general deductions
limitation of Section 848 (c) (1);
b. The Reinsured and the Reinsurer agree to exchange information
pertaining to the net consideration under this Agreement each
year to insure consistency or as otherwise required by the U.S.
Internal Revenue Service;
c. The Reinsured will submit to the Reinsurer by May 1 of each year
its calculation of the net consideration for the preceding
calendar year.
d. The Reinsurer may contest such calculation by providing an
alternative calculation to the Reinsured in writing within 30
days of the Reinsurer's receipt of the Reinsured's calculation.
If the Reinsurer does not so notify the Reinsured, the Reinsurer
xxxx
Xxxx 7 of 14
report the net consideration as determined by the Reinsured in
the Reinsurer's tax return for the previous calendar year;
e. If the Reinsurer contests the Reinsured'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 Reinsured
and the Reinsurer do not reach agreement on the net amount of
consideration within such 30-day period, then the net amount of
consideration for such year shall be determined by an independent
accounting firm acceptable to both the Reinsured and the
Reinsurer within 20 days after the expiration of such 30-day
period.
f. The Reinsured and the Reinsurer agree that this election shall
first be effective for the 2004 calendar tax year and will be
effective for all subsequent taxable years for which this
Agreement remains in effect.
The Reinsurer and the Reinsured represent and warrant that they
are subject to U.S. taxation under either Subchapter L of Chapter
1, or Subpart F of Subchapter N of Chapter 1 of the IRC of 1986,
as amended.
ARTICLE XI
Recapture
The business reinsured under this Agreement will not be eligible for recapture,
except through mutual agreement of both parties.
ARTICLE XII
Arbitration
1. Any controversy or claim arising out of or relating to this Agreement
will be settled by arbitration.
2. There must be three arbitrators who will be active, prior or retired
officers of life insurance companies other than the contracting
companies or their subsidiaries or affiliates. Each of the contracting
companies will appoint one of the arbitrators and these two arbitrators
will select the third.
In the event either contracting company fails to choose an arbitrator
within thirty (30) days after the other contracting company has given
written notice of its arbitrator appointment, the contracting company
which has given written notice may choose two arbitrators who will in
turn choose a third arbitrator before entering arbitration. If the two
arbitrators are unable to agree upon the selection of a third
arbitrator within thirty (30) days following their appointment, each
arbitrator will nominate three candidates within ten (1) days
thereafter, and the final selection will be made a court of competent
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jurisdiction from among the submitted names (three each) or any other
persons the court finds to be a qualified and impartial arbitrator.
3. With regard to (2) above, arbitration must be conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association that will be in effect on the date of delivery of demand
for arbitration.
4. Each contracting company will pay its arbitrator and its arbitration
expenses and the two companies will share equally the third
arbitrator's expenses.
5. The award agreed by the arbitrators will be final and binding upon the
parties, and judgment may be entered upon it in any court having
jurisdiction.
ARTICLE XIII
Duration of Agreement
1. This Agreement may be terminated with respect to new insurance
contracts at any time by either company giving ninety (90) days'
written notice of termination. The day the notice is deposited in the
mail addressed to the Home Office or to an Officer of either company
will be the first day of the ninety (90) day period.
2. During the ninety (90) day period, this Agreement will continue to
remain in force.
3. After termination, the Reinsurer and the Reinsured will remain liable
for all reinsurance that became effective prior to the termination of
the Agreement.
ARTICLE XIV
Entire Agreement
This Agreement will constitute the entire agreement between the parties with
respect to the business being reinsured hereunder. There are no understandings
between the parties other than as expressed in this Agreement. Any change or
modification to this Agreement will be null and void unless made by amendment to
this Agreement and signed by both parties.
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ARTICLE XV
Execution
In witness of the above, this Agreement is signed in duplicate at the dates and
places indicated and will be effective as of October 1, 2004.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
At Shelton, Connecticut
On:
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Signature:
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By: Xxxxx Xxxxxx
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Title: Vice President & Chief Financial Officer
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THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
At Newark, New Jersey
On:
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Signature:
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By: Xxxxx X. Xxxxxxx
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Title: Senior Vice President
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SCHEDULE A
Business Reinsured
1. Form Name and Type Issued Dates Form Number
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GMWB Rider 10/03/03 to current RID-GMWB(1/03)
RID-GMWB(1/03)GP
RID-GMWB(1/03)IND MA
RID-GMWB(1/03)TX
2. Claims arising under the GMWB rider are equal to the remaining GMWB
protected value under a contract after permitted withdrawals have
reduced the contract's account value to zero, paid as due under the
rider to the extent that the GMWB benefit is greater than the benefit
under the base contract or other riders attached to the contract.
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SCHEDULE B
Monthly Settlement Report
A. Due Reinsurer
1. ____________. After the end of each month the monthly equivalent of
this fee will be applied to the sum of 1/2 of the Variable Account
balances for all contracts covered under this Agreement as of the last
business day of the preceding month and 1/2 of the Variable Account
balances for all contracts covered under this Agreement as of the last
business day of the month prior to the preceding month.
B. Due Reinsured
1. Any claim associated with the GMWB benefit as defined in the rider.
C. Balance During the Period = A(1) - B(1)
o If positive, the balance is due to be paid by the Reinsured.
o If negative, the balance is due to be paid by the Reinsurer
The above information will be provided by the Reinsured on an aggregate
basis. The individual insurance contract data will be available to the
Reinsurer on a computer tape or diskette upon request.
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SCHEDULE C
Monthly Business Management Report
A. Informational Reports
1. Reserve Report showing the statutory reserves, Account Values and
Surrender Value.
2. Production report with premiums (split by initial and additional
premiums) and contract counts, including the number of insurance
contracts in force at the beginning and at the end of the month.
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SCHEDULE D
Annual Report
The annual report will provide the following information:
"Exhibit of Number of Policies, Contracts and Certificates for
Annuities": from the NAIC-prescribed annual statement.
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