REINSURANCE AGREEMENT
THIS AGREEMENT IS SUBJECT TO
ARBITRATION PURSUANT TO THE
SOUTH CAROLINA UNIFORM
ARBITRATION ACT
This Reinsurance Agreement (the "Agreement"), entered into the 7th day of
November, 2006, is by and between Affiliates, Commonwealth Annuity and Life
Insurance Company (formerly known as Allmerica Financial Life Insurance and
Annuity Company), on the one hand, a corporation organized under the laws of the
State of Massachusetts, hereinafter referred to as the "Reinsured", and Columbia
Capital Life Reinsurance Company, on the other hand, a corporation organized
under the laws of the State of South Carolina, hereinafter referred to as the
"Reinsurer".
ARTICLE I
DEFINITIONS
The following terms, as used in this Agreement, shall have the meanings set
forth below:
"Applicable Law" means any applicable law, statute, regulation, rule,
ordinance, directive, order, principal of common law, constitution or treaty
enacted, promulgated, issued, enforced or entered by any governmental entity,
including any amendments thereto that may be adopted from time to time.
"Massachusetts SAP" means the statutory accounting principles and practices
prescribed or permitted by the Commissioner of Insurance of the state of
Massachusetts,
"Effective Time" has the meaning set forth in Article IV.
"Extra Contractual Obligations" means those liabilities and obligations
that are outside the provisions of the Policies, including punitive or exemplary
damages, fines, penalties or any other liabilities, which arise from the
handling of any claim on the Policies, such liabilities or obligations arising
as a result of, but not limited to, the following: failure to defend or
indemnify an insured, failure to settle within the policy limit, or alleged or
actual negligence, fraud or bad faith in rejecting an offer of settlement or in
the preparation of the defense or in the trial of any action against an insured
under a Policy or in the preparation or prosecution of an appeal consequent upon
such action. The date on which any Extra Contractual Obligation is incurred by
the Reinsured shall be deemed, in all circumstances, to be the date of the
original Loss under the Policy reinsured under this Agreement.
"General Account Reserves" means the general account statutory reserves of
the Reinsured with respect to the Policies determined pursuant to Massachusetts
SAP, included in the Reinsured's statutory financial statements as of the
Effective Time and for reporting periods after the Effective Time during the
term of this Agreement, which reserves shall:
(A) be computed in accordance with commonly accepted actuarial standards
consistently applied and be fairly stated in accordance with sound
actuarial principles in all material respects;
(B) be based on actuarial assumptions that produce reserves sufficient to
cover all benefits and guarantees provided for in any Policy, including any
supplements or riders thereto, as to reserve basis and method, and be in
accordance with all other Policy provisions;
(C) meet the requirements of the Applicable Laws of the state of domicile
of the Reinsured, as applicable; and
(D) be computed on the basis of reserving methodologies consistent in all
material respects with those used in computing such reserves in any pro
forma financial statements provided by the Reinsured to the Reinsurer at
any time prior to or after the Effective Time in connection with the
reinsurance hereunder.
"Insured" means any insured of any Reinsured having a Policy reinsured
hereunder.
"Losses" means any amounts paid or payable or obligation or liability
incurred with respect to the Policies.
"Net Retained Liability" of the Reinsured means that portion of any
Policies and/or any Loss under the Policies covered by this Agreement that the
Reinsured retains net for its own account. The Reinsured shall be solely
responsible for all amounts that the Reinsured fails to collect from third
party reinsurers in respect of the Policies.
"Policies" has the meaning set forth in Article II.
"Reinsured" has the meaning set forth in the introduction hereto.
"Reinsurer" has the meaning set forth in the introduction hereto.
ARTICLE II
BUSINESS COVERED
The Reinsured hereby agrees to cede and the Reinsurer hereby agrees to
accept by way of a 100% quota share of the Net Retained Liability (as defined
above) of the Reinsured on any and all annuity contracts previously issued on
the policy forms as specified in Schedule I and as further defined and limited
herein.
The Reinsured will notify the Reinsurer of any changes in crediting rates,
guaranteed rates or benefits to the Policies issued or renewed during the term
of this Agreement. The Reinsured shall not effect any changes in crediting
rates, guaranteed rates or benefits to the Policies issued or renewed during the
term of this Agreement without the prior consent of the
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Reinsurer. In the event the change causes the reinsured Net Retained Liability
of such Policies to be increased or reduced in amount, the cession will be
increased or reduced proportionately from the date of such change.
ARTICLE III
EXCLUSIONS
This Agreement does not cover Extra Contractual Obligations
ARTICLE IV
COMMENCEMENT AND TERMINATION OF LIABILITY
This Agreement shall commence and become effective as of 12:01 a.m. on
November 1, 2006 (the "Effective Time") and shall continue for an indefinite
period of time, unless and until terminated in accordance with this Article IV.
The Reinsurer's liability in respect of Policies reinsured hereunder shall
commence simultaneously with the liability of the Reinsured with respect to
Losses incurred on or after the Effective Time. Subject to the provisions of
this Agreement, and conditioned on the payment of reinsurance premiums as
provided for in this Agreement, the Reinsurer's liability hereunder shall
continue as long as the Reinsured is liable under any Policy and shall cease
when the liability of the Reinsured ceases.
This Agreement shall terminate upon the mutual agreement of both parties.
In addition, this Agreement may be cancelled at any time by: (a) the Reinsurer
upon the sale, merger or effective acquisition of the Reinsured by any third
party (other than any change of ownership within any insurance holding company
system which effects no change in the ultimate controlling party of the
Reinsured), or (b) either party at any time upon the happening of either of the
following events to the other party:
1. The appointment of a receiver, administrator, trustee or conservator for
the other party to this Agreement, or the commencement of any liquidation,
rearrangement or bankruptcy proceeding against that party.
In the event of the cancellation or termination of this Agreement for any
reason, the Reinsurer shall return to the Reinsured an amount equal to the
difference between (i) the General Account Reserves as of the end of the
calendar quarter next following such cancellation or termination and (ii)
aggregate ceding commissions paid by the Reinsurer to the Reinsured pursuant to
Article XI. The Reinsurer's liability hereunder shall be satisfied in full upon
such payment.
ARTICLE V
PLAN OF REINSURANCE AND PREMIUMS
The Reinsurer shall reimburse the Reinsured for the Reinsurer's pro rata
share of payments made by the Reinsured with respect to the portions of the
Policies as more fully set forth in Article X of this Agreement. Such payments
shall include dividends paid or credited by
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the Reinsured but shall exclude policy loans in respect of the Policies.
Reinsurance of supplemental benefits shall be upon a similar plan, the liability
of the Reinsurer being in accordance with the provisions of the Reinsured's
original forms.
The Reinsured shall pay the Reinsurer as reinsurance premiums the
Reinsurer's pro rata share of the gross premiums (excluding any policy fees) the
Reinsured receives with respect to the Policies.
The Reinsured shall transfer to the Reinsurer an amount equal to the
Reinsurer's pro rata share of the General Account Reserves as of the Effective
Time and from time to time thereafter in accordance with Article XI.
Where a debt or lien has been imposed on the original Policy, reinsurance
premiums will be calculated on the Reinsurer's pro rata share of the full amount
at risk without deducting the amount of any such debt or lien.
Should a Policy which has lapsed be reinstated in accordance with the
Policy conditions, the cession hereunder will be automatically reinstated and
the appropriate arrears of premium and interest will be payable to the
Reinsurer.
The Reinsured shall bear all expenses incurred in connection with its
Policies, except as otherwise provided herein.
The Reinsurer shall pay the Reinsured the Reinsurer's pro rata share of the
gross amounts of all claims paid by the Reinsured in respect of the Policies,
the payment of such amounts to be subject to the conditions and requirements
specified in Article X of this Agreement.
The Reinsurer shall pay the Reinsured the Reinsurer's pro rata share of the
cash surrender values with respect to any reinsurance under this Agreement which
terminates for any reason other than the death of the insured.
The Reinsurer shall pay the Reinsured the policy expense allowances set
forth in Schedule II.
ARTICLE VI
SCOPE AND TERRITORY
This Agreement shall apply to Losses occurring within the territorial
limits of the Reinsured's original Policies coming within the scope of this
Agreement.
ARTICLE VII
PREMIUM AND RESERVE ACCOUNTING
Reinsurance premiums and General Account Reserves, and adjustments to these
amounts, shall be accounted for and settled not less frequently than quarterly.
The Reinsured shall send to the Reinsurer a statement of premiums for all
outstanding new reinsurance upon which cessions
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have been sent to the Reinsurer and renewal premiums for all renewal reinsurance
falling due within such accounting period. The statement shall also include
adjustments in reinsurance premiums due in previous accounting periods as well
as any adjustments to the General Account Reserves since the immediately
preceding statement. The Reinsured shall send the statement to the Reinsurer
together with its remittance of the amount due. The Reinsured shall transmit the
statement and all other data provided to the Reinsurer under this Article VIII
in an electronic format acceptable to the Reinsurer.
In the event of the cancellation of a Policy, the Reinsurer will refund to
the Company any unearned reinsurance premium less commissions arising as a
result of such cancellation.
DAC TAX ELECTION
With respect to this Agreement, the Reinsured and Reinsurer hereby make the
election provided for in Section 1.848-2(g)(8) of the Treasury Regulations
issued under Section 848 of the Internal Revenue Code, and as set forth in
Schedule III. Each of the parties hereto agrees to take such further actions as
may be reasonably necessary to ensure the effectiveness of such election.
ARTICLE VIII
INSPECTION OF RECORDS
The Reinsured shall place at the disposal of the Reinsurer and the
Reinsurer shall have the right to inspect, at all reasonable times, through its
authorized representatives, all books, records, and papers of the Reinsured in
connection with the reinsurance hereunder, or any claims in connection herewith.
ARTICLE IX
ERRORS, OMISSIONS OR DELAYS
Any inadvertent error, omission or delay in complying with the terms and
conditions of this Agreement shall not be held to relieve either party hereto
from any liability which would attach to it hereunder if such delay, omission or
error is rectified immediately upon discovery.
ARTICLE X
SETTLEMENT OF CLAIMS
In the event of a claim on a Policy reinsured hereunder the Reinsured will
notify the Reinsurer immediately. In the case of a claim on a Policy, whether
claim payment is under the strict policy conditions or compromised for a lesser
amount, the settlement made by the Reinsured shall be unconditionally binding
upon the Reinsurer; provided, however, that the Reinsurer's liability shall be
reduced as appropriate to the extent that any audit by the Reinsurer of the
Reinsured reveals that a claim was not properly settled in accordance with the
terms of this Agreement, the Reinsured's underwriting guidelines, or any
Applicable Law. If the whole risk
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on any particular claim is carried by the Reinsurer and the claim is
contestable, the Reinsurer may be consulted before admission or acknowledgement
of the claim is made by the Reinsured. However, such consultation shall not
impair the Reinsured's freedom to determine the proper action on the claim and
the settlement made by the Reinsured shall still be unconditionally binding on
the Reinsurer.
The Reinsurer will follow the practice of the Company in paying interest in
respect of claim payments.
Where a debt or lien has been imposed on the original policy, the
Reinsurer's liability will be determined by deducting from the current amount at
risk a proportion of the debt or lien calculated in the ratio that the nominal
amount of the cession bears to the sum insured under the original policy.
The Reinsured shall furnish the Reinsurer with copies of the proofs of
claim, together with any information the Reinsured may possess in connection
with the claim. Payment in settlement of the reinsurance under a claim approved
and paid by the Reinsured for a life reinsured hereunder shall be made by the
Reinsurer upon the receipt of the claim papers.
The Reinsurer shall share in the expense of any contest or compromise of a
claim in the same proportion that the amount reinsured with the Reinsurer bears
to the total face amount of the Policy and shall share in the total amount of
any saving in the same proportion. Covered claim expenses shall include cost of
investigation, legal fees, court costs and interest charges, if any.
Compensation of salaried officers and employees and any possible punitive
damages shall not be considered covered expenses.
In the event of an increase or reduction in the amount of the Reinsured's
insurance on any Policy because of a misstatement of age being established after
the death of the insured, the Reinsured and the Reinsurer shall share in such
increase or reduction in proportion to their respective shares of the face
amount under such Policy.
ARTICLE XI
CEDING COMMISSION
The Reinsurer shall pay the Reinsured a ceding commission in an amount
equal to 3.47% of the General Account Reserves.
ARTICLE XII
INSOLVENCY
In the event of the insolvency of any Reinsured, reinsurance under this
Agreement shall be payable on demand, with reasonable provision for
verification, on the basis of claims allowed against the insolvent Reinsured by
any court of competent jurisdiction or by any liquidator, receiver, or statutory
successor of the Reinsured having authority to allow such claims, without
diminution because of such insolvency or because such liquidator, receiver, or
statutory successor has failed to pay all or a portion of any claims. Such
payments by the Reinsurer shall
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be made directly to the Reinsured or its liquidator, receiver or statutory
successor, except (a) where this Agreement specifically provides another payee
of such reinsurance in the event of the insolvency of the Reinsured, or where
(b) the Reinsurer with the consent of the direct Insured or Insureds has assumed
such Policy obligations of the Reinsured as direct obligations of the Reinsurer
to the payees under such Policies and in substitution for the obligations of the
Reinsured to such payees.
It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent Reinsured shall give written notice to the Reinsurer
of the pendency of a claim against the insolvent Reinsured on the Policy or
Policies reinsured within a reasonable time after such claim is filed in the
insolvency proceeding and that 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 or defenses which it may deem
available to the Reinsured or its liquidator or receiver or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent Reinsured as part of the expense of liquidation
to the extent of a proportionate share of the benefit which may accrue to the
Reinsured solely as a result of the defense undertaken by the Reinsurer.
Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the insolvent Reinsured.
ARTICLE XIII
ARBITRATION
1. As a condition precedent to any right of action hereunder, any dispute
arising out of the interpretation, performance or breach of this Agreement,
including the formation or validity thereof, shall be submitted for
decision to a panel of three arbitrators. Notice requesting arbitration
will be in writing and sent certified or registered mail, return receipt
requested. Payments due hereunder shall not be delayed by reason of the
commencement of an arbitration proceeding pursuant to this Article.
2. One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator who
shall preside at the hearing. If either party fails to appoint its
arbitrator within thirty (30) days after being requested to do so by the
other party, the latter, after ten (10) days notice by certified or
registered mail of its intention to do so, may appoint the second
arbitrator.
3. If the two arbitrators are unable to agree upon the third arbitrator within
thirty (30) days of their appointment, the arbitrators may, upon mutual
agreement, implement the XXXXX-U.S. Umpire Appointment Procedure to
select the third arbitrator. Alternatively, each arbitrator shall nominate
three candidates and notify the other arbitrator of those nominations. The
arbitrator receiving such notice shall reject two of the candidates so
nominated. The third arbitrator shall then be chosen from the remaining two
candidates by a lot drawing procedure acceptable to the two arbitrators,
and the chosen candidate shall be appointed.
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4. All arbitrators shall be disinterested active or former officers of
insurance or reinsurance companies or Underwriters at Lloyds, London.
5. Within thirty (30) days after notice of appointment of all arbitrators, the
panel shall meet and determine timely periods for briefs, discovery
procedures and schedules for hearings.
6. The panel shall be relieved of all judicial formality and shall not be
bound by the strict rules of procedure and evidence. Unless the panel
agrees otherwise, arbitration shall take place in Charleston, SC. Insofar
as the arbitration panel looks to substantive law, it shall consider the
law of the State of South Carolina. The decision of any two arbitrators
when rendered in writing shall be final and binding. The panel is empowered
to grant interim relief as it may deem appropriate. In no event shall the
panel award punitive or exemplary damages.
7. The panel shall make its decision considering the custom and practice of
the applicable insurance and reinsurance business within forty-five (45)
days following the termination of the hearings. Either party may apply to a
United States District Court or to a State Court of competent jurisdiction
for an order confirming the arbitration award; a judgment of such Court
shall thereupon be entered on the award. If such an order is issued, the
attorneys' fees of the party so applying and court costs will be paid by
the party against whom confirmation is sought.
Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration shall be allocated by the panel. The panel
may, at its discretion, award such further costs, interest and expenses as it
considers appropriate, including but not limited to attorneys fees, to the
extent not prohibited by law.
ARTICLE XIV
CHOICE OF LAW
This Agreement, including all matters relating to formation, validity and
performance thereof, shall be interpreted in accordance with the laws of South
Carolina without regard to principles of conflicts of law.
ARTICLE XV
OFFSET
The Reinsurer and the Reinsured shall have the right to offset any
balance(s) due from the other under this Agreement. Each party may exercise
such right at any time whether the balance(s) due are on account of premiums or
Losses or otherwise.
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ARTICLE XVI
INTERMEDIARY AND DIRECT NOTICE
The parties to this Agreement represent and warrant to each other that no
broker or other reinsurance intermediary was involved in the procurement or
preparation of this Agreement.
All notices, requests, consents, and other communications required or
permitted hereunder shall be in writing and shall be delivered in person or
delivered by facsimile transmission (with a copy also sent by another means
herein provided for), e-mail or a nationally recognized overnight carrier
service or mailed by first class registered or certified mail, postage prepaid,
addressed as follows:
Commonwealth Annuity and Life Insurance
Company
000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxxx, XX 00000
Attn: General Counsel
Columbia Capital Life Reinsurance Company
C/o Goldman Xxxxx & Co.
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxx
Columbia Capital Life Reinsurance Company
c/o Xxxxxx Xxxxxxx
Xxxxx Management Services
000 Xxxxxxx Xxxxxx, Xxxxx #000
Xxxxxxxxxx, XX 00000
All such notices, requests, consents and other communications shall be
deemed to have been delivered (a) in the case of personal delivery, facsimile or
e-mail on the date of such delivery, (b) in the case of nationally recognized
overnight courier service, on the second business day following the date of
dispatch, and (c) in the case of mailing, on the fifth business day following
such mailing.
ARTICLE XVII
MISCELLANEOUS
A. This Agreement contains the full and complete understanding and agreement
between the parties hereto with respect to the subject matter hereof, and the
parties acknowledge that neither is entering into this Agreement in reliance
upon any term, condition, representation or warranty
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not stated herein and that this Agreement replaces any and all prior agreements
whether oral or written, pertaining to the subject matter hereof.
B. No provisions of this Agreement shall be modified or amended without the
prior written consent of the Reinsureds and the Reinsurer.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives in New York, NY this 7th day
of November 2006.
COMMONWEALTH ANNUITY AND LIFE INSURANCE
COMPANY
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: President
COLUMBIA CAPITAL LIFE REINSURANCE
COMPANY
By: /s/ Xxxxx X. Xxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President & CEO
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SCHEDULE I
SCHEDULE OF POLICIES AND CONTRACTS
PLANCODE NAME
124220 Single Pay Fixed BN
125220 Exec Annuity I
126220 Exec Annuity II
133220 Elective Fixed Individual
134220 Elective Fixed Individual
134420 Elective Fixed Individual
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SCHEDULE II
SCHEDULE OF POLICY EXPENSE ALLOWANCES
Maintenance Expense Allowance ($50 per policy per year)
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SCHEDULE III
DAC TAX ELECTION
The Reinsured and the Reinsurer hereby agree to make the following
election pursuant to Section l.848-2(g)(8) of the Treasury Regulations issued
pursuant to Section 848 of the Internal Revenue Code. This election shall be
effective for the Tax year during which the effective date of the Agreement
falls and for 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 Regulation Section 1.848-2 as in effect on the
Agreement effective date. Both Parties agree to make the election by timely
attaching to their tax returns the EXHIBIT required by Section 1.848-2(g)(8)(ii)
of such Treasury Regulation.
1. The Party with the net positive consideration for this Agreement
for each taxable year will capitalize specified policy acquisition expenses with
respect to this Agreement without regard to the general deductions limitation of
Section 848(c)(1) of the Internal Revenue Code.
2. Both Parties agree to exchange information pertaining to the amount
of net consideration under this Agreement each year to ensure consistency or as
otherwise required by the Internal Revenue Service.
3. Reinsurer will submit a schedule to the Reinsured by May 31 of each
year of its calculation of the net consideration for the preceding calendar
year. This schedule of calculations will be accompanied by a statement signed by
an authorized representative of the company stating that Company will report
such net consideration in its tax return for the preceding calendar year.
5. Within thirty (30) days of Reinsured's receipt of the Reinsurer's
calculation, the Reinsured may contest such calculation by providing an
alternate calculation to the Reinsurer in writing. If Reinsured does not notify
Reinsurer that it contests such calculation within said 30-day period, the
calculation will be presumed correct and Reinsured shall report the net
consideration as determined by the Reinsurer in Reinsured's tax return for the
preceding calendar year.
6. If Reinsured contests Reinsurer's calculation of the net
consideration, the Parties will act in good faith to reach an agreement as to
the correct amount within 30 days of the date the Reinsured submits its
alternative calculation. When Reinsured and the Reinsurer reach agreement on an
amount of net consideration, each party shall report such amount in their
respective tax returns for the previous calendar year.
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Agreed and accepted:
Columbia Capital Life Reinsurance
Company
By: /s/ Xxxxx X. Xxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxx
Title: President & CEO
Commonwealth Annuity and Life
Insurance Company
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: President
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