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EXHIBIT 10.22(F)
INVESTMENT MANAGEMENT AGREEMENT
(Ohio State Business)
XXXXXXX LIFE, INC.
Kansas City, Missouri
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INVESTMENT MANAGEMENT AGREEMENT
(Ohio State Business)
THIS AGREEMENT, dated as of the _____ date of ____________, 1997, by and between
XXXXXXX LIFE, INC., having its principal place of business at 0000 Xxxxxxxx,
Xxxxxx Xxxx, Xxxxxxxx 00000 (herein "Xxxxxxx"), and Employers Reassurance
Corporation, having its principal place of business at 0000 Xxxxxxx, Xxxxxxxx
Xxxx, Xxxxxx 00000 (herein "Client").
In consideration of the promises set forth in this Agreement, Xxxxxxx and Client
agree as follows:
1. AUTHORIZATION AS INVESTMENT ADVISOR.
Subject to the terms and conditions set forth herein, Client hereby
designates and appoints Xxxxxxx as investment adviser for the cash and
securities listed on Exhibit A, attached to and made a part of this
Agreement. This appointment also applies to such other cash and
securities as shall be subsequently contained in Client's account by
reason of purchases, sales, exchanges, withdrawals, additions or
otherwise. Xxxxxxx shall have full authority and discretion to supervise
the management of said cash and securities, including, without
limitation, authority and discretion to select, purchase and sell
securities and to determine timing and means of execution for such
selection, sales or purchases, as deemed by Xxxxxxx to be in the best
interest of Client, all however subject to the guidelines contained in
Exhibit B, attached to and made a part of this agreement, and the
interest rate crediting process, which is also contained in Exhibit B.
2. REPORTS.
Xxxxxxx shall prepare and deliver to Client periodic reports which
shall list all assets in Client's account.
3. ADVISORY FEES. Client shall pay Xxxxxxx an advisory fee equal to
fifteen basis points per year on the assets described in Exhibit A.
4. TERM OF AGREEMENT.
This Agreement shall be effective as of the date of this Agreement. If
not sooner terminated by mutual consent of the parties hereto, this
agreement shall remain in force until the Great Southern Life Insurance
Company shall have no
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INVESTMENT MAGAGEMENT AGREEMENT 2
further liability under its Modified Coinsurance Retrocession
Agreement (Ohio State Business) with the Client.
5. LIMITATION ON LIABILITY.
Except for negligence or malfeasance, or violation of applicable law,
neither Xxxxxxx nor any of its employees or partners (or any officers,
directors or employees of its partners) shall be liable hereunder for any
action performed or omitted to be performed or for any errors of judgment
in connection with Americo's services rendered under this Agreement. The
federal securities laws impose liabilities under certain circumstances on
persons who act in good faith and, therefore, nothing herein shall in any
way constitute a waiver or limitation of any rights which Client may have
under any federal securities laws.
6. NO ASSIGNMENT.
This Agreement and the rights and obligations hereunder shall not be
subject to assignment, as that term is defined in the Investment Advisers
Act of 1940, by Xxxxxxx except with the written consent of Client.
7. SELECTION OF BROKERS.
Where Xxxxxxx places orders for the execution of transactions, Xxxxxxx
may select such brokers and dealers for execution on such markets and at
such process or commission rates as Xxxxxxx determines in its good faith
judgment to be in the best interests of Client. Xxxxxxx may take into
consideration in the selection of such brokers and dealers not only the
available prices and rates of brokerage commissions, but also other
relevant factors (such as, without limitation, execution capabilities and
the value of its ongoing relationship with such brokers and dealers)
without having to demonstrate that such factors are of a direct benefit
to Client.
8. CUSTODIANSHIP OF CASH AND SECURITIES.
Under no circumstances shall Americo act as custodian for or hold
Client's cash and securities. Xxxxxxx may issue instructions to the
custodian as may be appropriate in connection with the transactions
initiated by Xxxxxxx hereunder. Client may authorize the custodian to pay
Xxxxxxx the fees billed pursuant to the Agreement upon presentment of
such bills or statements to said custodian.
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INVESTMENT MAGAGEMENT AGREEMENT 3
9. NON-REGISTRATION AS INVESTMENT ADVISOR.
The Client acknowledges that Xxxxxxx is not registered as an investment
adviser under the Investment Advisers Act of 1940.
10. AUTHORIZATION.
Client represents that (a) the execution of and performance
contemplated under this Agreement do not and will not violate or
abridge any obligation or duty of Client, (b) this Agreement has been
authorized by appropriate action and when executed and delivered will
be binding upon the Client in accordance with its terms, and (c) Client
will deliver to Xxxxxxx such evidence of such authority as Xxxxxxx may
reasonably require, either by way of a certified resolution or
otherwise.
11. Notification Regarding Change in Personnel.
Xxxxxxx shall notify Client of any change subsequent to the date of
this Agreement in personnel responsible for the Client's assets. Such
notification shall be made in writing within 20 business days after
such change.
12. Counterparts.
This Agreement may be executed in two or more counterparts each of
which shall be deemed an original.
13. Enforceability.
This Agreement has been duly executed by each of the parties hereto and
constitutes a binding and enforceable agreement of each such party.
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INVESTMENT MAGAGEMENT AGREEMENT 4
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
above written.
XXXXXXX: XXXXXXX LIFE, INC.
By: /s/ Xxxx Xxxxxx
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CLIENT: EMPLOYERS REASSURANCE
CORPORATION
By: /s/ Xxxxx X. Xxxxxx
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EXHIBIT A
Cash and Securities
The assets pertaining to the Automatic Coinsurance Reinsurance Agreement
between the Client and The Ohio State Life Insurance Company.
The assets pertaining to the Modified Coinsurance Retrocession Agreement (Ohio
State Business) between Great Southern Life Insurance Company and the Client.
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EXHIBIT B
XXXXXXX LIFE, INC.
INVESTMENT OBJECTIVES, STRATEGIES & GUIDELINES
INVESTMENT OBJECTIVES
The primary objectives are:
1) Preservation of principal (capital).
2) Maximize the potential value of the portfolio with a focus on
maintaining and increasing future investment income streams.
INVESTMENT CONSTRAINTS
The overall stategies for managing this block of assets includes:
1) Conservative and stable investment philosophy with primary emphasis on
balancing credit and interest rate risk.
2) Focus an well-structured securities (non-callable corporates, CMO's
with stable average lives, current or discount coupon pass-throughs) to
reduce reinvestment risk and improve price performance. Investment in
high risk or volatile derivative securities (e.g. inverse floaters) are
not considered part of the overall investment strategy.
3) Investments are made with the intent of being held long term. The
portfolio will not be actively/aggressively managed based on
anticipated interest rate and/or spread changes. Any restructuring of
the portfolio will be performed in conjunction with the overall
asset/liability management process.
4) The portfolio will be structured with the goal of matching the assets
with the expected liability cash flows. The structure of the assets
will be regularly monitored considering interest rate and expected
prepayment rate changes. Asset/liability studies are completed at least
annually, or more frequently if warranted. The results of these studies
play an integral role in the durational aspects of securities
purchased.
5) Maintain a high quality/liquid investment portfolio to satisfy both
existing and prospective cash flow needs.
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INVESTMENT GUIDELINES AND LIMITATIONS
The following guidelines will be utilized in developing and managing the
portfolio:
1) Maturity Structure: Target
Expected Percentage
Maturity/Average Life Range Allocation
Short-term less than 1 year 2-7 % 5%
3-6 years (5 yrs. avg.) 20-35 30
7-12 years (10 yrs. avg.) 10-25 15
13-22 years (17 yrs. avg.) 30-50 40
23-30 years (28 yrs. avg.) 5-15 % 10
--
100%
2) Sector Allocation: Target
Expected Percentage
Sector Range Allocation
U.S. Governments 0-5% - %
Corporate Bonds 45-75 55
Asset-Backed Securities (ABS):
- Non-call structure 5-25 15
- Prepayment risk 0-10 5
-
Total ABS 20
Mortgage-Backed Securities (MBS):
- Pass-throughs 10-20 10
- CMO's 10-25 15
--
Total MBS 25
Total 100%
3) Ratings Guidelines:
a) Corporate Bonds:
Expected Expected
Expected Percentage Percentage
Rating Category Range of Corporates of Portfolio
AAA 0-5% -% - %
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AA 5-20 10 5.5
A 50-75 70 38.5
BBB 15-25 20 11.0
-- ----
100 % 55.0 %
=== ====
For any corporate bonds rated both Baa-3/BBB- by Moody's and Standard & Poor's
respectively, Employer's Re will be notified prior to their purchase. Subsequent
to the transaction, written approval will be obtained from Employer's Re for all
Baa-3/BBB- bonds acquired.
b) Mortgage-Backed Securities:
MBS holdings will generally involve government agency or
government sponsored agency (FNMA and FHLMC) collateral. No more
than 15% of MBS investments will be backed by non-agency
collateral. Any non-agency MBS securities must be rated AA or AAA
by one of the major rating agencies.
c) Below Investment Grade Securities (BIG):
BIG bonds are not considered part of the overall investment
strategy. However, any bond purchased as an investment grade
security which is subsequently downgraded to a BIG rating will be
reevaluated at that time. If the risk of default is considered
low, the bond may be retained. Any BIG bonds retained will be
regularly monitored and reevaluated. The total amount of BIG bonds
to be retained cannot exceed 5% of total investments.
d) Asset-Backed Securities:
ABS investments should generally be rated AA or AAA by one of the
major rating agencies. No more than 15% of ABS holdings can be
rated below AA. All ABS's must have an investment grade rating.
4) Holding limitations:
Industry Concentration - corporate bond holdings are limited to no more
than 15% in any one industry.
Company Concentration - the maximum amount to be invested in any one
company or organization is as follows:
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Maximum Amount
Invested
Rating Category (In Million)
AAA $12
AA 12
A 10
BBB 6
Individual MBS concentration - the maximum amount to be invested in any
one agency collateral security is $20 million. For a non-agency
collateral security, the maximum amount is $5 million.
5. Any security which is outside the scope of these guidelines can be
invested in, if mutually agreed upon by both organizations.
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EXHIBIT B (Continued)
Interest Rate Crediting Process
1. Objective. The objective of this process is to assure that credited
rates are established so as to meet required spread targets.
2. Expected Gross Interest Rate. The expected gross interest rate for a
block of business is determined by blending current yields on the
investment portfolio of assets underlying the block of business
together with expected new money for minimal new and reinvestment cash
flow. The blending will be based on cash flow for the period under
review and will take into consideration funds due for reinvestment and
interest income.
Current yields should include the effect of realized statutory capital
gains and losses. New money assumptions shall consider these investment
guidelines in respect of quality, duration and type of assets.
An example is shown in the following Table 1:
Table 1
Expected Gross Interest Rate
Volume Rate
Investment Portfolio 800 8.5%
Reinvestment Portfolio 100 8.0%
New Money 100 8.0%
Average 1,000 8.4%
3. Expected Net Interest Rate. The expected net interest rate for a block
of business is determined by subtracting from the gross rate charges
for investment expenses and risks.
Charges for investment expenses cover the cost of investment expenses
(including transaction costs) per the Services Agreement described in
Numbered Paragraph 3 of this agreement.
Charges for risk should take into consideration the default and option
risks (as agreed upon) relating to the portfolio assets underlying the
block of business.
An example is shown in the following Table 2:
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Table 2
Expected Net Interest Rate
Expected Gross Rate 8.4%
Less: Investment Expenses 0.25%
And less: Investment Risks 0.2%
Expected Net Rate 7.95%
4. Target Credited Rate. To determine the target credited rate, the
required spread must be subtracted from the expected net investment
rate. The required spread varies by plan and by duration within plan.
The target credited rate may be modified for marketing reasons provided
that adjustments are offsetting in the aggregate. Antiselection in
favor of artificially high rates will be considered in this process.
An example is shown in the following Table 3:
Table 3
Target Credited Rate
Life Annuity
Expected Net Rate 7.95% 7.95%
Less: Required Spread 1.5% 1.75%
Calculated Credited Rate 6.45% 6.20%
Marketing Adjustments 0.4% -0.10%
(Assuming 80% annuities)
Target Credited Rate 6.85% 6.10%
5. Working Range. If currently credited interest rates are outside of the
defined working range of plus or minus 25 basis points of target rates,
then no action is required (but action may be taken) until the
cumulative shortfall exceeds $750,000.
6. Actions. If currently credited interest rates are outside the defined
working range of target rates, then action is required. Three courses
of action are possible:
a. Adjust credited rates;
b. Adjust reinsurance and retrocession allowances;
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c. Do nothing, which is not acceptable after cumulative shortfall
exceeds $750,000.
Considerations in this decision are:
1. The objective stated above;
2. Competition and marketing issues;
3. Previous deficiencies and sufficiencies in credited rates
(relative to target rates);
4. Expected trends in future credited rates;
5. The magnitude of the contemplated adjustments.
