AUTOMATIC
YEARLY RENEWABLE TERM REINSURANCE AGREEMENT
EFFECTIVE Xxxxx 0, 0000
XXXXX LIFE INSURANCE COMPANY
(hereinafter referred to as "THE COMPANY")
000 Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxx Xxxxxx 00000-0000
And
SCOTTISH RE (U.S.), INC.
(hereinafter referred to as "THE REINSURER")
00000 Xxxx X. Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Table of Contents
1. PARTIES TO THE AGREEMENT............................................................................... 4
2. EFFECTIVE DATE OF THE AGREEMENT........................................................................ 4
3. SCOPE OF THE AGREEMENT................................................................................. 4
4. DURATION OF THE AGREEMENT.............................................................................. 4
5. BASIS OF REINSURANCE................................................................................... 5
6. AUTOMATIC REINSURANCE TERMS............................................................................ 5
a. CONVENTIONAL UNDERWRITING........................................................................ 5
b. RESIDENCE........................................................................................ 5
c. OCCUPATION....................................................................................... 5
d. AUTOMATIC ACCEPTANCE LIMIT....................................................................... 5
e. JUMBO LIMIT...................................................................................... 5
f. MINIMUM CESSION.................................................................................. 5
g. FACULTATIVE QUOTES............................................................................... 5
7. PORTIONS REINSURED AND RETAINED........................................................................ 5
a. AUTOMATIC PORTION REINSURED...................................................................... 5
b. AUTOMATIC PORTION RETAINED....................................................................... 5
8. AUTOMATIC REINSURANCE NOTICE PROCEDURE..................................................................6
9. COMMENCEMENT OF REINSURANCE COVERAGE................................................................... 6
a. AUTOMATIC REINSURANCE............................................................................ 6
b. PRE-ISSUE COVERAGE............................................................................... 6
10.REINSURANCE PREMIUM RATES.............................................................................. 6
a. LIFE REINSURANCE................................................................................. 6
b. RATES NOT GUARANTEED............................................................................. 6
11.PAYMENT OF REINSURANCE PREMIUMS........................................................................ 6
a. PREMIUM DUE...................................................................................... 6
b. DELAYED PAYMENT.................................................................................. 7
c. FAILURE TO PAY PREMIUMS.......................................................................... 7
d. PREMIUM ADJUSTMENT............................................................................... 7
12. PREMIUM TAX REIMBURSEMENT............................................................................ 7
13. DAC TAX AGREEMENT.................................................................................... 7
14. REPORTS.............................................................................................. 8
15. RESERVES FOR REINSURANCE.............................................................................. 8
16. CLAIMS............................................................................................... 8
a. NOTIFICATION OF CLAIMS........................................................................... 8
b. AMOUNT AND PAYMENT OF BENEFITS................................................................... 9
c. CLAIM SETTLEMENTS................................................................................ 9
d. CLAIM EXPENSES................................................................................... 9
e. EXTRACONTRACTUAL DAMAGES......................................................................... 9
17. MISREPRESENTATION, SUICIDE, AND MISSTATEMENT......................................................... 10
18. POLICY CHANGES...................................................................................... 10
a. NOTICE........................................................................................... 10
b. INCREASES........................................................................................ 10
c. REDUCTION OR TERMINATION......................................................................... 11
d. PLAN CHANGES..................................................................................... 11
e. DEATH BENEFIT OPTION CHANGES..................................................................... 11
f. REDUCED PAID-UP INSURANCE........................................................................ 11
19. RECAPTURE............................................................................................ 11
20. REINSTATEMENTS....................................................................................... 12
a........AUTOMATIC REINSTATEMENT.......................................................................... 12
b. PREMIUM ADJUSTMENT............................................................................... 12
21. ERRORS AND OMISSIONS................................................................................. 12
22. INSOLVENCY............................................................................................ 13
23. ARBITRATION........................................................................................... 13
a. ......GENERAL.......................................................................................... 13
b. NOTICE............................................................................................14
c. PROCEDURE........................................................................................ 14
d. COSTS............................................................................................ 14
24. GOOD FAITH........................................................................................... 14
25. CONFIDENTIALITY...................................................................................... 14
26. REPRESENTATIONS AND WARRANTIES....................................................................... 15
27. MEDICAL INFORMATION BUREAU........................................................................... 16
28. GOVERNING LAW........................................................................................ 16
29. ASSIGNMENT........................................................................................... 16
30. ACCESS TO RECORDS.................................................................................... 16
31. SEVERABILITY......................................................................................... 16
32. OFFSET............................................................................................... 16
ATTACHMENTS:
SCHEDULE A - REINSURANCE COVERAGE
SCHEDULE B - AUTOMATIC REINSURANCE PREMIUMS
SCHEDULE C - REPORTING INFORMATION
SCHEDULE D - MONTHLY BILLING AND ACCOUNTING SUMMARY
SCHEDULE E - CARRIER FACT SHEET
AUTOMATIC YEARLY RENEWABLE TERM
REINSURANCE AGREEMENT
1. PARTIES TO THE AGREEMENT
This Agreement is solely between THE REINSURER and THE COMPANY, a life insurance company domiciled in
the State of Arizona. There is no third party beneficiary to this Agreement. Reinsurance under this
Agreement will not create any right or legal relationship between THE REINSURER and any other person,
for example, any insured, policyowner, agent, beneficiary, or assignee. THE COMPANY agrees that it will
not make THE REINSURER a party to any litigation between any such third party and THE COMPANY. THE
COMPANY will not use or disclose THE REINSURER's name with regard to THE COMPANY's agreements or
transactions with these third parties unless THE REINSURER gives prior written approval for the use or
disclosure of its name or unless THE COMPANY is compelled by law to do so.
The terms of this Agreement are binding upon the parties, their representatives, successors, and
assigns. The parties to this Agreement are bound by ongoing and continuing obligations and liabilities
until the later of (1) when this Agreement terminates and (2) when the underlying policies are no longer
in force. This Agreement shall not be bifurcated, partially assigned, or partially assumed.
2. EFFECTIVE DATE OF THE AGREEMENT
This Agreement will be effective as of 12:01 A.M., March 1, 2003. It will cover policies effective on
and after April 30, 2000.
3. SCOPE OF THE AGREEMENT
The text of this Agreement and all Exhibits, Schedules and Amendments are considered to be the entire
agreement between the parties. There are no other understandings or agreements between the parties
regarding the policies reinsured other than as expressed in this Agreement. The parties may make
changes or additions to this Agreement, but they will not be considered to be in effect unless they are
made by means of a written amendment that has been signed and dated by both parties.
4. DURATION OF THE AGREEMENT
The duration of this Agreement will be unlimited. However, either party may terminate the Agreement for
new business at any time by giving the other a 90-day prior written notice. THE REINSURER will continue
to accept new reinsurance during the 90-day period.
In addition, this Agreement may be terminated immediately for the acceptance of new reinsurance by
either party if one of the parties materially breaches this Agreement or becomes insolvent.
Existing reinsurance will not be affected by the termination of this Agreement with respect to new
reinsurance. Existing reinsurance will remain in force until the termination or expiry of the
underlying policies on which the reinsurance is based as long as THE COMPANY continues to pay
reinsurance premiums as described in Section 11. However, existing reinsurance may be terminated in
accordance with the recapture provision described in Section 19.
5. BASIS OF REINSURANCE
Reinsurance under this Agreement will be on the Yearly Renewable Term basis for the net amount at risk
on the portion of each policy that is reinsured as described in Schedule A, provided that the issuance
of the insurance by THE COMPANY constitutes the transaction of business in a jurisdiction in which THE
COMPANY is properly licensed, subject to the following requirements:
6. AUTOMATIC REINSURANCE TERMS
THE REINSURER agrees to automatically accept contractual risks on the life insurance plans shown in
Schedule A, subject to the following requirements:
a. CONVENTIONAL UNDERWRITING. Automatic reinsurance applies only to insurance applications underwritten by
THE COMPANY according to THE COMPANY's conventional underwriting and issue practices. Upon
request, THE COMPANY shall provide THE REINSURER with a copy of its current underwriting and issue
practices and guidelines.
In the event of significant changes in underwriting practices in the industry, it may be
appropriate for THE COMPANY or THE REINSURER to request of the other party changes in the
underwriting requirements. The party requesting the change must provide a 120-day advance written
notice to the other party before the effective date of such change. Recognition of reinsurance
premium rates related to these changes must be determined within the 120-day period. If the
underwriting change or rate change is unacceptable to either party, this Agreement may be
unilaterally terminated for acceptance of new business with a 90-day written termination notice to
the other party.
b. RESIDENCE. To be eligible for automatic reinsurance, each insured must either be a resident of the
United States or Canada at the time of issue.
c. OCCUPATION. To be eligible for automatic reinsurance, the insured must not be employed in an occupation
as shown in the Occupation Exclusion List in Schedule A.
d. AUTOMATIC ACCEPTANCE LIMIT. For any policy to be reinsured under automatic reinsurance, the face amount
shall not exceed the Automatic Acceptance Limit as shown in Schedule A.
e. JUMBO LIMIT. For any policy to be reinsured under automatic reinsurance, the total amount of insurance
in force and applied for in all companies shall not exceed the Jumbo Limit as shown in Schedule A.
f. MINIMUM CESSION. The minimum amount of reinsurance per cession that THE REINSURER will accept is shown
in Schedule A.
g. FACULTATIVE QUOTES. The risk shall not have been submitted on a facultative basis to THE REINSURER or
any other reinsurer.
7. PORTIONS REINSURED AND RETAINED UNDER AUTOMATIC REINSURANCE
a. AUTOMATIC PORTION REINSURED. For any policy reinsured under automatic reinsurance, the portion
reinsured is shown in Schedule A.
b. AUTOMATIC PORTION RETAINED. THE COMPANY will retain, and not otherwise reinsure, an amount of insurance
on each life equal to its retention shown in Schedule A.
8. AUTOMATIC REINSURANCE NOTICE PROCEDURE
After the policy has been paid for and delivered, THE COMPANY will submit all relevant individual policy
information, as defined in Schedule C, in its next statement to THE REINSURER.
9. COMMENCEMENT OF REINSURANCE COVERAGE
Commencement of THE REINSURER's reinsurance coverage on any policy or pre-issue risk under this
Agreement is described below:
a. AUTOMATIC REINSURANCE. THE REINSURER's reinsurance coverage for any policy that is issued on or after
March 1, 2003 that is ceded automatically under this Agreement will begin simultaneously with THE
COMPANY's contractual liability for the policy reinsured. THE REINSURER's reinsurance coverage for
any policy that is issued prior to March 1, 2003 that is ceded automatically under this Agreement
will begin on March 1, 2003. In either instance, no coverage will begin prior to March 1, 2003.
Reinsurance coverage for all policies that are ceded automatically under this Agreement will end
simultaneously with THE COMPANY's contractual liability for the policy reinsured.
In addition, THE REINSURER will be liable for benefits paid under THE COMPANY's conditional receipt
or temporary insurance agreement if all of the conditions for automatic reinsurance coverage under
Section 6 of this Agreement are met. THE REINSURER's liability under THE COMPANY's conditional
receipt or temporary insurance agreement is limited to the lesser of (1) THE REINSURER's reinsured
portion of the face amount of the policy and (2) $100,000.
b. PRE-ISSUE COVERAGE. The pre-issue coverage for benefits paid under THE COMPANY's conditional receipt or
temporary insurance agreement will be effective once all initial medical exams and tests have been
completed. The pre-issue liability applies only once on any given life at one time no matter how
many conditional receipts or temporary insurance agreements are in effect. After a policy has been
issued, no reinsurance benefits are payable under this pre-issue coverage provision.
10. REINSURANCE PREMIUM RATES
a. LIFE REINSURANCE. The reinsurance premiums per $1000 are shown in Schedule B. Reinsurance premiums for
renewals are calculated using (1) the issue age, (2) the duration since issuance and (3) the
current underwriting classification.
b. RATES NOT GUARANTEED. The reinsurance premium rates are not guaranteed. THE REINSURER reserves the
right to change the rates at any time. If THE REINSURER changes the rates, it will give THE
COMPANY a 90-day prior written notice of the change. Any change applies only to reinsurance
premiums due after the expiration of the notice period.
11. PAYMENT OF REINSURANCE PREMIUMS
a. PREMIUM DUE. For each policy reinsured under this Agreement, reinsurance premiums are payable annually
in advance. These premiums are due on the issue date and each subsequent policy anniversary.
Within 30 days after the close of each reporting period, THE COMPANY will send THE REINSURER a
statement of account for that period along with payment of the full balance due. On any payment
date, monies payable between THE REINSURER and THE COMPANY under this Agreement may be netted to
determine the payment due. This offset will apply regardless of the insolvency of either party as
described in Section 22. If the statement of account shows a balance due THE COMPANY, THE
REINSURER will remit that amount to THE COMPANY within 30 days of receipt of the statement of
account. All financial transactions under this Agreement will be in United States dollars. If the
reinsurance premium amounts cannot be determined on an exact basis by the dates described below,
such payments will be paid in accordance with a mutually agreed upon formula which will approximate
the actual payments. Adjustments will then be made to reflect actual amounts when such information
is available.
b. DELAYED PAYMENT. If reinsurance premiums are 90 days past due, THE REINSURER may charge interest on the
amount due at an interest rate not to exceed the London Interbank Offer Rate, U.S.
Denomination-Fixed Three-month, (LIBOR), as of when the payment was due.
c. FAILURE TO PAY PREMIUMS. The Payment of reinsurance premiums is a condition precedent to the liability
of THE REINSURER for reinsurance covered under this Agreement. If reinsurance premiums are 90 days
past due, for reasons other than those due to error or omission as defined below in Section 21, the
premiums will be considered in default and THE REINSURER may terminate the reinsurance by providing
a 30-day prior written notice, provided payment is not received within that 30-day period. THE
REINSURER will have no further liability as of the termination date. THE COMPANY will be liable
for the prorated reinsurance premiums to the termination date. THE COMPANY agrees that it will not
force termination under the provisions of this paragraph solely to avoid the recapture requirements
or to transfer the block of business reinsured to another reinsurer.
At the end of this 30-day period, THE REINSURER's liability will automatically terminate for all
reinsurance on which balances remain due and unpaid, including reinsurance on which balances became
due and unpaid during and after the 30-day notice period.
Subject to Section 20, THE COMPANY may reinstate reinsurance terminated for non-payment of balances
due at any time within 60 days following the date of termination. However, THE REINSURER will have
no liability for claims incurred between the termination date and the reinstatement date.
d. PREMIUM ADJUSTMENT. If THE COMPANY overpays a reinsurance premium and THE REINSURER accepts the
overpayment, THE REINSURER's acceptance will not constitute or create a reinsurance liability or
increase in any existing reinsurance liability. Instead, THE REINSURER will be liable to THE
COMPANY for a credit in the amount of the overpayment. If a reinsured policy terminates, THE
REINSURER will refund the excess reinsurance premium. This refund will be on a prorated basis
without interest from the date of termination of the policy to the date to which a reinsurance
premium has been paid.
12. PREMIUM TAX REIMBURSEMENT
See Schedule B.
13. DAC TAX AGREEMENT
THE COMPANY and THE REINSURER, herein collectively called the "Parties", or singularly the "Party",
hereby enter into an election under Treasury Regulations Section 1.848-2(g) (8) as promulgated under
the Internal Revenue Code, as found in Title 26 of the United States Code, hereinafter referred to as
the Regulations and the IRC. Both parties agree to make the election contemplated by this Section 13 by
timely attaching to their U.S. tax returns the schedule contemplated by Section 1.848-2(g)(8)(ii) of the
Regulations. Furthermore, the parties agree to the following:
a. For each taxable year under this Agreement, the party with the net positive consideration, as defined in
the regulations , will capitalize specified policy acquisition expenses with respect to this
Agreement without regard to the general deductions limitation of Section 848 (c) (1);
b. THE COMPANY and THE REINSURER agree to exchange information pertaining to the net consideration under
this Agreement each year to insure consistency or as otherwise required by the Internal Revenue
Service;
c. THE COMPANY will submit to THE REINSURER by May 1 of each year its calculation of the net consideration
for the preceding calendar year.
d. THE REINSURER may contest such calculation by providing an alternative calculation to THE COMPANY in
writing within 30 days of THE REINSURER's receipt of THE COMPANY's calculation. If THE REINSURER
does not so notify THE COMPANY, THE REINSURER will report the net consideration as determined by
THE COMPANY in THE REINSURER's tax return for the previous calendar year;
e. If THE REINSURER contests THE COMPANY's calculation of the net consideration, the parties will act in
good faith to reach an agreement as to the correct amount within 30 days of the date THE REINSURER
submits its alternative calculation. If THE COMPANY and THE REINSURER do not reach agreement on
the net amount of consideration within such 30-day period, then the net amount of consideration for
such year shall be determined by an independent accounting firm acceptable to both THE COMPANY and
THE REINSURER within 20 days after the expiration of such 30-day period.
f. THE COMPANY and THE REINSURER agree that this election shall first be effective for the 2003 calendar
tax year and will be effective for all subsequent taxable years for which this Agreement remains in
effect.
THE REINSURER and THE COMPANY represent and warrant that they are subject to U.S. taxation under either
Subchapter L of Chapter 1, or Subpart F of Subchapter N of Chapter 1 of the Internal Revenue Code of
1986, as amended.
14. REPORTS
The reporting period is shown in Schedule A. For each reporting period, THE COMPANY will submit reports
to THE REINSURER with information that is substantially similar to the information displayed in Schedule
C.
In addition, the reports will include a billing and accounting summary and a policy exhibit summary
similar to the reports shown in Schedule D.
Within 15 business days after the end of each calendar year, THE COMPANY will submit a reserve credit
summary similar to that shown in Schedule D. THE COMPANY will also submit this reserve credit summary
within 10 business days after the end of each other calendar quarter.
15. RESERVES FOR REINSURANCE
See Schedule A.
16. CLAIMS
a. NOTIFICATION OF CLAIMS. THE COMPANY will notify THE REINSURER as soon as reasonably possible after THE
COMPANY receives a claim for a policy reinsured under this Agreement. After THE COMPANY has
received all proper claim proofs and paid the claim, THE COMPANY will send THE REINSURER an
itemized statement of amounts due THE COMPANY under this Agreement along with all relevant
information with respect to the claim including the claim proofs. However, claim proofs will not
be required by THE REINSURER on non-contestable claims if THE REINSURER's net amount at risk is
less than or equal to $100,000 and THE COMPANY has paid the claim in full. In such cases, THE
COMPANY will provide THE REINSURER with the cause of death.
b. AMOUNT AND PAYMENT OF BENEFITS. As soon as THE REINSURER receives proper claim notice and any required
proof of the claim, reinsurance benefits are due and payable to THE COMPANY. THE COMPANY's
contractual liability for claims is binding on THE REINSURER. The maximum benefit payable to THE
COMPANY for each reinsured policy is the amount specifically reinsured with THE REINSURER. In the
event that reinsurance benefits are sixty days past due, THE COMPANY may recapture the reinsurance
as described in Section 19. If THE REINSURER intends to dispute its liability with respect to a
claim, THE REINSURER shall promptly notify THE COMPANY in writing of its intention.
c. CLAIM SETTLEMENTS. THE COMPANY will use its standard claim practices and guidelines in the adjudication
of all claims on policies reinsured under this Agreement. THE COMPANY will advise THE REINSURER of
its intention to contest a claim involving a policy reinsured hereunder and provide THE REINSURER
with copies of all relevant documents. THE REINSURER may choose not to participate in such a
contested claim. THE REINSURER will have 10 business days to communicate to THE COMPANY its
decision whether to participate in the contested claim. If THE REINSURER chooses not to
participate, it will fulfill its obligation by immediately paying to THE COMPANY the full amount of
THE REINSURER's liability on the portion of the policy reinsured under this Agreement, and will be
relieved of all future liability on the claim and will not share in any subsequent reduction on
liability. If THE REINSURER chooses to participate, and THE COMPANY's contest 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. THE COMPANY will promptly notify THE
REINSURER of any legal proceedings against THE COMPANY.
d. CLAIM EXPENSES. THE REINSURER will pay its share of any interest paid by THE COMPANY on any claim
payment. THE REINSURER will not reimburse THE COMPANY for the routine expenses and compensation of
officers and employees of the COMPANY. In addition, except as stated in the previous sentence, if
THE REINSURER has chosen to participate in a contest, THE REINSURER will pay its share of the
unusual expense of adjudicating contestable claims, which expense was incurred by THE COMPANY,
including investigation expenses and compensation expenses charged by THE COMPANY's Special
Investigation Unit. Such Special Investigation Unit expenses will not increase more than 5% per
year of the current hourly rate ($39 for 2003) of contestable claim investigation. The term
"unusual expense" shall mean all expenses of THE COMPANY associated with the contestable claim other
than normal and customary claim administration expenses that are commonly incurred with the normal
and customary settlement of non-contestable claims. Notwithstanding the above, THE REINSURER will
be liable for any portion of interest or unusual expenses until such time as THE REINSURER notifies
THE COMPANY of its decision not to participate in the contest. THE REINSURER will not be liable
for any portion of interest or unusual expenses for any period of time after THE REINSURER has
notified THE COMPANY of its decision not to participate in a contested, compromised or litigated
claim. THE REINSURER will not reimburse expenses incurred by THE COMPANY in connection with a
dispute or contest arising out of conflicting claims of entitlement to policy proceeds or benefits.
e. EXTRACONTRACTUAL DAMAGES. In no event will THE REINSURER participate in punitive or compensatory
damages which are awarded against THE COMPANY as a result of an act, omission or course of conduct
committed by THE COMPANY in connection with the insurance under this Agreement. THE REINSURER
will, however, pay its share of statutory penalties awarded against THE COMPANY in connection with
the insurance reinsured 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 certain assessed damages. Such circumstances are difficult to define in
advance, but generally would be those situations in which THE REINSURER was an active party and in
writing either directed, consented to, or ratified the act, omission, or course of conduct of THE
COMPANY which ultimately results in the assessment of punitive and/or compensatory damages. In
such situations, THE COMPANY and THE REINSURER would share such damages assessed in equitable
proportions.
For purposes of the provision, the following definitions will apply:
"Punitive Damages" are those damages awarded as a penalty, the amounts of which are not governed or
fixed by statute;
"Statutory Penalties" are those amounts that are awarded as a penalty, but are fixed in amount by
statute;
"Compensatory Damages" are those amounts awarded to compensate for actual damages sustained, and
are not awarded as a penalty, nor fixed in amount by statute.
17. MISREPRESENTATION, SUICIDE, AND MISSTATEMENT
If either a misrepresentation on an application or a death of an insured by suicide results in the
return of policy premiums by THE COMPANY under the policy rather than payment of policy benefits, THE
REINSURER will, in lieu of any other reinsurance benefit, refund all of the reinsurance premiums paid
for that policy to THE COMPANY. If there is an adjustment for a misrepresentation or misstatement of
age or sex, a corresponding adjustment to the reinsurance benefit will be made.
18. POLICY CHANGES
a. NOTICE. If a reinsured policy is changed as described below, a corresponding change will be made in the
reinsurance for that policy. THE COMPANY will notify THE REINSURER of the change in THE COMPANY's
next report as stated in Section 14.
b. INCREASES. If a request for an increase in the amount of insurance is made for a reinsured policy and
the insured meets THE COMPANY's underwriting requirements and THE COMPANY approves the increase
under the policy, then the amount of reinsurance under this Agreement will be adjusted as of the
effective date of the increase, not to exceed the Automatic Acceptance Limits and the Jumbo Limits
shown in Schedule A.
If a request for an increase is made for a reinsured policy and the insured meets THE COMPANY's
underwriting requirements and a new policy is issued for the higher amount, then reinsurance under
the old policy will cease as of the effective date of the change, and reinsurance under the new
policy will commence as of the policy date of the new policy.
If a request for an increase in a reinsured policy is granted without the insured meeting THE
COMPANY's underwriting requirements, then reinsurance on the increase will not be allowed.
If a reinsured policy is increased as a result of a conversion from term insurance and the increase
is granted without the insured meeting THE COMPANY's underwriting requirements, then reinsurance
will cease as of the effective date of the change.
c. REDUCTION OR TERMINATION. If the amount of insurance on a reinsured policy is reduced, the reinsurance
will be reduced proportionately as of the effective date of the reduction.
If a reinsured policy is terminated, the reinsurance will cease on the date of such termination.
d. PLAN CHANGES. If a reinsured policy is changed to another plan of insurance that is not currently
reinsured under this Agreement as defined in Schedule A, then THE COMPANY will recapture in full
the coverage reinsured under this Agreement, and the reinsurance will cease with respect to the
policy as of the effective date of the change.
If a policy that is not reinsured under this Agreement is changed to a plan that is reinsured under
this Agreement as defined in Schedule A and the insured has met THE COMPANY's underwriting
requirements for the plan change, then reinsurance will commence as of the policy date of the new
plan.
e. DEATH BENEFIT OPTION CHANGES. If the death benefit option under a reinsured policy is changed and the
face amount of insurance is either increased or decreased, the net amount at risk reinsured under
this Agreement after the change will be the same as before the change.
f. REDUCED PAID-UP INSURANCE. If any policy reinsured under this Agreement is changed to Reduced Paid-Up
Insurance, the net amount at risk reinsured will be adjusted as appropriate and reinsurance will be
continued in accordance with the provisions of the underlying policy. Reinsurance payments for the
adjusted policy will be calculated using (1) the issue age of the original policy, (2) the duration
since issuance of the original policy and (3) the underwriting classification immediately prior to
the change to Reduced Paid-Up Insurance.
19. RECAPTURE
At any time during the term of the Agreement, THE COMPANY may elect to recapture in full the coverage
reinsured under this Agreement following the occurrence of any of the following events:
a. Non-payment of undisputed reinsurance claims that are sixty days past due from THE REINSURER.
b. Material breach of any term and condition of this Agreement if such breach is not cured within a period
of at least sixty calendar days following the delivery of notice of such failure from THE COMPANY
to THE REINSURER.
c. THE REINSURER is deemed insolvent as described in Section 22.
d. The occurrence of a "Risk Trigger Event" as defined in Schedule A of this Agreement.
e. A change in premium rates on existing business that is unacceptable to THE COMPANY.
f. A change in ownership or control of THE REINSURER if the change results in the new owner of THE
REINSURER not having a Qualified Rating from at least one of the Major Rating Agencies (shown in
the chart in Schedule A, Section 10), which is at least as high as the Qualified Rating of THE
REINSURER.
g. Any representation or warranty made by THE REINSURER under this Agreement proves to be untrue in any
material respect.
In addition, after the twentieth policy anniversary, THE COMPANY may elect to recapture all or an
appropriate portion of the coverage reinsured under this Agreement to reflect increases in the maximum
retention limits for THE COMPANY and all of its affiliates, collectively, subsequent to the date of
policy issue. These maximum retention limits as of the effective date of this Agreement are equal to
the amounts shown in the Risk Retention Limits table shown in Schedule A. The portion of the coverage
that may be recaptured would be directly related to the increase in the limits. To illustrate, if the
maximum retention limits are increased by 100%, then the portion that may be recaptured from all
reinsurers of the policies reinsured under this Agreement would be equal to 100% of the portion of each
reinsured policy that is retained by THE COMPANY. Furthermore, the portion that may be recaptured from
THE REINSURER would be determined as THE REINSURER's prorata share of the total portion reinsured with
all reinsurers.
If THE COMPANY elects to recapture the risks ceded to THE REINSURER under this Agreement as stated
above, it will do so by giving written notice to THE REINSURER. Upon the delivery of such notice, all
of the risks previously ceded under each of the policies subject to this Agreement shall be recaptured,
effective as of the date specified in THE COMPANY's notice. If THE COMPANY does not specify in the
written notice the date that such recapture is to be effective, then the recapture shall be effective
immediately upon THE REINSURER's receipt of the notice.
If a policy is recaptured, THE REINSURER will pay THE COMPANY the unearned reinsurance premium within 30
days following the date of recapture. THE REINSURER shall not be liable, under this Agreement, for any
claims incurred on or after the date of recapture, but shall remain liable for all claims incurred
prior to the date of recapture.
No exercise by THE COMPANY of any recapture right will give rise to any claims for damages, lost
profits, or other form of compensation to THE REINSURER, other than payment of a prorated sum for any
amount that might be due and owing under the reinsurance treaty up to the effective date of the
recapture.
20. REINSTATEMENTS
a. AUTOMATIC REINSTATEMENT. If THE COMPANY reinstates a policy that was originally ceded to THE
REINSURER as automatic reinsurance using conventional underwriting practices, THE REINSURER's
reinsurance for the policy shall be reinstated.
b. PREMIUM ADJUSTMENT. Reinsurance premiums for the interval during which the policy was lapsed will
be paid to THE REINSURER on a YRT basis by THE COMPANY.
21. ERRORS AND OMISSIONS
If either THE REINSURER or THE COMPANY fails to comply with any of the terms of this Agreement and it is
shown that the failure was unintentional or the result of a misunderstanding or an administrative
oversight on the part of either party, this Agreement will remain in effect. If the failure to comply
changes the operation or effect of this Agreement, both parties will be put back to the positions they
would have occupied if the failure to comply had not occurred.
THE REINSURER will not, however, be responsible for THE COMPANY's errors in administering the
reinsurance, if such errors arise from gross negligent or deliberate, wrongful acts 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 reporting requirements, THE REINURER may require THE COMPANY
to audit its records for similar errors and to take the actions necessary to avoid similar errors in the
future.
22. INSOLVENCY
For the purpose of this Agreement, THE COMPANY or THE REINSURER shall be deemed "insolvent" if it does
one or more of the following:
a. A court-appointed receiver, trustee, custodian, conservator, liquidator, government official or similar
officer takes possession of the property or assets of either THE COMPANY or THE REINSURER; or
b. Either THE COMPANY or THE REINSURER is placed in receivership, rehabilitation, liquidation,
conservation, bankruptcy or similar status pursuant to the laws of any state or of the United
States; or
c. Either THE COMPANY or THE REINSURER becomes subject to an order to rehabilitate or an order to liquidate
as defined by the insurance code of the jurisdiction of the domicile of THE COMPANY or THE
REINSURER, as the case may be.
In the event that THE COMPANY is deemed insolvent, all reinsurance claims payable hereunder shall be
payable by THE REINSURER on the basis of THE COMPANY's liability under the policies reinsured without
diminution because of the insolvency of THE COMPANY. Such claims shall be payable by THE REINSURER
directly to THE COMPANY, its liquidator or statutory successor. It is understood, however, that in the
event of such insolvency, the liquidator or receiver or statutory successor of THE COMPANY shall give
written notice to THE REINSURER of the pendency of a claim against THE COMPANY on a risk reinsured
hereunder within a reasonable time after such claim is filed in the insolvency proceeding. Such notice
shall indicate the policy reinsured and whether the claim could involve a possible liability on the part
of THE REINSURER. Failure to give such notice of the pendency of a claim shall not excuse the
obligation of THE REINSURER unless it is substantially prejudiced thereby. 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 it may deem available to THE COMPANY, its
liquidator, receiver or statutory successor. It is further understood that the expense thus incurred by
THE REINSURER shall 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 which may accrue to THE
COMPANY solely as a result of the defense undertaken by THE REINSURER .
In the event THE REINSURER is deemed insolvent, THE REINSURER will be bound by any legal directions
imposed by its liquidator, conservator, or statutory successor. However, and if not in conflict with
such legal directions, THE COMPANY shall have the right to cancel this Agreement with respect to
occurrences taking place on or after the date THE REINSURER first evidences insolvency. Such right to
cancel shall be exercised by providing THE REINSURER (or its liquidator, conservator, receiver or
statutory successor) with a written notice of THE COMPANY's intent to recapture ceded business. If THE
COMPANY exercises such right to cancel and recapture ceded business, such election shall be in lieu of
any premature recapture fee. Upon such election, THE COMPANY shall be under no obligation to THE
REINSURER, its liquidator, receiver or statutory successor; however, THE REINSURER, its liquidator,
receiver or statutory successor shall be liable for all claims incurred prior to the date of recapture.
23. ARBITRATION
a. GENERAL. All disputes and differences under this Agreement that cannot be amicably agreed upon by
the parties shall be decided by arbitration. The arbitrators will have the authority to interpret
this Agreement and, in doing so, will consider the customs and practices of the life insurance and
life reinsurance industry. The arbitrators will consider this Agreement as an honorable engagement
rather than merely a legal obligation, and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The arbitration shall take place within the United
States.
b. NOTICE. To initiate arbitration, one of the parties will notify the other, in writing, of its
desire to arbitrate. The notice will state the nature of the dispute and the desired remedies.
The party to which the notice is sent will respond to the notification in writing within 10 days of
receipt of the notice. At that time, the responding party will state any additional dispute it may
have regarding the subject of arbitration.
c. PROCEDURE. Arbitration will be heard before a panel of three disinterested arbitrators. The
arbitrators will be current or former executive officers or employees of life insurance or life
reinsurance companies; however, these companies will not be either party to this Agreement or any
of their reinsurers or affiliates. Each party will appoint one arbitrator. Notice of the
appointment of these arbitrators will be given by each party to the other party within 30 days of
the date of mailing of the notification initiating the arbitration. These two arbitrators will, as
soon as possible, but no longer than 45 days after the date of the mailing of the notification
initiating the arbitration, then select the third arbitrator.
Should either party fail to appoint an arbitrator within 30 days after the other party has given
written notice of its arbitrator appointment, the party that has given notice may appoint the
second arbitrator. Should the two initial arbitrators be unable to agree on the choice of a third
arbitrator, each arbitrator will nominate three candidates, two of whom the other will decline, and
the decision will be made by drawing lots on the final selection. If this candidate declines to
serve as the arbitrator, then the candidate last eliminated will be approached to serve. This
process will be repeated until a candidate has agreed to serve as the third arbitrator. Once
chosen, the three arbitrators will have the authority to decide all substantive and procedural
issues by a majority vote. The arbitration hearing will be held on the date fixed by the
arbitrators at a location agreed upon by the parties. In no event will this date be later than 6
months after the appointment of the third arbitrator. The arbitrators will issue a written
decision from which there will be no appeal. Either party may reduce this decision to a judgment
before any court that has jurisdiction of the subject of the arbitration.
d. COSTS. Each party will pay the fees of its own attorneys, the arbitrator appointed by that party, and
all other expenses connected with the presentation of its own case. The two parties will share
equal cost of the third arbitrator, unless the arbitrators decide otherwise.
24. GOOD FAITH
Each party agrees that all matters with respect to this Agreement require its utmost good faith.
25. REPRESENTATIONS AND WARRANTIES
Each party represents and warrants to the other party that it is solvent on a statutory basis in all
states in which it does business or is licensed. Each party agrees to promptly notify the other if it
is subsequently financially impaired. Each party affirms that it has and will continue to disclose all
matters material to this Agreement and each cession. Examples of such matters are a material change in
underwriting or issue practices or philosophy, or a change in each party's ownership or control.
THE COMPANY represents and warrants the following:
a. It is a corporation duly organized, existing and in good standing under the laws of Arizona.
b. It is empowered under applicable laws and by its charter and bylaws to enter into and perform the duties
contemplated in this Agreement.
c. It has taken all requisite corporate proceedings to authorize it to enter into and perform the duties
contemplated in this Agreement.
d. It has obtained any and all regulatory approvals as may be required for THE COMPANY to cede the Policies
covered hereunder.
e. It will take no unauthorized action that would encourage the policyholders whose policies are reinsured
under this Agreement to surrender, reduce or otherwise terminate their existing coverages either
through direct or indirect acts, including but not limited to, a plan of internal replacement,
without the consent of THE REINSURER.
f. THE COMPANY acknowledges that THE REINSURER is entering into this Agreement in reliance upon these
representations and warranties of THE COMPANY.
THE REINSURER represents and warrants the following:
a. It is a corporation duly organized, existing and in good standing under the laws of Delaware.
b. It is empowered under applicable laws and by its charter and bylaws to enter into and perform the duties
contemplated in this Agreement.
c. It has taken all requisite corporate proceedings to authorize it to enter into and perform the duties
contemplated in this Agreement.
d. It has obtained any and all regulatory approvals as may be required for THE REINSURER to provide the
reinsurance covered hereunder.
e. As part of THE COMPANY's due diligence process, THE REINSURER has provided a completed copy of the
Reinsurance Carrier Fact Sheet, a copy of which is attached in Schedule E. THE REINSURER will,
from time to time, update the information included in The Reinsurance Carrier Fact Sheet. The
information included in the Reinsurance Carrier Fact Sheet is true and accurate as of the date
shown on the Fact Sheet.
f. THE REINSURER acknowledges that THE COMPANY is entering into this Agreement in reliance upon these
representations and warranties of THE REINSURER, and THE REINSURER agrees that THE COMPANY's right
of recapture under Section 19 of this Agreement will be triggered if, at any point in the future
during the term of this Agreement, these representations and warranties are no longer true and
correct.
26. CONFIDENTIALITY
THE REINSURER and THE COMPANY agree to regard and preserve as confidential all information and material
which is related to the reinsured business and/or customers that may be obtained by the other party
from any source as a result of this Agreement. Neither party will, without first obtaining the other
party's prior written consent, disclose to any person, firm or enterprise, or use for its own benefit or
for the benefit of any third party any Confidential Information or Customer Information. "Confidential
Information" includes, but is not limited to any and all financial data, statistics, programs, research,
developments, information relating to insurance and financial products, planned or existing computer
systems architecture and software, data, and information of either party as well as third party
confidential information to which the other party has access. "Customer Information" includes all
information provided by or at the direction of THE COMPANY about a customer of THE COMPANY or any
affiliates of THE COMPANY, including but not limited to name, address, telephone number, email address,
account or policy information, and any list or grouping of customers.
Notwithstanding the foregoing, the provisions of Section 26 shall not apply with respect to disclosing
of the Product, the Specifications and/or Confidential Information which is or becomes publicly known
through no wrongful act of either party; or is received from a third party without similar restriction
and without breach of this Agreement; or is independently developed by either party; or is approved for
release by written authorization of the other party; or is placed in or becomes party of the public
domain pursuant to or by reason of operation of law. The foregoing exceptions do not apply to the
disclosure of Customer Information, which may not be disclosed without THE COMPANY's prior written
consent.
27. MEDICAL INFORMATION BUREAU
THE REINSURER is required to strictly adhere to the Medical Information Bureau Rules, and THE COMPANY
agrees to abide by these Rules, as amended from time to time. THE COMPANY will not submit a preliminary
notice, application for reinsurance, or reinsurance cession to THE REINSURER unless THE COMPANY has a
signed, currently required Medical Information Bureau authorization.
28. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Arizona without giving effect to the
principles of conflicts of laws thereof.
29. ASSIGNMENT
This Agreement is not assignable by either party except by the express written consent of the other.
30. ACCESS TO RECORDS
THE REINSURER and THE COMPANY, or their duly authorized representatives, will have the right to inspect
original papers, records, and all documents relating to the business reinsured under this Agreement
including underwriting, claims processing, and administration. Such access will be provided during
regular business hours at the office of the inspected party.
31. 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.
32. OFFSET
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.
In witness of the above, THE COMPANY and THE REINSURER have by their respective officers executed and delivered
this Agreement in duplicate on the dates indicated below, with an effective date of March 1, 2003.
----------------------------------------------------------- --------------------------------------------------------
PRUCO LIFE INSURANCE COMPANY SCOTTISH RE (U.S.), INC.
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
By:___/s/_____________________________ By:__/s/____________________________
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
Title:_______________________________ Title:_____________________________
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
Date:_______________________________ Date:_____________________________
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
By:___/s/_____________________________ By:__/s/____________________________
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
Title:_______________________________ Title:_____________________________
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
Date:_______________________________ Date:_____________________________
----------------------------------------------------------- --------------------------------------------------------
SCHEDULE A
REINSURANCE COVERAGE
-------------------------------------------------------------------------------------------------------------------
1. PLANS REINSURED:
This Agreement covers the following plans:
o PruLife Universal (UL) - Policies issued by THE COMPANY (Form Number UL-2000 and all state variations),
including in force policies with issue dates back to April 30, 2000.
o PruLife Custom Premier (VUL II) - Policies issued by THE COMPANY (Form Number VUL-2000 and all state
variations), including in force policies with issue dates back to April 30, 2000.
o Target Term Rider (TTR) issued by THE COMPANY (currently available on VUL II policies)
Excluded from reinsurance under this Agreement are the Waiver of Premium and Accidental Death Benefits
included in the above reinsured policies. Also excluded from reinsurance under this Agreement are
riders that provide additional life insurance on the lives of any dependent children of the
policyholder. Included under this Agreement is the Living Needs Benefit rider.
2. AUTOMATIC PORTION REINSURED:
US/Canadian Residents
THE REINSURER will automatically reinsure an amount equal to 10% of the net amount at risk related to
the face amount of insurance up to the First Layer of Coverage amounts shown in Schedule A, Section 4.B.
below.
The net amount of risk is determined as of the issue date and each subsequent policy anniversary and is
defined as the death benefit minus the contract fund.
3. AUTOMATIC RETENTION LIMIT:
THE COMPANY will retain at least 10% of the net amount at risk related to the face amount of insurance
of each policy in the First Layer of Coverage, as defined in Schedule A, Section 4B. THE COMPANY may
cede up to 80% of the net amount at risk related to the face amount of insurance of each policy on a
first-dollar quota share basis to other reinsurers. In addition, THE COMPANY will retain 100% of the
net amount at risk related to the face amount of insurance of each policy, in excess of the First Layer
of Coverage.
4. AUTOMATIC ACCEPTANCE LIMIT:
A. For any policy to be reinsured under automatic reinsurance, the face amount will not exceed the
Automatic Issue Limits shown in the following tables:
US/Canadian Residents - No Foreign Travel - Non-Smoker
=========================== ========================= ============================= ============================
Issue Age of Insured No Substandard Rating Class A - D Class E - H
--------------------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
Ages: 0 - 65 $ 70,000,000 $ 65,000,000 $ 43,000,000
--------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
66 - 70 $ 57,000,000 $ 52,000,000 $ 33,000,000
--------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
71 - 75 $ 43,000,000 $ 40,000,000 $ 22,000,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
76 - 77 $ 25,000,000 $ 22,000,000 $ 15,000,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
78 - 80 $ 21,000,000 $ 18,000,000 $ 11,000,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
81 - 85 $ 13,000,000 $ 11,000,000 None
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
86 - 90 $ 5,050,000 $ 4,050,000 None
=========== =============== ========================= ============================= ============================
-------------------------------------------------------------------------------------------------------------------
US/Canadian Residents - No Foreign Travel - Smoker
=========================== ========================= ============================= ============================
Issue Age of Insured No Substandard Rating Class A - D Class E - H
--------------------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
Ages: 0 - 65 $ 60,000,000 $ 60,000,000 $ 43,000,000
--------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
66 - 70 $ 47,000,000 $ 47,000,000 $ 32,000,000
--------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
71 - 75 $ 38,000,000 $ 38,000,000 $ 22,000,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
76 - 77 $ 22,000,000 $ 22,000,000 $ 14,000,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
78 - 80 $ 18,000,000 $ 18,000,000 $ 10,000,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
81 - 85 $ 11,000,000 $ 10,000,000 None
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
86 - 90 $ 4,050,000 $ 3,050,000 None
=========== =============== ========================= ============================= ============================
US/Canadian Residents - Foreign Travel
===================== ===================== ================= =====================
Pref. Best - Class C Class D - E Greater than Class E
--------------------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
Ages: 0 - 70 $ 6,666,000 $ 5,000,000 None
--------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
71 - 75 $ 5,000,000 $ 3,333,000 None
----------- --------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
00 - 00 Xxxx Xxxx Xxxx
=========== ========= ===================== ================= =====================
B. For any policy to be reinsured under automatic reinsurance, the amounts subject to reinsurance are
the First Layer of Coverage amounts shown in the following tables:
US/Canadian Residents - No Foreign Travel
=========================== ========================= =============================
Issue Age of Insured Pref. Best - Class D Class E - H
--------------------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
Ages: 0 - 65 $ 50,000,000 $ 35,000,000
--------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
66 - 70 $ 40,000,000 $ 25,000,000
--------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
71 - 75 $ 35,000,000 $ 15,000,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
76 - 77 $ 15,000,000 $ 10,000,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
78 - 80 $ 10,000,000 $ 5,000,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
81 - 85 $ 5,000,000 None
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
86 - 90 $ 1,500,000 None
=========== =============== ========================= =============================
US/Canadian Residents - Foreign Travel
===================== ===================== ================= =====================
Pref. Best - Class C Class D - E Greater than Class E
--------------------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
Ages: 0 - 70 $ 6,666,000 $ 5,000,000 None
--------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
71 - 75 $ 5,000,000 $ 3,333,000 None
----------- --------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
00 - 00 Xxxx Xxxx Xxxx
=========== ========= ===================== ================= =====================
C. For any policy to be reinsured under automatic reinsurance, the amounts reinsured with THE REINSURER
on that life will not exceed the amounts in the following tables:
US/Canadian Residents - No Foreign Travel
=========================== ========================= =============================
Issue Age of Insured Pref. Best - Class D Class E - H
--------------------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
Ages: 0 - 65 $ 5,000,000 $ 3,500,000
--------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
66 - 70 $ 4,000,000 $ 2,500,000
--------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
71 - 75 $ 3,500,000 $ 1,500,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
76 - 77 $ 1,500,000 $ 1,000,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
78 - 80 $ 1,000,000 $ 500,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
81 - 85 $ 500,000 None
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
86 - 90 $ 150,000 None
=========== =============== ========================= =============================
US/Canadian Residents - Foreign Travel
===================== ===================== ================= =====================
Pref. Best - Class C Class D - E Greater than Class E
--------------------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
Ages: 0 - 70 $ 666,600 $ 500,000 None
--------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
71 - 75 $ 500,000 $ 333,300 None
----------- --------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
00 - 00 Xxxx Xxxx Xxxx
=========== ========= ===================== ================= =====================
5. JUMBO LIMIT:
For any policy to be reinsured under automatic reinsurance, the total amount of insurance in force and
applied for in all companies will not exceed the following amounts:
US/Canadian Residents- No Foreign Travel
--------------------- ---------------------- ------------------ -------------------
No Substandard Rating Class A - D Class E - H
--------------------- ---------------------- ------------------ -------------------
----------- --------- ---------------------- ------------------ -------------------
Ages: 0 - 90 $70,000,000 $70,000,000 $70,000,000
----------- --------- ---------------------- ------------------ -------------------
Note: When a policy is reinsured under automatic reinsurance and the total amount in force and applied
for in all companies exceeds $50,000,000, THE REINSURER must be notified and THE COMPANY shall provide
the amount being issued.
US/Canadian Residents - Foreign Travel
--------------------- --------------------- ------------------- -------------------
Preferred Best Class A - E Class E - H
--------------------- --------------------- ------------------- -------------------
----------- --------- --------------------- ------------------- -------------------
Ages: 0 - 75 $35,000,000 $35,000,000 None
----------- --------- --------------------- ------------------- -------------------
----------- --------- --------------------- ------------------- -------------------
00 - 00 Xxxx Xxxx Xxxx
----------- --------- --------------------- ------------------- -------------------
6. OCCUPATION EXCLUSION LIST FOR AUTOMATIC REINSURANCE
o Entertainers
o High Profile Athletes
7. REPORTING PERIOD:
The reporting period will be monthly.
8. MINIMUM CESSION:
The minimum amount per cession that can be reinsured with THE REINSURER is $5,000.
9. RESERVES FOR REINSURANCE:
The reinsurance reserve is the one-year term reserve on the portion of each policy reinsured. This
reserve will be calculated using 1980 CSO ultimate mortality and 4 Β½% interest.
10. RISK TRIGGER EVENT:
A "Risk Trigger Event" means that any of the following has occurred:
(1) THE REINSURER's Adjusted Capital, at any point in the future, falls to a dollar amount that is more than
fifteen percent (15%) lower than the dollar amount of Adjusted Capital held by THE REINSURER as of
the date of its financial statements most recently published prior to the date of this Agreement;
(2) THE REINSURER does not maintain its status as a licensed or accredited reinsurer under the applicable
laws and regulations of Arizona and has not provided THE COMPANY with alternative security (such as
a trust or letter of credit) that satisfies THE COMPANY's specific requirements and the current,
applicable legal and regulatory requirements in Arizona necessary to entitle THE COMPANY to take
the maximum permissible credit on its statutory financial statements.
(3) THE REINSURER no longer has in effect a Qualified Rating (as defined below) from at least one of the
Major Rating Agencies shown in the chart below, which is at least as high as the minimum levels
shown:
==================================== ===================================
Major Rating Agency Minimum Applicable Rating:
==================================== ===================================
------------------------------------ -----------------------------------
Xxxxx Investor Services, Inc. A rating of "Baa2" or higher.
------------------------------------ -----------------------------------
------------------------------------ -----------------------------------
Standard & Poors Corporation A rating of "BBB" or higher.
==================================== ===================================
Definitions:
"Adjusted Capital" shall mean the following, as applicable: (i) statutory surplus for Reinsurers that
report on a U.S. statutory reporting basis; (ii) GAAP equity minus deferred acquisition costs (DAC) for
Reinsurers that report on a U.S. GAAP or Canadian GAAP basis; and (iii) "capital and surplus" for
Reinsurers that report on any other accounting basis (including the International Accounting Standards
(IAS) reporting basis).
"Qualified Rating" shall mean the issuance of an insurance company long-term, financial strength rating
from one or more of the Major Rating Agencies that remains in effect, that has not been suspended or
withdrawn, and that was issued as a result of the full interactive ratings review process (including
interviews with senior management) by the Major Rating Agency in question. (Use of the modifiers "Q" or
"Pi" by S&P or any similar indication that a rating is a "qualified" or "limited" rating by any other of
the Major Rating Agencies means that the rating does not constitute a "Qualified Rating" for purposes of
this Agreement.)
b. If at any point in the future during the term of this Agreement, either THE REINSURER's Adjusted Capital
falls below the amount specified in clause (1) above, or THE REINSURER no longer has in effect a
Qualified Rating as specified in clause (3) above, then THE COMPANY's right of recapture will be
triggered unless THE REINSURER elects to, and does, provide, on a timely basis, security in the
form of a Trust, for the benefit of THE COMPANY, that meets the requirements set forth in the
'Trust Agreement Provisions' in the next Section of this Schedule A. The Trustee of the Trust shall
be a "qualified financial institution" as defined in A.R.S. Β§20-261.03.
11. TRUST AGREEMENT PROVISIONS:
c. Under the circumstances described in the last paragraph of Section 10 of this Schedule A, THE REINSURER
may enter into, and maintain during the entire term of this Agreement, a Trust Agreement securing
the Credit Amount, so as to avoid triggering THE COMPANY's right of recapture under Section 19. If
THE REINSURER enters into a Trust Agreement to establish a trust account securing the Credit
Amount, the Trust Agreement must satisfy the requirements of subsections b., c., d., e., f., g., h.
and i. below. The Trustee of the Trust shall be a "qualified financial institution" as defined in
A.R.S. Β§20-261.03.
d. Fifteen days prior to the end of each calendar quarter or at any other time , THE COMPANY will determine
and communicate the Credit Amount to THE REINSURER The Credit Amount shall be an amount at least
equal to the deduction for reinsurance ceded from THE COMPANY's liabilities for policies ceded
under this Agreement. Such amount shall include, but not be limited to, amounts for policy
reserves, reserves for claims and losses incurred (including losses incurred but not reported),
loss adjustment expenses, and unearned premiums. THE COMPANY will communicate this amount to THE
REINSURER in order to enable THE REINSURER to ensure that the Trust is maintained with a sufficient
balance. All costs and expenses of maintaining the trust will be borne by THE REINSURER and will
not be paid by any of the assets held in the Trust.
e. THE REINSURER will deposit into the trust on or before a date agreed to by the parties Assets that
cause the market value of the trust to meet or exceed 103% of the most recently communicated Credit
Amount immediately prior to the date for the deposit of Assets into the Trust. In addition, as
provided by the Trust Agreement, THE REINSURER shall make future additional deposits into the Trust
so as to cause the market value of the trust Assets at all times to meet or exceed 103% of the
Credit Amount. THE REINSURER shall make such deposit(s) within fifteen days of receiving
notification of the Credit Amount.
f. The assets deposited in the trust account shall be valued according to their current fair market value,
and shall consist of only those instruments detailed within the Trust Agreement, provided that such
investments are issued by an institution that is not a parent, subsidiary, or an affiliate of
either THE COMPANY or THE REINSURER. Within 3 days of a request from THE COMPANY, THE REINSURER
shall provide a report setting forth the current fair market value of the trust assets.
g. THE REINSURER shall, prior to depositing assets with the Trustee, execute assignments, endorsements in
blank, or transfer legal title to the Trustee of all shares, obligations or any other assets
requiring assignments, in order that THE COMPANY, may, whenever necessary, negotiate any such
assets without consent or signature from THE REINSURER or any other entity.
h. All settlements of account between THE COMPANY and THE REINSURER shall be made in cash or its equivalent.
i. THE REINSURER and THE COMPANY agree that the assets in the trust account may be drawn upon at any time,
notwithstanding any other provisions in this Agreement, and be utilized and applied by THE COMPANY
or any successor by operation of law of THE COMPANY including, without limitation, any liquidator,
rehabilitator, receiver or conservator of THE COMPANY, for the following purposes:
i. To reimburse THE COMPANY for THE REINSURER's share of premiums returned to the owners of policies
reinsured under this Agreement on account of cancellation of such policies;
ii. To reimburse THE COMPANY for THE REINSURER's share of benefits or losses paid by THE COMPANY under the
terms and provisions of the policies reinsured under this Agreement;
iii. To fund an account with THE COMPANY in an amount at least equal to the deduction for reinsurance ceded
from THE COMPANY's liabilities for policies ceded under this Agreement. Such amount shall
include, but not be limited to, amounts for policy reserves, reserves for claims and losses
incurred (including losses incurred but not reported), loss adjustment expenses, and unearned
premiums;
iv. To pay any other amounts THE COMPANY claims are due under this Agreement.
All of the foregoing will be applied without diminution because of insolvency on the part of THE
COMPANY or THE REINSURER or the inability of THE COMPANY to pay all or any part of a claim.
THE COMPANY agrees to return to THE REINSURER any amounts withdrawn which are in excess of the
actual amounts required for i, ii and iii above, or in the case of iv, such amounts that are in
excess of the amounts ultimately determined to be due under this Agreement. In addition, THE
COMPANY shall make interest payments to THE REINSURER on amounts withdrawn pursuant to item (iii)
above, to the extent such interest is not needed to be retained to maintain the account at the
Credit Amount. The rate of interest charged will be equal to MOODY's 30-Day AAA Rate, but no
greater than the Prime Rate of interest as published in Federal Reserve Bulletin. The XXXXX'x
30-Day AAA Rate and the Prime Rate shall be determined on the first business day of each month in
which interest is payable.
Following the receipt of a new Credit Amount, but prior to the start of the new calendar quarter,
THE REINSURER shall have the right to seek approval from THE COMPANY to withdraw from the trust
account a portion of the assets contained therein and to transfer such assets to THE REINSURER,
provided that after such withdrawal and transfer, the market value of the trust account is no less
than one hundred and three percent (103%) of the Credit Amount most recently communicated by THE
COMPANY to THE REINSURER.
j. The Trust shall remain in effect until the later of the termination of this Reinsurance Agreement or the
full satisfaction and discharge of any and all liabilities and obligations owed by THE REINSURER to
THE COMPANY, unless THE REINSURER and THE COMPANY mutually agree in writing to terminate the Trust
at an earlier date. Notwithstanding any provision contained in the Trust Agreement, THE REINSURER
shall not seek to terminate the trust unless it has written permission from THE COMPANY. THE
COMPANY shall not arbitrarily or unreasonably withhold such permission if another form of
collateral acceptable to THE COMPANY is provided by THE REINSURER for the Credit Amount.
i. Prior to THE REINSURER's establishing or funding the Trust, THE COMPANY shall submit the Trust Agreement
to applicable state regulatory authorities for approval, if any such approvals are required by
state insurance law or regulations. THE COMPANY shall promptly inform THE REINSURER of such
approval or of any changes to such documents required by regulatory authorities.
12. RISK RETENTION LIMITS:
The total amount of insurance retained on an individual life for THE COMPANY and its affiliates will not
exceed the risk retention limits in the following tables.
Non-Smokers
======================== ====================== ====================== ========================
Issue Age of Insured No Substandard Rating Class A - D Class E - H
------------------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
Ages: 0 - 65 $30,000,000 $ 25,000,000 $ 15,000,000
------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
66 - 70 $25,000,000 $ 20,000,000 $ 13,000,000
------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
71 - 75 $15,000,000 $ 12,000,000 $ 10,000,000
----------- ------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
76 - 80 $13,000,000 $ 10,000,000 $ 7,000,000
----------- ------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
81 - 85 $9,000,000 $ 7,000,000 $ 5,000,000
----------- ------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
86 - 90 $4,000,000 $ 3,000,000 $ 2,000,000
=========== ============ ====================== ====================== ========================
Smokers
======================== ====================== ====================== ========================
Issue Age of Insured No Substandard Rating Class A - D Class E - H
------------------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
Ages: 0 - 65 $20,000,000 $ 20,000,000 $ 15,000,000
------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
66 - 70 $15,000,000 $ 15,000,000 $ 12,000,000
------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
71 - 75 $10,000,000 $ 10,000,000 $ 10,000,000
----------- ------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
76 - 80 $10,000,000 $ 10,000,000 $ 6,000,000
----------- ------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
81 - 85 $7,000,000 $ 6,000,000 $ 4,000,000
----------- ------------ ---------------------- ---------------------- ------------------------
----------- ------------ ---------------------- ---------------------- ------------------------
86 - 90 $3,000,000 $ 2,000,000 $ 2,000,000
=========== ============ ====================== ====================== ========================
SCHEDULE B
AUTOMATIC REINSURANCE PREMIUMS
-------------------------------------------------------------------------------------------------------------------
1. STANDARD ANNUAL REINSURANCE PREMIUMS
The standard annual reinsurance premiums per $1,000 of net amount at risk for (1) all cessions of
automatic reinsurance will be the product of the rates in the table attached to this Schedule B and the
following factors:
==================================================================
Face amounts $100,000 and greater AND issue age 18 and greater
------------------------------------------------------------------
-------------------- ---------------------------------------------
Rating Class Factor
-------------------- ---------------------------------------------
1 .315
-------------------- ---------------------------------------------
-------------------- ---------------------------------------------
2 .385
-------------------- ---------------------------------------------
-------------------- ---------------------------------------------
3 .520
-------------------- ---------------------------------------------
-------------------- ---------------------------------------------
4 .630
-------------------- ---------------------------------------------
-------------------- ---------------------------------------------
5 1.030
-------------------- ---------------------------------------------
-------------------- ---------------------------------------------
6 1.290
==================== =============================================
-------------------------------------------------------------------------------------------------------------------
==================================================================
Face amount less than $100,000 OR issue age less than 18
------------------------------------------------------------------
-------------------- ---------------------------------------------
Rating Class Factor
-------------------- ---------------------------------------------
1 N/A
-------------------- ---------------------------------------------
-------------------- ---------------------------------------------
2 N/A
-------------------- ---------------------------------------------
-------------------- ---------------------------------------------
3 N/A
-------------------- ---------------------------------------------
-------------------- ---------------------------------------------
4 .705
-------------------- ---------------------------------------------
-------------------- ---------------------------------------------
5 N/A
-------------------- ---------------------------------------------
-------------------- ---------------------------------------------
6 1.500
==================== =============================================
2. SUBSTANDARD ANNUAL REINSURANCE PREMIUMS
Substandard extra premiums are available on classes 4 and 6 (Non-Smoker and Smoker). For substandard
issues, the substandard extra reinsurance premium (plus any flat extra) is payable for 20 years. After
this period, the base reinsurance premium (plus any flat extra) is payable until the end of the premium
paying period.
The substandard extra annual reinsurance premiums per $1,000 for substandard issues will be the product
of the base reinsurance premiums per $1,000 and the factor for the appropriate rating class.
Note that this is the total premium per $1,000, including both the base and substandard premium.
The factors are as follows:
============================ ==================================
Rating Class Factor
---------------------------- ----------------------------------
---------------------------- ----------------------------------
A 1.40
---------------------------- ----------------------------------
---------------------------- ----------------------------------
B 1.65
---------------------------- ----------------------------------
---------------------------- ----------------------------------
C 1.90
---------------------------- ----------------------------------
---------------------------- ----------------------------------
D 2.25
---------------------------- ----------------------------------
---------------------------- ----------------------------------
E 2.75
---------------------------- ----------------------------------
---------------------------- ----------------------------------
F 3.25
---------------------------- ----------------------------------
---------------------------- ----------------------------------
G 3.75
---------------------------- ----------------------------------
---------------------------- ----------------------------------
H 4.50
============================ ==================================
3. FLAT EXTRA REINSURANCE PREMIUMS
The flat extra reinsurance premium per $1,000 will be the product of flat extra premiums charged by THE
COMPANY and the factors in the following table:
===============================================================
Permanent Flat Extra Premiums (i.e., for more than 5
years duration)
---------------------------------------------------------------
First year .25
----------------------------- ---------------------------------
----------------------------- ---------------------------------
Renewal year .90
============================= =================================
===============================================================
Temporary Flat Extra Premiums (i.e., for 5 years
duration or less)
---------------------------------------------------------------
All years .90
=================================== ===========================
4. AGE BASIS
Age Last Birthday.
5. PREMIUM TAXES
Premium taxes are not reimbursed.
