EXHIBIT 10.01
INDEMNITY REINSURANCE AGREEMENT
THIS INDEMNITY REINSURANCE AGREEMENT (this "Agreement"), is made and
entered into on December 29, 1998, by and between Seaboard Life Insurance
Company (USA), an Indiana insurance company (the "Company"), and Life
Reassurance Corporation of America, a Connecticut corporation (the
"Reinsurer").
RECITALS:
WHEREAS, the Company and the Reinsurer are concurrently herewith
entering into a Purchase Agreement (the "Purchase Agreement"), which agreement
calls for, among other things, the reinsurance transactions described in this
Agreement;
WHEREAS, upon the terms and conditions set forth herein, the Company
desires to cede, on a coinsurance basis, to the Reinsurer the Company's rights,
liabilities, and obligations in respect of certain life insurance and annuity
products; and
WHEREAS, upon the terms and conditions set forth herein, the Reinsurer
desires to reinsure on a coinsurance basis all of the rights, liabilities, and
obligations in respect of the Company's products referred to above;
NOW, THEREFORE, in consideration of the mutual covenants and promises,
and upon the terms and conditions, hereinafter set forth, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
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Unless otherwise defined herein, capitalized terms used herein shall
have the following meanings:
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
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which banking institutions in Indiana are permitted or obligated by Law to be
closed.
"Closing Date" shall have the meaning set forth in the Purchase Agreement.
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"Company Extra Contractual Obligations" shall mean Extra Contractual
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Obligations based on acts, errors or omissions by the Company or any of its
officers, employees, agents or representatives, and any attorneys' fees incurred
by the Company related thereto.
"Effective Date" shall mean July 1, 1998.
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"Effective Time" shall mean 12:01 a.m. Eastern Daylight Time on the
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Effective Date.
"Extra Contractual Obligations" shall mean all liabilities and obligations
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for consequential, extra-contractual, exemplary, punitive, special or similar
damages (other than those arising under the express terms and conditions of the
Policies) which arise from any act, error or omission, whether or not
intentional, in bad faith or otherwise, including, without limitation, any act,
error or omission relating to (i) the marketing, underwriting, production,
issuance, cancellation or administration of the Policies, (ii) the
investigation, defense, trial, settlement or handling of claims, benefits, or
payments under the Policies, or (iii) the failure to pay or the delay in payment
of benefits, claims or any other amounts due or alleged to be due under or in
connection with the Policies.
"Final Closing Balance Sheet" shall have the meaning set forth in Section
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6.01.
"General Account" shall mean the general account of the Company relating to
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the Policies.
"Investment Assets" shall mean the mortgages and bonds identified on
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Schedule 6.01(a) hereto.
"Law" shall mean all domestic or foreign federal, state, local statute,
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law, ordinance or regulation.
"LIBOR" shall mean a rate per annum equal to the three month London
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Interbank Offered Rate as published in The Wall Street Journal, Eastern Edition,
in effect on the Closing Date.
"Person" shall mean any individual, corporation, partnership, firm, joint
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venture, association, joint-stock company, limited liability company, trust,
unincorporated organization, governmental, judicial or regulatory body, business
unit, division or other entity.
"Policies" shall mean all binders, policies, endorsements, riders,
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certificates and other contracts of insurance and annuity contracts issued or
assumed by the Company on or prior to the Closing Date that are on forms
identified in Exhibit A attached hereto and made a part hereof. Also included
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in the definition of "Policies" are (i) any such insurance policies,
certificates and contracts that have lapsed and that otherwise would be eligible
for inclusion herein, subject to reinstatement pursuant to reinstatement
procedures contained in such policies, certificates and contracts, and (ii) all
individual life policies that are required to be issued by the Company prior to
or after the Closing Date following the exercise of conversion rights in
accordance with the terms of the individual life policies reinsured by the
Reinsurer hereunder.
"Policy Liabilities" shall mean the liability of the Company based upon or
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arising out of the Policies but shall not include (i) any Extra Contractual
Obligations, (ii) claims incurred but not reported prior to the Effective Date
or (iii) claims in the course of settlement as of the Effective Date. The term
"Policy Liabilities" shall include, without limitation, any and all of the
Company's liability:
(a) For liabilities and obligations in respect of the Policies, and
any attorneys' fees incurred by the Reinsurer related to such
liabilities and obligations;
(b) For premium taxes arising on account of premiums received by the
Company in respect of the Policies and remitted to the Reinsurer
or otherwise received by the Reinsurer at or after the Effective
Date or in connection with participation by the Company, whether
involuntary or voluntary, in any guaranty fund established or
governed by any state or jurisdiction;
(c) For returns or refunds of premiums (irrespective of when due)
under the Policies payable at or after the Effective Date; and
(d) For commission payments and other compensation, if any, payable
at or after the Effective Date with respect to the Policies to or
for the benefit of agents and brokers.
"Qualifying Assets" shall mean assets which qualify as admissible assets of
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the Reinsurer under statutory accounting principles and the Laws of the State of
Indiana.
"Reinsurance Period" shall mean the period of time from the Effective Date
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of this Agreement through the termination of this Agreement.
"Revised Closing Balance Sheet" shall have the meaning set forth in Section
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6.01.
"Reinsurer Extra Contractual Obligations" shall mean (a) Extra Contractual
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Obligations based on acts, errors or omissions occurring on or after the
Effective Date by the Reinsurer or any of its officers, employees, agents or
representatives, and any attorneys' fees incurred by the Reinsurer related
thereto, and (b) Company Extra Contractual Obligations except to the extent
otherwise provided in Articles VIII and IX of the Purchase Agreement.
"SAP" shall mean statutory accounting practices prescribed or permitted by
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applicable insurance regulatory authorities consistently applied throughout the
specified period and in the comparable period in the immediately preceding year.
"Statutory Reserves" shall mean all reserves computed in accordance with
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statutory reserving requirements.
"Third Party Reinsurance Agreements" shall mean all reinsurance agreements
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to which the Company is a party and pursuant to which it cedes a portion of its
net risk retained under the Policies (other than this Agreement).
ARTICLE II
BUSINESS REINSURED
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Section 2.01 General. Effective as of 12:01 a.m., Eastern Daylight Time,
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on July 1, 1998 (the "Effective Time"), the Company hereby cedes to and
reinsures with the Reinsurer, and the Reinsurer hereby assumes and reinsures
from the Company, on an indemnity reinsurance basis (i) 100% of the Policy
Liabilities under any and all Policies and (ii) 100% of the Reinsurer Extra
Contractual Obligations.
Section 2.02
(a) Policy Liabilities. From and after the Effective Time, as between
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the parties, the Reinsurer shall bear and shall have responsibility for paying
all Policy Liabilities, including but not limited to liabilities for surrenders,
withdrawals, and claims for benefits incurred on or after the Effective Time.
The Reinsurer hereby agrees to pay directly any Policy Liabilities under the
Policies on behalf of, and in the name of, the Company; provided, however, that
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the Reinsurer shall have no direct or indirect obligation itself to insureds,
claimants, or beneficiaries under such Policies. The liability of the Reinsurer
on any Policy shall begin simultaneously with that of the Company, but not prior
to the Effective Time.
(b) Reinsurer Extra Contractual Obligations. From and after the
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Effective Time, as between the parties, the Reinsurer shall bear and shall have
responsibility for all Reinsurer Extra Contractual Obligations.
Section 2.03 Defenses. The Reinsurer accepts, reinsures, and assumes the
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Policy Liabilities and Reinsurer Extra Contractual Obligations subject to any
and all defenses, setoffs, and counterclaims to which the Company would be
entitled with respect to the Policy Liabilities or Reinsurer Extra Contractual
Obligations, as the case may be, it being expressly understood and agreed by the
parties hereto that no such defenses, setoffs, or counterclaims are or shall be
waived by the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby and that the Reinsurer is and shall be
fully subrogated in and to all such defenses, setoffs, and counterclaims.
Section 2.04 Declaration of Policy Interest Rates. Some of the Policies
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ceded under this Agreement provide that the Company may in its discretion, from
time to time, as provided in the policy or contract, declare interest rates that
are used to determine policy or contract values. During the Reinsurance Period,
the Company agrees that the Reinsurer shall have the right to designate such
discretionary interest rates to be declared on the Policies and the effective
dates thereof. The Company agrees to allow the Reinsurer to be the source of
communication of such interest rate changes and their effective dates.
Section 2.05 Post-Closing Policies. The Company shall continue to issue
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individual life insurance coverage following the exercise of conversion rights
by policyholders in accordance with the terms and conditions of the Policies
giving rise to such rights. Any coverage issued by the Company pursuant to such
conversion rights shall be deemed a Policy for purposes of this Agreement and
accordingly will be reinsured by the Reinsurer and administered pursuant to the
terms of the Administrative Services Agreement. The Company and the Reinsurer
shall cooperate in good faith to
facilitate the issuance of converted Policies in accordance with mutually
acceptable procedures.
ARTICLE III
GUARANTY FUND ASSESSMENTS
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Section 3.01 Reimbursement of the Company. In the event the Company is
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required to pay any assessment to any insurance guaranty, insolvency,
comprehensive health association or other similar fund maintained by any
jurisdiction allocable to any insurer insolvency that occurs on or after the
Effective Date, the portion, if any, of such assessment that relates to Policies
(the "Related Assessment") shall be reimbursed by the Reinsurer. The Reinsurer
shall not be obligated to reimburse the Company for any such assessment
allocable to any insurer insolvency that occurs at any time prior to the
Effective Date. The Reinsurer shall pay to the Company any Related Assessment
which shall have become due, promptly on written demand therefor by the Company,
submitted together with documentation evidencing such assessment and the payment
therefor by the Company. If at any time the Company shall subsequently recover
all or part of any such assessment reimbursed by the Reinsurer (e.g., through
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policy surcharges or through reduction of or credits against premium taxes as to
the Policies), the portion of any such recovery received or otherwise realized
by the Company attributable to the Related Assessment shall be reimbursed to the
Reinsurer (based upon the total portion of such recovery attributable to
Policies). The Company shall provide the Reinsurer with semi-annual reports of
any such recoveries regardless of the form in which received.
Section 3.02 Reimbursement of the Reinsurer. In the event the Reinsurer
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is required to pay any assessment to any insurance guaranty, insolvency,
comprehensive health association or other similar fund maintained by any
jurisdiction allocable to any insurer insolvency that occurs prior to the
Effective Date, the portion, if any, of such assessment that relates to Policies
(the "Related Prior Period Assessment") shall be reimbursed by the Company. The
Company shall not be obligated to reimburse the Reinsurer for any such
assessment allocable to any insurer insolvency that occurs at any time after the
Effective Date. The Company shall pay to the Reinsurer any Related Prior Period
Assessment which shall have become due, promptly on written demand therefor by
the Reinsurer, submitted together with documentation evidencing such assessment
and the payment therefor by the Reinsurer. If at any time the Reinsurer shall
subsequently recover all or part of any such assessment reimbursed by the
Company (e.g., through policy surcharges or through reduction of or credits
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against premium taxes as to the Policies), the portion of any such recovery
received or otherwise realized by the Reinsurer attributable to the Related
Prior Period Assessment shall be reimbursed to the Company (based upon the total
portion of such recovery
attributable to Policies). The Reinsurer shall provide the Company with semi-
annual reports of any such recoveries regardless of the form in which received.
ARTICLE IV
TERRITORY; TERM
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This Agreement shall apply to Policies covering lives and risks wherever
resident or situated. Subject to Article IX below, this Agreement shall remain
in full force and effect until the expiration or termination of all Policy
Liabilities in respect of the Policies and until all obligations of either party
hereunder have been discharged in full.
ARTICLE V
RESERVES
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Section 5.01 Establishment of General Account Reserves. The Reinsurer
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shall be responsible for establishing and maintaining the proper general account
Statutory Reserves for the Policies as required by state insurance regulatory
authorities.
Section 5.02 Reserve Reports. The Reinsurer or its designee shall provide
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the Company, within 20 Business Days after the end of each calendar quarter
other than the quarter ending December 31, and within 25 Business Days after the
end of the calendar quarter ending December 31, valuation summary reports which
shall itemize reserves and contracts in force by plan code, in a format mutually
agreed upon by the Company and the Reinsurer. Such reports shall reflect 100%
of any changes in the reserves described in Section 5.01 above which occurred
during the accounting period for which such reports are made. These reports
shall include statutory and tax reserves.
Section 5.03 Reinsurance Reserve Credits. If the full statutory
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reinsurance reserve credit contemplated by this Agreement is or becomes
unavailable to the Company with respect to any jurisdiction, the Reinsurer shall
take any and all action necessary to make such full statutory reinsurance
reserve credit available to the Company. In doing so, the Reinsurer shall have
the discretion to utilize any means available in the applicable jurisdiction to
make such full statutory reinsurance reserve credit available to the Company,
which may include, but not be limited to, permitting the Company to withhold
funds, establishing a reserve trust account or posting a letter of credit. If a
letter of credit is utilized it shall be furnished and maintained by the
Reinsurer for the benefit of the Company and be clean, irrevocable and
unconditional and otherwise of such nature and amount as to satisfy the
requirements of the particular
jurisdiction for purposes of establishing full statutory reinsurance reserve
credit for the Company.
In the event that the Reinsurer shall fail or refuse to fulfill any of its
obligations under this Agreement relating to the payment of liability, the
Company shall be entitled to proceed under the terms and conditions of any
letter of credit, trust agreement or any other agreement relating to the same
and seize and take possession of the funds represented by the same and apply
those funds to reduce the Reinsurer's obligations to the Company.
ARTICLE VI
TRANSFER OF ASSETS; ACCOUNTING
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Section 6.01 Initial Transfer of Assets.
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(a) On the Closing Date, the Company shall transfer to
Reinsurer (i) Policy loans, (ii) due and accrued premiums on the Policies, (iii)
Investment Assets, and (iv) cash, having an aggregate value equal to the excess
of General Account Statutory Reserves as of July 1, 1998 over the amount of
goodwill attributable to the Business. For the purposes of this Section 6.01(a),
the value of each of the items (other than cash) identified in the preceding
sentence shall be the book value of such item as of June 30, 1998, as set forth
on Schedule 6.01(a). The assets to be transferred pursuant to this Section
6.01(a) shall consist first of Policy loans and due and accrued premiums on the
Policies and second of Investment Assets and cash; provided, that the amount of
cash transferred shall be the minimum amount necessary (taking into account any
inability to divide Investment Assets) to produce the correct value for
transferred assets in accordance with this Section 6.01(a). The individual
Investment Assets to be transferred shall be selected by the Company, but such
selection shall be made with the goal of minimizing the amount of cash to be
transferred to Reinsurer.
(b) In addition to the assets to be transferred to Reinsurer
pursuant to Section 6.01(a), on the Closing Date the Company shall transfer to
Reinsurer cash in an amount reflecting post-Effective Time cash flows up to and
including the last day of the last calendar quarter ending not less than 30 days
prior to the Closing Date, determined in accordance with Schedule 6.01(b) (the
"Post-Effective Time Cash Flows").
Section 6.02 Post-Closing Adjustments.
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(a) As promptly as practicable after the Closing (but in no
event more than 45 days thereafter), the Company shall recalculate each item
included in Post-
Effective Time Cash Flows to reflect any inaccuracy in the calculation utilized
for the purposes of Section 6.01(b) and to include cash flows during the period
between the date through which such cash flows were calculated for the purposes
of Section 6.01(b) and the Closing Date. Once such items have been recalculated,
the Company shall provide to Reinsurer a revised Schedule 6.01(b) reflecting
such recalculations along with reasonably detailed supporting data.
(b) Reinsurer shall have the right to review the revised Schedule
6.01(b) and comment thereon for a period of forty-five (45) calendar days after
receipt thereof. In the event that Reinsurer and the Company are unable to
agree on the manner in which any item or items should be treated in the revised
Schedule 6.01(b) within such 45-day period, the Company, on the one hand, and
Reinsurer, on the other, shall prepare separate written reports of such items or
items and refer such reports to a qualified third party accountant or actuary,
as appropriate, mutually acceptable to Reinsurer and the Company (the "Third
Party Consultant") within ten (10) Business Days after the expiration of such
45-day period. The Third Party Consultant shall determine within ten (10)
Business Days the manner in which such item or items shall be treated in the
revised Schedule 6.01(b); provided, however, that the dollar amount of each item
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in dispute shall be determined within the range of dollar amounts proposed by
the Company on the one hand, and Reinsurer on the other hand. The
determinations by the Third Party Consultant as to the items in dispute shall be
in writing and shall be Final and Binding on the parties and shall be so
reflected in the revised Schedule 6.01(b). For purposes of this Agreement,
"Final and Binding" shall mean that the aforesaid determinations shall have the
same preclusive effect for all purposes as if such determinations had been
embodied in a final judgment, no longer subject to appeal, entered by a court of
competent jurisdiction. The fees, costs and expenses of retaining the Third
Party Consultant shall be shared 50% by the Company, on the one hand, and 50% by
Reinsurer, on the other.
(c) Not later than three Business Days following the resolution
of any disputes with respect to the revised Schedule 6.01(b), Reinsurer shall
pay to the Company or the Company shall pay to Reinsurer, as appropriate, the
amount necessary to put the parties in the same economic position as if the
revised Schedule 6.01(b) had been utilized for the purposes of the payment made
at Closing pursuant to Section 6.01(b), including interest on the amount so paid
from and including the Closing Date to but not including the date of such
transfer, computed at LIBOR.
Section 6.03 Net Quarterly Adjustment. With respect to any calendar
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quarter, the "Net Quarterly Adjustment" shall be the amount calculated by
comparing:
(a) the sum of:
(i) the gross premium collected on all Policies;
(ii) the interest payments and principal repayments on all
Policy loans;
(iii) the administrative, cost of insurance, and other charges
deducted under the Policies; and
(iv) any other fees, charges, premiums, costs, or other
amounts, or portion(s) thereof;
in each case, collected during the preceding calendar quarter and which would be
payable to the Company in the absence of the reinsurance of the Policies
effected by this Agreement.
(b) with the sum of the following:
(i) the Policy benefits paid, including death benefits (net of
reimbursements under Third Party Reinsurance Agreements),
full or partial cash surrender benefits, full or partial
withdrawal benefits, maturity benefits, annuity payments,
Policy loan benefits and premium (or other) refunds;
(ii) the commissions paid (net of refunds) by or on behalf of
the Company for all Policies;
(iii) the amount of any state, municipal or other premium or
gross receipts taxes paid by or on behalf of the Company
with respect to Policy premiums collected;
(iv) the premiums (net of refunds) paid by or on behalf of the
Company under the Third Party Reinsurance Agreements; and
(v) any other fees, charges, premiums, costs, and other
amounts paid by or on behalf of the Company with respect
to the Policies;
in each case, paid during the preceding calendar quarter and which would be
payable by the Company under the terms of the Policies in the absence of the
reinsurance of the Policies effected by this Agreement.
Reimbursements listed above shall not be made with respect to items
accrued by the Company prior to the Effective Date.
If the sum of items in Section 6.03(a) exceeds the sum of items in
Section 6.03(b) for the preceding calendar quarter, then (subject to the
provisions of Section 6.05) such excess (to the extent not already paid to or on
behalf of the Reinsurer) shall be paid by the Company to the Reinsurer by wire
transfer of immediately available funds before the end of business on the tenth
day of the current calendar quarter. Conversely, if the sum of the items in
Section 6.03(b) exceeds the sum of the items in Section 6.03(a) for the
preceding calendar quarter, then (subject to the provisions of Section 6.05)
such excess (to the extent not already paid to or on behalf of the Company)
shall be paid by the Reinsurer to the Company by wire transfer of immediately
available funds before the end of business on the tenth day of the current
calendar quarter.
Section 6.04 Benefit Payments. The Reinsurer shall have full
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responsibility and authority for all benefit payment determinations or
settlements, and shall be solely responsible for all expenses associated with
benefit payment determinations or settlements. Such benefit payment authority
shall be subject to the Company's guidelines as in effect at the Effective Date
and any amendments to such guidelines may only be made by mutual written
agreement of the Company and the Reinsurer.
Section 6.05 Cash Settlement and Accounting.
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(a) Quarterly Cash Statements. At the end of the tenth Business Day
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next succeeding the end of each calendar quarter, the Reinsurer will provide the
Company with a statement setting forth amounts payable to the Company and the
Reinsurer for such preceding calendar quarter.
(b) Form of Statements. All statements provided pursuant to Section
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6.05(a) above shall be in a form agreed to by the Company and the Reinsurer in
writing and shall summarize the items to be settled in reasonable detail.
(c) Right to Audit. The Company shall have the right to audit the
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amounts contained in any statements delivered under this Section 6.05. For such
purposes, the Company and its employees, professional advisors and agents shall
have a right to review and copy the relevant books and records of the Reinsurer
and to discuss such matters with employees or the Reinsurer during normal
business hours.
The Reinsurer agrees to instruct its independent public accountants and
actuaries to provide information to the Company and render reasonable assistance
to them in conducting any such audit.
(d) General Right of Offset. Notwithstanding any provision of this
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Agreement, any and all amounts due from one party to the other may be offset
against amounts due from the other party under this Agreement or under any other
written agreement hereafter entered into by and between the parties, in settling
and making payments on a net basis of amounts due under this Agreement and any
subsequent written agreements.
All settlements of account between the Company and the Reinsurer shall
be made in cash or its equivalent.
ARTICLE VII
ADMINISTRATION; RECORDS; NOTICES
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Section 7.01 Administration. Administration and servicing of all of the
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Policies shall be conducted pursuant to the terms and subject to the conditions
set forth in the Administrative Services Agreement, dated as of the date hereof,
between the Company, Seaboard Life Insurance Company, a Canadian Federal
insurance company, and the Reinsurer, as the same may be amended from time to
time (the "Administrative Services Agreement"). Reports, files, and other
records and information relating to the Policies shall be transferred and
maintained pursuant to the terms and subject to the conditions set forth in the
Administrative Services Agreement.
Section 7.02 Transfer of Books and Records. The Company shall forward to
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the Reinsurer all reports, records, underwriting files, policy files, claims
files and information in any form in its possession relating to the Policies
pursuant to and in accordance with the Administrative Services Agreement.
Section 7.03 Maintenance of Books and Records. The Reinsurer agrees to
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maintain a true and complete set of books and records relating to all
transactions under this Agreement, including without limitation all such records
as may be required by applicable Law. The Reinsurer shall maintain such books
and records at the Reinsurer's expense and in accordance with prudent standards
of insurance record-keeping and all applicable Law. The books and records shall
be available (at their place of keeping) for inspection, examination, and audit
by the Company and state and federal regulatory authorities (in each case
together with their respective representatives) at all reasonable times. The
Reinsurer shall furnish to the Company (i) at the Reinsurer's expense, copies of
any books or records relating to the transactions
under this Agreement as may be reasonably required by the Company in connection
with the preparation of the Company's financial statements, state and federal
income and other tax returns, and any other filings or reports required to be
filed with, or requested by, state or federal regulatory authorities or any
rating agencies and (ii) at the Company's expense, copies of any such books and
records for any other reason. Without limiting the generality of the foregoing,
the Reinsurer shall provide the Company (at the Reinsurer's expense) with all
information concerning the Policies required to be included in the Company's
state premium tax returns (in a format suitable for direct insertion therein).
Section 7.04 Notices. The Company agrees that, after the Service
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Transition Date (as defined in the Administrative Services Agreement), it shall
forward promptly to the Reinsurer all notices and other written communications
received by it relating to the Policies (including without limitation all
inquiries or complaints from state insurance regulators, agents, brokers and
insureds and all notices of claims, suits and actions for which it receives
service of process). The Company shall be entitled to retain copies of all such
materials.
ARTICLE VIII
CONDITIONS PRECEDENT
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The consummation of this Agreement and the transactions contemplated
hereby are expressly contingent upon and subject to (i) obtaining any and all
such approvals and consents as may be required by applicable Law or regulatory
authority and (ii) the closing of the transactions contemplated by the Purchase
Agreement. No provision in this Agreement shall be deemed to require any party
hereto to take any action prohibited by applicable Law or regulatory authority.
ARTICLE IX
RECAPTURE; TRUST
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Section 9.01 Right of Recapture or Trust. At any time after the
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occurrence (or nonoccurrence, as the case may be) of any of the following, the
Company shall have the right, upon delivery of written notice to the Reinsurer,
to (i) recapture any and all of the Policies or (ii) require that the Reinsurer
establish a trust reasonably acceptable to the Company (the "Trust") and deposit
Qualifying Assets therein having a fair market value equal to the amount of the
general account Statutory Reserves with respect to the Policies:
(a) if the Reinsurer fails to comply with any material provision of
this Agreement or the Administrative Services Agreement, and such failure is not
corrected within 60 days after written notice thereof is delivered to the
Reinsurer by the Company;
(b) if the Reinsurer receives a rating from A.M. Best of "A-" or
below or is no longer rated by A.M. Best; or
(c) if the Reinsurer is placed in receivership, conservatorship,
rehabilitation, or liquidation by any insurance regulatory authority or becomes
(whether voluntarily or involuntarily) the subject of a proceeding under any
local, state, or federal bankruptcy or insolvency Law.
Section 9.02 Effect of Recapture. Upon the receipt of the Company's
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notice to recapture pursuant to Section 9.01 hereof, and without further action
by the Reinsurer, the Reinsurer will be deemed to have (i) ceded, transferred,
and assigned to the Company all Policy Liabilities; (ii) transferred and
assigned to the Company Qualifying Assets (including all Policy loans) having an
aggregate statutory book value as of the date of recapture equal to the
aggregate General Account reserve liability amount established by the Company as
of such date with respect to the Policies (without giving effect to the
reinsurance under this Agreement), together with all interest, dividend, or
other investment income accrued on such assets from the date of the Reinsurer's
receipt of such recapture notice until the date of the Company's receipt of such
assets; and (iii) sold, transferred, and assigned to the Company any and all of
the Reinsurer's right, title, and interest in and to all gross premiums, premium
adjustments, amounts recoverable from reinsurers, and other similar payments and
receivables that are or may be due or payable under the Policies. The Reinsurer
shall cooperate with the Company in effecting any recapture of Policies pursuant
to Section 9.01 hereof, including without limitation by promptly transferring
amounts to the Company described in clause (ii) above and by executing and
delivering such other documents, instruments and certificates effectuating the
recapture described in this Article and reasonably requested by the Company.
Upon recapture, a recapture fee calculated in the manner set forth on Schedule
9.02 hereto, less the liquidated damages set forth in Section 9.04 below, shall
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be payable to the Reinsurer by the Company.
Section 9.03 Trust. Upon the receipt of the Company's notice to require
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the establishment of a trust pursuant to Section 9.01 hereof, and without
further action by the Reinsurer, the Reinsurer will be deemed to have
transferred and assigned to the Trust assets of the Reinsurer having an
aggregate statutory book value as of the effective date of such notice equal to
the aggregate General Account reserve liability
amount established by the Company as of such date with respect to the Policies
(without giving effect to the reinsurance under this Agreement), together with
all interest, dividend, or other investment income accrued on such assets from
the date of the Reinsurer's receipt of such notice until the date of the Trust's
receipt of such assets. The Reinsurer shall cooperate with the Company in
effecting the creation and funding of the Trust pursuant to Section 9.01 hereof,
including without limitation by promptly transferring amounts to the Trust
described in the preceding sentence and by executing and delivering such other
documents, instruments and certificates effectuating the establishment, funding,
and maintenance of the Trust described in this Section and reasonably requested
by the Company.
Section 9.04 Liquidated Damages. Upon the recapture of all Policies or
------------------
establishment of the Trust pursuant to Section 9.01 hereof, the Reinsurer shall
pay to the Company (within five Business Days after the Reinsurer's receipt of
the Company's notice under Section 9.01) liquidated damages in an amount equal
to $1,000,000.
ARTICLE X
RIGHT OF INSPECTION
-------------------
Each party hereto and its respective authorized representatives shall have
the right, at all reasonable times during normal business hours, to inspect and
review all books, records, accounts, reports, tax returns, files and information
of the other party hereto relating to the Policies and Policy Liabilities under
such Policies.
ARTICLE XI
INDEMNIFICATION
---------------
The indemnification rights of the parties to this Agreement are set forth
in the Purchase Agreement.
ARTICLE XII
INSOLVENCY
----------
The Reinsurer hereby agrees that, as to all reinsurance made, ceded,
renewed or otherwise becoming effective hereunder, the portion of any risk or
obligation assumed by the Reinsurer, when such portion is ascertained, shall be
payable immediately on demand of the Company at the same time as the Company
shall pay its retained portion of such risk or obligation, with reasonable
provision for verification before payment, and the reinsurance shall be payable
by the Reinsurer on the basis of the liability of the Company under the Policy
or Policies reinsured, without diminution because of the insolvency of the
Company, directly to the Company or to its liquidator, receiver, or other
statutory successor. It is agreed that in the event of the insolvency of the
Company, the liquidator, receiver or other statutory successor of the Company
shall give prompt written notice to the Reinsurer of the pendency or submission
of a claim under the Policy or Policies reinsured. During the pendency of such
claim, the Reinsurer may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated any defense
available to the Company or its receiver. The expense thus incurred by the
Reinsurer is chargeable against the Company, subject to any court approval, as a
part of the expense of liquidation to the extent of a proportionate share of the
benefit which accrues to the Company solely as a result of the defense
undertaken by the Reinsurer.
ARTICLE XIII
NO THIRD PARTY RIGHTS
---------------------
The Reinsurer's coinsurance of the Policy Liabilities pursuant to this
Agreement with respect to any of the Policies is intended for the sole benefit
of the parties to this Agreement and shall not create any right on the part of
any policyholder, insured, claimant or beneficiary under such Policies against
the Reinsurer or any legal relationship between such policyholders, insureds,
claimants or beneficiaries and the Reinsurer.
ARTICLE XIV
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.
ARTICLE XV
ARBITRATION
-----------
In the event any dispute arises between the parties hereto with reference
to any aspect of this Agreement, such dispute may be submitted for resolution by
arbitration if both parties hereto agree in writing. Within 30 days after such
agreement, each party shall select one arbitrator (for a total of two), and such
selected arbitrators shall select a third arbitrator within 60 days after such
agreement. If either party fails to select an arbitrator within such time
period, the arbitrator that was timely selected by the other party shall serve
as the sole arbitrator. All arbitrators shall have had experience serving as an
arbitrator for reinsurance disputes or shall have served as an officer of a
life, accident or health insurance or reinsurance company. No arbitrator shall
be or have been affiliated with or employed by any party hereto or their
respective affiliates. The arbitration shall occur in a mutually acceptable
location and be governed pursuant to the rules of commercial arbitration of the
American Arbitration Association and the Laws of the State of Indiana. The
arbitrators shall make their determination within 30 days after the appointment
of the last arbitrator. Judgment may be entered upon the final decision of the
arbitrators in any court having jurisdiction, and notwithstanding any provision
in this Agreement to the contrary, such arbitration determination shall be final
and conclusive for all legal purposes and may not be appealed to any court or
other forum. Each party shall pay the expenses incurred by it and by the one
arbitrator selected by it. Each party shall pay one-half of the fees and out-
of-pocket expenses of the American Arbitration Association (if any) and the
third arbitrator.
ARTICLE XVI
GENERAL PROVISIONS
------------------
Section 16.01 DAC Adjustment. (a) For purposes of this Agreement, the
--------------
term "DAC Adjustment" is calculated as follows: First, for each taxable year
with respect to each category of Policies, "the gross amount incurred by the
reinsurer with respect to this Agreement" (as defined in Section 1.848-
2(f)(2)(i)(A) of the regulations (the "Regulations") under the Internal Revenue
Code of 1986, as amended (the "Code"), for such category (but not including any
DAC Adjustment incurred in such year) is multiplied by the applicable percentage
set forth in Section 848 (c)(1) of the Code for such category. The amount, if
any, from the preceding sentence for a category of Policies is then reduced by
the amortization allowed the Company under Section 848(a)(2) of the Code for
such amount (without regard to any payment of any DAC Adjustment). The result
for a category, whether positive or negative, is then multiplied by the quotient
of: tr/(1-(tr x (1+Y))), where tr = the maximum applicable marginal corporate
federal income tax rate (as defined in Section 11(b)(1)(D) of the
Code) for the taxable year, and Y = the applicable percentage set forth in
Section 848(c)(1) for such category of Policies. The aggregate amount of such
calculations for all categories of Policies for a taxable year (whether positive
or negative) is the DAC Adjustment for the year.
(b) Within 60 days of the end of the Company's taxable year, the
Reinsurer shall calculate the DAC Adjustment for the year and submit such
calculations to the Company for review. If, within 30 days of the Company's
receipt of such calculations, the Company shall not have objected in writing to
such calculations, the calculations shall become final. If, within 15 days of
any objection in writing to such calculations, the Company and the Reinsurer
shall not have agreed in writing to such calculations (in which case the
calculations shall become final), any disputed aspects of the calculations shall
be resolved by the Third Party Consultant within 30 days of the submission of
the dispute to the Third Party Consultant by the Company or the Reinsurer. The
decision of the Third Party Consultant shall be final (and the resulting
calculations shall be final), and the costs, expenses, and fees of the Third
Party Consultant shall be borne equally by the Company and the Reinsurer.
(c) If the amount of the DAC Adjustment for any taxable year of the
Company is positive, the Reinsurer shall pay such amount to the Company within
15 days of the date on which the calculations of the DAC Adjustment become
final. If the amount of the DAC adjustment for any taxable year of the Company
is negative, the Company shall pay such amount to the Reinsurer within 15 days
of the date on which the calculations of the DAC Adjustment become final.
(d) Notwithstanding any other provision of this Section 16.01, the
term "gross amount incurred by the reinsurer with respect to this Agreement"
shall not include (i) all or any part of the Purchase Price (as defined in the
Purchase Agreement) or (ii) the consequences of any recapture of the Policies
pursuant to Article IX hereof.
(e) In the event that Section 848 of the Code or the Regulations
thereunder are amended after the date hereof and any change is made to the
amortization period under Section 848(a)(2), the capitalization percentages in
Section 848(c)(1), or the definition of the term "gross amount incurred by the
reinsurer with respect to the reinsurance agreement" in Section 1.848-
2(f)(2)(i)(A) of the Regulations, the Company and the Reinsurer shall cooperate
in good faith to modify the definition of the term "DAC Adjustment" to reflect
such change, consistent with the principles and assumptions originally used in
defining that term in this Agreement.
Section 16.02 DAC Tax Election. With respect to this Agreement, the
----------------
Company and the Reinsurer hereby make the election provided for in Section
1.848-2(g)(8) of the Treasury Regulations issued under Section 848 of the Code,
and as set forth in Exhibit B. Each of the parties hereto agrees to take such
---------
further actions as may be necessary to ensure the effectiveness of such
election.
Section 16.03 Notices. Any notice or communication given pursuant to this
-------
Agreement must be in writing and (a) delivered personally, (b) sent by facsimile
transmission, (c) delivered by overnight express, or (d) sent by registered or
certified mail, postage prepaid, as follows:
If to the Reinsurer: Life Re Corporation
000 Xxxx Xxxxx Xxxx, Xxxxxxxx XX 00000
Attention: W. Xxxxxx Xxxxxx
Facsimile No.: (000)000-0000
If to the Company: Seaboard Life Insurance Company (USA)
000 Xxxxx Xxxxxxxx
Xxxxxxxxxxxx, Xxxxxxx 00000-0000
Attention: President
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxxxxx, Xxxxxx & Xxxxxxx LLP
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
All notices and other communications required or permitted under the terms of
this Agreement that are addressed as provided in this Article shall (i) if
delivered personally or by overnight express, be deemed given upon delivery;
(ii) if delivered by facsimile transmission, be deemed given when electronically
confirmed; and (iii) if sent by registered or certified mail, be deemed given
when received. Any party from time to time may change its address for notice
purposes by giving a similar notice specifying a new address, but no such notice
shall be deemed to have been given until it is actually received by the party
sought to be charged with the contents thereof.
Section 16.04 Entire Agreement. This Agreement (including the Exhibits
----------------
hereto), the Purchase Agreement and the Administrative Services Agreement
contain the entire agreement and understanding between the parties with respect
to the
transactions contemplated hereby and thereby, and supersede all prior
agreements and understandings, written or oral, with respect thereto.
Section 16.05 Expenses. Except as may be otherwise expressly provided in
--------
this Agreement, whether or not the transactions contemplated hereby are
consummated, each of the parties hereto shall pay its own costs and expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
Section 16.06 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
Section 16.07 No Third Party Beneficiary. Except as otherwise provided
--------------------------
herein, the terms and provisions of this Agreement are intended solely for the
benefit of the parties hereto, and their respective successors or permitted
assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person, and no such rights shall be conferred
upon any Person or entity not a party to this Agreement.
Section 16.08 Amendment. This Agreement may only be amended or modified
---------
by a written instrument executed on behalf of both parties hereto.
Section 16.09 Assignment; Binding Effect. Neither this Agreement nor any
--------------------------
of the rights, interests or obligations under this Agreement shall be assigned,
in whole or in part, by any of the parties hereto without the prior written
consent of the other party, and any such assignment that is attempted without
such consent shall be null and void. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties and their respective successors and permitted assigns.
Section 16.10 Invalid Provisions. If any provision of this Agreement is
------------------
held to be illegal, invalid, or unenforceable under any present or future Law,
and if the rights or obligations of the parties hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision shall be
fully severable; (b) this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
and (c) the remaining provisions of this Agreement shall remain in full force
and effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom.
Section 16.11 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the Laws of the State of Indiana, regardless of the
Laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 16.12 Waiver. Any term or condition of this Agreement may be
------
waived in writing at any time by the party that is entitled to the benefit
thereof. A waiver on one occasion shall not be deemed to be a waiver of the
same or any other breach or nonfulfillment on a future occasion. All remedies,
either under the terms of this Agreement, or by Law or otherwise afforded, shall
be cumulative and not alternative, except as otherwise provided by Law.
Section 16.13 Headings, etc. The headings used in this Agreement have
--------------
been inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words using the singular or plural number also
include the plural or singular number, respectively; (b) the terms "hereof,"
"herein," "hereby," "hereto," "hereunder," and derivative or similar words refer
to this entire Agreement (including the Exhibits hereto); (c) the term "Article"
refers to the specified Article of this Agreement; and (d) the term "party"
means, on the one hand, the Company, and on the other hand, the Reinsurer.
Section 16.14 Offset. The Company may, in its sole discretion and without
------
prior notice to the Reinsurer, reduce any amount the Company owes hereunder to
the Reinsurer by the amount, if any, that the Reinsurer owes to the Company at
such time.
Section 16.15 Compliance with Laws. The parties hereto shall at all times
--------------------
comply with all applicable Laws in performing their obligations under this
Agreement.
IN WITNESS WHEREOF, the Company and the Reinsurer have each executed this
Agreement as of the date first written above.
LIFE REASSURANCE CORPORATION
OF AMERICA
By:
--------------------------------
Name:
Title:
SEABOARD LIFE INSURANCE COMPANY (USA)
By:
--------------------------------
Name:
Title:
Exhibit A
POLICY FORMS
------------
Exhibit B
TAX ELECTION
------------
The Company and the Reinsurer hereby make an election pursuant to Treasury
Regulations Section 1.848-2(g)(8), issued pursuant to Section 848 of the Code.
This election shall be effective for the tax year during which the Effective
Date falls and all subsequent taxable years for which this Agreement remains in
effect. Unless otherwise indicated, the terms used in this Exhibit are defined
by reference to Treasury Regulations Section 1.848-2 as in effect on the date
hereof. As used below, the term "party" or "parties" shall refer to the Company
or the Reinsurer, or both, as appropriate.
1. The party with the net positive consideration with respect to the
transactions contemplated under this Agreement for any taxable year
covered by this election will capitalize specified policy acquisition
expenses with respect to such transactions without regard to the general
deductions limitation of Section 848(c)(1) of the Code.
2. The parties agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency or as
is otherwise required by the Internal Revenue Service. The exchange of
information each year will follow the procedures set forth below:
(1) By June 1 of each year, the Reinsurer will submit a schedule to the
Company 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 Reinsurer stating the amount of
the net consideration the Reinsurer will report in its tax return for
the preceding calendar year.
(2) Within 30 days of the Company's receipt of the Reinsurer's calculation,
the Company may contest such calculation by providing an alternative
calculation to the Reinsurer in writing. If the Company does not notify
the Reinsurer that it contests such calculation within said 30-day
period, the calculation will be presumed correct and the Company shall
also report the net consideration as determined by the Reinsurer in the
Company's tax return for the preceding calendar year.
(3) If the Company provides an alternative calculation of the net
consideration pursuant to clause (b), the parties will act in good faith
to reach an agreement as to the correct amount of net consideration
within 30 days of the date the Reinsurer receives the alternative
calculation from the Company. When the Company and the Reinsurer reach
agreement on an amount of net consideration, each party shall report the
applicable amount in their respective tax returns for the preceding
calendar year.
Agreed and accepted:
SEABOARD LIFE INSURANCE COMPANY (USA)
By: --------------------------------------
Name:
Title:
LIFE REASSURANCE CORPORATION OF AMERICA
By: --------------------------------------
Name:
Title:
Schedule 6.01(b)
Post-Effective Time Cash Flows
------------------------------
Premium (net of third party reinsurance);
$
-------------------
Policy charges including policy loan principal
and interest repayments $
-------------------
Policy benefits and policy loan payments $( )
------------------
Premium taxes on premiums received and guaranty fund
assessments relating to insolvencies occurring after
the Effective Time $( )
------------------
Commission payments $( )
------------------
Administrative expenses $( )
------------------
Third party reinsurance recoveries $
-------------------
Sub-Total $
-------------------
Interest @.0001918 x one-half the number of days $
-------------------
Total $
-------------------
Schedule 9.02
-------------
Recapture Fee
-------------
The amount of the Recapture Fee shall be determined in accordance with the
formula set forth below by a nationally recognized actuarial consulting firm
which shall not be affiliated with either the Company or the Reinsurer. The
actuarial firm selected to calculate the amount of the Recapture Fee is referred
to hereinafter as the "Actuary."
The Recapture Fee shall be equal to the Appraisal Value of the Business as
of the recapture date, adjusted for taxes as provided below.
Appraisal Value. The Appraisal Value of the Business shall be equal to the
---------------
present value (calculated at a 10 percent interest rate) as of the recapture
date of the following values for the Business: (a) After Tax Statutory Profits,
plus (b) After Tax Interest on Required Surplus, minus or plus (c) the Increase
---- ----- ----
or Decrease in Required Surplus, minus (d) the Initial Required Surplus.
-----
For these purposes, Required Surplus shall be calculated on the assumption
that Total Adjusted Capital to Company Action Level RBC, in each case with
respect to the Business, shall be 200 percent (Both Total Adjusted Capital and
Company Action Level RBC shall be determined as provided in the Risk-Based
Capital (RBC) Model Act or the NAIC's rules with respect thereto). In fixing
the other values required by the above formula, the Actuary shall use its best
estimates of future mortality, earned and credited interest rates, lapses and
surrenders, premium persistency, producer compensation, other taxes, licenses
and fees; provided, however, that the Actuary shall assume that the unit cost of
providing administrative services for the Business shall increase by three
percent per year over the estimated cost of such services for the twelve months
immediately following the recapture date.
Tax Adjustments. The Appraised Value shall be calculated net of any
---------------
Federal or state income Tax credits and charges inuring to or incurred by the
Company as a result of the recapture of the Business.
