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(8) (b) Amendment to Administrative Agreement dated May 30, 1996
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ADDENDUM TO SERVICE AGREEMENT
BY AND BETWEEN
ACACIA NATIONAL LIFE INSURANCE COMPANY
AND
FINANCIAL ADMINISTRATIVE SERVICES, INC.
Effective May 30, 1996, the Service Agreement dated September 1, 1995 by and
between ACACIA National Life Insurance Company and Financial Administrative
Services, Inc., is hereby amended as follows:
1. Replace all references to ACACIA Mutual Life Insurance Company by
ACACIA National Life Insurance Company.
2. Add to Exhibit H the following product description labeled "Variable
Annuity," dated 02/28/96 which is attached hereto and made a part of
the Addendum.
3. Add to Exhibit C the schedule labeled "Pricing Schedule for VA" which
is attached hereto.
In Witness Whereof, the parties hereto executed this Addendum as of the date of
this Agreement.
ACACIA NATIONAL LIFE FINANCIAL ADMINISTRATIVE
INSURANCE COMPANY SERVICES, INC.
By: By:
----------------------------- ------------------------------
Title: Title:
--------------------------- ---------------------------
Date: Date:
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EXHIBIT C
PRICING SCHEDULE FOR VARIABLE ANNUITY
SYSTEM IMPLEMENTATION FEE
INITIAL SET UP: $75,000
) Loading all appropriate plan parameters to establish the
customers' product(s) in the FAS Data Processing environment.
) Implementing the billing, premium collection and commission
payment process.
) Formatting and implementing of the Policyholders' Annual
Statement and other client-specific forms.
) Implementing of accounting subsystem procedures and chart of
accounts.
) Workflow.
) Administrative procedures.
) System testing with appropriate user sign-off.
) Implementation of appropriate management reporting.
) Implementing Voice Response Unit standard script.
) Business specs.
) Trade System.
) Work in progress.
SYSTEM MODIFICATIONS
The following are modifications that have been identified as of the date this
Addendum. All subsequent modifications will be approved as separate service
requests outside of this Agreement.
) Marketer Interfaces. $ 2,400
) Age of Premium Surrender Charge. $ 4,200
) Guaranteed Death Benefit. $ 3,600
) Nursing Home Rider. $ 2,400
) Scheduled Reallocation of Fixed Fund Interest. $ 7,200
) Free Withdrawal. $12,000
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) Total Modification. $31,800
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ADMINISTRATIVE SERVICES - MONTHLY BILLING
Policy Issue
FULL POLICY ASSEMBLY SERVICE
Per Policy Fee In-Force Policy Count
$ 15.00 1 - 5,000
14.50 5,001 - 10,000
14.00 10,001 - 15,000
13.50 15,001 - 20,000
13.00 20,000 +
Administration Fees
ACTIVE POLICIES - PREMIUM PAYING
MONTHLY FEE ANNUALIZED
3.40 40.80
Inactive Policies
$ .50 per month per policy.
Minimum Monthly Administration Fees = $ 7,000 and applies to all products in
total that are included in this Agreement. Policy issue fees are not subject
to the minimum monthly administration fee.
VARIABLE ANNUITY
DELIVERY AND PAYMENT SCHEDULE*
Target Date will be the date the work is completed.
CYCLE: FEE**
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Contract signed 20%
CYCLE 1: 20%
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New Issues
Delivery Package
Issue Calcs
) Surrender Charges
) Fund Allocations
) Premium Limitations
) Policy Fees
) Gain/Loss
Payment Process-mg
) Initial Payment
) Subsequent Premium
) 1035 Exchange
Bills
Confirmations
Fund Transfers
Fund Level M&E
ALS Accounting
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Cycle 2: 20%
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Policy Changes
) Billing Changes
) Address Changes
) Allocation Changes
Partial Withdrawals
Fixed Fund Interest Reallocation
Account Rebalancing
Dollar Cost Averaging
Guaranteed Death Benefit
Quarterly Statements
MACOLA/General Ledger Interface
Valuation Interface
Field Compensation Interface (FCS)
CYCLE 3: 20%
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Free Look Processing
Death Processing
Full Surrender Processing
Reversals
Undo/Redo
Life Guide Interface
Reinsurance Interface
Trade System
VRU Interface
TSA Loan Processing
CYCLE 4: 20%
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Outstanding System Problem Report Clean-up
* Payment to be provided within 30 days of delivery, except as stated
below.
The production date is scheduled for July 1, 1996. Customer and FAS
acknowledge that the implementation and modification fees are fixed,
and are based upon the work as described herein to be completed on or
before the production date. Once Customer has accepted and approved
Cycle 4, Customer agrees to pay the outstanding balance of the above
fees and to the commencement of services and associated administrative
fees on the above production date.
** % of System Implementation plus cost for Modifications and Interfaces.
VARIABLE ANNUITY - 2/28/96
SECTION I - PRODUCTS NEEDS ANALYSIS:
We believe the majority of initial sales will be done by the Acacia career
field force. We must also be cognizant of the fact that many sales in the next
24 months will come from people "we've not yet met." By this, we're referring
to people who will come to a center by:
(a) individual recruiting by MD's
(b) acquisition (example: Orange County Financial Center)
(c) T.A.G. "1099" brokers.
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The reason this is mentioned is that the design of this product must maintain a
delicate balance. On one hand, the product must be profitable for The Acacia
Group and we believe we can accomplish this since our career field force does
not require the most competitive product "on the street." On the other hand,
the product cannot be "2nd class" because as we seek to attract new people to
the organization their first questions revolve around our product portfolio.
We believe the best way to maintain this delicate balance is to set a target
for total Basis Points (B.P.'s) that will come out of the product for all
expenses. These expenses include:
(a) mortality and expense charges
(b) fund management fees
(c) ongoing fund value based policy fee (if any).
The target does not take into account any flat policy fee. We believe our
total target for these expenses should be between 210 and 220 B.P.'s. If we
could have a profitable product and "take less out" and maintain competitive
features, a lower B.P. target would be even better and could create additional
sales.
Both Acacia career account managers and independent brokers should be
comfortable recommending this product. The contract is designed to aid
individuals in long-term accumulation planning for retirement and will offer a
fixed account option in addition to the variable options.
One target market for the product includes clients approximately age 50 who are
10 to 15 years from retirement. Additionally, there is a mature market where
the tax deferral aspect of annuities has great appeal. These clients have
accumulated a nest egg, but are not drawing income from it at present. These
prospective clients range in age from 55 to 95. The competitive target will be
the cash surrender value at the end of the surrender charge period.
Projected Sales:
We are projecting sales of 30,000,000 in our first 12 months of full
production. Average case size is projected to be $12,000. This would result
in 2,500 policies. 20% or 500 of those are expected to have ongoing premiums.
The other 2,000 policies would be one time payments. It is projected that the
500 policies receiving ongoing premium would average $3,000 in first year
deposits. Average first year premium for one time payment policies would be
$14,250.
We project that sales would fall in these age ranges:
% of Sales
Age Range (by premium amount)
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20 - 30 5
30 - 40 12
40 - 50 20
50 - 60 25
60 - 70 21
70 - 80 12
greater than 80 5
Preferred Compensation Design:
(1) It is preferred that Acacia account managers receive the same
compensation (including % commission and ECD factor) as the fixed
annuity portfolio. If it turns out there is not as much "juice" in
the product our fall back (although not the preferred ) is a reduced
ECD factor. We believe this compensation schedule will have 2 major
impacts:
(a) It will be compelling for any Acacia account manager to place
Variable Annuity business with us once these commissions will
not be subject to Broker/Dealer pass through.,
(b) New account managers in particular will be drawn to the Acacia
product. If we're competitive and pay fairly, why would they
look elsewhere? Even if they were to look outside (Marketing
will need to develop rules with regard to whether Class II
will still be allowed, a new account manager's broker/dealer
pass through is generally very low.
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We are hoping for a dual commission; dual back end product.
Specifications would be similar to the North American Security Life
Products Venture (a traditional fully loaded product) and Vision. The
Vision product has a 3 year, 3% back end. Commissions are total Gross
Dealer Reallowance divided by 5, then paid over 5 years (example:
G.D.R. is 6%, Vision pays 1.25% per year for 5 years then the
traditional .25 B.P.'s trailer). This compensation schedule has an
appeal to the fee based planning Community. We can probably gather
some intelligence through Xxxx Xxxx of Xxxx Xxxxx (N.A.S.L.'s
Marketing arm) about their experience with this pricing. Our
prediction is that initial sales will be heavily tilted toward the
traditional fully loaded product, but that 24 months from now, we
would be glad to have the "Levelized" commission, too.
(2) Our product must have trailer commissions. This will be challenging
because the norm for trailer commissions is becoming 25 B.P.'s
starting in month 13. Since we are concerned with our 210-220 B.P.
target, it is interesting to note that our career account managers
don't need a full 25 B.P. trailer if there is no Broker- Dealer pass
through, the brokerage community continues to need a full 25 B.P.
trailers.
(3) (a) It is preferred that National Associates be paid in same amounts
as currently (3 1/2% commission plus 50% E.R.A.).
(b) We recommend that we look forward to how T.A.G. "1099's" will be
paid. This distribution system will require a 6% G.D.R.
(4) Per previous discussions, it is important that we put trailing
commissions on the fixed annuity portfolio. This could have 2 desired
effects.
(a) improved persistency on that block of business.
(b) ongoing compensation similar to the variable so a minimum
disparity between the two exists.
SECTION II - PRODUCT SPECIFICATION
The product will be developed with one contract covering two objectives:
(a) accepting flexible premiums
(b) accepting single premiums
THE CONTRACT WILL BE OFFERED ON BOTH A QUALIFIED AND NON-QUALIFIED BASIS.
Minimum Premium Deposit:
The total premium paid during the first year must be at least $300. No
additional premium payments are required. If the policyowner chooses,
additional premium payments will be accepted. Each premium must be at least
$30. However, if after five years, the total account value is less than $2000
for twelve consecutive months we may exercise our right to terminate the
contract.
Maximum Annual Premium Deposit:
$500,000 limit into the general account without prior approval by the Exception
Committee. There is no limit on the amount of deposits into the variable
accounts.
Issue Ages:
0 - 85
The contract can be issued from ages 0 - 85. However, no subsequent deposits
will be accepted after age 75.
Maturity Age: 90
At maturity, the policyowner will select from among Acacia's settlement
options. There will be no variable payout available.
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Death Benefits:
The contract will guarantee a death benefit for issue ages up to age 75. This
death benefit will be redetermined every five years. The last adjustment will
be at age 80. In the first five year period, the guaranteed death benefit is
equal to the sum of' the premiums paid less any partial withdrawals. Every
five years thereafter the guaranteed death benefit is the greater of the
current guaranteed death benefit or the current account value. In all years
the guaranteed death benefit will never be lss than premiums paid less any
withdrawals.
For those over issue age 75, the death benefit will always be at least equal to
the total premiums paid less any withdrawals. Surrender Charges will not be
deducted at the time of death.
Contract Charges:
Policy Fee: $3.50 will be deducted monthly
beginning with beginning with the
first premium deposit. The policy
fee will be waived anytime the
account value exceeds $50,000.
Asset Based Administrative Charge: 10 basis points applied annually to
the account value in the variable
accounts on the anniversary.
Mortality and Expense Risk Fee (M&E): 125 basis points applied annually to
the account value in the variable
accounts on the anniversary. The
M&E is guaranteed to decrease by
five basis points beginning in year
16 until it reaches 50 basis points
at the end of year 30.
Each fund manager charges an asset based charge to reimburse themselves for
managing the fund. The fees vary by fund and are deducted on a daily basis
from the amounts in each of the allocated funds.
Premium taxes are deducted from the premium if the policy is issued in a state
with premium taxes.
Surrender Charges:
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Years 1 - 3 8%
Year 4 6%
Year 5 4%
Years 6+ 0%
The surrender charge is a percentage of premium and applies only to those
payments received within five years of the date of the surrender. The
calculation will be on a first in first out basis. Partial surrenders will be
charged based on the above schedule.
Surrender Charges will be waived if the policyowner wishes to make withdrawals
as part admittance to a nursing home. Acacia will be responsible for
determining whether or not the charges are waived.
Liquidity Features:
10% Non Cumulative Free Withdrawals:
The percentage is applied on an annual basis to the total
premiums paid less any previous withdrawals as of the last
anniversary. The withdrawal will be processed pro rata across
all fund allocations. Less than 10% can be taken at a time
and more than one withdrawal can be made in a year as long as
the total in a year does not exceed 10%. If the policyowner
takes less than 10% in a year, the remaining amounts can not
be carried over to the next year. This feature is not
cumulative.
Withdrawal of any earnings arising from the policy year across all
funds including the general account free of Surrender Charges. Any
remaining earnings amounts, in the fixed account may be transferred as
part of the transfer provisions.
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Systematic Partial Withdrawals:
Policyowners choosing this option will withdraw a level dollar
amount of their account value on a periodic basis. Any
withdrawals in excess of the 10% free will be charged a
partial Surrender Charge. Included with this feature is
complete tax reporting capabilities.
Transfers:
We will allow unlimited transfers among the variable accounts
if the policyowner has made deposits into the general account,
we will allow a maximum transfer from this account of 10% of
premiums paid less withdrawals and 100% of the interest
earnings in this account into the variable accounts per year.
In addition, these transfers may occur on a systematic basis
if the policyowner so chooses. In this case the client will
be asked to indicate which variable accounts the transferred
funds will be placed. These provisions are in addition to the
10% free withdrawal right. If a client is utilizing both the
free withdrawal and transfer rights then any free withdrawals
should be processed first. The combination of the free
withdrawal and transfers will require us to consider funds
interest first, free withdrawals second, then premium.
Loans:
Loans will be available for only the qualified market. Loans
are subject to provisions of the Internal Revenue Service Code
and to applicable retirement program rules. We will use FAS
base system loan functionality without modification to process
loans. No loan requests will be accepted directly from the
policyowner for other than a 403(b) (TSA) plans. Retirement
plan fiduciaries for all other qualified plans will be
responsible for calculating the proper loan amounts,
communicating the proper loan amounts to FAS, and preparing
the proper tax reports.
Loan interest rate: 6% payable in arrears
Impaired interest rate: 4%
This is the interest rate credited to the collateral
fund while the loan is outstanding.
Maximum loan value: Maximum allowed by the plan and the tax
law.
The loan amount will be transferred on a pro rata
basis across all fund allocations, to the general
account.
Allocation Options:
The policyowner may choose to use automatic rebalancing. At the end of the
quarter (or another time period as specified by the policyowner), the funds
will be redistributed to the allocation percentages chosen by the policyowner.
Instead of developing their own allocation percentages, the policyowner may use
one of the 10 predefined Ibottson models. The policyowner uses a risk profile
questionnaire to determine which allocation model to choose. This program
includes automatic rebalancing to the chosen model.
Dollar Cost Averaging is a third allocation option. The policyowner will
specify an amount and the frequency to be transferred from the money market
account into the chosen funds.
Investment Options: (Management fees in parentheses)
Xxxxx American Growth Portfolio (.86)
Alger American Mid Cap Growth Portfolio (.97)
Xxxxx American Small Capitalization Portfolio (.96)
Acacia Capital Corporation CRI Money Market Portfolio (.57)
Acacia Capital Corporation CRI Balanced Portfolio (.93)
Acacia Capital Corporation CRI Strategic Growth Portfolio (1.56)
Dreyfus Stock Index Fund (.41)
Xxxxxxxxx & Xxxxxx Limited Maturity Bond Portfolio (.66)
Xxxxxxxxx & Xxxxxx Growth Portfolio (.97)
Strong Advantage Fund II (.60)
Strong Asset Allocation Fund II (.80)
Strong International Stock Fund II (1.00)
Strong Discovery Fund II (1.00)
Xxx Xxx Gold and Natural Resources Fund (1.00)
Acacia National Life Insurance Company Fixed Account (N/A)
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Fixed Account Options:
Initial Investment Guarantee Periods:
Acacia will offer the policyowner recurring one year
guarantees.
No market value adjustment will be made on any fixed account
transactions.
The minimum guarantee interest rate is 4%.
Compensation:
The Account Manager and Brokers will be able to select between two compensation
schedules. The main difference between the two schedules is the percentage of
premium. One schedule has a higher percentage of premium with a lower trailer
that begins in a later year. This is referred to as the Heaped Schedule. The
second schedule is referred to as Levelized because the compensation is lower
on each deposit but the trailer begins at the end of the first year at a higher
rate resulting in a compensation package that is more level from year to year.
The commissions will be paid on an attained age basis. If the policy was
issued to a 65 year old and no further premiums were receive until age 70, the
commission on the new premium will be based on the age 70 and over rates.
Heaped Schedule:
Ages up to 70
3.00% of Premium paid at the time the premium is received. 10
Basis Points applied to the Account Value effective on the 5th
policy anniversary. This will continue to be paid for the
life of the contract
Ages 70 and over
2.25% of Premium paid at the time the premium is received. 10
Basis Points applied to the Account Value effective on the 5th
policy anniversary. This will continue to be paid for the
life of the contract.
ECD Conversion Factor 165 - this factor is used to determine the bonus
and benefits to be paid to the Account Manager and the compensation
for the MD.
Levelized Schedule:
Ages up to 70
1.50% of Premium paid at the time the premium is received. 25
Basis Points applied to the Account Value effective on the lst
policy anniversary. This will continue to be paid for the
life of the contract.
Ages 70 and over
1.125% of Premium paid at the time the premium is received.
25 Basis Points applied to the Account Value effective on the
1st policy anniversary. This will continue to be paid for the
life of the contract.
ECD Conversion Factor 165
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There will be no difference in the interest rate or commission paid based on
the size of the deposits. This is otherwise known as banding.
For the brokers and PPGAs the following percentages will apply:
Heaped Schedule:
Ages up to 70
5.00% of Premium paid at the time the premium is received. 10
Basis Points applied to the Account Value effective on the 5th
policy anniversary. This will continue to be paid for the
life of the contract.
Ages 70 and over
3.75% of Premium paid at the time the premium is received. 10
Basis Points applied to the Account Value effective on the 5th
policy anniversary. This will continue to be paid for the
life of the contract.
Levelized Schedule:
Ages up to 70
3.00% of Premium paid at the time the premium is received. 32
Basis Points applied to the Account Value effective on the 1st
policy anniversary. This will continue to be paid for the
life of the contract.
Ages 70 and over
2.25% of Premium paid at the time the premium is received. 32
Basis Points applied to the Account Value effective on the 1st
policy anniversary. This will continue to be paid for the
life of the contract.
