Exhibit 7(c)
Automatic Coinsurance Agreement
Between
American Skandia Life Assurance Corporation
of Shelton, Connecticut, U.S.A.
(Reinsured referred to as you, your or Reinsured)
and
The Prudential Insurance Company of America
of Newark, New Jersey, U.S.A.
(referred to as the Reinsurer)
Final Execution Version/ASLAC
TABLE OF CONTENTS
ARTICLE I 3
Automatic Reinsurance 3
ARTICLE II 3
Liability 3
ARTICLE III 4
Plan and Amount of Insurance 4
ARTICLE IV 4
Reinsurance Premiums 4
ARTICLE V 4
Payments by Reinsurer 4
ARTICLE VI 4
Reporting and Cash Settlement 4
ARTICLE VII 5
Deposits on the Reserves 5
ARTICLE VIII 5
Account Payable Liability and Reserve Basis 5
ARTICLE IX 6
General Provisions 6
ARTICLE X 7
DAC Tax Agreement 7
ARTICLE XI 8
Recapture 8
ARTICLE XII 9
Arbitration 9
ARTICLE XIII 9
Duration of Agreement 9
ARTICLE XIV 10
Entire Agreement 10
ARTICLE XV 11
Execution 11
SCHEDULE A 12
Business Reinsured 12
SCHEDULE B 13
Monthly Settlement Report 13
SCHEDULE C 14
Monthly Business Management Report 14
SCHEDULE D 15
Annual Report 15
The Reinsured and the Reinsurer mutually agree to reinsure on the terms and
conditions set out below.
ARTICLE I
Automatic Reinsurance
1. Insurance. The Reinsured will cede and the Reinsurer will accept as
reinsurance the underlying benefit provided by the Life Time 5 Withdrawal
Benefit (LT5WB) riders on contracts written by the Reinsured as shown in
Schedule A or any amendments thereto up to $225 million in initial premiums.
Business reinsured excludes any LT5WB riders issued after the date that the
total initial premiums for the contracts associated with reinsured LT5WB
riders reach $225 million.
2. Coverages. The underlying rider may be attached to any deferred annuity
contract written by the Reinsured and were first eligible for issuance on
the dates specified in Schedule A. Reinsurance under this Agreement will be
provided for the LT5WB riders while such riders are in effect on the
associated contracts.
ARTICLE II
Liability
1. Liability. The liability of the Reinsurer on any reinsurance under this
Agreement begins upon the effective date of this Agreement as set forth in
Article XV, Execution, and ends after all underlying contracts associated
with the reinsured LT5WB rider have been terminated or the business
reinsured is otherwise recaptured or terminated. The liability of the
Reinsurer to the Reinsured under this Agreement will be the remaining LT5WB
obligation to any covered contractholder after the associated contract's
account value has been reduced to zero.
2. The liability of the Reinsurer will be settled and paid to the Reinsured
monthly on the basis of the monthly reports prepared by the Reinsured in the
form of Schedule B. Payment of any amount due to be paid by the Reinsurer or
the Reinsured will be determined on a net basis and will be paid within 5
business days after receipt of the monthly report.
3. This is a contract solely between the Reinsured and the Reinsurer. The
obligations under this contract of the Reinsurer are solely to the Reinsured
and those of the Reinsured solely to the Reinsurer.
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ARTICLE III
Plan and Amount of Insurance
1. Plan. Reinsurance under this Agreement will be on the coinsurance basis in
accordance with the underlying LT5WB rider issued by the Reinsured and
listed on Schedule A while such riders are in effect on the associated
contract.
2. Reduction and Terminations. If any LT5WB rider is terminated or any of the
underlying contracts associated with the rider reinsured under this
Agreement are terminated by payment of a death benefit, surrender or
annuitization, the reinsurance with respect to that contract will be
terminated subject to any party's right to payment under this Agreement with
respect to such terminated rider.
ARTICLE IV
Reinsurance Premiums
1. The initial premium due the Reinsurer by the Reinsured for the period since
first issuance of the LT5WB riders through May 5, 2005 will be equal to the
statutory reserves that are held by the Reinsured for the LT5WB riders
described in Schedule A as of April 30, 2005.
2. After May 1, 2005, the Monthly Premium due the Reinsurer by the Reinsured
with respect to each contract associated with a reinsured rider is specified
in Schedule B or any amendments thereto.
ARTICLE V
Payments by Reinsurer
Benefits. The Reinsurer will pay the Reinsured the remaining obligation under
the LT5WB rider after permitted withdrawals have reduced the associated
contract's account value to zero.
ARTICLE VI
Reporting and Cash Settlement
1. The Reinsured will provide the Reinsurer with information necessary to
properly account for the business reinsured.
2. Not later than ten (10) business days after the end of each month, the
Reinsured will submit a report substantially in accordance with Schedule B.
The Reinsured agrees to provide or make available to the Reinsurer such
documentation as may be necessary to support the items reported.
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3. Not later than ten (10) business days after the end of each month, the
Reinsured will submit a report substantially in accordance with Schedule C.
4. Not later than ten (10) business days after the end of each calendar year,
the Reinsured will submit a report substantially in accordance with Schedule
D.
5. The Reinsurer and the Reinsured shall consider any balance due and unpaid,
whether on account of premiums, allowances, losses or claims expenses, to be
mutual debits or credits under this Agreement and will offset, if permitted
under the applicable law. Only the balance will be considered in determining
the liability of the Reinsurer.
6. Cash settlement of balances due between Reinsured and Reinsurer will be made
within five (5) business days of receipt of Schedule B each month.
7. The Reinsurer may contest any calculation contained in a report from the
Reinsured by providing an alternative calculation to the Reinsured in
writing within 30 days of the Reinsurer's receipt of the Reinsured's
calculation. If the Reinsurer does not so notify the Reinsured, the
Reinsured may consider the reports final.
If the Reinsurer contests the Reinsured's calculation, the parties will act
in good faith to reach an agreement as to the correct amount within 30 days
of the date the Reinsurer submits its alternative calculation. If the
Reinsured and the Reinsurer do not reach agreement on the calculation within
such 30-day period, then the calculation shall be determined by an
independent accounting firm or other independent third party acceptable to
both the Reinsured and the Reinsurer within 20 days after the expiration of
such 30-day period.
8. Cash settlement of the initial premium due the Reinsurer by the Reinsured
described in Article IV(1) of this Agreement will be made within fifteen
(15) business days of the effective date of this Agreement.
ARTICLE VII
Deposits on the Reserves
The Reinsurer will hold reserves as required by the relevant regulatory bodies
for the benefit covered.
ARTICLE VIII
Reserve Basis
The Statutory Reserve will be calculated by the Reinsured according to the
"Commissioner's Annuity Reserve Valuation Method" as prescribed in the Standard
Valuation Law.
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ARTICLE IX
General Provisions
1. Reinsurance Conditions. The reinsurance is subject to the same limitations
and conditions as the LT5WB rider written by the Reinsured on which the
reinsurance is based.
2. Expenses. In no event will the Reinsurer have any liability for any
extra-contractual damages which are rendered against the Reinsured as a
result of acts, omissions or course of conduct committed by the Reinsured in
connection with the annuity contracts reinsured under this Agreement. In no
event will the Reinsured have any liability for extra-contractual damages
against the Reinsurer as a result of acts, omissions, or course of conduct
committed by the Reinsurer in connection with the reinsurance of the LT5WB
riders under this Agreement.
3. Oversights. If failure to pay any premium due or to perform any other act
required by this Agreement is unintentional and is caused by
misunderstanding or oversight, the Reinsured and the Reinsurer will adjust
the situation to what it would have been had the misunderstanding or
oversight not occurred.
4. Inspection. At any reasonable time, the Reinsurer and the Reinsured may
inspect the original papers and any other books or documents at the Home
Office of the other relating to or affecting reinsurance under this
Agreement.
It is mutually agreed by the Reinsured and the Reinsurer that any
information that is made available for inspection under this section of the
Agreement will be kept confidential and under no circumstances may this
information be disclosed to, or made available for inspection by, any third
party without the prior consent of the other contracting party.
5. Assignment or transfer. In no event will either the Reinsured or the
Reinsurer assign any of its rights, duties and or obligations under this
Agreement without the prior written approval of the other party. Such
approval will not unreasonably be withheld.
In no event will either the Reinsured or the Reinsurer transfer either the
underlying insurance contracts reinsured under this Agreement or the
reinsurance without the prior written approval of the other party. Such
approval will not unreasonably be withheld.
6. If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will
not be affected thereby. This Agreement will be construed in accordance with
the applicable federal law and the laws of the State of Connecticut.
7. Premium Taxes. The Reinsurer will not be liable for premium taxes.
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8. Insolvency. In the event of the declared insolvency of the Reinsured, and
the appointment of a domiciliary liquidator, receiver, conservator or
statutory successor for the Reinsured, this reinsurance will be payable
immediately upon demand, with reasonable provision for verification,
directly to the Reinsured or its domiciliary liquidator, receiver, or
conservator or statutory successor, on the basis of the liability of the
Reinsured without diminution because of the insolvency of the Reinsured or
because the liquidator, receiver, conservator or statutory successor of the
Reinsured has failed to pay all or a portion of any claim.
Every liquidator, receiver, conservator or statutory successor of the
Reinsured or guaranty fund or association will give written notice to the
Reinsurer of the pendency of a claim involving the Reinsured indicating
which of the underlying insurance contracts would involve possible liability
on the part of the Reinsurer to the Reinsured or its domiciliary liquidator,
receiver, conservator or statutory successor, within a reasonable amount of
time after the claim is filed in the conservation, liquidation, receivership
or other proceeding.
During the pendency of any claim, the Reinsurer may investigate the same and
interpose, at its own expense, in the proceeding where that claim is to be
adjudicated, any defense or defenses that it may deem available to the
Reinsured, to its contract owner, or to any liquidator, receiver or
statutory successor of the Reinsured or guaranty fund or association. The
expenses thus incurred by the Reinsurer will be chargeable, subject to
approval of the applicable court, against the Reinsured as part of the
expense of conservation or liquidation to the extent of a pro rata share of
the benefit which may accrue to the Reinsured as a result of the defense
undertaken by the Reinsurer.
This reinsurance will be payable directly to the Reinsured or to its
domiciliary liquidator, receiver, conservator or statutory successor, except
as expressly required otherwise by applicable insurance law.
9. Insolvency of the Reinsurer. In the event of the insolvency, bankruptcy,
receivership, rehabilitation or dissolution of the Reinsurer, the Reinsured
may retain all or any portion of any amount then due or which may become due
to the Reinsurer under this Agreement and use such amounts for the purposes
of paying any and all liabilities of the Reinsurer incurred under this
Agreement. When all such liability hereunder has been discharged, the
Reinsured will pay the Reinsurer, its successor or statutory receiver, the
balance of such amounts withheld as may remain.
ARTICLE X
DAC Tax Agreement
1. The Reinsured and the Reinsurer, herein collectively called the "Parties",
or singularly the "Party", hereby enter into an election under Treasury
Regulations Section 1.848-2(g) (8) as promulgated under the Internal Revenue
Code, as found in Title 26 of the United States Code, hereinafter referred
to as the Regulations and the IRC. Both parties agree to
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make the election contemplated by this Section 14 by timely attaching to
their U.S. tax returns the schedule contemplated by
Section 1.848-2(g)(8)(ii) of the Regulations. Furthermore, the parties agree
to the following:
a. For each taxable year under this Agreement, the party with the net
positive consideration, as defined in the Regulations, will capitalize
specified policy acquisition expenses with respect to this Agreement
without regard to the general deductions limitation of Section 848
(c) (1);
b. The Reinsured and the Reinsurer agree to exchange information pertaining
to the net consideration under this Agreement each year to insure
consistency or as otherwise required by the U.S. Internal Revenue
Service;
c. The Reinsured will submit to the Reinsurer by May 1 of each year its
calculation of the net consideration for the preceding calendar year.
d. The Reinsurer may contest such calculation by providing an alternative
calculation to the Reinsured in writing within 30 days of the
Reinsurer's receipt of the Reinsured's calculation. If the Reinsurer
does not so notify the Reinsured, the Reinsurer will report the net
consideration as determined by the Reinsured in the Reinsurer's tax
return for the previous calendar year;
e. If the Reinsurer contests the Reinsured's calculation of the net
consideration, the parties will act in good faith to reach an agreement
as to the correct amount within 30 days of the date the Reinsurer
submits its alternative calculation. If the Reinsured and the Reinsurer
do not reach agreement on the net amount of consideration within such
30-day period, then the net amount of consideration for such year shall
be determined by an independent accounting firm acceptable to both the
Reinsured and the Reinsurer within 20 days after the expiration of such
30-day period.
f. The Reinsured and the Reinsurer agree that this election shall first be
effective for the 2005 calendar tax year and will be effective for all
subsequent taxable years for which this Agreement remains in effect.
The Reinsurer and the Reinsured represent and warrant that they are subject
to U.S. taxation under either Subchapter L of Chapter 1, or Subpart F of
Subchapter N of Chapter 1 of the IRC of 1986, as amended.
ARTICLE XI
Recapture
The business reinsured under this Agreement will not be eligible for recapture,
except through mutual agreement of both parties.
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ARTICLE XII
Arbitration
1. Any controversy or claim arising out of or relating to this Agreement will
be settled by arbitration.
2. There must be three arbitrators who will be active, prior or retired
officers of life insurance companies other than the contracting companies or
their subsidiaries or affiliates. Each of the contracting companies will
appoint one of the arbitrators and these two arbitrators will select the
third.
In the event either contracting company fails to choose an arbitrator within
thirty (30) days after the other contracting company has given written
notice of its arbitrator appointment, the contracting company which has
given written notice may choose two arbitrators who will in turn choose a
third arbitrator before entering arbitration. If the two arbitrators are
unable to agree upon the selection of a third arbitrator within thirty
(30) days following their appointment, each arbitrator will nominate three
candidates within ten (1) days thereafter, and the final selection will be
made a court of competent jurisdiction from among the submitted names (three
each) or any other persons the court finds to be a qualified and impartial
arbitrator.
3. With regard to (2) above, arbitration must be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association
that will be in effect on the date of delivery of demand for arbitration.
4. Each contracting company will pay its arbitrator and its arbitration
expenses and the two companies will share equally the third arbitrator's
expenses.
5. The award agreed by the arbitrators will be final and binding upon the
parties, and judgment may be entered upon it in any court having
jurisdiction.
ARTICLE XIII
Duration of Agreement
1. This Agreement may be terminated with respect to new insurance contracts at
any time by either company giving ninety (90) days' written notice of
termination. The day the notice is deposited in the mail addressed to the
Home Office or to an Officer of either company will be the first day of the
ninety (90) day period.
2. During the ninety (90) day period, this Agreement will continue to remain in
force.
3. After termination, the Reinsurer and the Reinsured will remain liable for
all reinsurance that became effective prior to the termination of the
Agreement.
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ARTICLE XIV
Entire Agreement
This Agreement including any schedules and Amendments will constitute the
entire agreement between the parties with respect to the business being
reinsured hereunder. There are no understandings between the parties other than
as expressed in this Agreement. Any change or modification to this Agreement
will be null and void unless made by amendment to this Agreement and signed by
both parties.
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ARTICLE XV
Execution
In witness of the above, this Agreement is signed in duplicate on the execution
dates and places indicated and will be effective as of May 6, 2005.
AMERICAN SKANDIA LIFE
ASSURANCECORPORATION
At
On:
-------------------------
Signature:
-------------------------
By:
-------------------------
Title:
-------------------------
THE PRUDENTIAL INSURANCE COMPANYOF
AMERICA
At
On:
-------------------------
Signature:
-------------------------
By:
-------------------------
Title:
-------------------------
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SCHEDULE A
Business Reinsured
Form Name and Type Issue Dates Form Number
1. ---------------------- --------------- --------------
LT5WB Riders 3/15/05-5/05/05 RID-WB (11/04)
Issued on new business SCH-WB (11/04)
2. Claims arising under the LT5WB rider are equal to the remaining LT5WB rider
benefits under the contract after permitted withdrawals have reduced the
contract's account value to zero, paid as due to the extent that the LT5WB
benefit is greater than the benefit under the base contract or other riders
attached to the contract.
3. A prototype of the LT5WB Rider Form is attached.
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SCHEDULE B
Monthly Settlement Report
A. Due Reinsurer
60 basis points annualized. For the May 2005 monthly settlement report, the
monthly equivalent of the annualized fee will be applied to the sum of 1/2
of the Variable Account balances for all contracts covered under this
Agreement as of April 30, 2005 and 1/2 of the Variable Account balances for
all contracts covered under this Agreement as of May 31, 2005.
Beginning with the June monthly settlement report, after the end of each
month the monthly equivalent of this fee will be applied to the sum of 1/2
of the Variable Account balances for all contracts covered under this
Agreement as of the last business day of such month reported and 1/2 of the
Variable Account balances for all contracts covered under this Agreement as
of the last business day of the preceding month.
B. Due Reinsured
Any claim associated with the LT5WB benefit as defined in the rider.
C. Balance During the Period = A- B
. If positive, the balance is due to be paid by the Reinsured.
. If negative, the absolute value of the balance due is paid by the
Reinsurer
The above information will be provided by the Reinsured on an aggregate
basis. The individual insurance contract data will be available to the
Reinsurer on a computer tape, diskette or appropriate electronic media upon
request.
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SCHEDULE C
Monthly Business Management Report
A. Informational Reports
1. Reserve Report showing the statutory reserves, Account Values and
Surrender Value.
2. Production report with premiums (split by initial and additional
premiums) and contract counts, including the number of insurance
contracts in force at the beginning and at the end of the month.
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SCHEDULE D
Annual Report
The annual report will provide the following information:
"Exhibit of Number of Policies, Contracts and Certificates for Annuities":
from the NAIC-prescribed annual statement.
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