REINSURANCE AGREEMENT
between
[CEDING COMPANY]
and
[REINSURER]
INDEX
ARTICLE PAGE
------- ----
Access to Records XII 7
Amounts at Risk II 1
Arbitration XVII 8
Automatic Excess Reinsurance III 2
Claims VII 5
Currency XIV 7
DAC Tax Regulation Election XVIII 9
Delays, Errors, or Omissions XIII 7
Effective Date; Term and Termination XIX 10
Extra Contractual Obligations IX 6
Hold Harmless XV 8
Insolvency XVI 8
Liability of Reinsurer IV 3
Litigation X 6
Notices XX 13
Offset XI 7
Parties to the Agreement I 1
Premium Accounting VI 4
Reinsurance Premiums V 3
Reserves VIII 5
SCHEDULES
A Maximum Limits of Reinsurance in Reinsurer
B Policy Forms and Funds Subject to this Reinsurance Agreement
C Definition of Guaranteed Minimum Death Benefit
D Reinsurance Premium Rates
E Reporting Format Description
2
REINSURANCE AGREEMENT
(hereinafter called Agreement)
between
[CEDING COMPANY]
(hereinafter called Ceding Company)
and
[REINSURER]
(hereinafter called Reinsurer)
It is agreed by the two companies as follows:
ARTICLE I PARTIES TO THE AGREEMENT
This Agreement shall be binding upon and shall inure solely to the benefit of
Ceding Company and Reinsurer. This Agreement shall not and is not intended to
create any right or interest in any third party and shall not and is not
intended to create any legal relationship between either party and any third
party, including, without limitation, annuitants, insureds, certificate
holders, employees, dependents, beneficiaries, policy owners, applicants or
assignees under any policy or contract issued by Ceding Company.
ARTICLE II AMOUNTS AT RISK
A. The reinsurance death benefit is the excess of the guaranteed minimum death
benefit over the contract surrender value. At issue, the guaranteed minimum
death benefit is equal to the initial premium. Once every year thereafter,
on the contract anniversary, prior to certificate or contract owner
attained age 81, the guaranteed minimum death benefit is reset to the then
current contract value, if this value exceeds the current guaranteed
minimum death benefit.
B. The Contract Value represents the owner's invested assets in the funds in
Schedule B as it appears in the records of Ceding Company before
application of any contingent deferred sales charge on any given date. The
Surrender Value is defined as the Contract Value less any contingent
deferred sales charge. The charge is a percentage of the amount surrendered
(not to exceed the aggregate amount of the premium payments made) and
equals:
3
Length of Time
from Premium Payment
Charge (Number of Years)
------ -----------------
6% 1
6% 2
5% 3
5% 4
4% 5
3% 6
2% 7
0% 8 or more
C. The Net Amount At Risk, is equal to the guaranteed minimum death benefit
less the Surrender Value at the end of each calendar month. The Net Amount
At Risk cannot fall below zero.
ARTICLE III AUTOMATIC EXCESS REINSURANCE
A. On and after the Effective Date of this Agreement, subject to the terms,
conditions and limitations set forth in this Agreement and the Schedules
attached to and made a part hereof, Ceding Company shall cede and the
Reinsurer shall accept Ceding Company's guaranteed death benefit liability
under the Variable Annuity Contracts, as described in Article II A.
B. This Agreement covers only Ceding Company's liability for claims paid under
Variable Annuity Contracts written on forms and investment in funds which
were reviewed by the Reinsurer prior to their issuance. Forms, as
supplemented by additional materials, and funds available as of the date of
this Agreement are listed on Schedule B, attached hereto and made a part
hereof. If Ceding Company intends to cede to Reinsurer liability with
respect to a new form or fund, or a revised version of an approved form or
fund, the following applies:
a) new or revised forms that do not materially impact the guaranteed
minimum death benefit risk, shall be submitted to Reinsurer by
Ceding Company as a revised Schedule B to be included in this
Agreement. A form that contains no change in the guaranteed
minimum death benefit calculation and surrender charges no greater
than those shown in Article II paragraph B will be deemed to have
no material impact on the guaranteed minimum death benefit risk;
b) new or revised forms or funds that materially impact the
guaranteed minimum death benefit risk shall be subject to the
approval of Reinsurer. Reinsurer shall have no change in liability
until written notice is provided to Ceding Company that such new
or revised forms or funds are acceptable. If Reinsurer fails to
provide written notice of acceptance within thirty (30) days, such
changes shall be considered to have been approved.
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ARTICLE IV LIABILITY OF REINSURER
Reinsurer's liability for reinsurance under this Agreement shall follow that of
Ceding Company in every case, and be subject in all respects to the general
stipulations, terms, clauses, conditions, waivers and modifications of the
Variable Annuity Contracts.
In no event shall Reinsurer have any reinsurance liability unless the Variable
Annuity Contract issued by Ceding Company is in force and the underwriting and
issuance of coverage by Ceding Company constitutes the doing of business in a
state of the United States of America or in territories of the United States of
America in which Ceding Company is properly licensed and authorized to do
business.
ARTICLE V REINSURANCE PREMIUMS
The monthly premiums for reinsurance subject to the terms and conditions of this
Agreement shall be calculated as the average of the reinsurance premiums using
the Net Amount at Risk as of the end of the prior month and the reinsurance
premium using the Net Amount at Risk as of the end of the current month by
applying the YRT rates set forth in Schedule D, subject to the following:
A. The reinsurance premiums shall be based on the older of contract owner and
annuitant at the time the Net Amount at Risk is calculated. Ceding Company
shall determine the age at the time it prepares the monthly exposure data
submission for the variable annuity guaranteed death benefit, as set forth
in Schedule E, attached hereto.
B. The premium for each calendar month will be at least equivalent to the
Monthly Average Contract Value times the minimum premium rate as shown in
paragraphs D and E below. The Monthly Average Contract Value is the average
of the contract values at the end of the current calendar month and the end
of the prior calendar month. The Monthly Contract Value times the minimum
premium rate will be remitted to Reinsurer in advance for the current
month, at the time of settlement for the prior month.
C. The premium for each calendar month will be no more than the monthly
Average Contract Value times the maximum premium rate as shown in
paragraphs D and E below. Basis points (bps) shown below are monthly.
D. [Premium rate schedules]
ARTICLE VI PREMIUM ACCOUNTING
Ceding Company shall forward to Reinsurer within 30 days of the end of the
reporting period a monthly statement substantially similar to that set forth in
Schedule E. Reinsurance premiums submitted by Ceding Company shall be net of
claims incurred. If a balance is due Reinsurer, Ceding Company shall remit any
balance due for the prior
5
month along with an advance premium for the current month, in accordance with
Article V.
ARTICLE VII CLAIMS
A. Ceding Company is solely responsible for payment of its claims under the
Variable Annuity Contracts, policies, master contracts or certificates
identified on Schedule B. Ceding Company shall provide Reinsurer with proof
of claim, proof of claim payment and any other claim documentation
requested by Reinsurer. Reinsurance premiums submitted by Ceding Company
shall be net of claims incurred. If a balance is due Ceding Company,
Reinsurer shall remit payment within thirty (30) calendar days following
receipt of the monthly reinsurance statement, as set forth in Schedule E.
B. Ceding Company shall notify Reinsurer of its intentions to contest,
compromise, or litigate a claim involving reinsurance.
ARTICLE VIII RESERVES
The reserve held by Reinsurer for reinsurance of the variable annuity death
benefit will be determined as follows:
Contracts issued on or after [Date]
The minimum of the amount calculated by Ceding Company or the recognized
statutory required reserve. Not to exceed the following:
1. Create artificial one (1) year exposures based on a 1/3 drop in all funds
(excluding fixed and money market funds), with no recovery for twelve (12)
months.
2. Apply annual mortality rates from the 1980 CSO mortality table.
3. Ignore the benefit of reinsurance premium.
Contracts issued on or before [Date]
The minimum of the amount calculated by Ceding Company or the recognized
statutory required reserve. Not to exceed the following:
[Date] Year End -- [ %] of the reserve and [Date] Year End -- [ %] of the
reserve calculated using the following method:
1. Create artificial one (1) year exposures based on the following fund
performance:
(a) [ %] drop in equity funds, with no recovery for twelve (12) months
(b) [ %] drop in debt funds, with no recovery for twelve (12) months
6
2. Apply the annual mortality rates from the [Date] Group Annuity Mortality
Table, loaded [ %].
3. Ignore the benefit of reinsurance premium.
[Date] Year End and beyond -- [ %] of the reserve calculated using the same
method as contracts issued on or after [Date].
ARTICLE IX EXTRA CONTRACTUAL OBLIGATIONS
A. In no event shall Reinsurer be liable for extra contractual damages
(whether they constitute Compensatory damages, Statutory penalties,
Exemplary or Punitive damages) which are awarded against Ceding Company as
a result of an act, omission or course of conduct by Ceding Company in
connection with policies subject to this Agreement, unless the Reinsurer
shall have received notice of an concurred with the actions taken or not
taken by Ceding Company which led to its liability, in which case the
Reinsurer shall pay its share of such liability. For this purpose, the
Reinsurer's share shall be proportionate with its risk under the business
reinsured hereunder.
B. The following definitions shall apply:
(1) Punitive damages and Exemplary damages are those damages awarded as a
penalty, the amount of which is not governed nor fixed by statute.
(2) Statutory penalties are those amounts which are awarded as a penalty,
but fixed in amount by statute.
(3) Compensatory damages are those amounts awarded to compensate for the
actual damages sustained and are not awarded as a penalty nor fixed
in amount by statute.
ARTICLE X LITIGATION
A. In the event of any action brought against Ceding Company related to the
guaranteed minimum death benefit risk under any Underlying Annuity Contract
that is subject to the terms and conditions of this Agreement, Ceding
Company shall provide a copy of such action and written notice of such
action within two (2) business days to Reinsurer. If Reinsurer is a party
to action brought against Ceding Company, Ceding Company shall seek
agreement by Reinsurer on the selection and appointment of local counsel to
represent Ceding Company in such action.
B. Ceding Company and Reinsurer agree that all litigation costs, excluding the
salaries of employees of Ceding Company and Reinsurer, shall be borne by
Ceding Company. However, if Ceding Company and Reinsurer agree to jointly
defend any litigation, litigation costs will be borne in proportion to the
net liability borne by each party.
7
ARTICLE XI OFFSET
Either party shall have, and may exercise at any time, and from time-to-time,
the right to offset any balance or amounts whether on account of premiums or on
account of losses or otherwise, due from one party to the other under the terms
of this Agreement. However, in the event of insolvency of Ceding Company subject
to the provisions of Article XVI, offset shall only be allowed in accordance
with the statutes and/or regulations of the state having jurisdiction over the
insolvency.
ARTICLE XII ACCESS TO RECORDS
Reinsurer, or its duly authorized representative, shall have access (at any
reasonable time) to all records of Ceding Company (including the right to
photocopy documents) which pertain in any way to this reinsurance. The right of
access shall continue for twelve (12) months following the termination of this
Agreement.
ARTICLE XIII DELAYS, ERRORS OR OMISSIONS
No accidental delay, errors or omissions on the part of Ceding Company shall
relieve Reinsurer of liability provided such delay, errors or omissions are
rectified as soon as possible after discovery. However, Reinsurer shall not be
liable with respect to any reinsurance which may have been inadvertently
included in the premium computation, but which ought not to have been included
by reason of the terms and conditions of this Agreement. It is expressly
understood and agreed that if failure to comply with any terms of this Agreement
is hereby shown to be unintentional or the result of misunderstanding or
oversight on the part of either party, both parties shall be restored to the
position they would have occupied had no such error or oversight occurred,
subject always to the correction of the error or oversight.
ARTICLE XIV CURRENCY
All retentions and limits hereunder are expressed in United States dollars and
all premium and loss payments shall be made in United States currency. For the
purposes of this Agreement, amounts paid or received by Reinsurer in any other
currency shall be converted into United States dollars at the rates of exchange
on the date such transactions are entered on the books of Reinsurer.
ARTICLE XV HOLD HARMLESS
A. Reinsurer shall indemnify and hold Ceding Company harmless from any and all
liability, loss, damage, fines, punitive damages, penalties and costs,
including expenses and attorney's fees, which results from any negligence
or willful misconduct of Reinsurer in fulfilling its duties and obligations
under this Agreement or which results from any action which exceeds its
authority under this Agreement.
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B. Ceding Company shall indemnify and hold Reinsurer harmless from any and all
liability, loss, damage, fines, punitive damages, penalties and costs,
including expenses and attorney's fees, which results from any negligence
or willful misconduct of Ceding Company in fulfilling its duties and
obligations under this Agreement or which results from any action which
exceeds its authority under this Agreement.
ARTICLE XVI INSOLVENCY
In the event of insolvency of Ceding Company, the reinsurance under this
Agreement shall be payable directly by Reinsurer to Ceding Company or to its
liquidator, receiver, conservator or statutory successor on the basis of
Reinsurer's liability to Ceding Company without diminution because of the
insolvency of Ceding Company or because the liquidator, receiver, conservator or
statutory successor of Ceding Company has failed to pay all or a portion of any
claim. It is agreed, however, that the liquidator, receiver, conservator or
statutory successor of Ceding Company shall give prompt written notice to
Reinsurer of the pendency of a claim against Ceding Company within a reasonable
time after such claim is filed in the receivership, conservation, insolvency or
liquidation proceeding and that during the pendency of such claim, Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may deem
available to Ceding Company or its liquidator, receiver, conservator or
statutory successor. The expense thus incurred by Reinsurer shall be chargeable,
subject to the approval of the Court, against Ceding Company as part of the
expense of conservation or liquidation to the extend of a pro-rata share of the
benefit which may accrue to Ceding Company solely as a result of the defense
undertaken by Reinsurer.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose to such claim, the expense shall be apportioned in
accordance with the terms of this Agreement as though such expense had been
incurred by Ceding Company.
ARTICLE XVII ARBITRATION
A. As a condition precedent to any right of action hereunder, any dispute
between the parties with respect to the interpretation of this Agreement
or any right, obligation or liability of either party, whether such dispute
arises before or after termination of this Agreement, shall be submitted to
arbitration upon the written request of either party. Each party shall
select an arbitrator within thirty (30) days of the written request for
arbitration. If either party refuses or neglects to appoint an arbitrator
within thirty (30) days of the written request for arbitration, the other
party may appoint the second arbitrator. The two arbitrators shall select
an umpire within thirty (30) days of the appointment of the second
arbitrator. If the two arbitrators fail to agree on the selection of the
umpire within thirty (30) days of the appointment of the second arbitrator,
each arbitrator shall submit to the other a list of three umpire
candidates, each arbitrator shall select one name from the list submitted
by the other and the
9
umpire shall be selected from the two names chosen by a lot drawing
procedure to be agreed upon by the arbitrators.
B. The arbitrators and the umpire all shall be active or retired,
disinterested executive officers of insurance or reinsurance companies.
C. The arbitration panel shall interpret this Agreement as an honorable
engagement rather than merely as a legal obligation and shall make its
decision considering the custom and practice of the applicable insurance
and reinsurance business. The arbitration panel is released from judicial
formalities and shall not be bound by strict rules of procedure and
evidence.
D. The decision of the arbitration panel shall be final and binding on both
parties. The arbitration panel may, at its discretion, award costs and
expenses as it deems appropriate, including, but not limited to, attorneys'
fees and interest. Judgment may be entered upon the final decision of the
arbitration panel in any court of competent jurisdiction.
E. All meetings and hearings before the arbitration panel shall take place in
Hartford, Connecticut unless some other place is mutually agreed upon the
parties.
F. Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the expenses of the umpire and of the
arbitration.
ARTICLE XVIII DAC TAX REGULATION ELECTION
Reinsurer and Ceding Company hereby agree to make an election pursuant to
Internal Revenue Code Regulations Section 1.848-2(g)(8). This election shall be
effective for all taxable years for which the Reinsurance Agreement remains in
effect.
The terms used in this article are defined by reference to Regulation Section
1.848.2 promulgated on December 28, 1992.
Reinsurer and Ceding Company agree that the entity with net positive
consideration for the reinsurance agreement for each taxable year will
capitalize specified policy acquisition expenses with respect to the reinsurance
agreement without regard to the general deductions limitation of Section
848(c)(1) of the Internal Revenue Code of 1986, as amended.
Reinsurer and Ceding Company agree to exchange information pertaining to the
amount of net consideration under the reinsurance agreement each year to ensure
consistency. To achieve this, Ceding Company shall provide Reinsurer with a
schedule of its calculation of the net consideration for all reinsurance
agreements in force between them for a taxable year by no later than [Date] of
the succeeding year. Reinsurer shall advise Ceding Company if it disagrees with
the amounts provided by no later than [Date],
10
otherwise the amounts will be presumed correct and shall be reported by both
parties in their respective tax returns for such tax year. If Reinsurer
contests Ceding Company's calculation of the net consideration, the Parties
agree to act in good faith to resolve any differences within thirty (30) days
of the date Reinsurer submits its alternative calculation and report the
amounts agreed upon in their respective tax returns for such tax year.
Reinsurer represents and warrants that it is subject to U. S. taxation under
either Subchapter L or Subpart F of Part III of Subchapter N of the Internal
Revenue Code of 1986, as amended.
ARTICLE XIX EFFECTIVE DATE; TERM AND TERMINATION
A. The effective date of this Agreement is [Date]. This Agreement remains
effective for all annuity contracts subject to this Agreement written by
Ceding Company for three (3) years from the effective date, unless
terminated pursuant to the paragraphs listed below:
B. Either Reinsurer or Ceding Company shall have the option of terminating
this agreement with ninety (90) calendar days written notice to the other
party for new business anytime on or after the end of the three (3) year
period.
C. Once each calendar year, Ceding Company shall have the option to recapture
existing contracts beginning with the twentieth (20) anniversary of their
reinsurance hereunder. Recapture must be made on an issue year basis, and
no contracts can be recaptured unless all contracts with earlier years are
recaptured.
D. Reinsurer shall have the option of terminating this Agreement upon delivery
of thirty (30) calendar days written notice to Ceding Company, within
thirty (30) days of the happening of any of the following events:
FOR NEW AND EXISTING BUSINESS:
(1) Ceding Company's A. M. BEST rating is reduced to a "C" or lower.
(2) Ceding Company is placed upon a "watch list" by its domiciliary
state's insurance regulators;
(3) An order appointing a receiver, conservator or trustee for
management of Ceding Company is entered or a proceeding is commenced
for rehabilitation, liquidation, supervision or conservation of
Ceding Company;
(4) The Securities and Exchange Commission revokes the authority of
Ceding Company to conduct business;
11
(5) Failure by Ceding Company to pay premium in accordance with Article
V. If, during the thirty (30) days notice period, Reinsurer
receives all premiums in arrears and all premiums which may become
due within the thirty (30) days notice period, the notice of
termination shall be deemed withdrawn. In the event of termination
under this paragraph, this Agreement may be reinstated upon the
written consent of Reinsurer if, at any time within sixty (60) days
of termination, Ceding Company pays and Reinsurer receives all
premiums due with interest thereon and payable up to the date of
reinstatement. (Please refer to paragraph J below for the interest
calculation description).
E. Ceding Company shall have the option of terminating this Agreement upon
delivery of thirty (30) calendar days written notice to Reinsurer, within
thirty (30) days of the happening of any of the following events:
FOR NEW AND EXISTING BUSINESS:
(1) Reinsurer's A. M. BEST rating is reduced to a "B++" or lower;
(2) Reinsurer is placed upon a "watch list" by its domiciliary state's
insurance regulators;
(3) An order appointing a receiver, conservator or trustee for management
of Reinsurer is entered or a proceeding is commenced for
rehabilitation, liquidation, supervision or conservation of Reinsurer;
F. If this Agreement is terminated for new and existing business, Reinsurer
shall be relieved of all liability to Ceding Company for claims incurred
following the termination date of this Agreement under such Underlying
Annuity Contracts issued by Ceding Company, and
G. If this Agreement is terminated for new business only, Reinsurer will
remain liable, after termination, in accordance with the terms and
conditions of this Agreement, with respect to all reinsurance effective
prior to termination of the Agreement for new business.
H. Both parties shall continue to be entitled to all offset credits provided
by Article XI up to the effective date of termination.
I. Ceding Company shall not have the right to assign or transfer any portion
of the rights, duties and obligations of Ceding Company under the terms and
conditions of this Agreement without the written approval of Reinsurer.
J. In the event of reinstatement as described in paragraph D above, there will
be an interest charge at the three (3) month LIBOR Rate (as published in
the Wall Street Journal), plus 1%, determined on the first business day
following the end of the 30-
12
day notice period. The settlement is considered overdue at the end of the
30-day notice period and interest shall commence from the overdue date.
ARTICLE XX NOTICES
All notices required to be given hereunder shall be in writing and shall be
deemed delivered if personally delivered, sent via facsimile, or dispatched by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the parties as follows:
[Name and Address of Ceding Company]
[Name and Address of Reinsurer]
Notice shall be deemed given on the date it is received in the mail or sent via
facsimile in accordance with the foregoing. Any party may change the address to
which to send notices by notifying the other party of such change of address in
writing in accordance with the foregoing.
This Agreement constitutes the entire contract between the parties and shall be
deemed to have been made under and governed by the laws of the State of
Connecticut. Any amendment or modification hereto shall be in writing, endorsed
upon or attached hereto and signed by both Ceding Company and Reinsurer.
In witness thereof, the parties hereto have caused this Agreement to be signed
in duplicate on the dates indicated to be effective as of the date specified
above.
CEDING COMPANY
Date: By:
--------------------- -----------------------------
REINSURER
Date: By:
--------------------- -----------------------------
13
SCHEDULE A
Maximum Limits of Reinsurance in Reinsurer
The maximum purchase amount issued on the life of each insured*:
[$ ]
The total purchase amount is the sum of all premium contributions for each
contract in which the insured is the owner or annuitant. For purchase amounts in
excess of the maximum, Reinsurer's death benefit liability will be reduced by
the ratio of purchase amounts in excess of the maximum to the total purchase
amounts.
*The insured is defined as the first to die of the owner and the annuitant.
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SCHEDULE B
Contracts and Funds Subject to this Reinsurance Agreement
Form Number Policy Description Date
----------- ------------------ ----
FUNDS:
a) Fixed Accounts on the above forms
b) Variable Accounts as listed below:
Fund Description
----------------
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SCHEDULE C
GUARANTEED MINIMUM DEATH BENEFIT
A. Ceding Company will determine the Guaranteed Minimum Death Benefit for
each deceased within seven (7) working days of written notice of death.
The guaranteed minimum death benefit will have the meaning described in the
attached policy form [ ].
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SCHEDULE D
Monthly Reinsurance Premium Rates
For Inforce Business as of [Date]
Exposure Based
Per [$ ] Exposed
AGES MALE FEMALE
------------------------------------- ----------------------------------- -----------------------------------
< 35
------------------------------------- ----------------------------------- -----------------------------------
35-39
------------------------------------- ----------------------------------- -----------------------------------
40-44
------------------------------------- ----------------------------------- -----------------------------------
45-49
------------------------------------- ----------------------------------- -----------------------------------
50-54
------------------------------------- ----------------------------------- -----------------------------------
55-59
------------------------------------- ----------------------------------- -----------------------------------
60-64
------------------------------------- ----------------------------------- -----------------------------------
65-69
------------------------------------- ----------------------------------- -----------------------------------
70-74
------------------------------------- ----------------------------------- -----------------------------------
75-79
------------------------------------- ----------------------------------- -----------------------------------
80-84
------------------------------------- ----------------------------------- -----------------------------------
85-89
------------------------------------- ----------------------------------- -----------------------------------
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