EXHIBIT 10.14
REINSURANCE AGREEMENT
EFFECTIVE DATE: December 22, 2005
BETWEEN
GREAT AMERICAN LIFE ASSURANCE COMPANY
OF PUERTO RICO
1052 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxx Xxxx 00000-0000
(Referred to in this Agreement as the Company)
AND
SEGUROS DE VIDA TRIPLE-S, INC.
1441 X. X. Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxxxxx Xxxx 00000-0000
(Referred to in this Agreement as the Reinsurer)
COINSURANCE FUNDS WITHHELD
DECEMBER 15, 2005
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TABLE OF CONTENTS
Article I Preamble
Article II Automatic Reinsurance
Article III Liability
Article IV Reinsured Risk Amount
Article V Premium Accounting
Article VI Coinsurance Funds Withheld
Article VII Reductions, Terminations and Changes
Article VIII Warranties and Covenants
Article IX Claims
Article X Recapture
Article XI General Provisions
Article XII Insolvency
Article XIII Reinsurer's Right of Notice of Unusual Practices
Article XIV Arbitration
Article XV Confidentiality
Article XVI Duration of Agreement
Article XVII Eligible Policies and Execution
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Exhibit A Retention Limits of the Company
Exhibit B Plans Covered
Exhibit C Automatic Binding Limits
Exhibit D-1 Procedures For Reporting
Exhibit D-2 Request For Financial Reporting Information
Exhibit E Reinsurance Premium Rates, Administrative Expense
Allowances and Commission Allowances
Exhibit F Assets To Be Held in Trust
Exhibit G Trust Agreement
Exhibit H Accounting and Cash Transfer Provisions
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ARTICLE I
PREAMBLE
1) Parties to the Agreement. This is a Coinsurance Funds Withheld Agreement
for indemnity reinsurance (the "Agreement") solely between Seguros de Vida
Triple-S, Inc., San Xxxx, Puerto Rico (the "Reinsurer"), and Great
American Life Assurance Company of Puerto Rico a/k/a Great American PR,
Rio Piedras, Puerto Rico (the "Company"), collectively referred to as the
"parties".
The acceptance of risks under this Agreement will create no right or legal
relationship between the Reinsurer and the insured, owner or beneficiary
of any insurance policy or other contract of the Company.
The Agreement will be binding upon the Company and the Reinsurer and their
respective successors and assigns.
2) Compliance. This Agreement applies only to the issuance of insurance by
the Company in a jurisdiction in which it is properly licensed.
The Company represents that it is in compliance with all laws applicable
to the business reinsured under this Agreement. In the event that the
Company is found to be in non-compliance with any law material to this
Agreement, the Agreement will remain in effect and the Company will
indemnify the Reinsurer for any loss (including any costs and expenses
relating to such loss) the Reinsurer suffers as a result of the
non-compliance, and will seek to remedy, at the Company's sole expense,
the non-compliance immediately upon discovery thereof.
3) Construction. This Agreement will be construed in accordance with the laws
under the Commonwealth of Puerto Rico.
4) Entire Agreement. This Agreement constitutes the entire agreement between
the parties with respect to the business reinsured hereunder. There are no
understandings between the parties other than as expressed in this
Agreement. Any change or modification to this Agreement will be null and
void unless made by amendment to this Agreement and signed by both
parties.
5) Severability. If any provision of this Agreement is determined to be
invalid or unenforceable, such determination will not impair or affect the
validity or the enforceability of the remaining provisions of this
Agreement.
6) Assignment. Neither party may assign, transfer, sell, convey or otherwise
dispose of any of its rights, duties or obligations under this Agreement
without the prior written consent of the other party, which consent shall
not be unreasonably withheld; provided, however, that the parties
acknowledge and agree that the Reinsurer may retrocede any or all of its
reinsured net amount at risk hereunder.
...END OF ARTICLE I
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ARTICLE II
AUTOMATIC REINSURANCE
1) General Conditions. On and after the effective date of this Agreement, the
Company will automatically cede, in respect of all new business written as
of and after the effective date, to the Reinsurer that portion (69%) of
the life insurance, annuities, accident and supplemental health,
supplementary benefits, and riders referred to in Exhibit B, net of Third
Party = Reinsurers.
The Reinsurer will automatically accept its share of the above-referenced
policies up to the limits shown in Exhibit C and will pay its share of
claims made against or under such policies (as of and after the effective
date), provided that:
a. the Company keeps its full retention, as specified in Exhibit A, or
otherwise holds its full retention on a life under previously issued
inforce policies (and does not transfer, assign, convey, reinsure or
otherwise dispose of such retention without the Reinsurer's prior
written consent);
b. The insured is a resident of a territory listed in Exhibit C.
...END OF ARTICLE II
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ARTICLE III
LIABILITY
1) The Reinsurer's liability will commence on December 22, 2005 and will
continue in accordance with the terms and conditions of this Agreement,
and will end at the same time as that of the Company as specified in the
terms of each of the policies subject to reinsurance by the Reinsurer
hereunder. Payment by the Company to the Reinsurer of reinsurance premium
is a condition precedent to the Reinsurer's liability hereunder.
...END OF ARTICLE III
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ARTICLE IV
REINSURED RISK AMOUNT
1) Coinsurance plans. Reinsurance premiums are equal to the gross premiums
collected on the amounts retained by the Company on the business reinsured
multiplied by the reinsurer's coinsurance percentage as defined in Exhibit
C.
2) Waiver of Premium and Payor Benefits (as applicable) shall be on a
coinsured basis in accordance with the benefit form issued by the Company.
The Reinsurer's amount at risk shall be in proportion to the net amount at
risk on the underlying policy.
3) Accidental Death Benefit (as applicable) shall be on a coinsurance basis.
The Reinsurer's amount at risk shall not exceed the amount in Exhibit C.
...END OF ARTICLE IV
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ARTICLE V
PREMIUM ACCOUNTING
1) Premiums. Reinsurance premium rates for life insurance, accident and
supplemental health insurance and other benefits reinsured under this
Agreement are gross premiums charged by the Company multiplied by the
reinsurer's coinsurance percentage shown in Exhibit C.
2) Payment of Premiums and Reporting. Reinsurance premiums are payable
quarterly and in arrears. Each quarter the Company will self-administer
the calculation and payment of reinsurance premium due and, within thirty
(30) days after the end of the quarter, will send the Reinsurer a report
that contains the information shown in Exhibit D, showing reinsurance
premiums due for that quarter. If an amount is due the Reinsurer, the
Company will remit that amount in cash together with the statement. The
Company will furnish to the Reinsurer upon the Reinsurer's request all
such supporting documentation underlying the quarterly premium
computations as the Reinsurer may request, and shall confer with the
Reinsurer, upon the request of the Reinsurer, to address any uncertainties
in such quarterly premium computations. See Exhibit H, "Accounting and
Cash Transfer Provisions", the provisions of which are incorporated
herein.
3) Failure to Pay Premiums. The payment of reinsurance premiums, as and when
due under the terms hereof, is a condition precedent to the liability of
the Reinsurer for reinsurance covered by this Agreement. In the event that
reinsurance premiums are not paid within thirty (30) days of the due date,
the Reinsurer will have the right to terminate the reinsurance under all
policies having reinsurance premiums in arrears. If the Reinsurer elects
to exercise its right of termination, it will give the Company thirty (30)
days written notice of termination (the date of the giving of such notice,
the "Notice Date"), and termination will be effective on and as of the
date which is 30 days following the Notice Date.
If all reinsurance premiums in arrears, including any that become in
arrears during the thirty- day notice period, are not paid before the
expiration of the notice period, the Reinsurer will be relieved of all
liability under those policies as of the last date to which premiums have
been paid for each less any cash values or recapture reserve amounts due.
Reinsurance on policies on which reinsurance premiums subsequently fall
due will automatically terminate as of the last date to which premiums
have been paid for each policy, unless reinsurance premiums on those
policies are paid on or before their Remittance Dates. Reinsurance Premium
in arrears shall accrue interest at a rate equal to 6% per annum.
Terminated reinsurance may be reinstated, subject to approval by the
Reinsurer, within sixty (60) days of the date of termination, and upon
payment of all reinsurance premiums in arrears including any interest
accrued thereon. The Reinsurer will have no liability for any claims
incurred between the date of termination and the date of the reinstatement
of the reinsurance. The right to terminate reinsurance will not prejudice
the Reinsurer's right to collect premiums for the period during which
reinsurance was in force prior to the expiration of the thirty (30) day
notice.
The Company will not force termination under the provisions of this
Article solely to avoid the provisions regarding recapture in Article X,
or to transfer the reinsured policies to another reinsurer.
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4) Although the Reinsurer anticipates that the premium rates and allowances
in Exhibit E will apply indefinitely, these rates and allowances are
guaranteed only to the extent that the Company guarantees its rates to its
policyholders, and only so long as the Company does not modify either the
premiums or cost-of-insurance charges of the underlying policies. To the
extent the Company modifies premium or cost-of-insurance charges on the
underlying policies, or otherwise adjusts the rates the Company charges to
its policyholders, the Reinsurer may modify the reinsurance premium rates
and allowances in Exhibit E, in which case the Company may recapture such
underlying policies based upon terms mutually acceptable to the Company
and the Reinsurer.
5) Electronic Data Transmission. If the Company chooses to report its
reinsurance transactions via electronic media, the Company shall consult
with the Reinsurer to determine the appropriate reporting format. Should
the Company subsequently desire to make changes in the data format or the
code structure, the Company shall communicate such changes to the
Reinsurer in writing prior to the use of such changes in reports to the
Reinsurer and shall describe in reasonable detail such proposed changes.
Changes in Plan codes and Smoker codes shall be described with
particularity.
6) Unearned Premium. The Reinsurer will follow the practices of the Company
with regard to refund of premium upon death, surrender, or other
termination.
...END OF ARTICLE V
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ARTICLE VI
COINSURANCE FUNDS WITHHELD
The reinsurance hereunder shall be on a quota share Coinsurance Funds Withheld
basis. The quota share reinsured shall be 69%. Funds withheld will be defined at
inception as equal to the reinsurance share of the initial reserves (69%) . The
Reinsurer's funds withheld asset will be supported by the Company's specific
assets listed in Exhibit F and the Company has agreed to hold these assets
(listed therein) in trust on behalf of the Reinsurer with those assets being
deposited in such trust within ninety (90) days of the Effective Date. . The
value of the assets held in trust shall, in the aggregate, approximate as
closely as possible the amount of the Reinsurer's Funds Withheld; where the
value of the assets is less than the amount of Funds Withheld (and it is not
contemplated by the parties that the difference would be a material difference)
the Company shall deposit cash into the trust so that the value of the assets in
trust taken together with the cash equals the amount of the Reinsurer's Funds
Withheld. The assets will be held in trust, and no other assets will be added to
the trust except that, in the event that one or more assets held in trust
matures during the term of the trust, the Company, subject to the prior
agreement of the Reinsurer, will substitute such asset or assets for another
asset or assets of equal value to the asset or assets (as the case may be) which
have matured, and which is or are otherwise acceptable to the Reinsurer. The
interest payable to the Reinsurer on the funds withheld will be as set for in
Exhibit H.
As used herein, the term "initial reserves" means the difference between (A) an
amount equal to the sum of amounts shown on liability (page 3) lines 1 through 8
and 9.1, 9.2, and 9.3 of the Company's Annual Statement as filed with the Office
of the Commissioner of Insurance of the Commonwealth of Puerto Rico (the "Annual
Statement"), and (B) the amount equal to the sum of the amounts shown as
admitted assets on asset lines 12.1 and 12.2 of the Annual Statement; provided
it is understood and agreed that for purposes of computation contemplated
hereunder the Company's initial reserves as of December 31, 2005 shall be deemed
to be the Company's initial reserves as of the effective date of the Agreement.
The Reinsurer shall establish, on its statutory financial statements for each
reporting period, reserves and other financial items on a basis consistent with
the reinsurance share of the initial reserves.
...END OF ARTICLE VI
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ARTICLE VII
REDUCTIONS, TERMINATIONS AND CHANGES
Whenever a change is made in the status, plan, amount or other material feature
of a policy reinsured under this Agreement, the Reinsurer will, upon receipt of
notification of the change, provide adjusted reinsurance coverage in accordance
with the provisions of this Agreement. The Company will notify the Reinsurer of
any such change with the next statement following the month in which the change
was made.
1) Reductions and Terminations
In the event of the reduction, lapse, or termination of a policy or
policies reinsured under this Agreement or any other agreement, the
Company will reduce or terminate reinsurance on that life. The reinsured
amount on the life with all reinsurers will be reduced, effective on the
same date, by the amount required such that the Company maintains its
retention as defined under this Agreement.
The Reinsurer will refund any unearned reinsurance premiums net of
allowances. However, the reinsured portion of any policy fee (if
applicable - See Exhibit E) will be deemed earned for a policy year if the
policy is reinsured during any portion of that policy year.
2) Increases
For policies reinsured under this Agreement, reinsurance of increases in
amounts resulting from contractual policy provisions will be accepted only
up to the Automatic Binding Limits shown in Exhibit C.
3) Reinstatement. If a policy reinsured on an automatic basis is reinstated
in accordance with its terms and in accordance with Company rules and
procedures (a copy of which shall have been provided to the Reinsurer
prior to, or at, the date hereof), the Reinsurer will, upon notification
of reinstatement, reinstate the reinsurance coverage. The Company will
promptly furnish the Reinsurer with a copy of any amendment made from time
to time to the Company's rules and procedures.
Upon reinstatement of the reinsurance coverage, the Company will pay the
contractual reinsurance premiums plus accrued interest for the period and
at the interest rate stated in Article V, paragraph 3.
4) Nonforfeiture Benefits
a. Extended Term
If the original policy lapses and extended term insurance is elected
under the terms of the policy, reinsurance will continue on the same
basis (subject to other provisions of this Agreement) as under the
original policy until the expiry of the extended term period.
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b. Reduced Paid-up
The amount reinsured and the amount retained will be reduced
proportionately.
5) Cash Surrenders. The Reinsurer will reimburse the Company for its
proportionate share of the cash surrender amount payable by the Company
upon surrender of the policy less any outstanding policy loans.
6) Policy Loans. The Reinsurer shall participate in policy loans and other
forms of indebtedness on policies reinsured under this Agreement. See
Exhibit H, the relevant terms of which are incorporated herein.
...END OF ARTICLE VII
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ARTICLE VIII
WARRANTIES AND COVENANTS
1) The Company warrants and covenants that no policy reinsured under this
Agreement may be converted, exchanged or replaced by another policy or
policy form on a non-contractual basis within the Company. Unless mutually
agreed otherwise, policies that are not reinsured with the Reinsurer under
this Agreement and that exchange or convert to a plan covered under this
Agreement will not be reinsured hereunder and will be expressly excluded
from coverage hereunder.
...END OF ARTICLE VIII
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ARTICLE IX
CLAIMS
Claims covered under this Agreement include only claims which are those due to
the death, injury or illness of the insured on a policy reinsured under this
Agreement, and any additional benefits specified in Exhibit B, which are
provided by the underlying policy and are reinsured under this Agreement.
1) Notice. The Reinsurer reserves the right to review any claim on a policy
reinsured under this Agreement.
2) Proofs. If so requested , the Company will promptly provide the Reinsurer
with proper claim proofs, including a copy of the proof of payment by the
Company, and a copy of the insured's death certificate. In addition, for
contestable claims, if so requested the Company will send to the Reinsurer
a copy of all papers and information in connection with the claim.
3) Amount and Payment of Reinsurance Benefits. The Reinsurer will promptly
pay the reinsurance benefits due the Company according to the quarterly
statement process in effect under this Agreement. The Company's
contractual liability for policies reinsured under this Agreement is
binding on the Reinsurer. However, for claims incurred during the
contestable period, if the total amount of reinsurance ceded to all
reinsurers on the policy is greater than the amount retained by the
Company, or if the Company retained less than its usual retention on the
policy, the Company will consult with the Reinsurer in accordance with
paragraph 4 below before conceding liability or making settlement to the
claimant.
The total reinsurance recoverable from all companies will not exceed the
Company's total contractual liability on the policy, less the amount
retained. The maximum reinsurance benefit payable to the Company under
this Agreement is the risk amount specifically reinsured with the
Reinsurer (69%), subject to all the other provisions of the this
Agreement. The Reinsurer will also pay its proportionate share of the
interest that the Company pays on the death proceeds until the date of
settlement except if settlement is delayed as a result of a dispute or
contest arising out of conflicting claims of entitlement to policy
proceeds or benefits, then the Reinsurer will pay its share of interest to
the date settlement would have been made if there were no dispute or
contest.
Life benefit payments will be made in a single sum, regardless of the
Company's settlement options; provided, however, that such single sum will
exclude interest that accrues on settlement options other than single pay.
ARTICLE IX CONTINUES...
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The reinsurance benefit for an approved Waiver of Premium claim will be
the Reinsurer's proportionate share of the annual gross premium waived on
the policy. The Company will continue to pay the life reinsurance premium;
however, it will not pay the reinsurance premium for the waiver benefit
for the duration of the waiver claim period. The Reinsurer will pay waiver
benefits consistent with the Company's mode of premium payment specified
in the policy.
4) Contested Claims. The Company will promptly notify the Reinsurer of its
intention to contest, compromise, or litigate a claim over $250,000
involving a reinsured policy. The Company will also promptly and fully
disclose to the reinsurer all information relating to the claim. Upon
receipt of all documents, the Reinsurer will have five (5) working days to
notify the Company in writing of its decision to accept participation in
the contest, compromise, or litigation. If the Reinsurer has accepted
participation, the Company will promptly advise the Reinsurer of all
developments in the claim investigation, including notification of any
legal proceedings against it in response to denial of the claim. At the
request of the Reinsurer, the Company will confer with the Reinsurer to
advise it of the status of the investigation, litigation or discussions
relating thereto, and will instruct any counsel retained to act on behalf
of the Company in connection with the investigation, litigation or related
negotiations, to confer with the Reinsurer, upon request of the Reinsurer,
regarding the status of the investigation, litigation or related
negotiations. In particular, the Company will arrange for the Reinsurer
(should the Reinsurer request the same) to participate in discussions with
the Company's counsel at the initiation of the contest and prior to the
time when the Reinsurer must elect to participate or not participate in
the investigation or litigation, as the case may be.
If the Reinsurer does not accept participation, the Reinsurer will then
fulfill its obligation by paying the Company its full share of the
reinsurance amount, and will not share in any subsequent reduction or
increase in liability, and will not share in loss adjustment expenses or
extracontractual obligations.
If the Reinsurer accepts participation and the Company's contest,
compromise, or litigation results in a reduction or increase in liability,
the Reinsurer will share in any such reduction or increase in proportion
to its share of the risk on the contested policy.
5) Claim Expenses. The Reinsurer will pay its share of reasonable claim
investigation and legal expenses (not to exceed 69% of all such expenses)
connected with the litigation or settlement of contractual liability
claims unless the Reinsurer has discharged its liability pursuant to
Section IX 4) above. If the Reinsurer has so discharged its liability, the
Reinsurer will not participate in any expenses incurred thereafter.
The Reinsurer will not reimburse the Company for routine claim and
administration expenses, including but not limited to the Company's home
office expenses, compensation of salaried officers and employees, and any
legal expenses other than third party expenses incurred by the Company
(which legal expenses shall be borne as provided in the immediately
preceding paragraph). Claim investigation expenses do not include expenses
incurred by the Company as a result of a dispute or contest arising out of
conflicting claims of entitlement to policy proceeds or benefits.
6) Misrepresentation or Suicide. If the Company returns premium to the
policyowner or beneficiary as a result of misrepresentation or suicide of
the insured, the Reinsurer will refund net reinsurance premiums received
on that policy without interest to the Company in lieu of any other form
of reinsurance benefit payable under this Agreement.
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7) Misstatement of Age or Sex. In the event of a change in the amount of the
Company's liability on a reinsured policy due to a misstatement of age or
sex, the Reinsurer's liability will change proportionately. The face
amount of the reinsured policy will be adjusted from the inception of the
policy, and any difference in premiums net of allowances will be settled
without interest.
8) Extra-Contractual Damages. The Reinsurer will not participate in punitive
or compensatory damages that are awarded against the Company as a result
of an act, omission, or course of conduct committed by the Company, its
agents, or representatives in connection with claims covered under this
Agreement. If the Reinsurer elected in writing to join in the contest of
the coverage in question, the Reinsurer will pay its share (not to exceed
69% of all statutory penalties) of statutory penalties awarded against the
Company in connection with claims covered under this Agreement.
The parties recognize that circumstances may arise in which equity would
require the Reinsurer, to the extent permitted by law, to share
proportionately in punitive and compensatory damages. The parties agree
that such circumstances are limited to those situations in which the
Reinsurer recommended in writing, consented to in writing, or ratified in
writing, the act or course of conduct of the Company that ultimately
resulted in the assessment of the extra-contractual damages. In such
situations, the Reinsurer and the Company will share such damages so
assessed, in equitable proportions.
For purposes of this Article, the following definitions will apply.
"Punitive Damages" are those damages awarded as a penalty, the amount of
which is neither governed nor fixed by statute.
"Compensatory Damages" are those amounts awarded to compensate for the
actual damages sustained, and are not awarded as a penalty, nor fixed in
amount by statute.
"Statutory Penalties" are those amounts awarded as a penalty, but are
fixed in amount by statute.
END OF ARTICLE IX
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ARTICLE X
RECAPTURE
Any recapture will be based upon terms to be mutually agreeable to the Company
and the Reinsurer. After the effective date of recapture, the Reinsurer will not
be liable for any reinsured policies or portions of such reinsured policies
eligible for recapture that the Company has overlooked. A change to the
Company's maximum retention limits will not affect the reinsured policies in
force except as specifically provided elsewhere in this Agreement.
...END OF ARTICLE X
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ARTICLE XI
GENERAL PROVISIONS
1) Currency. All payments and reporting by both parties under this Agreement
will be made in the currency specified in Exhibit C.
2) Premium Tax. The Reinsurer will reimburse the Company for premium taxes
based on the reinsurer's coinsurance percentage.
3) Inspection of Records. The Reinsurer and the Company, or their duly
authorized representatives, will have the right to inspect and audit
original papers, records, and all documents relating to the business
reinsured under this Agreement including but not limited to underwriting,
claims processing, and administration. Such access will be provided during
regular business hours at the office of the inspected party. The Reinsurer
may suspend payments relating to matters in dispute that arise from such
inspection and audit until such dispute is resolved by the parties either
through mutual agreement or by arbitration in accordance with Article XIV.
4) USA Patriot Act and Blocked Persons. The Company covenants to the
Reinsurer that it will comply with United States Treasury Department's
Office of Foreign Assets Control and USA Patriot Act requirements (the
"Laws") in connection with the payment of claims, and agrees that all
claims paid by the Company in violation of the Laws will not be reinsured
under this Agreement. For the avoidance of doubt, the Company acknowledges
and agrees that the Reinsurer has no liability for claims paid by the
Company in violation of the Laws ("Excluded Claims"); provided, however,
that the Reinsurer shall reimburse the Company for all premiums received
by the Reinsurer, less expense allowances (including commissions and
premium taxes, etc.) paid by the Reinsurer, regarding the policies to
which such Excluded Claims relate. The Company agrees to indemnify and
hold harmless the Reinsurer from and against any and all sanctions,
penalties, assessments and other liabilities (including the fees of
counsel) suffered or incurred by the Reinsurer arising from, relating to
or in connection with the payment of an Excluded Claim.
5) Off-Set. Any debts or credits, in favor of or against either the Reinsurer
or the Company with respect to this Agreement are deemed mutual debts or
credits and may be offset, and only the balance will be allowed or paid.
The right of offset will not be affected or diminished because of the
insolvency of either party.
See Exhibit H for relevant provisions thereof.
6) Errors and Omissions. If through unintentional error, oversight, omission,
or misunderstanding (collectively referred to as "errors"), the Reinsurer
or the Company fails to comply with the terms of this Agreement and if,
upon discovery of the error by either party, the other is promptly
notified, each thereupon will be restored to the position it would have
occupied if the error had not occurred, including interest.
ARTICLE XI CONTINUES...
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If it is not possible to restore each party to the position it would have
occupied but for the error, the parties will endeavor in good faith to
promptly resolve the situation in a manner that is fair and reasonable,
and most closely approximates the intent of the parties as evidenced by
this Agreement.
For the avoidance of doubt, the parties agree that this paragraph 6
relates only to clerical and ministerial errors. However, the Reinsurer
will not provide reinsurance for policies that do not satisfy the
parameters of this Agreement, nor will the Reinsurer be responsible for
negligent or deliberate acts or for repetitive errors in administration by
the Company. If either party discovers that the Company has failed to cede
reinsurance as provided in this Agreement, or failed to comply with its
reporting requirements, the Reinsurer may require the Company to audit its
records for similar errors and to take the actions necessary to avoid
similar errors in the future.
7) Company Forms and Rates. The Company will furnish the Reinsurer with a
copy of its application forms, policy and rider forms, premium and
nonforfeiture values, reserve tables, and any other forms or tables needed
for proper handling of reinsurance under this contract. The Company will
advise the Reinsurer in writing of any changes to existing forms,
nonforfeiture values and reserve tables, or new forms it may adopt.
...END OF ARTICLE XI
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ARTICLE XII
INSOLVENCY
1) Insolvency. The Company will be deemed insolvent when it:
a. applies for or consents to the appointment of a receiver,
rehabilitator, conservator, liquidator or statutory successor of its
properties or assets; or
b. is adjudicated as bankrupt or insolvent; or
c. files or consents to the filing of a petition in bankruptcy, seeks
reorganization to avoid insolvency or makes formal application for
any bankruptcy, dissolution, liquidation or similar law or statute;
or
d. becomes the subject of an order to rehabilitate or an order to
liquidate as defined by the insurance code of the jurisdiction of
the party's domicile.
2) Insolvency of the Company. In the event of the insolvency of the Company,
all reinsurance payments due under this Agreement will be payable directly
to the liquidator, rehabilitator, receiver, or statutory successor of the
Company, without diminution because of the insolvency, for those claims
allowed against the Company by any court of competent jurisdiction or by
the liquidator, rehabilitator, receiver or statutory successor having
authority to allow such claims.
In the event of insolvency of the Company, the liquidator, rehabilitator,
receiver, or statutory successor will give written notice to the Reinsurer
of all pending claims against the Company on any policies reinsured within
a reasonable time after such claim is filed in the insolvency proceeding.
While a claim is pending, the Reinsurer may investigate and interpose, at
its own expense, in the proceeding where the claim is adjudicated, any
defense or defenses that it may deem available to the Company or its
liquidator, rehabilitator, receiver, or statutory successor.
The expense incurred by the Reinsurer will be chargeable, subject to court
approval, against the Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit that may accrue to the
Company solely as a result of the defense undertaken by the Reinsurer.
Where two or more reinsurers are participating in the same claim and a
majority in interest elect to interpose a defense or defenses to any such
claim, the expense will be apportioned in accordance with the terms of
this Agreement as though such expense had been incurred by the Company.
The Reinsurer will be liable only for the amounts reinsured and will not
be or become liable for any amounts or reserves to be held by the Company
on policies reinsured under this Agreement.
...END OF ARTICLE XII
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ARTICLE XIII
REINSURER'S RIGHT OF NOTICE OF UNUSUAL PRACTICES
IN providing reinsurance facilities to the Company under this Agreement, the
Reinsurer has granted the Company considerable authority with respect to
automatic binding power, reinstatements, claim settlements, and the general
administration of the reinsurance account. The Reinsurer assumes that, except as
otherwise notified in writing by the Company, and agreed to in writing by the
Reinsurer, the underwriting, claims and other insurance practices employed by
the Company with respect to reinsurance ceded under this Agreement are
consistent with the customary and usual practices of the insurance industry as a
whole. Where the Company does engage in exceptional or uncustomary practices or
implements a change in its underwriting rules or guidelines, with respect to
business covered under this Agreement, the Company agrees to advise the
Reinsurer in writing forty-five (45) days prior to implementing such practice or
change and receive a written acceptance of said practice or change from the
Reinsurer before assigning any liability to the Reinsurer with respect to any
reinsurance issued under or impacted or effected by such practice or change. The
Company acknowledges and agrees that its covenant to the Reinsurer to so advise
the Reinsurer of any exceptional or uncustomary practice or implementation of
such a change is a material inducement to the Reinsurer agreeing to enter into
this Agreement, and absent such a covenant, the Reinsurer would not have entered
into this Agreement. In the event the Company does not receive written
acceptance from the Reinsurer of the proposed change in practice, or the
Reinsurer declines to accept the change in practice proposed by the Company,
then no liability shall be assumed by the Reinsurer with respect to any policy
issued by the Company under, or effected by, such practice or change.
...END OF ARTICLE XIII
21
ARTICLE XIV
ARBITRATION
It is the intention of the Reinsurer and the Company that the customs and
practices of the life insurance and reinsurance industry will be given full
effect in the operation and interpretation of this Agreement. The parties agree
to act in all matters with the highest good faith. However, if the Reinsurer and
the Company cannot mutually resolve a dispute that arises out of or relates to
this Agreement, the dispute will be decided through arbitration as a precedent
to any right of action hereunder.
To initiate arbitration, either the Company or the Reinsurer will notify the
other party in writing of its desire to arbitrate, stating the nature of its
dispute and the remedy sought. The party to which the notice is sent will
respond to the notification in writing within fifteen (15) days of its receipt.
There will be three arbitrators who will be current or former senior officers of
life insurance or life reinsurance companies other than the parties to this
Agreement, their affiliates or subsidiaries. Each of the parties will appoint
one of the arbitrators and these two arbitrators will select the third. If
either party refuses or neglects to appoint an arbitrator within sixty (60) days
of the initiation of the arbitration, the other party may appoint the second
arbitrator. If the two arbitrators do not agree on a third arbitrator within
thirty (30) days of the appointment of the second arbitrator, then the
appointment of the third arbitrator shall be from the XXXXX-U.S. list of
certified arbitrators.
Once chosen, the arbitrators are empowered to select the site of the arbitration
and decide all substantive and procedural issues by a majority of votes. As soon
as possible, the arbitrators will establish arbitration procedures as warranted
by the facts and issues of the particular case. The arbitrators will have the
power to determine all procedural rules of the arbitration, including but not
limited to inspection of documents, examination of witnesses and any other
matter relating to the conduct of the arbitration. The arbitrators may consider
any relevant evidence; they will weigh the evidence and consider any objections.
Each party may examine any witnesses who testify at the arbitration hearing.
The arbitrators will base their decision on the terms and conditions of this
Agreement and the customs and practices of the life insurance and reinsurance
industries rather than on strict interpretation of the law. The decision of the
arbitrators will be made by majority rule and will be submitted in writing. The
decision will be final and binding on both parties and there will be no appeal
from the decision. Either party to the arbitration may petition any court having
jurisdiction over the parties to reduce the decision to judgment.
Unless the arbitrators decide otherwise, each party will bear the expense of its
own arbitration activities, including its appointed arbitrator and any outside
attorney and witness fees. The parties will jointly and equally bear the expense
of the third arbitrator and other costs of the arbitration.
This Article will survive termination of this Agreement.
...END OF ARTICLE XIV
22
ARTICLE XV
CONFIDENTIALITY
The Company and the Reinsurer agree that Customer and Proprietary Information
will be treated as confidential. Customer Information includes, but is not
limited to, medical, financial, and other personal information about proposed,
current, and former policyowners, insureds, applicants, and beneficiaries of
policies issued by the Company. Proprietary Information includes, but is not
limited to, business plans and trade secrets, mortality and lapse studies,
underwriting manuals and guidelines, applications and contract forms, and the
specific terms and conditions of this Agreement.
Customer and Proprietary Information will not include information that:
a. is or becomes available to the general public through no fault of the
party receiving the Customer or Proprietary Information (the "Recipient");
b. is independently developed by the Recipient;
c. is acquired by the Recipient from a third party not covered by a
confidentiality agreement; or
d. is disclosed under a court order, law or regulation.
The parties will not disclose such information to any other parties unless
agreed to in writing, except as necessary for retrocession purposes, as
requested by external auditors, as required by court order, or as required or
allowed by law or regulation. The Company acknowledges that the Reinsurer can
aggregate data with other companies reinsured with the Reinsurer provided that
the Reinsurer acts reasonably to ensure that the data cannot be identified as
belonging to the Company.
...END OF ARTICLE XV
23
ARTICLE XVI
DURATION OF AGREEMENT
This Agreement is indefinite as to its duration.
...END OF ARTICLE XVI
24
ARTICLE XVII
ELIGIBLE POLICIES AND EXECUTION
This Agreement is effective as of 12:01 a.m. on December 22, 2005, and applies
to all eligible policies with issue dates on or before such date.
This Agreement has been made in duplicate and is hereby executed by both
parties.
GREAT AMERICAN LIFE ASSURANCE COMPANY
OF PUERTO RICO
San Xxxx, Puerto Rico
Date: December 15, 2005
By: /s/
_____________________________
Name: Xxxxxx Xxxxxxx
Title: President
Witness:
_____________________________
SEGUROS DE VIDA TRIPLE-S, INC.
San Xxxx, Puerto Rico
Date: December 15, 2005
By: /s/
_____________________________
Name: Xxxxxxx Xxxxxxx, Esq.
Title: President
Witness:
_____________________________
END OF ARTICLE XVII
25
EXHIBIT A
RETENTION LIMITS OF THE COMPANY
A.1 LIFE INSURANCE, ACCIDENT AND SUPPLEMENTAL HEALTH INSURANCE
THE COMPANY'S COINSURANCE PERCENTAGE
The Company will cede 69% of each policy reinsured under this Agreement,
net of third party reinsurance.
A.2 WAIVER OF PREMIUM DISABILITY BENEFITS
Applicable, as included with the business reinsured under this Agreement,
in which case the Company shall retain an amount in the same proportion as
its life insurance, accident and supplemental health insurance retention.
A.3 ACCIDENTAL DEATH BENEFITS
Applicable, as included with the business reinsured under this Agreement,
in which case the Company shall retain an amount in the same proportion as
its life insurance, accident and supplemental health insurance retention.
A.4 RIDERS
Applicable, as included with the business reinsured under this Agreement,
in which case the Company shall retain an amount in the same proportion as
life insurance, accident and supplemental health insurance retention.
26
EXHIBIT B
PLANS COVERED
Policy plans, riders and benefits issued on plans with effective dates within
the applicable period shown below may qualify for automatic reinsurance under
the terms of this Agreement.
B.1 PLAN TYPE START DATE
Debit Life, Direct Ordinary Life December 22, 2005
Universal Life December 22, 2005
Direct Ordinary Health (Accident and Health) December 22, 2005
Debit Health (Accident and Health) December 22, 2005
Pre-need December 22, 2005
Annuities December 22, 2005
B.2 WAIVER OF PREMIUM DISABILITY BENEFITS
Applicable, as included with the business reinsured under this Agreement,
in which case the Company shall retain an amount in the same proportion as
its life insurance and accident and health insurance retention.
B.3 ACCIDENTAL DEATH BENEFITS
Applicable, as included with the business reinsured under this Agreement,
in which case the Company shall retain an amount in the same proportion as
its life insurance and accident and health insurance retention.
B.4 RIDERS
Applicable, as included with the business reinsured under this Agreement,
in which case the Company shall retain an amount in the same proportion as
its life insurance and accident and health insurance retention.
B.5 PLAN TYPE (FOR EACH PLAN IDENTIFIED)
Life insurance and accident and health insurance reinsured under this
Agreement. (The Company shall attach a complete list of policy form
numbers.)
B.6 Automatic Reinsurance
Automatic reinsurance applies to policies placed in force prior to June
30, 2006, which date may be extended at the option of the Reinsurer.
27
EXHIBIT C
AUTOMATIC BINDING LIMITS
The limits in this Exhibit C refer to insured lives and accident and health
insureds reinsured under this Agreement.
C.1 LIFE REINSURANCE AND ACCIDENT AND HEALTH REINSURANCE
REINSURER'S COINSURANCE PERCENTAGE
The Reinsurer's share will be sixty nine percent (69%) of each policy
reinsured under this Agreement, net of third party reinsurance.
C.2 RECAPTURE
Not Applicable.
C.3 CURRENCY
U.S. ($) Dollars only.
X.0 XXXXXXXXXXX
Xxxxxxxxxxx covered under this Agreement include only the Commonwealth of
Puerto Rico.
28
EXHIBIT D-1
PROCEDURES FOR REPORTING
The Company will maintain adequate records to administer the reinsurance
accounts and will cede reinsurance under this Agreement on a self-administration
basis. The Company will provide the Reinsurer with an activity report on
computer disk or other mutually agreed upon electronic media, substantially in
conformity with the following:
A) QUARTERLY AND RENEWAL PREMIUM STATEMENT
The Company will provide the Reinsurer with a report of all reinsurance
policies renewing during the past month(s) accompanied by reinsurance
premiums for such policies which should include the following:
A) MONTHLY POLICY EXHIBIT REPORT
The Company will provide a summary of new issues, terminations,
recaptures, changes, death claims and reinstatements during the month(s)
and the inforce reinsurance at the end of the month.
29
B) QUARTERLY IN FORCE AND RESERVE LISTING
Within thirty (30) days after the close of each calendar quarter, the
Company will furnish the Reinsurer with a summary showing premiums earned
by line of business and by agreed upon sublines.
30
EXHIBIT D-2
REQUEST FOR FINANCIAL REPORTING INFORMATION
Please provide the following information as soon as practical after the close of
the quarter but not later than the due date as stated in the treaty. Please
provide monthly or other interim reports if available. ALL REPORTS SHOULD
INCLUDE BOTH THE REINSURER'S TREATY NUMBER AS WELL AS THE COMPANY'S REFERENCE
NUMBER. The Company must maintain and provide upon request, sufficiently
detailed reports such that reserve calculations can be independently verified by
the Reinsurer's auditors and examiners.
A) QUARTERLY REPORTING
1) Policy counts and face amount ceded.
2) Gross and tabular net due, deferred and advance premium split
between first year and renewal.
3) Statutory reserves should be split between YRT and coinsurance
reserves and by type of reserve and issue year. Type of
reserve should coincide with Exhibit 5, 6, 7 and 8 of the
Annual Statement; e.g. Exhibit 5, Section A - Life Insurance,
Section B - Annuity, ... Section G - Deficiency Reserves etc.
If possible, it should also be segregated by business type,
e.g. Whole Life, Term, Universal Life, Interest Sensitive
Whole Life, etc.
4) Account value roll forward for Universal Life, Deferred
Annuity and similar products.
5) Claim information - Claim Number, Policy number, Insured's
Name, Business or Policy Type, Type of Reinsurance (Co or
YRT), Notification Date, Date of Death, Date of Birth, Cause
of Death, Claim Amount, Status (paid, pending, resisted).
6) Estimated tax reserves corresponding to the statutory reserves
described above (4th quarter only). 7) Policy level detail
statutory reserve listing via electronic media if practical.
B) ANNUAL STATUTORY REPORTING
1) Reserves in Exhibit 5 format (if not provided by valuation
basis in quarterly reports).
2) Page 7, Analysis in Increase in Reserves.
3) Actuarial Opinion signed by the appointed actuary
4) For reserves using X-factors that are less than 100% in any
duration, an actuarial opinion supported by an actuarial
report with sufficient supporting documentation and detailed
data to allow an independent review of the X-factors.
5) Policy Exhibit
6) Policy level detail statutory reserve listing via electronic
media. 7) Exhibit reconciling detail listing to summary
reports.
C) STATUTORY ANNUAL STATEMENT when published.
D) ELECTRONIC DATA TRANSMISSION.
If the Company uses electronic data transfer, the Company shall consult
with the Reinsurer to determine the appropriate reporting format. Should
the Company subsequently desire to make changes in the data format or the
code structure, the Company shall communicate such changes to the
Reinsurer prior to the use of such changes in reports.
31
EXHIBIT E
REINSURANCE PREMIUM RATES, ADMINISTRATIVE EXPENSE ALLOWANCES AND COMMISSION
ALLOWANCES
E.1 LIFE AND ACCIDENT AND HEALTH
Plans covered under this Agreement will be reinsured on a coinsurance
funds withheld basis. Reinsurance premiums are equal to the gross premiums
collected on the amounts retained by the company on the business reinsured
multiplied by the reinsurer's coinsurance percentage.
ACQUISITION EXPENSE ALLOWANCES
POLICY TYPE BASIS FEES (PER ANNUM)
---------------------------------- ------------ ---------------------------------------
Debit Life Per Policy $55.00
Direct Ordinary Life - Medical Per Policy $175.00 + 20% of first year commissions
Direct Ordinary Life - Non-Medical Per Policy $50.00 + 20% of first year commissions
Direct Ordinary Health Per Policy $50.00
Debit Health Per Policy $55.00
Annuities Per Policy $25.00
ADMINISTRATIVE EXPENSE ALLOWANCES
POLICY TYPE BASIS FEES (PER ANNUM)
--------------------------- ------------ ----------------
Debit Life Per Policy $28.72
Direct Ordinary Life Per Policy $45.00
Direct Ordinary Health Per Policy $25.00
Debit Health Per Policy $28.72
Annuities Per Policy $30.00
COMMISSION ALLOWANCES
POLICY TYPE BASIS FEES (PER ANNUM)
---------------------------------------- ---------------------- ---------------------
Debit Life Percentage of Premium First Year - 80%
Renewal Years - 17.5%
American Freedom Term and Universal Life Percentage of Premium
First Year - 69% - 90% Varying
by Plan
Years 2 - 10 - 7%
Years 11+ - 2%
Plus Bonus
Universal Life - GA Percentage of Premium First Year 80% of Target
32
Life Series Years 2-10 7.5% of Target
Years 11+ 3.0% of Target
Years 1-10 4.5% of Excess
Years 11+ 3.0% of Excess
Plus Bonus
Direct Ordinary Health Percentage of Premium First Year - 75%
Renewal Years - 20%
Debit Health Percentage of Premium First year - 71%
Renewal years - 17.5%
Annuities Percentage of Premium 5% in all years
For purposes of the cash settlements described in Exhibit H, the expense
allowances for each quarter shall be calculated as follows:
a. "Per policy" acquisition allowances shall be calculated as 69% of
the amounts shown, multiplied by the numbers of policies of each
type paid for during the quarter.
b. "per policy" administrative expense allowances shall be calculated
as 69% of the amounts shown, multiplied by the average of the
numbers of policies of each type inforce at the beginning and the
end of the quarter.
c. Commission allowances shall be calculated on the basis of 69% of
collected first year and renewal premiums for each class of policy.
d. Allowances based on percentages of commissions shall be calculated
based on commissions as described in (c) above.
E.2 INITIAL CEDING ALLOWANCE
$60,000,000.00 U.S. See Exhibit H.
33
EXHIBIT F
ASSETS TO BE HELD IN TRUST
CUSIP SECURITY NAME
--------- -----------------------------------
000000XX0 U.S. TREASURY BONDS 8.75 5-15-17
000000XX0 U.S. TREASURY BONDS 9.25 2-15-16
000000XX0 U.S. TREASURY BONDS 8.0 11-15-21
000000XX0 U.S. TREASURY BONDS 7.25 5-15-16
000000XX0 U.S. TREASURY BONDS 8.125 8-15-19
000000XX0 U.S. TREASURY BONDS 7.875 2-15-21
000000XX0 U.S. TREASURY BONDS 7.25 8-15-22
000000XX0 U.S. TREASURY BONDS 12.50 8-15-14
000000XX0 U.S. TREASURY BONDS 3.375 11-15-08
000000XX0 U.S. TREASURY BONDS 7.50 11-15-16
000000XX0 U.S. TREASURY BONDS 7.125 2-15-23
000000XX0 U.S. TREASURY BONDS 9.375 2-15-06
000000XX0 U.S. TREASURY NOTES 3.125 09-15-08
000000XX0 U.S. TREASURY NOTES 4.125 08-15-08
0000000X0 U.S. TREASURY NOTES 5.00 8-15-11
*Par amounts and interest rates should be shown for all real assets.
The parties shall make appropriate adjustments to reflect the actual amount of
reserves reinsured as of December 31, 2005.
34
EXHIBIT G
TRUST AGREEMENT
35
EXHIBIT H
ACCOUNTING AND CASH TRANSFER PROVISIONS
1. Accounting and Cash Transfer Provisions
2. Initial funds withheld. No cash transfers on the Effective Date. The
ceding commission and the funds withheld are accomplished as described in
Article VI. As noted in Article VI, certain assets (detailed in Exhibit F)
are to be held in trust by the company for the benefit of the reinsurer.
Interest on these assets shall accrue to the benefit of the reinsurer from
January 1, 2006, without regard to the date on which they are actually
placed in the Trust.
3. Tracking from December 22 through December 31, 2005. The parties agree
that for accounting purposes, actual tracking of premiums, claims, and
allowances shall commence on January 1, 2006. In place of such actual
tracking for the period December 22 - December 31, 2005, the parties agree
to deem that the result of such tracking would have been a net payment of
$400,000 from the company to the Reinsurer; such payment will be included
in the first quarterly settlement.
4. First quarterly settlement. The first quarterly settlement shall be for
the quarter ending March 31, 2006.
5. Elements of each quarterly settlement. The Company shall pay to the
reinsurer a net amount calculated as follows (which, if negative, shall
mean that the reinsurer pays the amount to the company) calculated as A x
B, where A =
a. Reinsurance premiums for the quarter, calculated as in Article V
(1), on a basis consistent with the reporting of premiums on line 1
of the "Analysis of Operations by Lines of Business" page of the
statutory financial statement, minus
b. Claims for the quarter, calculated as in Article IX, on a basis
consistent with the reporting of claims on lines 10 through 17 of
the "Analysis of Operations by Lines of Business" page of the
statutory financial statement, minus
c. Expense allowances for the quarter, calculated as set forth in
Exhibit E, plus
d. (for the March 31, 2006 settlement only) $165,000, plus
e. Interest earned (whether or not received by the company) during the
quarter on assets held in the trust, plus
f. An adjustment for policy loans, equal to [i1 minus i2] x [mean
policy loan asset for the quarter], where
i1 = net earned rate of interest for the quarter on policy loans
and i2 = net earned rate of interest for the Quarter on all
other assets of the Company.
And B = 1.0125 if the net payment is made within 30 days following the end
of the quarter, and (1.0125 plus .0002N) otherwise, where N is the number
of days in excess of 30 from the end of the quarter until the date of
payment.
36
