EXHIBIT A
FUNDS WITHHELD COINSURANCE AND MODIFIED COINSURANCE AGREEMENT
by and between
FORETHOUGHT LIFE INSURANCE COMPANY
(the "CEDING COMPANY")
and
COMMONWEALTH ANNUITY AND LIFE INSURANCE COMPANY
(the "REINSURER")
Dated [-], 2015
TABLE OF CONTENTS
PAGE
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ARTICLE I DEFINITIONS AND INTERPRETATION 1
SECTION 1.1. DEFINITIONS 1
SECTION 1.2. INTERPRETATION 6
ARTICLE II EFFECTIVE DATE 7
SECTION 2.1. EFFECTIVE DATE 7
ARTICLE III BUSINESS REINSURED; OTHER REINSURANCE TREATIES; INFORMATION; GUARANTY FUND ASSESSMENTS 7
SECTION 3.1. FUNDS WITHHELD COINSURANCE 7
SECTION 3.2. MODIFIED COINSURANCE 7
SECTION 3.3. INITIAL CONSIDERATION 7
SECTION 3.4. FOLLOW THE FORTUNES 10
SECTION 3.5. INFORMATION; AUDITS 10
SECTION 3.6. CONFIDENTIAL INFORMATION 11
SECTION 3.7. OTHER REINSURANCE TREATIES 11
SECTION 3.8. NON-GUARANTEED ELEMENTS; ECONOMIC RESERVES 11
SECTION 3.9. PREMIUM TAXES AND GUARANTY FUND ASSESSMENTS 12
SECTION 3.10. HARTFORD AGREEMENT 12
ARTICLE IV FUNDS WITHHELD ACCOUNT; CREDIT FOR REINSURANCE FOR GENERAL ACCOUNT LIABILITIES 13
SECTION 4.1. FUNDS WITHHELD ACCOUNT 13
SECTION 4.2. CREDIT FOR REINSURANCE 14
ARTICLE V PAYMENT AND REINSURANCE ACCOUNTING 15
SECTION 5.1. ADJUSTMENTS FOR OTHER REINSURANCE 15
SECTION 5.2. ADJUSTMENTS TO FUNDS WITHHELD ACCOUNT 15
SECTION 5.3. SEPARATE ACCOUNTS 15
ARTICLE VI REPORTS; SETOFF RIGHTS 15
SECTION 6.1. PERIODIC REPORTS 15
SECTION 6.2. PERIODIC SETTLEMENTS 15
SECTION 6.3. OFFSETS 16
ARTICLE VII REPRESENTATIONS, WARRANTIES AND COVENANTS 16
SECTION 7.1. REPRESENTATIONS AND WARRANTIES OF THE CEDING COMPANY 16
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SECTION 7.2. REPRESENTATIONS AND WARRANTIES OF THE REINSURER 16
ARTICLE VIII ADMINISTRATION; EXPENSE ALLOWANCE 17
SECTION 8.1. ADMINISTRATION AND EXPENSE ALLOWANCES 17
ARTICLE IX TAXES 17
SECTION 9.1. TAX STATUS 17
SECTION 9.2. POLICY ACQUISITION EXPENSES 17
ARTICLE X INSOLVENCY 18
SECTION 10.1. INSOLVENCY OF CEDING COMPANY 18
SECTION 10.2. INSOLVENCY OF REINSURER 19
ARTICLE XI ARBITRATION 19
SECTION 11.1. AGREEMENT TO ARBITRATE 19
SECTION 11.2. INITIATION OF ARBITRATION 19
SECTION 11.3. APPOINTMENT OF ARBITRATION PANEL 19
SECTION 11.4. LOCATION OF ARBITRATION 19
SECTION 11.5. ARBITRATION AWARD 19
SECTION 11.6. WAIVER OF JURY TRIAL 20
ARTICLE XII OVERSIGHTS, ERRORS AND OMISSIONS 20
ARTICLE XIII TERMINATION 20
SECTION 13.1. DURATION 20
SECTION 13.2. TERMINATION 20
SECTION 13.3. SETTLEMENT UPON TERMINATION 21
ARTICLE XIV INDEMNIFICATION 21
SECTION 14.1. REINSURER'S OBLIGATION TO INDEMNIFY 21
SECTION 14.2. CEDING COMPANY'S OBLIGATION TO INDEMNIFY 21
ARTICLE XV MISCELLANEOUS 21
SECTION 15.1. CURRENCY 21
SECTION 15.2. NOTICES 22
SECTION 15.3. AMENDMENTS; WAIVER 22
SECTION 15.4. SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES 22
SECTION 15.5. DUTY OF COOPERATION 23
SECTION 15.6. GOVERNING LAW 23
SECTION 15.7. ENTIRE AGREEMENT 23
SECTION 15.8. SEVERABILITY 23
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SECTION 15.9. COUNTERPARTS 23
INDEX OF SCHEDULES
Schedule 1.1A - Expense Allowance
Schedule 1.1B - Policy Forms Constituting the FLIC Contracts / Quota Share
Schedule 3.3 - Initial Consideration
INDEX OF EXHIBITS
Exhibit A - Form of Periodic Report
INDEX OF ANNEXES
Annex A - Hartford Agreement
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FUNDS WITHHELD COINSURANCE AND MODIFIED COINSURANCE AGREEMENT
This Funds Withheld Coinsurance and Modified Coinsurance Agreement
(together with the Schedules and Exhibits hereto, this "AGREEMENT"), dated as of
[-], 2015, is made by and between FORETHOUGHT LIFE INSURANCE COMPANY, a life
insurance company domiciled in the State of Indiana (together with its
successors and assigns, the "CEDING COMPANY" or "FLIC"), COMMONWEALTH ANNUITY
AND LIFE INSURANCE COMPANY, a life insurance company domiciled in the
Commonwealth of Massachusetts (together with its successors and assigns, the
"REINSURER" or "CWA").
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS. The following terms, when used in this
Agreement, shall have the meanings set forth in this Section 1.1. The terms
defined below shall be deemed to refer to the singular or plural, as the context
requires.
(a) "AFFILIATE" of any Person means another Person that directly or
indirectly controls, is controlled by, or is under common control with, such
first Person, where "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management policies of a
Person, whether through the ownership of voting securities, by contract, as
trustee or executor, or otherwise (except as a result of an office or other
official position).
(b) "AGREEMENT" shall have the meaning set forth in the recitals.
(c) "APPLICABLE LAW" means any federal, state, local or foreign law
(including common law), statute, ordinance, rule, regulation, order, writ,
injunction, judgment, permit, governmental agreement or decree applicable to a
Person or any of such Person's subsidiaries, properties, assets, or to such
Person's officers, directors, managing directors, employees or agents in their
capacity as such.
(d) "BUSINESS DAY" means a Monday, Tuesday, Wednesday, Thursday, or
Friday on which banking institutions in the State of Indiana or the Commonwealth
of Massachusetts are not obligated by Applicable Law to close.
(e) "CEDING COMPANY" shall have the meaning set forth in the
preamble.
(f) "CEDING COMPANY INDEMNITEES" shall have the meaning set forth in
Section 14.1.
(g) "CHARGED PREMIUM TAXES AND ASSESSMENTS" shall have the meaning
set forth in Section 3.9.
(h) "CODE" means the Internal Revenue Code of 1986, as from time to
time amended.
(i) "COLLATERAL DATE" means, in respect of any quarter, the day
which is forty-five days following the end of such quarter or if not a Business
Day, the next succeeding Business Day.
(j) "COMMISSION ALLOWANCE" means, as of the Effective Date, an
annual amount equal to the Reinsurer's Quota Share of compensation (including
both up front and trail commissions) with respect to the FLIC Contracts to or
for the benefit of the distributors who marketed or produced the FLIC Contracts.
(k) "DISTRIBUTOR" means Xxxxxx Xxxxxxx Wealth Management or any of
its Affiliates or employees.
(l) "ECONOMIC RESERVES" means the CWA Economic Reserves as defined
in the Retrocession Agreement.
(m) "EFFECTIVE DATE" means 11:59 p.m. (Eastern Time) on December 31,
2015.
(n) "ESTIMATED INITIAL REINSURANCE PREMIUM" shall have the meaning
set forth in Section 3.3(b).
(o) "ESTIMATED INITIAL REINSURANCE PREMIUM STATEMENT" shall have the
meaning set forth in Section 3.3(b).
(p) "EXPENSE ALLOWANCE" means an amount determined in accordance
with Schedule 1.1A. For the avoidance of doubt, the Expense Allowance includes
any marketing allowances.
(q) "EXTRA CONTRACTUAL OBLIGATIONS" means all liabilities,
obligations and expenses relating to the FLIC Contracts (other than those
arising under the express terms and conditions, and within the limits, of the
FLIC Contracts), whether to contractholders, certificate holders, sponsors,
insureds, producers, agents, brokers, Governmental Entities or any other Person,
which shall include (A) any liability for damages or claims in excess of
applicable policy limits, (B) any liability for statutory or regulatory fines,
damages, penalties, forfeitures or similar charges of a penal or disciplinary
nature, (C) any payment to the Internal Revenue Service or any other Person
resulting from or attributable to any act or omission of the Ceding Company
(including errors of product design, language, or administration, or inaccurate
or incomplete data maintained in books and records) resulting in non-compliance
of any FLIC Contract with the requirements of the Code and (D) any liability for
punitive, consequential, tort, bad faith, exemplary, special, treble or any
other form of extra contractual damages which arises from any act, error or
omission, whether or not intentional, in bad faith or otherwise, including any
act, error or omission relating to (1) the form, marketing, underwriting,
production, issuance, cancellation or administration of the FLIC Contracts, (2)
the investigation, defense, trial, settlement or handling of claims, benefits,
distributions, disbursements or any other payments arising out of or relating to
the FLIC Contracts or (3) the payment of claims, benefits, distributions,
disbursements or any other amounts due or alleged to be due under or in
connection with the FLIC Contracts.
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(r) "FH LIABILITIES" shall mean the liabilities and obligations of
FLIC under the Hartford Agreement.
(s) "FINAL INITIAL REINSURANCE PREMIUM" shall have the meaning set
forth in Section 3.3(b).
(t) "FLIC CONTRACTS" means the variable annuity contracts (including
any riders and endorsements) which (i) have been issued by the Ceding Company on
the policy forms listed on Schedule 1.1B on or before the Effective Date or (ii)
are issued by the Ceding Company following the Effective Date (x) on the policy
forms listed on Schedule 1.1B, which Schedule 1.1B may be updated from time to
time by the Ceding Company, with the consent of the Reinsurer which shall not be
unreasonably withheld, delayed or conditioned, and (y) pursuant to the
underwriting standards, procedures and guidelines in effect as of the Effective
Date, with such changes thereto as are consented to by the Reinsurer (such
consent not to be unreasonably withheld, delayed or conditioned); PROVIDED that
in either case of (i) or (ii), FLIC Contracts shall not include contracts for
which the Distributor acts or acted as the sales agent at the time of issuance
of such contracts; PROVIDED FURTHER, HOWEVER, that the above proviso shall no
longer be operative upon any termination of the FLIC MS Agreement.
(u) "FLIC DETERMINATIONS AND CONSENTS" shall have the meaning set
forth in Section 3.10(b).
(v) "FLIC GENERAL ACCOUNT" means all assets of the Ceding Company
supporting the FLIC Liabilities, other than assets in Separate Accounts
maintained by the Ceding Company, as determined in accordance with SAP.
(w) "FLIC GENERAL ACCOUNT RESERVES" means, as of a date, the amount
of reserves as of such date corresponding to the FLIC Liabilities (other than
such liabilities payable out of a Separate Account), such amount as determined
by the Ceding Company in accordance with SAP, including (A) FLIC Liabilities for
policy and contract claims whether known or unknown (other than such liabilities
payable out of a Separate Account) and (B) amounts left on deposit. For the
avoidance of doubt, FLIC General Account Reserves includes provision under SAP
for guaranteed minimum death and living benefits and other general account
riders. FLIC General Account Reserves include the effect of Commissioner's
Annuity Reserve Valuation Method SA Expense Allowance.
(x) "FLIC LIABILITIES" means all liabilities and obligations of the
Ceding Company based upon or arising out of the express written terms of the
FLIC Contracts, after deduction for any cessions under the Other Reinsurance
Treaties, but excluding any Extra Contractual Obligations.
(y) "FLIC MS AGREEMENT" means the Funds Withheld Coinsurance and
Modified Coinsurance Agreement, of even date herewith, between FLIC and CWA with
respect to the variable annuity contracts for which the Distributor acts or
acted as the sales agent at the time of issuance of such contracts, as amended
from time to time.
(z) "FUNDS WITHHELD ACCOUNT" shall have the meaning set forth in
Section 4.1(a).
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(aa) "FUNDS WITHHELD AMOUNT" means the aggregate SAP carrying value
of the Funds Withheld Assets.
(bb) "FUNDS WITHHELD ASSETS" shall have the meaning set forth in
Section 4.1(a).
(cc) "GOVERNMENTAL ENTITY" shall have the meaning set forth in
Section 7.1(c).
(dd) "HARTFORD AGREEMENT" shall mean that certain Reinsurance
Agreement, made and entered into on April 25, 2012, by and between Hartford Life
and FLIC. The Hartford Agreement is attached hereto as Annex A.
(ee) "HARTFORD LIFE" shall mean Hartford Life and Annuity Insurance
Company, a life insurance company domiciled in the State of Connecticut.
(ff) "INITIAL CONSIDERATION" shall have the meaning set forth in
Section 3.3(a).
(gg) "INITIAL FUNDS WITHHELD AMOUNT" shall have the meaning set
forth in Section 4.1(a).
(hh) "INITIAL REINSURANCE PREMIUM ADJUSTMENT PERIOD" shall have the
meaning set forth in Section 3.3(b).
(ii) "INITIAL REINSURANCE PREMIUM DEFICIENCY" shall have the meaning
set forth in Section 3.3(b).
(jj) "LIBOR DETERMINATION DATE" means the date as of which
Three-Month LIBOR is to be determined, or if such date is not a London Banking
Day, the next immediately succeeding London Banking Day.
(kk) "LONDON BANKING DAY" means any business day on which dealings
in deposits in U.S. dollars are transacted in the London interbank market.
(ll) "LOSS" shall have the meaning set forth in Section 14.1.
(mm) "NEGATIVE INTEREST ADJUSTED DEFICIENCY" shall have the meaning
set forth in Section 3.3(b).
(nn) "NON-GUARANTEED ELEMENTS" means loads and expense charges,
credited interest rates, general account contract rates, annuitization purchase
rates and other policy features that are subject to change, as applicable, under
the FLIC Contracts.
(oo) "OTHER REINSURANCE TREATIES" means all reinsurance agreements
(other than this Agreement) under which any FLIC Contract is reinsured for the
benefit of the Ceding Company as such reinsurance agreements may be terminated,
non-renewed, renewed or replaced in accordance with Section 3.7.
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(pp) "PERIOD" means a specified period, agreed to by the parties,
which shall be no longer than a calendar quarter, commencing on the first day
not covered by the last Periodic Report issued up to and including the final day
covered in the next Periodic Report. Notwithstanding anything to the contrary,
the first Period shall commence on January 1, 2016 and shall end on March 31,
2016. Unless the parties agree otherwise, each Period shall be a calendar
quarter.
(qq) "PERIODIC REPORT" shall mean the report substantially in the
form set forth on Exhibit A, with all amounts contained therein calculated in
accordance with SAP.
(rr) "PERSON" means an individual, corporation, partnership, joint
venture, association, limited liability company, trust, unincorporated
organization, Governmental Entity, or other entity.
(ss) "POSITIVE INTEREST ADJUSTED DEFICIENCY" shall have the meaning
set forth in Section 3.3(b).
(tt) "QUOTA SHARE" shall mean the Quota Share applicable to such
FLIC Contracts as set forth on Schedule 1.1B.
(uu) "REINSURANCE CREDIT EVENT" shall mean an event that causes the
Ceding Company to be unable, for any reason relating solely to the terms of this
Agreement or the licensing status of the Reinsurer, to take full statutory
financial statement credit for the reinsurance provided by this Agreement in all
jurisdictions where the Ceding Company is required to file statutory financial
statements.
(vv) "REINSURANCE PREMIUM" means the Reinsurer's Quota Share of
contractholder premiums and considerations received under the FLIC Contracts net
of premiums and consideration payable under Other Reinsurance Treaties.
(ww) "REINSURER" shall have the meaning set forth in the preamble.
(xx) "REINSURER INDEMNITEES" shall have the meaning set forth in
Section 14.2.
(yy) "REQUIRED BALANCE" means, for any Collateral Date, an amount
equal to the Economic Reserves as of the quarter-end immediately preceding such
Collateral Date.
(zz) "RETROCESSION AGREEMENT" means that certain Retrocession
Agreement, of even date herewith, between the Reinsurer and Commonwealth Annuity
and Life Reinsurance Company Limited.
(aaa) "REVISED ESTIMATED INITIAL REINSURANCE PREMIUM" shall have the
meaning set forth in Section 3.3(b).
(bbb) "REVISED ESTIMATED INITIAL REINSURANCE PREMIUM STATEMENT"
shall have the meaning set forth in Section 3.3(b).
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(ccc) "SAP" means, with respect to the Ceding Company, the statutory
accounting principles and practices prescribed or permitted by the domiciliary
state of the Ceding Company at the time of determination, applied in a manner
consistent with the historical reporting of the Ceding Company (modified to the
extent required by any changes in Applicable Law or statutory accounting
principles).
(ddd) "SEPARATE ACCOUNTS" means the separate accounts maintained by
the Ceding Company with respect to the FLIC Contracts which serve as funding
vehicles for the FLIC Contracts.
(eee) "SEPARATE ACCOUNT FEE INCOME" means the Reinsurer's Quota
Share of amounts paid to the FLIC General Account, by the Separate Accounts for
fees and expenses under the FLIC Contracts, including but not limited to
mortality and expense charges, administrative fees, revenue sharing fees, 12b-1
fees and other fees due and payable thereunder.
(fff) "SEPARATE ACCOUNT NET CONTRACTHOLDER TRANSFERS"* means, in
respect of a specified period, the Reinsurer's Quota Share of (i) the aggregate
account value transferred from the Separate Accounts to the FLIC General
Account, minus (ii) the aggregate account value transferred from the FLIC
General Account to the Separate Accounts. For avoidance of doubt, Separate
Account Net Contractholder Transfers excludes changes in Commissioner's Annuity
Reserve Valuation Method SA expense allowances and Separate Account Fee Income.
(ggg) "SETTLEMENT AMOUNT" shall have the meaning set forth in the
Form of Periodic Report.
(hhh) "SETTLEMENT DATE" means a date within ten Business Days
following transmittal of a Periodic Report.
(iii) "THREE-MONTH LIBOR" shall mean for each interest period, the
London interbank offered rate for deposits in U.S. dollars having a maturity of
three months which appears on Bloomberg: verb "BBAM," 1) "Official BBA Libor
Fixings" as of 11:00 a.m. London time, on the related LIBOR Determination Date.
If this rate does not appear on Bloomberg: verb "BBAM," 1) "Official BBA Libor
Fixings" on that date, the rate for such interest period will be determined on
the basis of the rates at which deposits in U.S. dollars, having a maturity of
three months and in a principal amount of not less than U.S. $1,000,000, are
offered at approximately 11:00 a.m., London time, on the LIBOR Determination
Date with respect to that interest period, to prime banks in the London
interbank market.
SECTION 1.2. INTERPRETATION.
(a) When a reference is made in this Agreement to an Article,
Section, Exhibit or Schedule, such reference shall be to an Article or Section
of, Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
Article and Section headings and table of contents contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
parties and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall
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* For use in Exhibit A.
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be deemed to be followed by the words "without limitation." The words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement unless expressly stated otherwise herein. The use of the word
"or" shall not be exclusive unless expressly stated otherwise. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such statute as from
time to time amended, modified or supplemented, including successor statutes.
References to a Person are also to its successors and permitted assigns.
(b) The parties have participated jointly in the negotiation and
drafting of this Agreement; consequently, in the event an ambiguity or question
of intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the parties thereto, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
ARTICLE II
EFFECTIVE DATE
SECTION 2.1. EFFECTIVE DATE. This Agreement shall become effective as of
the Effective Date and shall remain in force unless modified by mutual agreement
or terminated as provided for in Article XIII hereof.
ARTICLE III
BUSINESS REINSURED; OTHER REINSURANCE TREATIES;
INFORMATION; GUARANTY FUND ASSESSMENTS
SECTION 3.1. FUNDS WITHHELD COINSURANCE. As of the Effective Date, the
Ceding Company hereby agrees to cede on a funds withheld coinsurance basis to
the Reinsurer, and the Reinsurer hereby accepts and agrees to reinsure and
indemnify the Ceding Company for, the Quota Share of all FLIC Liabilities giving
rise to FLIC General Account Reserves under the FLIC Contracts.
SECTION 3.2. MODIFIED COINSURANCE. As of the Effective Date, the Ceding
Company hereby agrees to cede on a modified coinsurance basis to the Reinsurer,
and the Reinsurer hereby accepts and agrees to reinsure and indemnify the Ceding
Company for, the Quota Share of (i) all FLIC Liabilities payable out of the
Separate Accounts with respect to the FLIC Contracts but excluding any FLIC
Liabilities giving rise to FLIC General Account Reserves under the FLIC
Contracts and (ii) all FH Liabilities arising from and after the Effective Date.
SECTION 3.3. INITIAL CONSIDERATION.
(a) In consideration for the cessions contemplated hereunder, on
the date hereof, the Ceding Company or the Reinsurer, as applicable, shall pay
to the other party the Initial Consideration in cash by wire transfer of
immediately available funds or in mutually agreed assets. The form and amount of
the "INITIAL CONSIDERATION" shall be as provided in Schedule 3.3.
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(b) Estimated Initial Reinsurance Premium
(i) On the date hereof, the Ceding Company shall owe to the
Reinsurer the Estimated Initial Reinsurance Premium. In consideration for
the reinsurance contemplated hereunder, on the date hereof, the Ceding
Company shall transfer to the Reinsurer the Estimated Initial Reinsurance
Premium, but shall withhold payment to the Reinsurer of, and shall
immediately establish a payable to the Reinsurer for, the Initial Funds
Withheld Amount, and concurrently the Reinsurer shall establish a
receivable from the Ceding Company for the Initial Funds Withheld Amount.
The Ceding Company shall adjust such payable and the Reinsurer shall
adjust such receivable accordingly in connection with any adjustment to
the Funds Withheld Account as provided in Section 5.2 hereof. For the
avoidance of doubt, the Initial Funds Withheld Amount, prior to any
adjustments as applicable in Section 3.3(b)(v), shall be $[-].
(ii) The Ceding Company has prepared and delivered to the
Reinsurer a statement (the "Estimated Initial Reinsurance Premium
Statement") setting forth the Ceding Company's good faith calculation of
the Estimated Initial Reinsurance Premium, including a statement of each
component thereof. The "Estimated Initial Reinsurance Premium," as
determined by the Ceding Company, is $[-] being the amount equal to the
Quota Share of:
1. The FLIC General Account Reserves, as of the
Effective Date; minus
2. The amount of outstanding policy loans on the FLIC
Contracts (net of any unearned policy loan
interest on such loans but including amounts of
interest due and accrued with respect thereto).
(iii) Within 75 days after the date hereof, the Ceding Company
shall prepare and deliver to the Reinsurer a revised Estimated Initial
Reinsurance Premium Statement (the "Revised Estimated Initial Reinsurance
Premium Statement") setting forth the Ceding Company's good faith
calculation of any adjustments it deems necessary to the Estimated Initial
Reinsurance Premium (the Estimated Initial Reinsurance Premium, as
adjusted, the "Revised Estimated Initial Reinsurance Premium"), including
a statement of each component thereof.
(iv) The Estimated Initial Reinsurance Premium or the Revised
Estimated Initial Reinsurance Premium (if applicable) shall be deemed to
be the "Final Initial Reinsurance Premium," unless the Reinsurer provides
a written notice to the Ceding Company within thirty-five (35) days after
the date hereof or after delivery of the Revised Estimated Initial
Reinsurance Premium (if applicable) stating the Reinsurer disagrees with
one or more of the entries or calculations (or any components thereof) set
forth in the Estimated Initial Reinsurance Premium Statement or the
Revised Estimated Initial Reinsurance Premium Statement (if applicable)
and specifying in reasonable detail each item that the Reinsurer disputes,
the amount in dispute for each such disputed item and the reasons
supporting the Reinsurer's positions. If the Reinsurer delivers such
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written notice within such thirty-five (35) day period, the Ceding Company
and the Reinsurer shall each negotiate in good faith to resolve the
disputed items within ten (10) Business Days beginning on the date the
Ceding Company receives the written notice. If the Ceding Company and the
Reinsurer reach agreement with respect to any disputed items, the Ceding
Company shall revise the Estimated Initial Reinsurance Premium Statement
or the Revised Estimated Initial Reinsurance Premium (if applicable) to
reflect such agreement and such revised amount shall be the Final Initial
Reinsurance Premium.
(v) In determining the adjustment payment, a separate
determination of the Funds Withheld Account adjustment and the coinsurance
adjustment will be made. If (1) the Final Initial Reinsurance Premium (as
determined in accordance with this Section 3.3 MINUS (2) the Estimated
Initial Reinsurance Premium (such difference, the "Initial Reinsurance
Premium Deficiency") is greater than or less than zero, there shall be an
adjustment payment as follows:
1. If the Initial Reinsurance Premium Deficiency is a
positive number, if the positive deficiency
relates to the Funds Withheld Account, the Ceding
Company shall deposit into the Funds Withheld
Account (x) an amount equal to the Initial
Reinsurance Premium Deficiency PLUS (y) interest
on the Initial Reinsurance Premium Deficiency for
each day during the period beginning on the
Effective Date and ending on, but not including,
the date of such payment of the post-closing
adjustment (the "Initial Reinsurance Premium
Adjustment Period"), calculated at a rate equal to
Three-Month LIBOR as computed on the basis of (i)
a 360-day year composed of twelve (12) 30-day
months and (ii) daily compounding (the sum of (x)
and (y) being the "Positive Interest Adjusted
Deficiency"). If the positive deficiency relates
to the coinsurance adjustment, the Ceding Company
shall deliver to the Reinsurer for deposit via a
wire transfer of immediately available funds in
the amount of the Positive Interest Adjusted
Deficiency and;
2. If the Initial Reinsurance Premium Deficiency is a
negative number, and the negative deficiency
relates to the Funds Withheld Account, the Ceding
Company will withdraw the Negative Interest
Adjusted Deficiency (as defined below) from the
Funds Withheld Account. If the negative deficiency
relates to the coinsurance adjustment, the
Reinsurer shall pay to the Ceding Company directly
via a wire transfer of immediately available funds
to the account designated therefore in writing by
the Ceding Company (x) an amount equal to the
absolute value of the Initial Reinsurance Premium
Deficiency PLUS (y) interest on the absolute value
of the Initial Reinsurance Premium Deficiency for
each day during the Initial Reinsurance
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Premium Adjustment Period calculated at a rate
equal to Three-Month LIBOR as computed on the
basis of (i) a 360-day year composed of twelve
(12) 30-day months and (ii) daily compounding
(the sum of (x) and (y) being the "Negative
Interest Adjusted Deficiency"). Any such
adjustment payment shall be made within ten (10)
Business Days after the date that the Final
Initial Reinsurance Premium is deemed to be
determined.
SECTION 3.4. FOLLOW THE FORTUNES. The Reinsurer's liability under this
Agreement shall commence on the Effective Date, and all reinsurance with respect
to which the Reinsurer shall be liable by virtue of this Agreement shall be
subject in all respects to the same risks, terms, rates, conditions,
interpretations, assessments, waivers, proportion of premiums paid to, and
reinsurance recoveries benefiting, the Ceding Company, the true intent of this
Agreement being that the Reinsurer shall follow the fortunes of the Ceding
Company with respect to the FLIC Liabilities and FH Liabilities, and the
Reinsurer shall be bound, without limitation, by all payments and settlements
that constitute (i) FLIC Liabilities entered into by the Ceding Company as the
administrator of the FLIC Contracts or (ii) FH Liabilities; in each case on and
after the Effective Date.
SECTION 3.5. INFORMATION; AUDITS.
(a) The Ceding Company shall provide to the Reinsurer all material
information available to it relating to the FLIC Liabilities or the FH
Liabilities and the Reinsurer agrees to keep such information confidential in
accordance with Section 3.6 hereof. Notwithstanding the foregoing, the Ceding
Company shall not be required to share any information with the Reinsurer to the
extent that (x) the Ceding Company is subject to a confidentiality agreement
with respect to such information, or (y) the Ceding Company is prohibited from
sharing such information with the Reinsurer pursuant to any Applicable Law
relating to the privacy of non-public personal information or otherwise. Failure
to provide any such information, or include any claim, policy form or other
information relating to the FLIC Liabilities or the FH Liabilities, shall not
affect the reinsurance coverage provided for by this Agreement. The Reinsurer
shall be responsible for any out-of-pocket costs, expenses and payments
(including, without limitation, any fees required in seeking a waiver of
confidentiality) in connection with obtaining and providing any such material
information or seeking a waiver of any confidentiality pursuant to this Section
3.5(a).
(b) The Reinsurer, or its duly authorized legal, accounting, and
actuarial representatives, shall have access, at reasonable times and upon
reasonable notice during the term of this Agreement, to books and records
maintained by the Ceding Company which pertain to the reinsurance provided under
this Agreement and the employees, accountants and other relevant advisors of the
Ceding Company. The Reinsurer shall bear its own expenses in connection with
such access and shall promptly reimburse the Ceding Company for any
out-of-pocket expenses incurred by the Ceding Company in connection with such
access by the Reinsurer and its representatives.
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SECTION 3.6. CONFIDENTIAL INFORMATION. Each of the Ceding Company and the
Reinsurer hereby agree to hold confidential and not disclose any client or
proprietary information (each as described in the succeeding paragraph) of the
other party, except as set forth in this Agreement, unless otherwise agreed to
in writing. The foregoing limitation shall not apply to proprietary information
to the extent such proprietary information otherwise becomes publicly available,
or the disclosure (i) has been mandated by law, (ii) is duly required by
external auditors or (iii) is requested or required by a Governmental Entity in
connection with a regulatory exam or inquiry. Furthermore, neither the Ceding
Company nor the Reinsurer will be prohibited from disclosing such proprietary
information to its retrocessionaires or hedge or other risk mitigation
counterparties in connection with its retrocession or hedging of all or a
portion of the risks ceded hereunder, so long as any such retrocessionaires or
hedge counterparties are bound to confidentiality obligations in respect thereof
that are substantially similar to those contained herein.
Client information includes medical, financial and other personal
information about proposed, current and former policyowners, insureds,
applicants, and beneficiaries of FLIC Contracts. Proprietary information
includes but is not limited to underwriting manuals and guidelines, applications
and contract forms and premium rates and allowances of the Reinsurer and the
Ceding Company. In addition, the Ceding Company and the Reinsurer will comply
with relevant privacy legislation. Notwithstanding any provision herein to the
contrary, the confidentiality provisions of this Agreement shall survive the
termination hereof.
Notwithstanding any other provision of this Agreement to the
contrary, each of the parties hereto may disclose to any Person the tax
structure and tax treatment of this Agreement to the extent such Person could be
reasonably expected to require knowledge of the tax structure or tax treatment
of this Agreement for bona fide tax preparation purposes.
SECTION 3.7. OTHER REINSURANCE TREATIES.
(a) The collectability of reinsurance under the Other Reinsurance
Treaties with respect to the FLIC Contracts from reinsurers of the Ceding
Company shall be at the risk of and for the account of the Ceding Company.
(b) The Ceding Company shall not terminate, recapture or non-renew
any Other Reinsurance Treaty without the Reinsurer's prior consent, not to be
unreasonably withheld, conditioned or delayed; PROVIDED, that the Ceding Company
may terminate, recapture or non-renew any Other Reinsurance Treaty without the
consent of the Reinsurer if, in the reasonable determination of the Ceding
Company, such termination, recapture or non-renewal results from (i) an increase
in the rates payable under such Other Reinsurance Treaty, or (ii) a material
deterioration in the creditworthiness of the reinsurer under such Other
Reinsurance Treaty. From and after the date of any such termination, recapture
or non-renewal, which the Ceding Company shall promptly notify to the Reinsurer,
the Reinsurer shall be liable for, and receive the benefits relating to, the
Quota Share of increases to the FLIC Liabilities related to such termination,
recapture or non-renewal.
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SECTION 3.8. NON-GUARANTEED ELEMENTS; ECONOMIC RESERVES.
(a) The Reinsurer will be liable for its Quota Share of all
Non-Guaranteed Elements.
(b) The Ceding Company shall determine Non-Guaranteed Elements
under this Agreement only in a manner consistent with the Ceding Company's
documented procedures in effect on the Effective Date or, in the absence of such
documented procedures, in a manner consistent with the historical practices
employed by the Ceding Company in establishing Non-Guaranteed Elements. In
either case, the Ceding Company agrees to take into account the recommendations
of the Reinsurer in connection with its determination of Non-Guaranteed Elements
(whether in response to a change proposed by the Ceding Company or at the
initiative of the Reinsurer) with respect thereto.
(c) With respect to any date of determination, CWA, as ceding
company under the Retrocession Agreement, will initially determine the Economic
Reserves. CWA will provide such determination (with sufficient and appropriate
detail) to FLIC for approval within ten (10) Business Days of delivery of such
determination, such approval not to be unreasonably withheld or delayed. If FLIC
reasonably and timely objects to CWA's determination, CWA and FLIC will jointly
make an alternate determination (which may be the same as CWA's original
determination) and such alternate determination will constitute the Economic
Reserves hereunder.
SECTION 3.9. PREMIUM TAXES AND GUARANTY FUND ASSESSMENTS. The Ceding
Company will pay (or will cause to be paid) all premium taxes (or other taxes
imposed in lieu thereof) ("PREMIUM TAXES") and guaranty fund assessments
("ASSESSMENTS") (whether incurred prior to, on or after the Effective Date)
related to the FLIC Contracts. The Reinsurer shall reimburse the Ceding Company
for the Quota Share of any and all Premium Taxes and Assessments other than fees
characterized as "Class A " or "administrative" fees ("CHARGED PREMIUM TAXES AND
ASSESSMENTS") incurred by the Ceding Company on premiums received by the Ceding
Company on or after the Effective Date on the FLIC Contracts to the extent
allocated to the FLIC General Account. The Ceding Company shall include the
amount of such Premium Taxes and Assessments for which it seeks reimbursement
following the end of each Period on the Periodic Report for such Period. The
Ceding Company shall also deliver to the Reinsurer Premium Taxes and Assessments
information reasonably necessary for the Reinsurer to evaluate the correctness
of the calculation thereof. The Reinsurer shall pay to the Ceding Company the
amount of Premium Taxes and Assessments due as part of the periodic settlement.
The Ceding Company shall notify the Reinsurer as soon as possible upon the
commencement of an audit or other proceeding that may give rise to a
reimbursement obligation under this Section 3.9. The Ceding Company shall not
settle or compromise a claim that may give rise to a reimbursement obligation
under this Section 3.9 without the Reinsurer's consent. To the extent that the
Ceding Company shall obtain a refund or receive credit or any other benefit in
respect of all or any part of any Charged Premium Taxes and Assessments that
were the subject of reimbursement pursuant to this Section 3.9, the Ceding
Company shall promptly pay to the Reinsurer the amount of such refund, credit or
other benefit.
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SECTION 3.10. HARTFORD AGREEMENT.
(a) The Ceding Company shall not amend or terminate the Hartford
Agreement or any agreement ancillary thereto without the Reinsurer's prior
consent, such consent not to be unreasonably withheld, conditioned or delayed.
(b) Under the Hartford Agreement, FLIC (as reinsurer thereunder)
is permitted or required to make or give various determinations,
recommendations, consents, non-consents, concurrences, agreements or rejections
relating to the requests, actions or inactions of Hartford Life (as ceding
company thereunder) (collectively, "FLIC DETERMINATIONS AND CONSENTS"). FLIC
agrees that it will use its reasonable best efforts, as Ceding Company under
this Agreement, to timely seek the recommendation of the Reinsurer as to each
and every FLIC Determination and Consent (whether such FLIC Determination and
Consent is in response to a change proposed by the Reinsurer or at the
initiative of FLIC), and to follow such recommendation unless, in the reasonable
opinion of FLIC, following such recommendation would have or is likely to have a
material adverse effect on FLIC.
ARTICLE IV
FUNDS WITHHELD ACCOUNT; CREDIT FOR REINSURANCE FOR GENERAL
ACCOUNT LIABILITIES
SECTION 4.1. FUNDS WITHHELD ACCOUNT.
(a) On the date hereof, the Ceding Company will establish a funds
withheld coinsurance account (the "FUNDS WITHHELD ACCOUNT") consisting of assets
with an aggregate SAP carrying value equal to the Economic Reserves as of the
Effective Date (the "INITIAL FUNDS WITHHELD AMOUNT"). The Funds Withheld Account
will be owned, maintained and controlled by the Ceding Company. The assets
constituting the Funds Withheld Account (the "FUNDS WITHHELD ASSETS") shall be
valued according to their SAP carrying value.
(b) The Ceding Company hereby grants to the Reinsurer the right to
direct investment decisions with respect to the Funds Withheld Assets, including
but not limited to delegating the right to direct those investment decisions,
subject to compliance with Applicable Law.
(c) If, as of any Collateral Date, as determined by the Ceding
Company and reported to the Reinsurer, the Funds Withheld Amount is (i) less
than the Required Balance, the Reinsurer shall, within ten (10) days of such
report transfer to the Ceding Company for deposit in the Funds Withheld Account
assets with a SAP carrying value equal to such deficiency, or (ii) greater than
the Required Balance, the Ceding Company shall within ten (10) days of such
report transfer to the Reinsurer Funds Withheld Assets, as selected by the
Reinsurer, with a SAP carrying value equal to such excess.
(d) The Funds Withheld Account shall remain in effect for as long
as the Reinsurer has outstanding obligations due under this Agreement or until
terminated by mutual agreement. The Funds Withheld Assets shall be unencumbered
and shall be subject to withdrawal solely by and under the exclusive control of
the Ceding Company, but only for the following purposes:
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(i) to pay any portion of a periodic settlement due in
accordance with Section 6.2 to the extent such portion
is not being disputed by the Ceding Company or the
Reinsurer, as applicable, in good faith;
(ii) to pay to the Ceding Company any amount due to be paid
out of the Funds Withheld Account as part of the
termination settlement under Section 13.3 to the extent
such amount is not being disputed by the Reinsurer in
good faith;
(iii) to pay to the Reinsurer amounts (x) due to be paid the
Reinsurer under Section 4.1(c)(ii) or (y) remaining in
the Funds Withheld Account, if any, after the payment of
any amounts due to be paid out of the Funds Withheld
Account as part of the termination settlement under
Section 13.3 to the extent such amount is not being
disputed by the Ceding Company in good faith; or
(iv) to pay or reimburse the Ceding Company for any other
amounts due but not yet recovered from the Reinsurer
under this Agreement in order to satisfy liabilities of
the Reinsurer under this Agreement to the extent such
amounts are not being disputed by the Reinsurer in good
faith.
The Ceding Company shall promptly return to the Funds Withheld
Account any assets withdrawn therefrom in excess of the actual amounts required
for the purposes set forth above, including amounts of interest accrued with
respect thereto at a rate equal to the prime rate of interest as stated in the
Federal Reserve Statistical Release H.15. Interest will be earned from the date
such assets are withdrawn until they are repaid.
(e) Upon any termination of the FLIC MS Agreement (i) all "FLIC
Contracts" and "FLIC Liabilities" (as defined thereunder) shall be deemed to be
and become FLIC Contracts and FLIC Liabilities hereunder, (ii) all assets in the
"Funds Withheld Account" (as defined thereunder) shall be transferred to or be
deemed transferred to the Funds Withheld Account hereunder and (iii) all other
necessary and appropriate accounting and financial adjustments shall be made as
mutually agreed by the Ceding Company and the Reinsurer to reflect such events.
SECTION 4.2. CREDIT FOR REINSURANCE.
(a) The parties intend that the Ceding Company shall be able to
recognize the reinsurance ceded hereunder in its statutory financial statements
filed in all jurisdictions where it is required to make such filings. If a
Reinsurance Credit Event occurs, the Reinsurer shall within twenty (20) Business
Days following the occurrence of such Reinsurance Credit Event, enter into a
statutory trust agreement, deliver letters of credit (at the Reinsurer's
expense) or provide any other form of security acceptable to the applicable
Governmental Entities of all jurisdictions to which the Ceding Company is
subject, or take any other action, the effect of which would enable the Ceding
Company to receive full statutory reserve credit in all such jurisdictions for
reinsurance ceded to the Reinsurer under this Agreement.
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(b) It is understood and agreed that any term or condition
required by Applicable Law to be included in this Agreement for the Ceding
Company to receive full statutory financial statement credit for the reinsurance
provided by this Agreement in all jurisdictions where it is required to file
statutory financial statements shall be deemed to be incorporated in this
Agreement by reference. Furthermore, the Reinsurer and the Ceding Company agree
to act in good faith to amend this Agreement and other documents to the extent
required under Applicable Law in order to provide the Ceding Company with such
full statutory financial statement credit.
ARTICLE V
PAYMENT AND REINSURANCE ACCOUNTING
SECTION 5.1. ADJUSTMENTS FOR OTHER REINSURANCE. Premium paid or payable by
Ceding Company on any Other Reinsurance Treaties in respect of FLIC Contracts
shall reduce the amount of Reinsurance Premium that would otherwise be reflected
as an increase to the "Settlement Amount" reflected on Exhibit A, and any
benefits or allowances received or receivable under Other Reinsurance Treaties
in respect of FLIC Contracts shall reduce benefits that would otherwise be
reflected as a decrease to the "Settlement Amount" reflected on Exhibit A.
SECTION 5.2. ADJUSTMENTS TO FUNDS WITHHELD ACCOUNT. The Ceding Company
shall adjust the Funds Withheld Account on a periodic basis, no less frequently
than quarterly, as reflected in the Periodic Report delivered pursuant to
Section 6.1.
SECTION 5.3. SEPARATE ACCOUNTS. The Reinsurer will have no legal or
equitable interest in any Separate Account or any assets held therein arising
solely by virtue of the reinsurance provided pursuant to this Agreement.
ARTICLE VI
REPORTS; SETOFF RIGHTS
SECTION 6.1. PERIODIC REPORTS.
(a) Within thirty (30) calendar days following the end of each
Period, the Ceding Company shall provide the Periodic Report for such Period in
the form set forth in Exhibit A. The parties agree that such Periodic Report may
contain adjustments and modifications to previously delivered Periodic Reports
in respect of prior Periods.
(b) The Ceding Company shall provide the Reinsurer with supporting
calculations with respect to the amounts reflected on the Periodic Report as
reasonably requested by the Reinsurer. The Reinsurer and its employees, advisors
and agents shall have a reasonable right to review and discuss the Periodic
Report with employees, accountants and other relevant advisors of the Ceding
Company during normal business hours.
SECTION 6.2. PERIODIC SETTLEMENTS.
(a) If the "Settlement Amount" set forth on the Periodic Report
reflects a net amount due the Reinsurer, then the Ceding Company shall pay to
the Reinsurer such amount. If
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the "Settlement Amount" set forth on the Periodic Report reflects a net amount
due the Ceding Company, then the Reinsurer shall pay to the Ceding Company such
amount. The "Settlement Amount", in each case, shall be paid within ten (10)
days of delivery of the Periodic Report; PROVIDED, that any such payment that
would otherwise be due on a day that is not a Business Day shall be due on the
next following Business Day.
(b) All payments due directly to the Reinsurer or the Ceding
Company shall be remitted by wire transfer in immediately available funds.
SECTION 6.3. OFFSETS. Any debits or credits incurred on or after the
Effective Date in favor of or against either the Ceding Company or Reinsurer
with respect to this Agreement shall be setoff, and only the net balance shall
be paid.
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 7.1. REPRESENTATIONS AND WARRANTIES OF THE CEDING COMPANY. The
Ceding Company represents and warrants to the Reinsurer as of the date hereof
and, unless otherwise specified in any representation or warranty below, shall
be deemed to have represented and warranted as of the Effective Date, as
follows:
(a) The Ceding Company is a corporation duly organized and validly
existing under the laws of the State of Indiana and it has the requisite
corporate power and authority to perform its obligations under this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by it and, assuming the due authorization, execution and delivery of
this Agreement by the Reinsurer, constitutes a legal, valid and binding
obligation of the Ceding Company, enforceable against the Ceding Company in
accordance with its terms. The Hartford Agreement is in full force and effect.
(c) The execution and delivery of this Agreement do not, and the
performance by the Ceding Company of its obligations hereunder (including the
issuance of FLIC Contracts on and after the Effective Date) will not conflict
with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination or cancellation
under, any provision of (i) the articles or certificate of incorporation and
by-laws or comparable organizational documents of the Ceding Company, (ii) any
contract, permit, order, judgment or decree to which the Ceding Company is a
party, (iii) any order of any governmental agency, authority, entity or
instrumentality ("GOVERNMENTAL ENTITY") or (iv) any Applicable Law, except for
such violations or defaults which would not reasonably be expected to have a
material adverse effect on the business being reinsured hereunder or the Ceding
Company's ability to satisfy its obligations hereunder.
SECTION 7.2. REPRESENTATIONS AND WARRANTIES OF THE REINSURER. The
Reinsurer represents and warrants to the Ceding Company as of the date hereof
and, unless otherwise specified in any representation or warranty below, shall
be deemed to have represented and warranted as of the Effective Date, as
follows:
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(a) The Reinsurer is a corporation duly organized, validly
existing and in good standing (to the extent legally applicable) under the laws
of the Commonwealth of Massachusetts and has requisite corporate power and
authority to perform its obligations under this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by it and, assuming the due authorization, execution and delivery of
this Agreement by the Ceding Company, constitutes a legal, valid and binding
obligation of the Reinsurer, enforceable against the Reinsurer in accordance
with its terms.
(c) The execution and delivery of this Agreement do not, and the
performance by the Reinsurer of its obligations hereunder will not conflict
with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination or cancellation
under, any provision of (i) the articles or certificate of incorporation and
by-laws or comparable organizational documents of the Reinsurer, (ii) any
contract, permit, order, judgment or decree to which the Reinsurer is a party,
(iii) any order of any Governmental Entity or (iv) any Applicable Law, except
for such violations or defaults which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
Reinsurer's ability to satisfy its obligations hereunder.
ARTICLE VIII
ADMINISTRATION; EXPENSE ALLOWANCE
SECTION 8.1. ADMINISTRATION AND EXPENSE ALLOWANCES.
(a) The Ceding Company and the Reinsurer agree that the FLIC
Contracts be administered by the Ceding Company in good faith, and the Ceding
Company agrees to perform such administrative services: (i) consistent with its
current practice and (ii) in material compliance with all Applicable Law and the
requirements of the FLIC Contracts. The Ceding Company shall have no liability
to the Reinsurer for the administration of the FLIC Contracts, except for bad
faith, gross negligence or an intentional breach of this Section 8.1(a).
(b) For each Period and as part of the periodic settlement
contemplated in Section 6.2, the Reinsurer will pay the Ceding Company with
respect to each FLIC Contract in force during the applicable Period, its Quota
Share of the Expense Allowance for the Ceding Company's administration of such
FLIC Contracts. For purposes of this Section 8.1(b), the number of FLIC
Contracts in force during any Period shall be the number of FLIC Contracts in
force on the first day of such Period.
ARTICLE IX
TAXES
SECTION 9.1. TAX STATUS. Each of the Ceding Company and the Reinsurer
represents and warrants to the other that it is subject to taxation under
Subchapter "L" of the Code.
SECTION 9.2. POLICY ACQUISITION EXPENSES. With respect to this Agreement,
the Ceding Company and the Reinsurer jointly elect pursuant to Section
1.848-2(g) of the Income Tax Regulations issued December 1992 as follows:
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(a) For each taxable year, the party with net positive
consideration, as defined in Treasury Regulation 1.848-2, will capitalize
specified policy acquisition expenses with respect to this Agreement without
regard to the general deductions limitation of Section 848(c)(1) of the Code.
Each party filing a Federal income tax return shall attach a schedule to its
federal income tax return for the first taxable year for which this election is
in effect stating that an election under Treasury Regulations Section
1.848-2(g)(8) has been made for this Agreement.
(b) The parties agree to exchange information about the amount of
net consideration for all reinsurance agreements between them to ensure
consistency in computing specified acquisition expenses.
(c) The Ceding Company will submit a schedule to the Reinsurer by
March 1 of each year of its calculation of the net consideration for the
preceding calendar year.
(d) This election is effective for 2015 and will remain in effect
for all future taxable years for which this Agreement remains in effect.
ARTICLE X
INSOLVENCY
SECTION 10.1. INSOLVENCY OF CEDING COMPANY.
(a) In the event of the insolvency of the Ceding Company, the
reinsurance shall be payable directly to the Ceding Company, or to its
liquidator, receiver, conservator or statutory successor on the basis of claims
filed and allowed in the liquidation proceeding, without diminution because of
the insolvency of the Ceding Company.
(b) The reinsurance shall be payable by the Reinsurer directly to
the Ceding Company or to its domiciliary liquidator except where: (i) the
contract of insurance or reinsurance specifically provides another payee of such
reinsurance in the event of the insolvency of the Ceding Company or (ii) where
the Reinsurer, with the consent of the direct insured(s), has assumed such
policy obligations of the Ceding Company as direct obligations of the Reinsurer
to the payees under such policies and in substitution for the obligations of the
Ceding Company to such payees. Any such payment made by the Reinsurer in
accordance with the foregoing clause (ii) shall discharge the Reinsurer from its
related payment obligations to the Ceding Company under this Agreement.
(c) The liquidator, receiver or statutory successor of the Ceding
Company shall give written notice to the Reinsurer of the pendency of each claim
against the Ceding Company with respect to any FLIC Liabilities or FH
Liabilities within a reasonable time after each such claim is filed in the
insolvency, liquidation or rehabilitation proceeding. During the pendency of any
such claims, the Reinsurer may investigate such claim and interpose, at its own
expense, in the proceeding in which such claim is to be adjudicated any defense
or defenses that the Reinsurer may reasonably deem available to the Ceding
Company or its liquidator, receiver or statutory successor. Subject to court
approval, the expenses incurred in connection therewith by the Reinsurer shall
be chargeable against the Ceding Company as part of the expense of such
insolvency, liquidation or rehabilitation to the extent of a proportionate share
of any benefit that
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accrues to the Ceding Company solely as a result of the defense or defenses
undertaken by the Reinsurer.
SECTION 10.2. INSOLVENCY OF REINSURER. In the event of the insolvency,
liquidation or rehabilitation of the Reinsurer, the Ceding Company may provide
the Reinsurer, its receiver, rehabilitator, conservator, liquidator or statutory
successor with written notice of its intent to terminate all reinsurance in
force under this Agreement, regardless of the duration the reinsurance has been
in force. The effective date of a termination due to the insolvency, liquidation
or rehabilitation of the Reinsurer is at the election of the Ceding Company.
ARTICLE XI
ARBITRATION
SECTION 11.1. AGREEMENT TO ARBITRATE. All disputes between the parties
arising out of this Agreement shall be referred to and settled by arbitration
held in accordance with the guidelines set forth in the XXXXX-U.S. PRACTICAL
GUIDE TO REINSURANCE ARBITRATION PROCEDURE (2004) (except for the "STREAMLINED
ARBITRATION PROCEDURES"); PROVIDED, that, notwithstanding anything to the
contrary in the XXXXX-U.S. PRACTICAL GUIDE TO REINSURANCE ARBITRATION PROCEDURE,
the arbitrators to be appointed to the arbitration panel shall be appointed in
accordance with Section 11.3. It is specifically the intent of both parties that
these arbitration provisions will replace any statutory provision, if any,
relating to any arbitration procedures the provisions cover.
SECTION 11.2. INITIATION OF ARBITRATION. Arbitration shall be initiated by
the delivery of a written notice of demand for arbitration by one party to the
other.
SECTION 11.3. APPOINTMENT OF ARBITRATION PANEL. The arbitration panel
shall consist of three members appointed in accordance with the XXXXX-U.S.
NEUTRAL SELECTION PROCEDURE, as then currently in effect (including the
suggested guidelines therein), except that the XXXXX-U.S. Executive Director's
Office shall be requested to provide its initial list of thirty XXXXX-U.S.
Certified Arbitrators exclusively from a pool of arbitrators that shall have no
less than ten years of experience in the insurance or reinsurance industry and
be active or retired officers of life insurance or life reinsurance companies.
SECTION 11.4. LOCATION OF ARBITRATION. The arbitration proceeding shall
take place in Indianapolis, Indiana; PROVIDED, that the arbitration panel may,
for the convenience of the parties and without changing the situs of the
arbitration proceeding, take evidence at any place within or without
Indianapolis, Indiana.
SECTION 11.5. ARBITRATION AWARD. The arbitrators shall not be obligated to
follow judicial formalities or the rules of evidence and shall make their
decisions according to the practice of the reinsurance business. The decision
rendered by a majority of the arbitration panel shall be final and binding on
the parties. Any award of the arbitration panel may be, alternatively or
cumulatively, for money damages, an order requiring the performance of the
obligations under this Agreement, or any other appropriate order or remedy. The
arbitration panel may award interim relief, including pre-award security. The
award shall assign all costs of the arbitration to one or more of the parties in
such proportion as the arbitrators determine on an
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equitable basis, except each party shall bear its own attorneys fees,
professional fees and expert witness costs. Judgment upon any award rendered in
the arbitration may be entered in any court having jurisdiction.
SECTION 11.6. WAIVER OF JURY TRIAL. Each of the parties hereto irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or related to this Agreement or the transactions contemplated hereby.
ARTICLE XII
OVERSIGHTS, ERRORS AND OMISSIONS
Any inadvertent delays, errors or omissions on the part of one party
occurring in connection with its obligations under this Agreement or any
transaction hereunder shall not relieve the other party from any liability which
would have otherwise attached had such delay, error or omission not occurred.
ARTICLE XIII
TERMINATION
SECTION 13.1. DURATION. This Agreement shall commence on the Effective
Date and continue until the date on which this Agreement is terminated under
Section 13.2, except that under no circumstances shall any termination of this
Agreement relieve either party from liability for any breach of this Agreement
occurring prior to such termination or from its obligations under Section 3.6.
SECTION 13.2. TERMINATION.
(a) This Agreement may be terminated by the mutual written consent
of the Reinsurer and the Ceding Company. The Ceding Company shall not withhold
its consent in the event it determines in good faith that there is no further
current or potential future liability of the Reinsurer hereunder.
(b) On any day on which the Ceding Company is delinquent in paying
amounts due and owing to the Reinsurer under this Agreement, other than amounts
that are the subject of a good faith dispute or an error or omission of the type
specified in Article XII hereof, the Reinsurer may give the Ceding Company
written notice that the reinsurance coverage hereunder shall terminate as of the
date of such notice of termination if such overdue amount plus applicable
interest thereon is not paid to the Reinsurer within thirty (30) calendar days
from the date of such notice.
(c) With respect to all or a portion of newly issued FLIC
Contracts only, either party may, by at least thirty (30) days' prior written
notice to the other party, terminate this Agreement effective the month-end
immediately following such thirtieth day. Such termination will have no effect
upon the reinsurance of FLIC Liabilities or FH Liabilities otherwise subject to
this Agreement. In the event of such termination, Schedule 1.1B will be amended
to reflect the result thereof.
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SECTION 13.3. SETTLEMENT UPON TERMINATION. Upon the termination of this
Agreement in its entirety, the Ceding Company shall recapture all liabilities
previously ceded to the Reinsurer and, subject to payment by the Reinsurer of
any amounts due to the Ceding Company pursuant to this Section 13.3, the
Reinsurer's liability under this Agreement will terminate (PROVIDED that such
termination shall not relieve any party of any pre-termination breach of the
Agreement). The Ceding Company shall prepare a Periodic Report for the Period
ending on the date this Agreement is terminated pursuant to Section 13.2. On the
5th Business Day following the Periodic Report, (a) the parties shall pay any
amounts due and owing on such Periodic Report, (b) the Reinsurer shall transfer
to the Ceding Company assets with an aggregate fair market value, as jointly
agreed by the Ceding Company and the Reinsurer, equal to 100% of the amount
representing the Quota Share of the FLIC General Account Reserves, as determined
by the Ceding Company as of the date of termination and (c) the Ceding Company
shall pay to the Reinsurer (i) the then remaining Funds Withheld Account (or
cash or cash equivalents with an equal market value) PLUS (ii) a recapture
allowance mutually agreed by the parties, which may be a positive or negative
number. The amounts paid pursuant to clause (a) through (c) shall be setoff, and
only the balance shall be allowed or paid by the applicable party.
ARTICLE XIV
INDEMNIFICATION
SECTION 14.1. REINSURER'S OBLIGATION TO INDEMNIFY. The Reinsurer hereby
indemnifies the Ceding Company and its directors, officers, employees,
Affiliates, successors, permitted assigns, agents and representatives
(collectively, the "CEDING COMPANY INDEMNITEES") from and against and agrees to
hold each of them harmless from any and all claim, damage, loss, liability, fine
and expense (including reasonable attorneys' fees and other expenses of
investigation in connection with any action, suit or proceeding) (each, a
"LOSS") incurred or suffered by the Ceding Company Indemnitees arising out of or
resulting from any breach by the Reinsurer of any representation, warranty or
term of this Agreement.
SECTION 14.2. CEDING COMPANY'S OBLIGATION TO INDEMNIFY. The Ceding Company
hereby indemnifies the Reinsurer and its directors, officers, employees,
Affiliates, successors, permitted assigns, agents and representatives
(collectively the "REINSURER INDEMNITEES") from and against and agrees to hold
each of them harmless from any and all Losses incurred or suffered by Reinsurer
Indemnitees arising out of or resulting from (a) any breach by the Ceding
Company of any representation, warranty or term of this Agreement or (b) any
litigation, claim, examination, investigation or other proceeding brought by a
Person that is neither a party to this Agreement nor an Affiliate of such party,
which if brought against the Ceding Company would be an Extra Contractual
Obligation.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1. CURRENCY. All transactions hereunder shall be in United
States currency. Any accounting entries expressed in currencies other than
United States currency shall, for the purpose of this Agreement, be converted
into United States dollars at the rates of exchange in effect on the date on
which they are entered in the books of the Ceding Company.
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SECTION 15.2. NOTICES. All notices, requests, demands, approvals and other
communications under this Agreement shall be in writing and shall be (i)
delivered personally, (ii) sent by facsimile transmission or (iii) sent by
certified, registered or express mail, postage prepaid. Any such notice or other
communication shall be deemed given: (a) upon actual delivery, if presented
personally, (b) when electronically confirmed, if sent by facsimile transmission
and (c) three Business Days following deposit in the United States mail, if sent
by certified, registered or express mail, postage prepaid, in each case to the
following addresses:
If to the Reinsurer:
Commonwealth Annuity and Life Insurance Company
000 Xxxxxxxx Xxxx
Xxxxxxxxxxxx, XX 00000
Attn: Xxxxxxxx Xxx Xxxxxx
President and CEO
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
If to the Ceding Company:
Forethought Life Insurance Company
Forethought Financial Group
0000 Xxxxxxxxx Xxxxxxx
Xxx. 0000
Xxxxxxx, XX 00000
Telephone No.: (000) 000-0000
SECTION 15.3. AMENDMENTS; WAIVER.
(a) Any provision of this Agreement may be amended if, but only
if, such amendment is in writing and is signed by each party to this Agreement.
Any change or modification to this Agreement shall be null and void unless made
by an amendment hereto signed by each party to this Agreement; PROVIDED,
HOWEVER, that nothing in this Agreement shall be construed to prohibit the
Reinsurer from retroceding all or any portion of the FLIC Liabilities or FH
Liabilities reinsured hereunder to any retrocessionaire.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 15.4. SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; PROVIDED that no party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement
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without the consent of each other party hereto, and that any purported
assignment without the consent of the other party shall be void and of no force
or effect.
(b) No provision of this Agreement is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
SECTION 15.5. DUTY OF COOPERATION. Each party hereto shall cooperate fully
with the other party hereto in all reasonable respects in order to accomplish
the objectives of this Agreement.
SECTION 15.6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of Indiana, without giving
effect to the principles of conflicts of law thereof.
SECTION 15.7. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the business being reinsured
hereunder and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement. There are no understandings between the parties with respect to the
subject matter of this Agreement other than as expressed herein and therein.
SECTION 15.8. SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law or if
determined by a court of competent jurisdiction to be unenforceable, and if the
rights or obligations of the Ceding Company or the Reinsurer under this
Agreement will not be materially and adversely affected thereby, such provision
shall be fully severable, and this Agreement will be construed and enforced as
if such illegal, invalid or unenforceable provision had never comprised a part
of this Agreement, and the remaining provisions of this Agreement shall remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.
SECTION 15.9. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall be deemed to have been executed and delivered when each party hereto shall
have received a counterpart hereof signed by the other party hereto and then
become effective upon the Effective Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives.
FORETHOUGHT LIFE INSURANCE COMPANY
By: _______________________________
Name:
Title:
COMMONWEALTH ANNUITY AND
LIFE INSURANCE COMPANY
By: _______________________________
Name:
Title:
SIGNATURE PAGE - FUNDS WITHHELD COINSURANCE AND MODCO AGREEMENT -FLIC
