REINSURANCE AGREEMENT
BETWEEN
GUARANTY INCOME LIFE INSURANCE COMPANY
of Baton Rouge, Louisiana
referred to in this Agreement as the "Company"
and
SECURITY NATIONAL LIFE INSURANCE COMPANY
of Salt Lake City, Utah
referred to in this Agreement as the "Reinsurer"
TABLE OF CONTENTS
Page
I. Scope of Reinsurance 4
II. Liability 4
III. General Provisions 4
IV. Initial Consideration and Reinsurance Premiums 8
V. Reserve Adjustments 9
VI. Benefits 10
VII. Accounting and Settlement 11
VIII. Recapture 13
IX. Recapture Accounting and Settlement 13
X. Arbitration 14
XI. Insolvency 15
XII. Severability 15
XIII. Complete Agreement 16
XIV. Parties to Agreement 16
XV. Assignment 16
XVI. Investment of Assets 16
XVII. DAC Tax Article 16
XVIII. Execution 17
Schedule A, Policies and Amounts Reinsured 18
Schedule B, Initial Statutory, Modified Coinsurance and 19
Coinsurance Reserves and Net Profit Calculation
Schedule C, Reinsurance Premiums 20
Schedule D, Expense Allowance 21
Schedule E, Modified Coinsurance Interest Rate and 22
Modco Investment Income
Schedule F, Part I. Coinsurance and Modified Coinsurance
Reserve Report 23
Schedule F, Part II. Loss Carry Forward Report 25
Schedule F, Part III. Experience Refund 26
Schedule F, Part IV. Quarterly Settlement Report 27
Schedule G, Policy Exhibit 28
TABLE OF CONTENTS (continued)
Page
Schedule H, Part I. Quarterly Statutory Reporting 29
Schedule H, Part II. Annual Statutory Reporting 30
Schedule I, Part I. DAC Tax Adjustment 31
Schedule I, Part II. Reinsurance Questionnaire 32
Schedule I, Part III. DAC Tax Exhibit 33
Schedule J, Trust Agreement 34
Schedule K, Minimum Coinsurance Reserve 35
GUARANTY INCOME LIFE INSURANCE COMPANY (the "Company") and SECURITY NATIONAL
LIFE INSURANCE COMPANY (the "Reinsurer") mutually agree to reinsure on the terms
and conditions set out below. This Agreement is an indemnity reinsurance
Agreement solely between the Company and the Reinsurer, and performance of the
obligations of each party under this Agreement shall be rendered solely to the
other party. In no instance shall anyone other than the Company or Reinsurer
have any rights under this Agreement.
ARTICLE I
SCOPE OF REINSURANCE
1. Policies Reinsured. The Company hereby cedes and the Reinsurer hereby
reinsures, according to the terms and conditions of this Agreement, the risks
under certain policies, as described in Schedule A.
2. Coverages and Exclusions.
a) Only risks under the policies referred to in Paragraph 1, hereinafter
referred to as the "Policies," to the extent of the limits specified in Schedule
A, are reinsured under this Agreement.
b) The Reinsurer will reimburse for the same form and term of nonforfeiture
benefits as provided for in each reinsured policy issued by the Company in a
quota share percentage corresponding to that shown in Schedule A.
c) The Reinsurer shall have no liability to the Company for reimbursement of any
policy loans made to policyholders with respect to the portion of the policies
reinsured under this Agreement.
3. Plan of Reinsurance. Reinsurance effected under this Agreement shall be
partially on a coinsurance basis and partially on a modified coinsurance basis.
ARTICLE II
LIABILITY
Liability. The liability of the Reinsurer shall begin simultaneously with that
of the Company, but not prior to the effective date of this Agreement. The
reinsurance under this Agreement with respect to any policy reinsured hereunder
shall be maintained in force without reduction as long as the liability of the
Company under such policy remains in force without reduction, unless reinsurance
under this Agreement is terminated or reduced or as otherwise provided herein.
The Reinsurer's liability on any policy reinsured hereunder shall terminate with
that of the Company, but shall not extend beyond the termination date of this
Agreement.
ARTICLE III
GENERAL PROVISIONS
1. Representations and warranties of Company.
a. The Company has provided the Reinsurer copies of all forms,
applications, rates and values with respect to the Policies that the
Reinsurer has requested and shall keep the Reinsurer promptly informed
with respect to any changes or modifications to such forms,
applications or rates.
b. The Company will provide the Reinsurer with the latest examination of
Company by the Louisiana Department of Insurance at the request of the
Reinsurer.
c. The Company is licensed and in good standing in Louisiana. The Company
does not have any reason to believe that it is about to be placed in
supervision, rehabilitation, receivership, suspension or liquidation
by any insurance department.
d. The Company is duly organized, validly existing and in good standing
under the laws of the state of Louisiana, and has all necessary
corporate power and authority to entitle it to use its name, to own,
lease or otherwise hold its properties and assets, to carry on its
business as currently conducted, and to perform its obligations.
e. The execution, delivery and performance of this Agreement by the
Company will not (i) violate or conflict with any provision of its
Certificate of Incorporation or bylaws; (ii) violate or result in any
breach of or constitute a default under, or give rise to a right of
modification, termination or cancellation of, or accelerate the
performance required by the terms of, as the case may be, any
contract, lease, license, mortgage, note, or any agreement to which
the Company is bound; or (iii) violate or conflict with any law,
regulation, code, judgment, order, writ, injunction or decree of any
court, governmental body, or administrative agency by which the
Company may be bound.
f. The Company has full corporate power and authority to execute, deliver
and perform its obligations under this Agreement, and has taken all
necessary corporate and other action to authorize the ceding of the
Policies under the terms of this Agreement.
g. This Agreement has been duly executed and delivered by the Company and
constitutes a valid and legally binding obligation of the Company,
enforceable in accordance with its terms.
h. To the best of the Company's knowledge, the Policies are in compliance
with all applicable requirement of law and are on forms approved in
all material respects by the appropriate governmental authorities
except to the extent that failure to be in compliance therewith does
not have a material adverse effect.
i. The assets reflected by Company on its quarterly statement to the
Insurance Department of the State of Louisiana for the quarter ended
September 30, 2003 a) have not decreased since that time, b) are
accurately reflected as to value, c) are unencumbered, except as
reflected on the statement, and d) are fully available to the Company
to support its obligations to its policyholders.
j. Company acknowledges the existence of a certain Reinsurance Agreement
by and between Company and The Mercantile and General Life Reassurance
Company of America ("Mercantile") signed by Company on February 25,
1987 and by Mercantile on October 17, 1986 and a Reinsurance Agreement
by and between Company and American United Life Insurance Company with
an effective date of July 18, 1983 and an Amendment thereto effective
November 1, 1993 and any other reinsurance agreements, if any, between
Company and other reinsurers (collectively referred to as "Third Party
Reinsurance Agreements"). Company acknowledges that Reinsurer will not
accept the risks associated with possible changes to the Third Party
Reinsurance Agreements and further promises that this Agreement shall
be treated as if the Third Party Reinsurance Agreements are in full
force and effect, as constituted on the effective date of this
Agreement. The Company further represents that any increase to the
premiums under the Third Party Reinsurance Agreements shall be the
sole responsibility and obligation of Company, unless accepted in
writing by Reinsurer.
2. Representations and warranties of Reinsurer.
a. The Reinsurer is duly organized, validly existing and in good standing
under the laws of the state of Utah, and has all necessary corporate
power and authority to entitle it to use its name, to own, lease or
otherwise hold its properties and assets, to carry on its business as
currently conducted, and to perform its obligations.
b. The execution, delivery and performance of this Agreement by the
Reinsurer will not (i) violate or conflict with any provision of its
Certificate of Incorporation or by-laws; (ii) violate or result in any
breach of or constitute a default under, or give rise to a right of
modification, termination or cancellation of, or accelerate the
performance required by the terms of, as the case may be, any
contract, lease, license, mortgage, note, or any agreement to which
the Reinsurer is bound; or (iii) violate or conflict with any law,
regulation, code, judgment, order, writ, injunction or decree of any
court, governmental body, or administrative agency by which the
Reinsurer may be bound.
c. The Reinsurer has full corporate power and authority to execute,
deliver and perform its obligations under this Agreement, and has
taken all necessary corporate and other action to authorize the ceding
of the Policies under the terms of this Agreement.
d. This Agreement has been duly executed and delivered by the Reinsurer
and constitutes a valid and legally binding obligation of the
Reinsurer, enforceable in accordance with its terms.
3. Reinsurance Conditions. The reinsurance hereunder is subject to the same
limitations and conditions as the insurance under the policies which are
reinsured hereunder, except as otherwise provided herein.
4. Administration of Policies Reinsured. The Company shall administer the
policies reinsured hereunder and shall perform all accounting for such policies.
5. Ownership of Assets. The Company shall retain ownership all of the assets
held in relation to the U.S. Statutory Reserves on the policies reinsured
hereunder, subject to Reinsurer's beneficial interest. The said assets shall be
placed in trust with a mutually agreed upon financial institution. Company will
continue to manage the assets placed in the trust and will be allowed to buy or
sell the assets under normal business circumstances, provided that the value of
the corpus of the trust remains at or above the value of the trust at its
inception. The mechanics of the trust are more fully described in the Custodial
Agreement between Company and Reinsurer which is incorporated herein and
attached hereto as Schedule J.
6. Initial Allowance. An initial allowance shall be paid to the Company equal to
$3,400,000. This Initial Allowance is due and payable on the effective date of
this Agreement. This allowance is meant to reimburse the Company for all
acquisition costs incurred on the reinsured business. No other allowances will
be paid to the Company by the Reinsurer as reimbursement for these expenses.
7. Expense Allowance. An expense allowance for the Reinsurance Premium as
described in Schedule D shall be allowed the Company for the administration of
the business reinsured hereunder.
8. Age or Gender Adjustment. If the amount of any of the Company's policies
reinsured under this Agreement is changed because of a misstatement of age or
gender, the Reinsurer will share proportionately with the Company in all
adjustments in accordance with the limitations defined in Schedule A.
9. Policy Changes. Company, under any circumstances, may not make any changes to
the terms and conditions of any policies reinsured under this Agreement without
the written consent of the Reinsurer. For the purpose of this Agreement, "terms
and conditions of any policies" includes, but is not limited to interest
crediting rates and cost of insurance rates.
If Company obtains Reinsurer's written consent, a change is made in the terms
and conditions of a policy issued by the Company and reinsured hereunder, which
increases or reduces the liability of the Company on such policy, changes the
plan of insurance or makes any other policy change, the Company and the
Reinsurer shall share in such change in proportion to their respective
liabilities under this Agreement except as provided in a formal exchange program
as described below. A reduction in reinsurance which is not caused by the
implementation of a formal exchange program will not be applied, however, to
force the Company to reassume more than its regular retention limits at the time
of the reduction of age at issue, mortality rating, and form of the policy or
policies for which reinsurance is being terminated.
If the Company makes a change in the terms and conditions of any policy
reinsured hereunder, including, but not limited to, a change in the method used
to calculate reserves on the policy, and such change affects the Reinsurer's
liability hereunder with respect of such policy, the Company shall obtain
Reinsurer's advance written consent before making any changes. For purposes of
this Agreement, any such change shall be deemed to be the issuance of a new
policy form by the Company. The Reinsurer shall inform the Company whether the
Reinsurer will include such new policy form under this Agreement, or will
terminate or modify the reinsurance hereunder in respect of such policy. In the
event of a termination or modification pursuant to this Article, a terminal
accounting shall be computed for all policies for which reinsurance was
terminated or modified. If the calculation produces a negative amount, the
Company shall pay the Reinsurer the absolute value of such amount.
10. Internal and External Replacements. Company may not make any internal or
external replacements of policies reinsured under this Agreement without the
written consent of Reinsurer.
An internal replacement of any contracts reinsured hereunder, pursuant to a
program of internal or external replacement, shall be considered reinsured
contracts under the terms of this Agreement, with effect from the date of such
replacement, unless the Reinsurer, at its sole discretion, chooses not to
reinsure such policies.
An internal replacement shall include all contracts which are reinsured under
this Agreement which under a program initiated by the Company after the
Effective Date of this Agreement are, within six (6) months of being
surrendered, covered under a new policy written by the Company or an affiliate.
An external replacement program shall consist of a program entered into by the
Company with a non-affiliated company to replace the contracts reinsured
hereunder for a contract with another reinsurer.
11. Oversights. If failure to pay any premiums due or to do any other act
required by this Agreement is unintentional and caused by misunderstanding or
oversight, the Company and the Reinsurer will adjust the situation to what it
would have been had the misunderstanding or oversight not occurred.
12. Inspection. The Company shall be responsible for maintaining proper records
and for handling the collection of premiums, payment of benefits, processing of
policy loans and policyholder service. The Company will be responsible for
computing reserves and other data necessary for the Reinsurer to file statutory
and tax financial statements. At any reasonable time during business hours,
either party may inspect the original papers and any and all other books or
documents at the home office of the other party relating to or affecting
reinsurance under this Agreement. The Company agrees to complete, at the request
of the Reinsurer, a process confirming the existence of policies reinsured under
this Agreement.
13. Amendments. This Agreement may be amended by mutual agreement of the
parties. Any such amendments shall be in writing and signed by authorized
representatives of both parties.
14. Headings and Schedules. Article and paragraph headings are not a part of
this Agreement and shall not affect the terms hereof. The schedules attached are
a part of this Agreement.
15. Offset. Any debts or credits, matured or unmatured, liquidated or
unliquidated, regardless of when they arose or were incurred, in favor of or
against either the Company or the Reinsurer with respect to this Agreement are
deemed mutual debts or credits, as the case may be, and shall be set off, and
only the balance shall be allowed or paid.
16. Recoupment. All net amounts due either party under this Agreement, for any
accounting period, shall be netted regardless of the insolvency, rehabilitation
or receivership of either party. In particular, amounts due under this Agreement
to one party before or after the insolvency of the other party may be recouped
and only the net balance due shall be paid.
17. Currency. The currency for the purpose of this Agreement shall be United
States dollars.
18. Coinsurance Reserve. The initial coinsurance reserve shall be equal to
$3,400,000. Subsequently, the Coinsurance Reserve shall be equal to the
difference between the Statutory Reserve and the Modified Coinsurance Reserve.
The Company shall take a reserve credit, in accordance with applicable state
statutes, for the portion hereunder of this Agreement that is on a coinsurance
basis and the Reinsurer shall establish such amount on its books and records as
its minimum reserve liability on the portion of the policies reinsured
hereunder.
19. Service of Suit
If the Reinsurer fails to perform any of its obligations under this Agreement,
the Company may request the Reinsurer submit to the jurisdiction of a court of
competent jurisdiction within the United States. The Reinsurer will comply with
all reasonable requirements necessary to give such court jurisdiction over it
and will abide by the final decision of such court or of any appellate court in
the event of an appeal.
The Reinsurer hereby designates the Commissioner of the State of Utah as its
true and lawful attorney within such Commonwealth upon whom any lawful process
in any action, suit or proceeding instituted by or on behalf of the Company.
This provision is not intended to conflict with or override the obligation of
the parties to arbitrate disputes hereunder. Consequently, it shall only apply
as necessary to enforce the terms of this Agreement or to enforce a written
decision of the arbitrators.
ARTICLE IV
INITIAL CONSIDERATION AND REINSURANCE PREMIUMS
To effect reinsurance with respect to the policies inforce on the effective date
of this Agreement, the Company shall pay to the Reinsurer, the initial
consideration and reinsurance premium as described in Paragraph 2 of this
Article.
Initial Consideration and Reinsurance Premium The initial consideration to be
paid to the Reinsurer by the Company on the effective date of this Agreement
will be the reinsured quota share of the US Statutory Reserve (as defined in
Schedule B) as of the effective date of this Agreement, corresponding to the
amount and policies reinsured, as outlined in Schedule A.
During subsequent accounting periods, the Company will pay the Reinsurer the
reinsurance premium determined in accordance with Schedule C, corresponding to
the amount and the policies reinsured.
ARTICLE V
RESERVE ADJUSTMENTS
1. Initial Reserve Adjustment. Simultaneously with the payment of the initial
consideration described in Article IV, by the Company to the Reinsurer, the
Reinsurer shall pay to the Company an initial reserve transfer in an amount that
is equal to the Modified Coinsurance Reserves, as defined in Schedule B, on the
effective date of this Agreement with respect to the policies reinsured
hereunder.
2. Modco Reserve Adjustments.
(a) Modco reserve adjustments shall be computed quarterly by deducting ((i)
+ (ii)) from (iii) where items (i), (ii) and (iii) are defined as:
(i) the total amount of the Modified Coinsurance Reserves, as defined
in Schedule B, on the last day of the preceding accounting period on the
contracts reinsured hereunder.
(ii) Modco Investment Income as defined in Schedule E.
(iii) the total amount of the Modified Coinsurance Reserves on the
last day of the current accounting period on the policies reinsured
hereunder and then in force under this Agreement.
With respect, however, to the first accounting period after the effective
date of this Agreement occurs, the reference in "(i)," to "the last day of the
preceding accounting period" shall refer to the effective date of this
Agreement.
In the accounting period in which termination of this Agreement occurs, the
reference in "(iii)" above to "the last day of the current accounting period"
shall refer to the termination date of this Agreement.
(b) For any accounting period in which "(iii)" exceeds ("(i)" + "(ii)") in
(a), above, the Reinsurer shall pay the Company such excess. For any accounting
period in which ("(i)" + "(ii)") exceeds "(iii)," in (a) above, the Company
shall pay the Reinsurer such excess.
ARTICLE VI
BENEFITS
1. Notice. The Company shall have the sole responsibility for the settlement of
claims with its claimants. The Company will maintain records to support its
claim payments. The Reinsurer reserves the right to review those claim records,
and proofs of such claim payments due or paid will be furnished to the Reinsurer
upon request.
2. Liability and Payment. The Reinsurer will accept the decision of the Company
on payment of benefits (defined herein) on a policy reinsured hereunder, the
intent of the parties being that the Reinsurer will, in every case to which this
Agreement applies and in the proportions specified herein, follow the fortunes
of the Company. The Reinsurer will pay its quota share in a lump sum to the
Company without regard to the form of claim settlement of the Company. Benefits
shall be defined as death benefits, surrender benefits, withdrawals, dividends,
annuity benefits (defined as the annuity benefits payable in accordance with the
guaranteed settlement options as provided for in each policy reinsured
hereunder) and other contractual policyholder benefits, net of any other
Reinsurance the Company may have on the business covered by this Agreement.
Punitive, exemplary or extra-contractual damages are not considered benefits
under this Agreement.
3. Contested Claims. The Company will advise the Reinsurer of its intention to
contest, compromise, or litigate a claim involving a policy reinsured hereunder.
The Reinsurer will pay its share of the unusual expense of the contest in
addition to its share of the claim itself, or it may choose not to participate
in the contest. If the Reinsurer chooses not to participate, it will discharge
its liability by payment of the full amount of its liability on the policy
reinsured to the Company. In no event shall the following categories of expenses
or liabilities be considered for purposes of this Agreement as "unusual
expenses":
a) routine investigation or administrative expense;
b) expenses incurred in connection with a dispute or contest arising
out of conflicting claims of entitlement to policy proceeds or benefits
which the Company admits are payable;
c) expenses, fees, settlements or judgments arising out of or in
connection with claims against the Company for punitive or exemplary
damages; and
d) expenses, fees, settlements or judgments arising out of or in
connection with claims made against the Company and based on alleged or
actual bad faith, failure to exercise good faith or tortious conduct in the
handling of claims or in other dealings with its policyholders.
4. Assistance and Advice. On any claim on a policy reinsured hereunder, the
Reinsurer will, at the request of the Company, advise and assist the Company in
its determination of the liability and in the best procedure to follow with
respect to a claim of doubtful validity, provided that the Reinsurer shall not
be liable to the Company or to any third party for claims arising out of such
advice and assistance.
5. General. It is expressly understood that all benefits reinsured hereunder
this Agreement shall be netted against the Reinsurance Premium and other amounts
due the Reinsurer from the Company under this Agreement.
ARTICLE VII
ACCOUNTING AND SETTLEMENT
1. Accounting Periods. The accounting shall be on a calendar quarter basis. The
first accounting period shall begin on the 1st day of the effective date of this
Agreement. The final accounting period shall run from the end of the preceding
calendar quarter until the termination date of this Agreement.
2. Accounting Reports. Accounting reports (Schedules F, G, H and K) shall be
submitted to the Reinsurer by the Company not later than fifteen (15) days after
the end of each accounting period except in the case of calendar year end
accounting reports as described in the following paragraph. Such reports shall
be shown on a line of business basis as indicated on Schedule A and include
information on claims, surrender values, statutory reserve adjustments and
Coinsurance Reserves on a consolidated basis on the policies reinsured for the
preceding accounting period.
Within fifteen (15) days of the end of the calendar year, the Company shall
supply the Reinsurer with the year end Accounting Reports which shall include
information as shown in Schedules F, G, H and K. The Company shall make its best
efforts to supply the actual data; and if the data cannot be supplied within the
time limits, the Company shall produce best estimates which are trued up later.
3. Settlements. With respect to the business reinsured hereunder and within
fifteen (15) days after the end of each accounting period, except for the 1st
accounting period which will be the effective date of this Agreement, the
Company shall pay the Reinsurer a settlement computed as follows:
Initial Reinsurance Premium (In accordance with Article IV; first period only),
PLUS: Premiums, in accordance with Schedule C,
MINUS: Initial Allowance (Article III, Paragraph 6; first period only),
MINUS: Expense Allowance, in accordance with Schedule D,
PLUS: Modco Reserve Adjustment payable to the Reinsurer in accordance with
Article V,
MINUS: Modco Reserve Adjustment payable to the Company in accordance with
Article V,
MINUS: Benefits paid during the accounting period, in accordance with Article
VI.
MINUS: Experience Refund as defined in Article VII, paragraph 8 below.
If the amount computed is positive, then such amount shall be paid to the
Reinsurer by the Company. If the amount computed is negative, then the absolute
value of such amount shall be paid by the Reinsurer to the Company.
4. Loss Carry Forward. At the beginning of the first accounting period, the Loss
Carry Forward shall be set equal to zero. For subsequent accounting periods, the
Loss Carry Forward shall be as calculated in Schedule F, Part II.
5. Amounts Due. Except as otherwise specifically provided in this Agreement, all
amounts due to be paid to either the Reinsurer or the Company shall be
determined on a net basis as of the last day of each accounting period. These
amounts shall be due and payable within fifteen (15) days after such date.
In the calculation of the net amount due in Paragraph 3 above, due regard will
be given to the incidence of payment throughout the accounting periods and
interest at the rate determined in accordance with Paragraph 6 below, will be
credited accordingly on an exact basis, whenever possible or otherwise on a
mutually agreed upon approximate basis.
6. Delayed Payment and Recalculations. If there is a delayed settlement or a
recalculation of an amount due, there will be an interest charge computed at the
interest rate prescribed below for the period commencing with the sixteenth
(16th) day after the end of the accounting period to which the charge applies.
The annual interest rate for delayed settlement shall be equal to the yield of
one-year US treasuries as quoted at closing on the last Friday before the last
day of the accounting period to which the charge applies, plus 100 basis points.
7. Expense and Risk Charge. The expense and risk charge in any accounting period
shall be equal to 1.00% of the Coinsurance Reserve at the end of the accounting
period.
In no event shall the Expense and Risk Charge be payable in a given accounting
period, if the Profit (Schedule B) is less than zero.
8. Experience Refund. If the Experience Refund is positive, this amount shall be
paid to the Company by the Reinsurer. If the Experience Refund is negative, the
absolute value of this amount shall be paid to the Reinsurer by the Company.
Beginning with the second accounting period that the Coinsurance Reserve is
equal to zero, if the Experience Refund is positive, then the Experience Refund
will be reduced by 10%. The Experience Refund is calculated as follows:
Premiums, in accordance with Schedule C,
PLUS: Experience Refund Investment Income in accordance with Schedule E,
MINUS: Benefits paid during the accounting period in accordance with Article VI,
MINUS: Expense Allowance, in accordance with Schedule D,
MINUS: Change in the Statutory Reserve in accordance with Schedule F,
PLUS: Change in the Coinsurance Reserve in accordance with Schedule F,
MINUS: Expense and Risk charge in accordance with Article VII,
MINUS: Loss Carry Forward at the beginning of the current accounting period
accumulated at the Modco Investment Income Interest Rate (as calculated in
Schedule E)
EQUALS: Experience Refund
ARTICLE VIII
RECAPTURE
1. Duration. The parties expressly recognize that this Agreement is an executory
contract, and agree that it will terminate automatically in the event that the
Company fails to pay any reinsurance premiums when due. In the event of this
automatic termination, the Recapture Accounting and Settlement outlined in
Article IX will apply.
2. Recapture. The Company may recapture the business reinsured hereunder at any
time after December 31, 2004 with ninety (90) days prior written notice, if
recapture will occur in the 1st, 2nd or 3rd quarter of a given year or one
hundred and twenty days (120) days prior written notice, if recapture will occur
in the 4th quarter of a given year.
3. Procedure. Recapture of reinsurance hereunder may be effected only subject to
the recapture accounting and settlement provisions described in Article IX.
ARTICLE IX
RECAPTURE ACCOUNTING AND SETTLEMENT
1. Recapture Accounting. In the event that all reinsurance under this Agreement
is recaptured in accordance with Article VIII, a recapture accounting and
settlement shall take place.
2. Date. The recapture accounting date shall be the effective date of recapture
pursuant to any notice of recapture given under this Agreement or such other
date as shall be mutually agreed to in writing.
3. Settlement. The recapture accounting and settlement shall consist of:
a) the settlements as provided in Article VII, computed as of the
recapture accounting date;
b) payment by the Company to the Reinsurer of an amount equal to the
Statutory Reserve minus the coinsurance reserve hereunder as of the
recapture accounting date; and
c) payment by the Reinsurer to the Company of a recapture
consideration equal to the US Statutory Reserve (as defined in Schedule B)
as of the recapture accounting date.
d) An additional recapture adjustment equal to the coinsurance reserve
as of the recapture date of this Agreement shall be paid by the Company to
the Reinsurer.
If the calculation of the recapture accounting and settlement produces an amount
owing to the Company, such amount shall be paid promptly by the Reinsurer to the
Company. If the calculation of the recapture accounting and settlement produces
an amount owing to the Reinsurer, such amount shall be paid promptly by the
Company to the Reinsurer.
4. Supplementary Accounting and Settlement. In the event that, subsequent to the
recapture accounting and settlement as above provided, a change is made with
respect to any amount taken into account pursuant to Article VII, a
supplementary accounting shall take place pursuant to Paragraph 3 of this
Article. Any amount owed to the Reinsurer or to the Company by reason of such
supplementary accounting shall be paid promptly upon the completion thereof.
ARTICLE X
ARBITRATION
It is the intention of the Reinsurer and the Company that the customs and
practices of the insurance and reinsurance industry will be given full effect in
the operation and interpretation of this Agreement. The parties agree to act in
all things with the highest good faith. If the Reinsurer or the Company cannot
mutually resolve a dispute which arises out of or relates to this Agreement,
however, the dispute will be decided through arbitration. The arbitrators will
base their decision on the terms and conditions of this Agreement plus, as
necessary, on the customs and practices of the insurance and the reinsurance
industry rather than solely on a strict interpretation of the applicable law;
there will be no appeal from their decision, and any court having jurisdiction
of the subject matter and the parties may reduce that decision to judgment.
To initiate arbitration, either the Company or the Reinsurer will notify the
other party by Certified Mail of its desire to arbitrate, stating the nature of
its dispute and the remedy sought. The party to which the notice is sent will
respond to the notification in writing within ten (10) days of its receipt.
There will be three arbitrators who will be current or former officers of life
insurance companies other than the contracting companies, their subsidiaries or
affiliates. Each of the contracting companies will appoint one of the
arbitrators and these two arbitrators will select the third. If either party
refuses or neglects to appoint an arbitrator within sixty (60) days, the other
party may appoint the second arbitrator. If the two arbitrators do not agree on
a third arbitrator within sixty (60) days of their appointment, each of the
arbitrators will nominate three individuals. Each arbitrator will then decline
two of the nominations presented by the other arbitrator. The third arbitrator
will then be chosen from the remaining two nominations by drawing lots.
It is agreed that each of the three arbitrators should be impartial regarding
the dispute and should resolve the dispute on the basis described in the first
paragraph of this Article. Therefore at no time will either the Company or the
Reinsurer contact or otherwise communicate with any person who is to be or has
been designated as a candidate to serve as an arbitrator concerning the dispute,
except upon the basis of jointly drafted communications provided by both the
Company and the Reinsurer to inform the arbitrators of the nature and facts of
the dispute. Likewise, any written or oral arguments provided to the arbitrators
concerning the dispute will be coordinated with the other party and will be
provided simultaneously to the other party or will take place in the presence of
the other party. Further, at no time will any arbitrator be informed that the
arbitrator has been named or chosen by one party or the other.
The arbitration hearing will be held in a place and on the date fixed by the
arbitrators. In no event will this date be later than six (6) months after the
appointment of the third arbitrator. As soon as possible, the arbitrators will
establish pre-arbitration procedures as warranted by the facts and issues of the
particular case. At least ten (10) days prior to the arbitration hearing, each
party will provide the other party and the arbitrators with a detailed statement
of the facts and arguments it will present at the arbitration hearing. The
arbitrators may consider any relevant evidence, they will give evidence such
weight as they deem it entitled to after consideration of any objections raised
concerning it. The party initiating the arbitration will have the burden of
proving its case by a preponderance of the evidence. Each party may examine any
witnesses who testify at the arbitration.
The cost of the arbitration will be shared equally by both parties unless the
arbitrators decide otherwise.
This Article shall survive termination of this Agreement.
ARTICLE XI
INSOLVENCY
In the event (i) Company comes under any supervision by a state regulator or in
the event Company shall (ii) apply for or consent in the appointment of, or the
taking of possession by, a receiver, custodian, regulator trustee or liquidator
of itself or of all or a substantial part of its assets, (iii) make a general
assignment for the benefit of its creditors, (iv) commence a voluntary case
under the Federal Bankruptcy Code, (v) file a petition seeking to take advantage
of any other law relating to bankruptcy, insolvency, reorganization or winding
up, or (vi) take any action for the purpose of effecting any of the foregoing,
or a proceeding or case shall be commenced without the application or consent of
Company in any court or forum of competent jurisdiction seeking (a) its
liquidation , reorganization, dissolution or winding-up, (b) the appointment of
a trustee, receiver, custodian, liquidator or the like of Company or of all or
any substantial part of its assets, or (c) similar relief in respect of Company
under any law relating to bankruptcy, insolvency, reorganization or winding up,
Reinsurer shall have the option, in its sole discretion, to convert this
Agreement to an Assumption Reinsurance Agreement one day prior to such
insolvency or other actions described in this Article XI, and Reinsurer may
assume all or a part of the Reinsured Policies identified in Schedule A as of
one day prior to the date thereof.
In the event of the insolvency of Company, all reinsurance that is payable
directly to the liquidator, receiver, or statutory successor of Company, shall
be without diminution or increase because of the insolvency of Company.
In the event of insolvency of Company, the liquidator, receiver, or statutory
successor shall give Reinsurer written notice of the pendency of a claim on a
policy reinsured within a reasonable time after such claim is filed in the
insolvency proceeding. During the pendency of any such claim, Reinsurer may
investigate such claim and interpose in the name of Company (its liquidator,
receiver or statutory successor), but at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses which Reinsurer
may deem available to Company or its liquidator, receiver or statutory
successor.
The expense thus incurred by Reinsurer shall be chargeable, subject to court
approval, against Company as part of the expense of liquidation to the extent of
a proportionate share of the benefit that may accrue to Company solely as a
result of the defense undertaken by Reinsurer. Where two or more reinsurers are
participating in the same claim and a majority in interest elect to interpose a
defense or defenses to any such claim, the expense shall be apportioned in
accordance with the terms of the Agreement as though such expenses had been
incurred by Company.
ARTICLE XII
SEVERABILITY
To the extent that this Agreement may be in conflict with any applicable law or
regulation, this Agreement shall be amended, at the mutual agreement of both the
Company and the Reinsurer, to the extent possible, to comply with such law and
regulation. If any term or provision of this Agreement shall be found by a court
of competent jurisdiction to be illegal or otherwise unenforceable, the same
shall not invalidate the whole of this Agreement, but such term or provision
shall be deemed modified to the extent necessary in the court's opinion to
render such term or provision enforceable, and the rights and obligations of the
parties shall be construed and enforced accordingly preserving to the fullest
permissible extent the intent and agreements of the parties set forth herein.
ARTICLE XIII
COMPLETE AGREEMENT
This Agreement shall constitute the entire agreement between the parties with
respect to the reinsurance of the business covered and there are no
understandings between the parties other than as expressed in this Agreement.
Furthermore, this Agreement may not be altered, modified or in any way amended
except by instrument in writing duly executed by the proper officials of all
parties.
ARTICLE XIV
PARTIES TO AGREEMENT
This is an agreement for indemnity reinsurance solely between the Company and
the Reinsurer. The acceptance of reinsurance hereunder shall not create any
right or legal relation whatsoever between the Reinsurer and the insured or the
beneficiary under any policy reinsured hereunder.
ARTICLE XV
ASSIGNMENT
None of the rights or obligations under this Agreement may be assigned by either
the Reinsurer or the Company, nor may the policies reinsured under this
Agreement be sold, reinsured under an agreement of assumption reinsurance, or
transferred in any other fashion without the written consent of both the Company
and the Reinsurer. Consent will not be unreasonably withheld, provided the
assignment, sale, assumption reinsurance, or transfer does not have a material
effect on the risks transferred or the economic results to the party requested
to consent. This provision shall not prohibit either party from retroceding the
insurance policies on an indemnity basis.
ARTICLE XVI
INVESTMENT OF ASSETS
The Company shall maintain all assets which support the U.S. Statutory reserve
associated with the policies described in Schedule A under this Agreement in a
trust, escrow or other special account in order to specifically identify the
assets used to support the U.S. Statutory reserve.
ARTICLE XVII
DAC TAX ARTICLE
If the Business reinsured hereunder includes for US Federal Income Tax purposes
Specified Insurance Contracts pursuant to Section 848 of the Internal Revenue
Code or the Final Income Tax Regulations thereunder, the Company and the
Reinsurer, with respect to this Agreement, agree to make the election provided
in Section 1.848-2(g)(8) of the Final Income Tax Regulations issued December 28,
1992 under Section 848 of the Internal Revenue Code of 1986. The specifics of
this election are set forth in Schedule I.
ARTICLE XVIII
EXECUTION
In witness of the above, this Agreement is signed in duplicate at the dates and
placed indicated with an effective date of October 1, 2003.
GUARANTY INCOME LIFE INSURANCE COMPANY
By: -------------------------------- Witness: ---------------------------
Title: ----------------------------- Title: -----------------------------
Date: ----------------------------- Date: -----------------------------
SECURITY NATIONAL LIFE INSURANCE COMPANY
By: -------------------------------- Witness: ---------------------------
Title: ----------------------------- Title: -----------------------------
Date: ----------------------------- Date: -----------------------------
SCHEDULE A
POLICIES AND AMOUNTS REINSURED
The proportion of the policies reinsured under this Agreement shall be a 100%
quota share of the retained amounts for all policies in force as of October 1,
2003.
The business reinsured under this Agreement is as follows:
(1) 100% of Company's Direct Traditional Life Business;
(2) 100% of Company's Direct Universal Life Business; and
(3) 100% of Company's Security Plus Deferred Annuities
Included in this contract is an authenticated compact disc containing a detailed
listing of policies reinsured hereunder. This listing shall contain policy
number, line of business, death benefit, retained amount, U.S. statutory reserve
and an Excel spreadsheet that comprises the Company's and Reinsurer's
understanding of the mechanics of this Agreement.
SCHEDULE B
INITIAL STATUTORY, MODIFIED COINSURANCE AND COINSURANCE RESERVES
And
NET PROFIT CALCULATION
(1) As of the effective date of this Agreement, the Coinsurance Reserve shall be
equal to the Initial Allowance (Article III). At the effective date of this
Agreement, the Modified Coinsurance Reserve shall be equal to the difference
between the US Statutory Reserve and the Coinsurance Reserve. US Statutory
Reserve is defined as the statutory mean reserve plus advance premiums less net
due and deferred premiums plus the claim liability on the quota share of the
reinsured policies.
(2) For each accounting period after the first accounting period after the
effective date of this Agreement, the PROFIT and NET PROFIT shall be determined
as follows:
A - Shall be equal to:
The Reinsurance Premiums received during the accounting period,
PLUS: Experience Refund Investment Income earned during the accounting
period as defined in Schedule E,
MINUS: The Allowances for expenses and percentage of premium
compensation reimbursement during the accounting period
as defined in Schedule D,
MINUS: Benefits paid during the accounting period as defined in
Article VI.
B - PROFIT shall be defined and computed as follows:
A as defined above,
MINUS: The Statutory Reserve at the end of the current accounting
period as defined in Paragraph (1) above,
PLUS: The Statutory Reserve at the beginning of the current
accounting period as defined in Paragraph (1) above.
C - NET PROFIT shall be defined and computed as follows:
If PROFIT is greater than zero, but less than the Preliminary Risk Fee (which is
equal to 1.0 % times the Coinsurance Reserve at the beginning of the current
accounting period), then the NET PROFIT is equal to zero.
Otherwise the NET PROFIT is equal to:
B as defined above,
MINUS: The Loss Carry Forward at beginning of the current period
(Schedule F, Part II).
The Coinsurance Reserve at the end of the current accounting period shall be
equal to the difference between the Statutory Reserve at the end of the current
accounting period and the Modified Coinsurance Reserve at the end of the current
accounting period. At no time shall the Coinsurance Reserve be less than zero.
SCHEDULE C
REINSURANCE PREMIUMS
The premium to be paid to the Reinsurer by the Company will be equal to the
reinsured quota share of the gross premium received by the Company corresponding
to the policies reinsured less any other reinsurance premiums net of commission
and expense allowance on the covered business.
SCHEDULE D
ADMINISTRATIVE EXPENSE ALLOWANCE
The Reinsurer shall reimburse the Company for the expenses it incurs associated
with the portion of the policies reinsured hereunder up to the following
maximums. No additional allowances will be paid to the Company by the Reinsurer
as reimbursement for these expenses.
Renewal Commission Allowance - Actual
----------------------------
Maintenance Expense Allowance - Actual up to a maximum of $1.25 per
policy per accounting period.
Taxes and Licenses Fee - Actual up to a maximum of 2.5% of gross
premium for all issues, all years.
SCHEDULE E
MODIFIED COINSURANCE INTEREST RATE AND
MODCO INVESTMENT INCOME
The Modco Interest Rate (MIR) shall be defined as follows:
MIR = 2 x (I + CG) - INVEXP
---------------------
A + B - I - C G
where:
I = the Net Investment Income on the assets held in the account, as
described in Article XVI, during the current accounting period;
A = the book value of the assets held in the account, as described in
Article XVI, at the end of the prior accounting period;
B = the book value of the assets held in the account, as described in
Article XVI, at the end of the current accounting period;
CG = is net realized and unrealized capital gains (losses), as defined
in the statutory annual statement, on the assets held in the account,
as described in Article XVI, during the current accounting period.
InvExp = .00125 (per quarter)
The Modco Investment Income for a given accounting period is equal to (1) plus
(2) where,
(1) equals the Modco Interest Rate times the Modco Reserve at the beginning of
the accounting period, and
(2) equals (a) times [(1) above - (b) + (c)], where,
(a) equals 50% times the Modco Interest Rate,
(b) equals the Benefits paid during the accounting period (Article
VI), and
(c) equals the new premium paid during the accounting period (Schedule
C).
The Experience Refund Investment Income for a given accounting period
is equal to (1) plus (2) where,
(1) equals the Modco Interest Rate times: the Statutory Reserve at the
beginning of the accounting period, minus the Coinsurance Reserve at the
beginning of the accounting period.
and
(2) equals (a) times [(1) above - (b) + (c)], where,
(a) equals 50% times the Modco Interest Rate,
(d) equals the Benefits paid during the accounting period (Article VI), and
(e) equals the new premium paid during the accounting period (Schedule C).
SCHEDULE F, PART I
COINSURANCE AND MODIFIED COINSURANCE RESERVE REPORT
QUARTERLY REPORT FOR GUARANTY INCOME LIFE INSURANCE COMPANY
FOR PERIOD ENDING _________________________________
CHANGE IN MODIFIED COINSURANCE RESERVE:
Statutory Reserve at the end of the current accounting
period ------------------
LESS: Statutory Reserve at the beginning of the current
accounting period ------------------
PLUS: Change in Coinsurance Reserve (Schedule K) ------------------
Change in Modified Coinsurance Reserve ------------------
MODIFIED COINSURANCE RESERVE:
Modified Coinsurance Reserve at the beginning of the
current period (Schedule B) ------------------
PLUS: Change in Modified Coinsurance Reserve ------------------
Modified Coinsurance Reserve at the end of the current
period ------------------
COINSURANCE RESERVE:
Statutory Reserve at the end of the current period
(Schedule B) ------------------
LESS: Modified Coinsurance Reserve at the end of the
current period ------------------
Coinsurance Reserve at the end of the period ------------------
SCHEDULE F, PART I (continued)
COINSURANCE AND MODIFIED COINSURANCE RESERVE REPORT
QUARTERLY REPORT FOR GUARANTY INCOME LIFE INSURANCE COMPANY
FOR PERIOD ENDING _________________________________
MODIFIED COINSURANCE (MODCO) RESERVE ADJUSTMENT
Change in Modified Coinsurance Reserve ------------------
LESS: Modco Investment Income (Schedule E) ------------------
Modified Coinsurance Reserve Adjustment ------------------
SCHEDULE F, PART II
LOSS CARRY FORWARD REPORT
QUARTERLY REPORT FOR GUARANTY INCOME LIFE INSURANCE COMPANY
FOR THE PERIOD ENDING -------------------
Loss Carry Forward at the end of the prior accounting
period -------------------
PLUS: Modco Interest (Schedule E) on previous items -------------------
EQUALS: Loss Carry Forward at the beginning of the current
accounting period -------------------
PLUS: Expense and Risk Charge due for accounting period
but not paid due to negative Profit (Schedule B) -------------------
LESS: Profit (Item B on Schedule B), if positive;
zero otherwise --------------------
Loss Carry Forward at the end of the current
accounting period --------------------
N.B. The Loss Carry Forward at the end of the current accounting period shall
not be less than zero.
SCHEDULE F, PART III
EXPERIENCE REFUND
QUARTERLY REPORT FOR GUARANTY LIFE INSURANCE COMPANY
FOR PERIOD ENDING -------------------
Premiums- (Schedule C) -------------------
Plus: Experience Refund Investment Income -------------------
Minus: Expense Allowance (Schedule D) -------------------
Minus: Benefits (Article VI) -------------------
Minus: Change in Statutory Reserves -------------------
Minus: Change in Coinsurance Reserves -------------------
Equals: Preliminary Experience Refund -------------------
Minus: Expense and Risk Charge
(0.01 * Coinsurance Reserve at end of accounting period) ------------------
Minus: Loss Carry Forward at beginning of the accounting
Period (Schedule F, Part II) -------------------
Equals: Experience Refund ====================
Loss Carry Forward Addition (If Experience Refund is negative,
the Loss Carry Forward Addition is the absolute value of the
Preliminary Experience Refund; else zero) --------------------
SCHEDULE F, PART IV
QUARTERLY SETTLEMENT REPORT
QUARTERLY REPORT FOR GUARANTY INCOME LIFE INSURANCE COMPANY
FOR PERIOD ENDING -------------------
Premiums (Schedule C) -------------------
PLUS: Modco Reserve Adjustment payable to the Reinsurer
(Article V) -------------------
LESS: Modco Reserve Adjustment payable to the Company
(Article V) -------------------
LESS: Expense Allowance (Schedule D) -------------------
LESS: Benefits (Article VI) -------------------
LESS: Experience Refund (Schedule F, Part III) -------------------
Net Settlement due to the Reinsurer (the Company) ===================
SCHEDULE G
POLICY EXHIBIT
Exhibit of Annuities with Life Contingencies
# Policies Annual Income
1. Outstanding at end of previous year ------------ -------------
2. Issued during the year ------------ -------------
3. Transferred from issuance account
during the year
------------ -------------
4. Totals ------------ -------------
5. Other net changes during the year ------------ -------------
6. Outstanding at end of the year ------------ -------------
Classification of Annuities with Life Contingencies
Outstanding at the End of the Period
# Policies Annual Income
7. Income, now payable ------------ -------------
8. Deferred, fully paid ------------ -------------
9. Deferred, not fully paid ------------ -------------
10. Totals ------------ -------------
NAIC Page 7 Information
Analysis of Increase in Reserves and Deposit Funds During the Year
1. Reserve, December 31 of prior year ------------ ------------
2. Tabular Net Premiums ------------ ------------
4. Tabular Interest ------------ ------------
5. Tabular less Actual Reserve Released ------------ ------------
11. Reserve Released by Other Termination (net) ---------- ------------
12. Annuity Benefits ------------ ------------
15. Reserve, December 31 of current year ------------ ------------
SCHEDULE H, PART I
QUARTERLY STATUTORY REPORTING
1. Initial Reinsurance Premium (first period only)
2. Annual Reinsurance Premiums
3. Initial Expense Allowance (first year only)
4. Renewal Expense Allowance
5. Cash Surrenders, Withdrawals
6. Death Benefits
7. Annuity Benefits
8. State Premium Taxes
9. Modified Coinsurance Reserve, Beginning of Period
10. Modified Coinsurance Reserve, End of Period
11. Interest on Modified Coinsurance Reserve
12. Reserve Adjustment [(10) - (9) - (11)]
13. Expense and Profit Charge
SCHEDULE H, Part II
ANNUAL STATUTORY REPORTING
All references in the table below are to the Company's annual statement as filed
with the department of insurance in the Company's state of domicile.
Exhibit/Schedule Title
Analysis of Increase in Reserves
5 Aggregate Reserves
5A Changes in Bases of Valuation
8, Part 1,2 Policy and Contract Claims
(Liability End of Year and Incurred
During Year)
Exhibit of Life Insurance
X-Xxxx 0X, Xxxxxxx 0 Reinsurance Assumed on Life Insurance
In addition, the Company shall provide the Reinsurer with a Statement of
actuarial opinion, certifying as to the adequacy of the reserves being held by
Company with regards to the business reinsured (Schedule A).
SCHEDULE I, PART I
DAC TAX ADJUSTMENT
The Company and the Reinsurer hereby agree to the following pursuant to Section
1.848-2(g)(8) of the Income Tax Regulations issued December 28, 1992, under
Section 848 of the Internal Revenue Code of 1986, as amended. This election
shall be effective for 2003 for all subsequent taxable years for which this
Agreement remains in effect.
1. The term "party" will refer to either the Company or the Reinsurer as
appropriate.
2. The terms used in this Article are defined by reference to Regulation
Section 1.848-2 in effect December 28, 1992.
3. The party with the net positive consideration for this Agreement for each
taxable year will capitalize specified policy acquisition expenses with
respect to this Agreement without regard to the general deductions
limitation of Section 848(c)(1).
4. Both parties agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency or as
otherwise required by the Internal Revenue Service.
5. The Company upon the approval of the Reinsurer will submit a schedule
(Schedule I, Part III) to the Reinsurer by May 1 of each year of its
calculation of the net consideration for the preceding calendar year. This
schedule of calculations will be accompanied by a statement signed by an
officer of the Company stating that the Company will report such net
consideration in its tax return for the preceding calendar year.
6. The Reinsurer may contest such calculation by providing an alternative
calculation to the Company in writing within thirty (30) days of the
Reinsurer's receipt of the Company's calculation. If the Reinsurer does not
so notify the Company, the Reinsurer will report the net consideration as
determined by the Company in the Reinsurer's tax return for the previous
calendar year.
7. If the Reinsurer contests the Company's calculation of the net
consideration, the parties will act in good faith to reach an agreement as
to the correct amount within thirty (30) days of the date the Reinsurer
submits its alternative calculation. If the Company and the Reinsurer reach
agreement on an amount of net consideration, each party shall report such
amount in their respective tax returns for the previous calendar year.
8. The Reinsurer shall complete the Reinsurance Questionnaire (Schedule I,
Part II) and submit it to the Company with the information required by
Schedule I, Part III.
GUARANTY INCOME LIFE INSURANCE COMPANY
By:
---------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
SECURITY NATIONAL LIFE INSURANCE COMPANY
By:
---------------------------------------
Title:
------------------------------------
Date: _______________________________
SCHEDULE I, PART II
REINSURANCE QUESTIONNAIRE
Reinsurance Questionnaire for Federal Income Tax Determinations
The purpose of this questionnaire is to secure sufficient information to allow
the Company to account properly under the federal income tax rules for the
reinsurance transactions it has with the Reinsurer. Please provide the Company
with the following information:
1. Are you either:
A. company that is subject to US taxation directly under the provisions of
subchapter L of chapter 1 of the Internal Revenue Code (i.e., an insurance
company liable for filing Form 1120L or Form 1120-PC), or
Answer: X Yes ____ No
B. company that is subject indirectly to US taxation under the provisions of
subpart F of subchapter N of chapter 1 of the Internal Revenue Code, (i.e.,
a "controlled foreign corporation" with the meaning of Internal Revenue
Code ss. 957).
Answer: ____Yes X No
2. If your answer to 1. above is no, have you entered into a closing agreement
with the Internal Revenue Service to be subject to US taxation with respect
to reinsurance income pursuant to Treasury Regulation ss.1.848-2(h) (2)(ii)
(B)?
Answer: ____Yes ____ No
(if your answer is yes, please provide a copy of the closing agreement).
Security National Life Insurance Company
Signed by: -----------------------------------------------------
Title: -----------------------------------------------------
Date: -----------------------------------------------------
SCHEDULE I, PART III
DAC TAX EXHIBIT
DAC TAX CAPITALIZED AMOUNTS
FOR THE YEAR ENDING -----------------------------------------------------
ON REINSURANCE CEDED TO -----------------------------------------------
GROSS BASIS:
TYPE CF TREATY GROSS PREMIUM CAPITALIZED AMOUNT
-------------- ------------- ------------------
FULL NETTING BASIS:
TYPE OF POLICY CAPITALIZED
TREATY PREMIUM ALLOWANCES CLAIMS BENEFITS AMOUNT
------ ------- ---------- ------ -------- ------
Coinsurance
Modco
TOTAL CAPITALIZED AMOUNTS ON A FULL NETTING BASIS: -------------------------
To be reported in conformity with Section 848 of the Internal Revenue Code
Signed By: -----------------------------------------------------
Title: -----------------------------------------------------
Signature: -----------------------------------------------------
Date: -----------------------------------------------------
SCHEDULE J
TRUST AGREEMENT
SCHEDULE K
CHANGE IN COINSURANCE RESERVE
Quarterly Report for GUARANTY LIFE INSURANCE COMPANY
For Period Ending -------------------
If the Coinsurance Reserve at the beginning of the
accounting period is equal to $0, Change in Coinsurance
Reserve is equal to zero. _______________
a. Coinsurance Reserve at the beginning
of accounting period _______________
b. Net Profit (Schedule B), if positive: else, zero _______________
c. Minimum Coinsurance Reserve at the end of the
accounting period _______________
d. [c - a] _______________
If the Coinsurance Reserve at the beginning of
the accounting period is positive, the change
in Coinsurance Reserve is equal to the lesser
of b and d ________________
Memorandum Account as of 12/31/07 ----------------
At the end of the accounting period ending 12/31/07, the Memorandum Account will
be used to reduce the Coinsurance Reserve, but not less than zero.
Change in Coinsurance Reserve for the period -----------------
MINIMUM COINSURANCE RESERVE:
Minimum Coinsurance Reserve at the beginning of the
accounting period ________________
LESS: Quarterly Amortization $200,000.00
-----------
Minimum Coinsurance Reserve at the end of the
Accounting period _____________
MEMORANDUM ACCOUNT
Memorandum Account at the beginning of the
accounting period ______________
PLUS: If b is greater than d, then b minus d ______________
Memorandum Account at the end of the
accounting period ______________
