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REINSURANCE AGREEMENT
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
BOSTON, MASSACHUSETTS
referred to as the "Ceding Company"
AND
PAINEWEBBER LIFE INSURANCE COMPANY
WEEHAWKEN, NEW JERSEY
referred to as the "Reinsurer"
February 29, 1996
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TABLE OF CONTENTS
Page
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ARTICLE I GENERAL PROVISIONS 3
ARTICLE II REINSURANCE PREMIUMS 7
ARTICLE III COMMISSIONS AND ALLOWANCES 8
ARTICLE IV BENEFIT PAYMENTS 11
ARTICLE V RESERVE ADJUSTMENTS 13
ARTICLE VI ADJUSTMENT FOR TRANSFERS INVOLVING FIXED ACCOUNT 14
ARTICLE VII ACCOUNTING AND SETTLEMENTS 15
ARTICLE VIII DURATION AND RECAPTURE 18
ARTICLE IX TERMINAL ACCOUNTING AND SETTLEMENT 21
ARTICLE X ARBITRATION 22
ARTICLE XI INSOLVENCY 23
ARTICLE XII EXECUTION AND EFFECTIVE DATE 24
SCHEDULE A ANNUITIES AND RISKS REINSURED 25
SCHEDULE B QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS 28
SCHEDULE C MODIFIED COINSURANCE RESERVE INVESTMENT CREDIT 33
SCHEDULE D COMMISSION SCHEDULES 34
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REINSURANCE AGREEMENT
This Agreement is made and entered into by and between North American
Security Life Insurance Company (hereinafter referred to as the "Ceding
Company") and Xxxxx Xxxxxx Life Insurance Company (hereinafter referred to as
the "Reinsurer").
The Ceding Company and the Reinsurer mutually agree to reinsure on the terms
and conditions stated herein. This Agreement is an indemnity reinsurance
agreement solely between the Ceding Company and the Reinsurer, and performance
of the obligations of each party under this Agreement will be rendered solely
to the other party. In no instance will anyone other than the Ceding
Company or the Reinsurer have any rights under this Agreement, and the
Ceding Company will be and remains the only party hereunder that is liable to
any insured, policy owner or beneficiary under any annuity reinsured hereunder.
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ARTICLE I
GENERAL PROVISIONS
1. ANNUITIES AND RISKS REINSURED. The Reinsurer agrees to indemnify the
Ceding Company for, and the Ceding Company agrees to reinsure with the
Reinsurer, according to the terms and conditions hereof, the portion of
the risks under the annuities described in Schedule A attached hereto.
2. COVERAGES AND EXCLUSIONS. Only the variable annuities described in
Schedule A are reinsured under this Agreement.
3. PLAN OF REINSURANCE. This indemnity reinsurance will be on a
modified-coinsurance basis. The Ceding Company will retain, control and
own all assets held in relation to the Modified Coinsurance Reserve.
4. EXPENSES. The Reinsurer will bear no part of the expenses incurred in
connection with the annuities reinsured hereunder, except as otherwise
provided herein.
5. ANNUITY CHANGES. The Ceding Company must provide written notification to
the Reinsurer of any change which affects the original terms or
conditions of any annuity reinsured hereunder not later than thirty
(30) days after the change takes effect. The Reinsurer will provide
written notification to the Ceding Company as to the Reinsurer's
acceptance or rejection of the change within thirty (30) days after
receipt of notice of the change. If the Reinsurer accepts any such
change, the Reinsurer will (a) assume that portion of any increase in
the Ceding Company's liability, resulting from the change, which
corresponds to the portion of the annuities reinsured hereunder, and
(b) receive credit for that portion of any decrease in the Ceding
Company's liability, resulting from the change, which corresponds to
the portion of the annuities reinsured hereunder. If the Reinsurer
rejects any such change, the Reinsurer's liability under this
Agreement will be determined as if no such change had occurred.
6. NO EXTRACONTRACTUAL DAMAGES. The Reinsurer does not indemnify the Ceding
Company for, and will not be liable for, any extracontractual damages
or extracontractual liability of any kind whatsoever resulting from
fraud, oppression, bad faith, strict liability, or negligent, reckless or
intentional wrongs on the part of the Ceding Company or its directors,
officers, employees and agents. The following types of damages are
examples of damages that would be excluded under this Agreement for the
conduct described above: actual damages, damages for emotional
distress, and punitive or exemplary damages.
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7. ANNUITY ADMINISTRATION. The Ceding Company will administer the annuities
reinsured hereunder and will perform all accounting for such annuities;
provided, however, that the Reinsurer reserves the right to participate
in claims administration.
8. INSPECTION. At any reasonable time, the Reinsurer or its representatives
may inspect, during normal business hours, at the principal office of
the Ceding Company, the original papers and any and all other books or
documents relating to or affecting reinsurance under this Agreement. The
Reinsurer or its representatives will not use any information obtained
through any inspection pursuant to this Paragraph for any purpose not
relating to reinsurance hereunder.
9. TAXES. The allowance for any premium taxes paid in connection with the
annuities reinsured hereunder is included in the Commissions and
Allowances, described in Article III. The Reinsurer will not
reimburse the Ceding Company for any other taxes paid by the Ceding
Company in connection with the annuities reinsured hereunder.
10. PROXY TAX REIMBURSEMENT. Pursuant to IRC Section 848, insurance companies
are required to capitalize and amortize specified policy acquisition
expenses. The amount capitalized is determined by proxy based on a
percentage of "reinsurance premiums" as defined in the IRS regulations
relating to IRC Section 848. The Reinsurer and the Ceding Company agree
that any costs which would result from IRC Section 848 are not subject
to reimbursement hereunder.
11. ELECTION TO DETERMINE SPECIFIED POLICY ACQUISITION EXPENSES. The Ceding
Company and the Reinsurer agree that the party with net positive
consideration under this Agreement will capitalize specified policy
acquisition expenses with respect to annuities reinsured under this
Agreement without regard to the general deductions limitation of Section
848(c)(1) of the Internal Revenue Code of 1986, as amended. The Ceding
Company and the Reinsurer will exchange information pertaining to the
amount of net consideration under this Agreement each year to ensure
consistency. The Ceding Company will submit a schedule to the Reinsurer
by May 1 of each year presenting its calculation of the net consideration
for the preceding taxable year. The Reinsurer may contest the calculation
in writing within thirty (30) days of receipt of the Ceding Company's
schedule. Any differences will be resolved between the parties so that
consistent amounts are reported on the respective tax returns for the
preceding taxable year. This election to capitalize specified policy
acquisition expenses without regard to the general deductions limitation
is effective for all taxable years during which this Agreement remains in
effect.
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12. CONDITION. The reinsurance hereunder is subject to the same limitations
and conditions as the annuities issued by the Ceding Company which are
reinsured hereunder, except as otherwise provided in this Agreement.
13. MISUNDERSTANDINGS AND OVERSIGHTS. If any failure to pay amounts due or
to perform any other act required by this Agreement is unintentional and
caused by misunderstanding or oversight, the Ceding Company and the
Reinsurer will adjust the situation to what it would have been
had the misunderstanding or oversight not occurred.
14. ADJUSTMENTS. If the Ceding Company's liability under any of the
annuities reinsured hereunder is changed because of a misstatement of
age, sex or any other material fact, the Reinsurer will (a) assume
that portion of any increase in the Ceding Company's liability,
resulting from the change, which corresponds to the portion of the
annuities reinsured hereunder, and (b) receive credit for that portion
of any decrease in the Ceding Company's liability, resulting from the
change, which corresponds to the portion of the annuities reinsured
hereunder.
15. REINSTATEMENTS. If an annuity reinsured hereunder is surrendered or
annuitized, and is subsequently reinstated while this Agreement is in
force, the reinsurance for such annuity will be reinstated automatically.
The Ceding Company will pay the Reinsurer the Reinsurer's proportionate
share of all amounts received by the Ceding Company in connection with the
reinstatement of the annuity, plus any amounts previously refunded to the
Ceding Company by the Reinsurer in connection with the lapse of the
annuity.
16. ASSIGNMENT. The Ceding Company may not assign any of its rights, duties
or obligations under this Agreement without prior written consent of
the Reinsurer. The Reinsurer may not assign any of its rights, duties,
or obligations under this Agreement without prior written consent of
the Ceding Company.
17. AMENDMENTS AND WAIVER. Any change or modification to this Agreement
will be null and void unless made by amendment to the Agreement and
signed by both parties. Any waiver will constitute a waiver only in the
circumstances for which it was given and will not be a waiver of
any future circumstances.
18. ENTIRE AGREEMENT. The terms expressed herein constitute the entire
agreement between the parties with respect to the annuities reinsured
hereunder. There are no understandings between the parties with respect
to the annuities reinsured hereunder other than as expressed in this
Agreement.
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19. CURRENT PRACTICES. The Ceding Company will not materially change, alter
or otherwise compromise its underwriting, claims paying or administrative
practices with respect to the annuities reinsured hereunder without
prior written consent of the Reinsurer.
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ARTICLE II
REINSURANCE PREMIUMS
1. INITIAL CONSIDERATION. The Ceding Company will pay the Reinsurer an
Initial Consideration equal to the quota share, as defined in Schedule A,
of the Account Value on all annuities reinsured under this Agreement,
calculated as of the Effective Date of this Agreement.
2. REINSURANCE PREMIUMS. The Ceding Company will pay the Reinsurer
Reinsurance Premiums on all annuities reinsured under this Agreement in
an amount equal to a quota share, as defined in Schedule A, of the gross
premiums collected and deposited into the Separate Account during the
Accounting Period by the Ceding Company. The Reinsurance Premiums paid
to the Reinsurer by the Ceding Company will be remitted to the Reinsurer
at the end of the Accounting Period during which the gross premiums were
collected and deposited by the Ceding Company.
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ARTICLE III
COMMISSIONS AND ALLOWANCES
1. INITIAL COMMISSION. Simultaneous with the payment of the Initial
Consideration, the Reinsurer will pay an Initial Commission to the Ceding
Company equal to a percentage of the Initial Consideration, as follows:
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Initial Commission as a
Category as Described Percentage of Initial
in Schedule A Consideration
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A & B 6.69%
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C & D 7.71%
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E 7.35%
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F 7.95%
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2. PREMIUM TAX. The Reinsurer shall reimburse the Ceding Company for all
premium taxes incurred on the Reinsurance Premiums.
3. COMMISSIONS. The Reinsurer shall reimburse the Ceding Company for
all commissions, wholesaler overrides and costs of special promotions
incurred on the Reinsurance Premiums and on that portion of the Account
Value of the annuities reinsured hereunder which corresponds to the
portion of the annuities reinsured hereunder as of the end of the
current Accounting Period. Commissions will be net of a quota share of
commission chargebacks on policies reinsured hereunder. Schedule D shows
the current commission schedules for the annuities reinsured hereunder.
4. ALLOWANCE FOR EXPENSES. The Reinsurer will pay the Ceding Company an
Allowance for Expenses for each Accounting Period equal to (i) plus (ii)
plus (iii) plus (iv) plus (v), where:
(i) For policy maintenance, equals (a) times (b), where:
(a) equals $14.60 times the quota share percentage of
the Venture annuities reinsured hereunder, as
described in Schedule A; and
(b) equals the number of Venture annuities reinsured
hereunder and described in Schedule A, that are
inforce at the end of the current Accounting Period;
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(ii) For policy issuance, equals (a) times (b), where:
(a) equals $112.50 times the quota share percentage of
the Venture annuities reinsured hereunder, as
described in Schedule A; and
(b) equals the number of Venture annuities reinsured
hereunder and described in Schedule A, that were issued
during the current Accounting Period;
(iii) For DAC proxy tax, equals (a) times (b), where
(a) equals 0.0036; and
(b) equals that amount of the Reinsurance Premiums
received on non-qualified policies;
(iv) For other costs and risks, an allowance of (a) times
(b), where:
(a) equals .0005125; and
(b) equals the quota share of the account values at
the end of the Accounting Period on the annuities
reinsured hereunder.
(v) (a) minus (b), times (c), where:
(a) equals the quota share of the account value at the
end of the Accounting Period of the annuities
reinsured hereunder.
(b) equals the Modified Coinsurance Reserve at the end
of the Accounting Period of the annuities reinsured
hereunder.
(c) equals the LIBOR Rate divided by 4, where the LIBOR
Rate equals the 3 month LIBOR rate (as published
in the Wall Street Journal), plus .01, determined
on the first business day of the Accounting Period.
(vi) Amounts in (i)(a) and (ii)(a) above are for 1994. They will
be adjusted annually on January 1, for inflation at the
change in the Consumer Price Index (CPI- U as determined
by Department of Labor and published in the Wall Street
Journal).
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5. MINIMUM DEATH BENEFIT GUARANTEE COSTS: The Reinsurer will pay the Ceding
Company an allowance for each Accounting Period for the costs of the
minimum death benefit guarantee. The allowance equals (a) times (b),
where (a) and (b) equal:
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Category as
Described in
Schedule A (a) (b)
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A & C .0002 Quota share of the account values at the end of the
Accounting Period on Category A & C annuities
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X, X, X & X .00000 Xxxxx share of the account values at the end of the
Accounting Period on Category B, D, E & F annuities
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ARTICLE IV
BENEFIT PAYMENTS
1. BENEFIT PAYMENTS. Benefit Payments, as referred to in this Agreement,
means the Reinsurer's quota share of (i) Claims, as described in
Xxxxxxxxx 0 xxxxx, (xx) Cash Surrenders, as described in Xxxxxxxxx 0
xxxxx, (xxx) Partial Withdrawals, as described in Paragraph 4 below,
and (iv) Annuity Benefits, as described in Paragraph 5 below.
2. CLAIMS. The Reinsurer will pay the Ceding Company Claims. The term
"Claims," as used in this Agreement, means that portion of the death
benefits paid by the Ceding Company on annuities reinsured hereunder
which is equal to the Reinsurer's quota share of the cash surrender
value as of the date the death benefit is payable.
3. CASH SURRENDERS. The Reinsurer will pay the Ceding Company that portion
of the Cash Surrenders paid by the Ceding Company on annuities reinsured
hereunder which corresponds to the portion of the annuities reinsured
hereunder.
4. PARTIAL WITHDRAWALS. The Reinsurer will pay the Ceding Company that
portion of Partial Withdrawals paid by the Ceding Company on annuities
reinsured hereunder which corresponds to the portion of the annuities
reinsured hereunder.
5. ANNUITY BENEFITS. The Reinsurer will pay the Ceding Company that portion
of Annuity Benefits paid by the Ceding Company on annuities reinsured
hereunder which corresponds to the portion of the annuities reinsured
hereunder. The Reinsurer s obligation will be satisfied in full by
the payment to the Ceding Company of that portion of the Account
Value, as of the date of annuitization, which corresponds to the
portion of the annuities reinsured hereunder.
6. ADJUSTMENT FOR ANNUITY BENEFITS. For any Accounting Period in which the
calculation of (i) divided by (ii) is greater than 0.0025, the Ceding
Company will pay the Reinsurer an amount equal to (iii) times (iv)
where:
(i) equals the account value of annuites reinsured hereunder that
annuitized during the current Accounting Period.
(ii) the average account value of annuities reinsured hereunder during
the current Accounting Period. For the purposes of this
calculation, the average account value of annuities reinsured
hereunder is calculated as one-half the sum of the account values
of annuities reinsured hereunder as of the
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beginning of the current accounting period and the account value of
annuities reinsured hereunder as of the end of the current
Accounting Period.
(iii) equals a quota share of the Account Value at the time of
annuitization, grouped by policy duration at the time of
annuitization; for the annuities reinsured that annuitized during
the current Accounting Period;
(iv) equals the applicable Annuity Benefit Factor for each policy
duration described below.
POLICY DURATION (YEARS) ANNUITY BENEFIT
FACTOR
1 0.06
2 0.05
3 0.04
4 0.03
5 0.02
6 0.01
7 0.01
8+ 0.01
7. NOTICE. The Ceding Company will notify the Reinsurer at the end of
each Accounting Period regarding Benefit Payments on annuities
reinsured hereunder. The reinsurance claim and copies of notification,
claim papers, and proofs will be furnished to the Reinsurer upon request.
8. LIABILITY AND PAYMENT. The Reinsurer will accept the decision of the
Ceding Company with respect to Benefit Payments on annuities reinsured
hereunder. The Reinsurer will pay its proportionate share of Benefit
Payments in a lump sum to the Ceding Company without regard to the form
of settlement by the Ceding Company.
9. CONTESTED CLAIMS. The Ceding Company will advise the Reinsurer of
its intention to contest, compromise or litigate Benefit Payments
involving annuities reinsured hereunder. The Reinsurer will pay its
share of the expenses of such contests, in addition to its share of
Benefit Payments, or it may choose not to participate. If the Reinsurer
chooses not to participate, it will discharge its liability by payment
to the Ceding Company of the full amount of its liability, prior to
any contests, on the annuity reinsured hereunder.
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ARTICLE V
RESERVE ADJUSTMENTS
1. INITIAL RESERVE ADJUSTMENT. Simultaneous with the payment of the Initial
Consideration described in Article II, Paragraph 1, by the Ceding
Company to the Reinsurer, the Reinsurer will pay the Ceding Company an
Initial Reserve Adjustment in an amount that is equal to the Modified
Coinsurance Reserve determined in accordance with Paragraph 3 below, on
the Effective Date of this Agreement.
2. MODIFIED COINSURANCE RESERVE ADJUSTMENT.
A. The Modified Coinsurance Reserve Adjustment will be computed each
Accounting Period equal to (i) minus (ii) minus (iii), where:
1. equals the Modified Coinsurance Reserve, determined in
accordance with Paragraph 3 below, at the end of the
current Accounting Period;
2. equals the Modified Coinsurance Reserve, determined
in accordance with Paragraph 3 below, at the end of the
preceding Accounting Period;
3. equals the Modified Coinsurance Reserve Investment
Credit, as described in Schedule C.
With respect, however, to the Accounting Period during which the
Effective Date of this Agreement occurs, the reference in (ii)
above to the end of the preceding Accounting Period refers to
the Effective Date of this Agreement immediately after the Initial
Reserve Adjustment, as described in Paragraph 1 above, has occurred.
B. For any Accounting Period in which the amount computed in A.
above is positive, the Reinsurer will pay the Ceding Company
such amount. For any Accounting Period in which the amount
computed in A. above is negative, the Ceding Company will pay
the Reinsurer the absolute value of such amount.
3. MODIFIED COINSURANCE RESERVE. The term "Modified Coinsurance Reserve," as
used in this Agreement, means a quota share of the statutory reserve
held by the Ceding Company with respect to that portion of the annuities
reinsured hereunder. The statutory reserve will be determined by the
Commissioners Annuity Reserve Valuation Method, excluding any reserve for
the minimum guaranteed death benefit.
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ARTICLE VI
ADJUSTMENT FOR TRANSFERS INVOLVING
THE FIXED ACCOUNT
1. The Reinsurer will pay the Ceding Company an amount equal to a quota share
of the amount transferred from the Separate Account to the fixed
account for the annuities reinsured hereunder during the current
Accounting Period
2. The Ceding Company will pay the Reinsurer an amount equal to a quota share
of the amount transferred from the fixed account to the Separate
Account for the annuities reinsured hereunder during the current
Accounting Period.
3. The Reinsurer will pay the Ceding Company an amount equal to (i) times
(ii) where:
(i) equals a quota share of the amount transferred from the fixed
account to the Separate Account grouped by policy duration at the
time of transfer; for the annuities reinsured hereunder during the
current Accounting Period;
(ii) equals the applicable Exchange Factor for each policy duration
described in Paragraph 5 below.
4. The Ceding Company will pay the Reinsurer an amount equal to (i) times
(ii) where:
(i) equals a quota share of the amount transferred from the Separate
Account to the fixed account, grouped by policy duration at the time
of transfer; for the annuities reinsured hereunder during the current
Accounting Period;
(ii) equals the applicable Exchange Factor for each policy duration
described in Paragraph 5 below.
5. The exchange factors for each policy duration are shown below:
POLICY DURATION (YEARS) EXCHANGE FACTOR
1 0.08
2 0.07
3 0.06
4 0.05
5 0.04
6 0.03
7 0.03
8+ 0.03
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ARTICLE VII
ACCOUNTING AND SETTLEMENTS
1. QUARTERLY ACCOUNTING PERIOD. Each Accounting Period under this Agreement
will be a calendar quarter, except that: (a) the initial Accounting Period
runs from the Effective Date of this Agreement through the last day of
the calendar quarter during which the Effective Date of this Agreement
falls, and (b) the final Accounting Period runs from the end of the
preceding Accounting Period until the terminal accounting date of this
Agreement as described in Article IX, Paragraph 2. The amount in
Article III, paragraph 4 (i) (a) will be adjusted on a pro-rata basis
for time periods less than a calendar quarter.
2. QUARTERLY ACCOUNTING REPORTS. Quarterly accounting reports in the
form of Schedule B will be submitted to the Reinsurer by the Ceding
Company for each Accounting Period not later than fifteen (15) days after
the end of each Accounting Period. Such reports will include
information on the amount of Reinsurance Premiums, Allowance for
Commissions and Expenses, Benefit Payments, Modified Coinsurance
Reserve, and Modified Coinsurance Reserve Adjustment.
3. INITIAL QUARTERLY SETTLEMENT.
Within twenty-five (25) days after the initial Accounting Period, the
Ceding Company will pay the Reinsurer the Initial Consideration
determined in accordance with Article II, Paragraph 1.
Simultaneously, the Reinsurer will pay the Ceding Company the sum
of: (i) the Initial Reserve Adjustment determined in accordance with
Article V, Paragraph 1, plus (ii) the Initial Commission determined in
accordance with Article III, Paragraph 1.
4. QUARTERLY SETTLEMENTS.
A. Within twenty-five (25) days after the end of each Accounting Period,
the Ceding Company will pay the Reinsurer the sum of:
(i) Reinsurance Premiums, determined in accordance with Article II,
plus
(ii) any Modified Coinsurance Reserve Adjustment payable to the
Reinsurer, etermined in accordance with Article V,
Paragraph 2, plus
(iii) any Adjustment for Transfers Involving the Fixed Account payable
to the Reinsurer, determined in accordance with Article VI, plus
(iv) any Adjustments for Annuity Benefits payable to the Reinsurer,
determined in accordance with Article IV, paragraph 6.
B. Simultaneously, the Reinsurer will pay the Ceding Company the sum of:
(i) the amount of Benefit Payments, as described in Article IV, plus
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(ii) the Allowance for Commissions and Expenses, determined in
accordance with Article III, plus
(iii) any Modified Coinsurance Reserve Adjustment payable to the
Ceding Company, determined in accordance with Article V,
Paragraph 2, plus
(iv) any Adjustment for Transfers Involving the Fixed Account payable
to the Ceding Company, determined in accordance with Article VI.
5. AMOUNTS DUE QUARTERLY. Except as otherwise specifically provided in this
Agreement, all amounts due to be paid to either the Ceding Company or the
Reinsurer under this Agreement will be determined on a net basis as of
the last day of each Accounting Period and will be due as of such date
and payable within twenty-five (25) days after the end of the Accounting
Period.
6. ANNUAL ACCOUNTING REPORTS. The Ceding Company will provide the
Reinsurer with annual accounting reports within fifteen (15) days
after the end of the calendar year for which such reports are
prepared. These reports will contain sufficient information about the
annuities reinsured hereunder to enable the Reinsurer to prepare its
annual financial reports and to verify the information reported in
Schedule B, and will include Page 7, Page 27 and Schedule S of the Annual
Statement.
7. ESTIMATIONS. If the amounts, as described in Paragraph 4 above, cannot
be determined by the dates described in Paragraph 5 above, on an exact
basis, such payments will be paid in accordance with a mutually agreed
upon formula which will approximate the actual payments. Adjustments
will then be made to reflect actual amounts when they become available.
8. DELAYED PAYMENTS. For purposes of Paragraph 5 above, if there is a
delayed settlement of a payment due, there will be an interest penalty,
at the LIBOR Rate, as defined in Article III, paragraph 4(v)(c). For
purposes of this Paragraph, a payment will be considered overdue thirty
(30) days after the date such payment is payable, and interest shall
commence from the overdue date.
9. OFFSET OF PAYMENTS. All moneys due either the Ceding Company or the
Reinsurer under this Agreement will be offset against each other, dollar
for dollar, regardless of any insolvency of either party.
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ARTICLE VIII
DURATION AND RECAPTURE
1. DURATION. Except as otherwise provided herein, this Agreement is
unlimited in duration.
2. REINSURER'S LIABILITY. The liability of the Reinsurer with respect to
any annuity reinsured hereunder will begin simultaneously with that of
the Ceding Company, but not prior to the Effective Date of this
Agreement. The Reinsurer's liability with respect to any annuity
reinsured hereunder will terminate on the earliest of: (i) the date
such annuity is recaptured in accordance with paragraph 4 below; (ii)
the date the Ceding Company's liability on such annuity is terminated;
or (iii) the date this Agreement is terminated under paragraph 3 below.
Termination of the Reinsurer's liability is subject to payments in
respect of such liability in accordance with the provisions of Article
IX of this Agreement. In no event should the interpretation of this
Paragraph imply a unilateral right of the Reinsurer to terminate this
Agreement. However, the Reinsurer and/or the Ceding Company may, upon
thirty (30) days prior written notice to the other party, terminate
this Agreement as to annuities not yet written by the Ceding Company as
of the effective date of such termination.
3. TERMINATION FOR NONPAYMENT OF REINSURANCE PREMIUMS OR OTHER AMOUNTS DUE.
If the Ceding Company fails to pay the Reinsurance Premiums or any other
amounts due to the Reinsurer pursuant to this Agreement within sixty (60)
days after the end of any Accounting Period, the Reinsurer may
terminate this Agreement, subject to thirty (30) days prior written
notice to the Ceding Company. If the Reinsurer fails to pay any amounts
due to the Ceding Company pursuant to this Agreement within sixty (60)
days after the end of any Accounting Period, the Ceding Company may
terminate this Agreement, subject to thirty (30) days prior written notice
to the Reinsurer.
4. RECAPTURE. Annuities reinsured hereunder will be eligible for recapture,
at the option of the Ceding Company as described below:
(i) On any January 1, all reinsured annuities where the reinsurance
under this Agreement has been in effect for 20 years or longer,
subject to ninety (90) days prior written notice.
(ii) on any other date which is mutually agreed to in writing.
If the Ceding Company opts to recapture, then the Ceding Company must
recapture all of the annuities reinsured hereunder that are eligible for
recapture. In no event may the Ceding Company recapture anything other
than 100 percent of all annuities reinsured hereunder that are eligible
for recapture.
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5. INTERNAL REPLACEMENTS. Should the Ceding Company, its affiliates,
successors or assigns, initiate a formal program of Internal Replacement
that would include any of the annuities reinsured hereunder, the Ceding
Company will immediately notify the Reinsurer. For purposes of this
Agreement, the term "Internal Replacement" means any instance in which an
annuity or any portion of the cash value of an annuity which is written
by the Ceding Company, its affiliates, successors, or assigns is
exchanged for another policy or annuity.
The Reinsurer will participate on a quota share basis in any expenses
associated with that program provided reinsurance coverage will continue
under this Agreement for the new policy. The quota share percentage for
the new policy will be same as for the replaced policy, except when the
new policy is otherwise covered by this Agreement, and the quota share on
the old and new policies are different. In that case, the quota share
will be that of the new policy which would otherwise be applicable
under this Agreement, and an amount will be paid which is equal to (i)
minus (ii) where:
(i) equals the account value in the Separate Account of the new
policy times the quota share percentage of the new policy times
the Internal Replacement Exchange Factor below;
(ii) equals the account value in the Separate Account of the old policy
times the quota share percentage of the old policy times the
Internal Replacement Exchange Factor below;
POLICY DURATION OF INTERNAL REPLACEMENT
REPLACED POLICY EXCHANGE FACTOR
(YEARS)
1 0.08
2 0.07
3 0.06
4 0.05
5 0.04
6 0.03
7 0.03
8+ 0.03
If the amount calculated above is positive, it will be paid to the
Ceding Company by the Reinsurer. If the amount calculated above is
negative, it will be paid to the Reinsurer by the Ceding Company.
The Ceding Company, its affiliates, successors or assigns, will not
initiate a program of internal replacement that includes any of the
annuities reinsured hereunder, to policies or annuities that are not
covered by this Agreement, without the Reinsurers consent unless the
volume of such internal replacements is incidental. The Reinsurer and
the Ceding Company must mutually agree to the volume of internal
replacements to be considered incidental.
18
20
Any incidental internal replacement to an annuity not covered under
this Agreement will cause the reinsurance coverage under this agreement
to terminate for that policy. In that case, the Ceding Company will
pay the Reinsurer an amount equal to (i) times (ii) where:
(i) equals the account value in the Separate Account recaptured by the
Ceding Company;
(ii) equals the recapture factors below:
POLICY DURATION OF INTERNAL REPLACEMENT
REPLACED POLICY RECAPTURE FACTOR
(YEARS)
1 0.08
2 0.07
3 0.06
4 0.05
5 0.04
6 0.03
7 0.03
8+ 0.03
The Reinsurer will not participate nor reinsure Internal Replacements,
where the original policy was not covered by this Agreement.
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21
ARTICLE IX
TERMINAL ACCOUNTING AND SETTLEMENT
1. TERMINAL ACCOUNTING. In the event that this Agreement is terminated in
accordance with Article VIII, Paragraphs 3 or 4, or Article XI, a Terminal
Accounting and Settlement will take place.
2. DATE. The terminal accounting date will be the earliest of: (1) the
effective date of recapture pursuant to any notice of recapture given
under this Agreement, (2) the effective date of termination pursuant to
any notice of termination given under this Agreement, or (3) any other
date mutually agreed to in writing.
3. SETTLEMENT. The Terminal Accounting and Settlement will consist of:
A. The quarterly settlement as provided in Article VII, Paragraph 4,
computed as of the terminal accounting date as if the treaty were
still in effect; and
B. payment by the Ceding Company to the Reinsurer of a Terminal Reserve
equal to the Modified Coinsurance Reserve on the annuities reinsured
hereunder as of the terminal accounting date;
C. payment by the Reinsurer to the Ceding Company of a Terminal Reserve
Adjustment equal to the Modified Coinsurance Reserve on the annuities
reinsured hereunder as of the terminal accounting date;
If the calculation of the Terminal Accounting and Settlement produces an
amount owing to the Ceding Company, such amount will be paid by the
Reinsurer to the Ceding Company. If the calculation of the Terminal
Accounting and Settlement produces an amount owing to the Reinsurer,
such amount will be paid by the Ceding Company to the Reinsurer.
4. SUPPLEMENTARY ACCOUNTING AND SETTLEMENT. In the event that, subsequent
to the Terminal Accounting and Settlement as provided above, a change is
made with respect to any amounts due, a supplementary accounting will
take place pursuant to Paragraph 3 above. Any amount owed to the Ceding
Company or to the Reinsurer by reason of such supplementary accounting
will be paid promptly upon the completion thereof.
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22
ARTICLE X
ARBITRATION
1. GENERAL. All disputes and differences between the Ceding Company and
the Reinsurer on which an agreement cannot be reached will be decided
by arbitration. The arbitrators will construe this Agreement from the
standpoint of practical business and equitable principles and the
customs and practices of the insurance and reinsurance business, rather
than from the standpoint of strict law. The parties intend that the
arbitrators will make their decision with a view to effecting the intent
of this Agreement.
2. METHOD. Three arbitrators will decide any differences. They must be
impartial and present or former officers of life insurance companies
other than the parties to this Agreement or any company owned by, or
affiliated with, either party. One of the arbitrators will be
appointed by the Reinsurer, another by the Ceding Company, and the two
arbitrators thus selected will select a third arbitrator before
arbitration begins. Should one of the parties decline to select an
arbitrator within thirty (30) days after the date of a written request to
do so, or should the two arbitrators selected by the parties not be able
to agree upon the choice of a third, the appointment(s) will be left
to the President of the American Arbitration Association or its successor.
The arbitrators will decide by a majority of votes and their decision
will be final and binding upon the parties. The costs of arbitration,
including the fees of the arbitrators, will be shared equally by the
parties unless the arbitrators decide otherwise. Any counsel fees
incurred by a party in the conduct of arbitration will be paid by the
party incurring the fees.
3. ARBITRATION SITE. In event of arbitration, the arbitration hearing shall
take place in New York, New York, unless agreed to in writing by both the
Ceding Company and the Reinsurer.
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23
ARTICLE XI
INSOLVENCY
INSOLVENCY. In the event of the Ceding Company's insolvency, any payments
due the Ceding Company from the Reinsurer pursuant to the terms of this
Agreement will be made directly to the Ceding Company or its conservator,
liquidator, receiver or statutory successor. The reinsurance will be payable
by the Reinsurer on the basis of the liability of the Ceding Company under
the annuities reinsured without diminution because of the insolvency of the
Ceding Company. The conservator, liquidator, receiver or statutory successor of
the Ceding Company will give the Reinsurer written notice of the pendency of a
claim against the Ceding Company on any annuity reinsured within a
reasonable time after such claim is filed in the insolvency proceeding.
During the pendency of any such claim, the Reinsurer may investigate such
claim and interpose in the Ceding Company's name (or in the name of the
Ceding Company's conservator, liquidator, receiver or statutory successor),
in the proceeding where such claim is to be adjudicated, any defense or
defenses which the Reinsurer may deem available to the Ceding Company or
its conservator, liquidator, receiver or statutory successor. The expense
thus incurred by the Reinsurer will be chargeable, subject to court approval,
against the Ceding Company as a part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Ceding
Company solely as a result of the defense undertaken by the Reinsurer.
In the event of the Reinsurer's insolvency, this treaty will terminate, and
the terminal accounting and settlement described in Article IX will occur.
Any payments due the Reinsurer from the Ceding Company pursuant to the
terms of this Agreement will be made directly to the Reinsurer or its
conservator, liquidator, receiver or statutory successor. Any amounts owed by
the Reinsurer to the Ceding Company will be payable without diminution because
of the insolvency of the Reinsurer. The conservator, liquidator, receiver or
statutory successor of the Reinsurer will give the Ceding Company written
notice of the pendency of a claim against the Reinsurer on any annuity
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding.
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24
ARTICLE XII
EXECUTION AND EFFECTIVE DATE
In witness of the above, this Agreement is executed in duplicate on the
dates indicated below with an Effective Date of December 31, 1994.
NORTH AMERICAN SECURITY LIFE XXXXX XXXXXX
INSURANCE COMPANY LIFE INSURANCE COMPANY
("Ceding Company") ("Reinsurer")
on March 29, 1995 on March 30, 1995
By: Xxxx X. Xxxxxx By: Xxxxxxx X. Xxxxxx
------------------------------ ----------------------------------
Title: VP & Actuary Title: Senior Vice President
By: Xxxxxxx X. Xxxxxx By: Xxxxxxxx X. Xxxxx
------------------------------ ----------------------------------
Title: VP Treasurer & CFO Title: Vice Prsident
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25
SCHEDULE A
ANNUITIES AND RISKS REINSURED
ANNUITIES AND RISKS REINSURED. The amount of reinsurance under this Agreement
will be a percent quota share of the Ceding Company's net liability, with
respect to the separate account, on those variable annuities and the
corresponding state and group variations thereof listed below that are issued
by the Ceding Company and sold by the PaineWebber Affiliates listed below.
Policies included in the Initial Consideration calculation of Article II,
paragraph 1, will be included in this Agreement if the agency of record as of
the Effective Date of this Agreement is one of the PaineWebber Affiliates
listed below, instead of if it was sold by the PaineWebber Affiliates listed
below. Any policies covered by this Agreement will continue to be covered
even if the agency of record is changed subsequent to the Effective Date of this
Agreement.
VENTURE VARIABLE ANNUITY PLANS
-------------------------------------------------------------------------------------------------------------
Description Policy Form Numbers Quota Share
-------------------------------------------------------------------------------------------------------------
CATEGORY A - Individual All contracts beginning with form number 207, except: 15%
Contracts with a 6 year (i) exclude form 207-VFA-NY
surrender charge and a 6 (ii) include form VFA-MN
year step-up death
benefit
-------------------------------------------------------------------------------------------------------------
CATEGORY B - Individual All contracts beginning with form number 207 which have form 15%
Contracts with a 6 year ENDORSEMENT.005 attached, except:
surrender charge and (i) exclude form 207-VFA-NY
yearly step-up death (ii) include contracts issued in Montana which use form
benefit ENDORSEMENT.005.94
All contracts beginning with form VFA-MN with form
ENDORSEMENT.005 attached.
-------------------------------------------------------------------------------------------------------------
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26
-------------------------------------------------------------------------------------------------------------
Description Policy Form Numbers Quota Share
-------------------------------------------------------------------------------------------------------------
CATEGORY C - Group All certificates beginning with form VFA-CERT. 15%
Contracts with a 6 year
surrender charge and a 6
year step-up death
benefit
-------------------------------------------------------------------------------------------------------------
CATEGORY D - Group All certificates beginning with form VFA-CERT which have 15%
Contracts with a 6 year ENDORSEMENT.007 attached.
surrender charge and
yearly step-up death
benefit
-------------------------------------------------------------------------------------------------------------
CATEGORY E - Individual All contracts with form numbers VENTURE.001, VENTURE.001.94, 35%
Contracts with a 7 year and VENTURE.005.
surrender charge and
yearly step-up death
benefit
-------------------------------------------------------------------------------------------------------------
CATEGORY F - Group All certificates with form number VENTURE.003. 35%
Contracts with a 7 year
surrender charge and
yearly step-up death
benefit
-------------------------------------------------------------------------------------------------------------
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PAINEWEBBER AFFILIATES TAX ID NUMBER
---------------------- -------------
PWJC Agency, Inc. 00-0000000
PWJC Sales Agency 00-0000000
PWJC Insurance Agency Massachusetts 00-0000000
PWJC Insurance Sales Arizona 00-0000000
PWJC Agency Illinois 00-0000000
PWJC Insurance Agency Oklahoma 00-0000000
PWJC Insurance Sales Wyoming 00-0000000
PWJC Insurance Sales Montana, Inc. 00-0000000
PW Insurance Agency of Ohio 00-0000000
PW Insurance Agency Arkansas 00-0000000
PWJC Insurance Agency Texas 00-0000000
Rotan Mosle Insurance Agency, Inc 00-000-0000
"Net liability," as used in this Agreement, means the Ceding Company's
liability on the annuities reinsured hereunder, less amounts recoverable from
other reinsurance.
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28
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period: ________________
Calendar Year: ____________________
Date Report Completed: ____________
1. Reinsurance Premiums (Article II) ________
2. Benefit Payments (Article IV)
a. Claims ________
b. Cash Surrender Values ________
c. Partial Withdrawals ________
d. Annuity Benefits ________
Benefit Payments = a + b + c + d ________
3. Modified Coinsurance Reserve Adjustment (Article V)
a. Modco Reserve end of current Accounting Period ________
b. Modco Reserve end of preceding Accounting Period ________
c. Equals a - b ________
d. Modco Reserve Investment Credit (Schedule C) ________
Modified Coinsurance Reserve Adjustment = c - d ________
4. Allowance for Expenses and Death Benefit Guarantees (Article III) ________
5. Transfers Involving the Fixed Account (Article VI)
a. Quota share of transfers from Fixed Account to Separate
Account dring the current Accounting Period (paragraph 1) ________
b. Quota share of transfers from Separate Account to Fixed
Account dring the current Accounting Period (paragraph 2) ________
Transfers Involving the Fixed Account = a - b _______
6. Adjustment for Transfers Involving the Fixed Account (Article VI)
a. Adjustment for transfers from the Fixed Account to the
Separate Account (paragraph 3) ________
b. Adjustment for transfers from the Separate Account to the
Fixed Account (paragraph 4) ________
Adjustment for Transfers Involving the Fixed Account = a - b ________
7. Adjustment for Annuity Benefits (Article IV, paragraph 6) ________
8. Adjustment for Internal Replacements (Article VIII, paragraph 5)
a. Quota share of replaced policy account value in Separate
Account _________
b. Adjustment for replaced reinsured policy _________
c. Quota share of new policy account value in Separate Account _________
d. Adjustment for new reinsured policy _________
Adjustment for Internal Replacements = (a-b-c+d) ________
9. Cash Settlement = 0 -0 -0 - 0 + 5 - 6 + 7 - 8 ========
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29
SUPPLEMENTAL INFORMATION
TOTAL VARIABLE
NUMBER ANNUITY TOTAL PREMIUM RECEIVED DURING
OF FUND FUND PERIOD
ANNUITIES VALUE VALUE QUALIFIED NON-QUALIFIED
------------------------------- -------------------------
Beginning of Period _____ _____ _____ ________ ________
+ NewIssues _____ _____ _____
- Terminations _____ _____ _____
End of Period
===== ===== =====
NUMBER OF VENTURE VARIABLE
VARIABLE ANNUITIES ACCOUNT RESERVE
------------------ ---------------
Beginning of Period ________________ ______________
+ New Issues ________________ ______________
- Terminations ________________ ______________
End of Period
================ ==============
ALLOWANCE FOR COMMISSION AND EXPENSE (Article III)
a. quota share of premium taxes paid on annuities reinsured hereunder ________
b. quota share of commissions paid on annuities reinsured hereunder ________
c. $14.60 x quota share of Venture annuities reinsured hereunder ________
d. Number of Venture annuities reinsured hereunder ________
e. $112.50 x quota share of Venture annuities reinsured hereunder ________
f. Number of Venture annuities issues during the current Accounting Period ________
g. 0.0036 ________
h. Reinsurance Premiums received from non-qualified contracts ________
i. .0005125 x quota share of the account values at the end of the Accounting Period on
annuities reinsured hereunder ________
j. LIBOR Rate / 4 ________
k. Difference between quota share of account value, and Modified Coinsurance Reserve at
end of the Accounting Period on annuities reinsured hereunder ________
l. .0002 x quota share of the account values at the end of the Accounting Period on
Category A & C annuities ________
m. .00045 x quota share of the account values at the end of the Accounting Period on
Category B, D, E & F annuities ________
n. Commission and Expense Allowance
= a+b+(c x d)+(e x f)+(g x h)+i + j + k + l + m ========
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30
DATA FOR CALCULATING ADJUSTMENT FOR TRANSFERS INVOLVING THE FIXED ACCOUNT
VENTURE
-------------------------------------------------------------------
TRANSFERS ADJUSTMENT FOR ADJUSTMENT FOR
TO FIXED TRANSFERS TO TRANSFER FROM TRANSFERS FROM
DURATION ACCOUNT FIXED ACCOUNT FIXED ACCOUNT FIXED ACCOUNT
---------------------------------------- ----------------------------------
1
------------------------------ ----------------------------------
2
------------------------------ ----------------------------------
3
------------------------------ ----------------------------------
4
------------------------------ ----------------------------------
5
------------------------------ ----------------------------------
6
------------------------------ ----------------------------------
7
------------------------------ ----------------------------------
8+
------------------------------ ----------------------------------
DATA FOR CALCULATING ADJUSTMENT FOR INTERNAL REPLACEMENTS
VENTURE
-------------------------------------------------------------------
REINSURED REINSURED
SEPARATE SEPARATE
ACCOUNT VALUE ACCOUNT
OF REPLACED ADJUSTMENT FOR VALUE OF NEW ADJUSTMENT
DURATION POLICY REPLACED POLICY POLICY NEW POLICY
--------------------------------------------- -----------------------------
1
----------------------------------- -----------------------------
2
----------------------------------- -----------------------------
3
----------------------------------- -----------------------------
4
----------------------------------- -----------------------------
5
----------------------------------- -----------------------------
6
----------------------------------- -----------------------------
7
----------------------------------- -----------------------------
8+
----------------------------------- -----------------------------
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31
DATA FOR CALCULATING ADJUSTMENT FOR ANNUITY BENEFITS
(1) (2) (3)
ACCOUNT VALUE ACCOUNT VALUE ACCOUNT VALUE (4) (5)
BEGINNING OF END OF ANNUITIZED ANNUITIZATION EXCESS
ACCOUNTING ACCOUNTING CURRENT RATE ANNUITIZATION RATE
DURATION PERIOD PERIOD PERIOD (3)/{[(1)+(2)]/2} MAX{0,(4)-.0025}
--------------------------------------------------------------------------------------------------------------------------
1
2
3
4
5
6+
(6) (9)
ACCT VALUE (7) (8) ANNUITY BENEFITS
ANNUITIZED (6)x{(5)/ ADJUSTMENT ADJUSTMENT
DURATION CURRENT PERIOD [(5)+.0025)]} FACTOR (7)X(8)
--------------------------------------------------------------------------------------------------------------------------
1 .06
2 .05
3 .04
4 .03
5 .02
6+ .01
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SUPPLEMENTAL DATA PROVIDED BY THE CEDING COMPANY
A. Reinsurer's portion of M & E charges collected during the current
accounting period on the policies reinsured hereunder.
B. Reinsurer's portion of Administrative Charges collected during the
current accounting period on the policies reinsured hereunder.
C. Reinsurer's portion of Surrender Charges collected during the current
accounting period on the policies reinsured hereunder.
D. Reinsurer's portion of First Year Commissions paid during the current
accounting period on the policies reinsured hereunder.
E. Reinsurer's portion of Renewal Commissions paid during the current
accounting period on the policies reinsured hereunder.
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33
SCHEDULE C
MODIFIED COINSURANCE RESERVE INVESTMENT CREDIT
MODIFIED COINSURANCE RESERVE INVESTMENT CREDIT. The Modified Coinsurance
Reserve Investment Credit is equal to the portion of the sum of all accrued
investment income and capital gains and losses, realized and unrealized, on the
mutual funds underlying the Ceding Company's Separate Account for the current
Accounting Period which corresponds to the portion of the variable annuities
reinsured hereunder.
For Venture Annuities reinsured hereunder, the Modified Coinsurance Reserve
Investment Credit will be adjusted for income taxes or changes in any provision
for taxes. It will be reduced for investment management fees in excess of 45
basis points and any other fund level charges. It will not be reduced for
mortality and expense risk charges or administrative charges as defined in the
annuity contracts.
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34
SCHEDULE D
COMMISSION SCHEDULES
SCHEDULE 1
Commission as percent of premium
payable in all policy durations 7.0%
Commission as percent of account value
payable in all durations 0.28%
SCHEDULE 2
Commission as percent of premium payable
in all policy durations 8.0%
Commission as percent of account value
payable in all durations 0.03%
33
