THIS REINSURANCE AGREEMENT
is made between
STANDARD LIFE INSURANCE COMPANY OF INDIANA
of Indianapolis, Indiana
(hereinafter referred to as "the Company")
and
THE MERCANTILE AND GENERAL LIFE
REASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE SWISS RE GROUP)
of Lansing, Michigan
Executive Offices: 000 Xxx Xxxxxx, Xxxxx 0000, Xxxxxx Trust Tower
Xxxxxxx, Xxxxxxx X0X 0X0
(hereinafter referred to as "the Reinsurer")
The following Articles, qualified by the
Exhibits of the Agreement, will form
the basis of the Agreement.
This Agreement may be referred to as Agreement No. SBA206-97
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TABLE OF CONTENTS
ARTICLES
I Business Covered - Forms, Manuals, Issue Rules
II Automatic Coverage - Facultative Coverage
III Reinsurance Basis - Reinsurance Premiums - Currency
IV Mode of Submission - Data Notification
V Premium Accounting
VI Policy Changes - Lapses - Reinstatements - Minimum Reinsurance Limit
VII Increase in Retention - Recapture
VIII Liability
IX Claims
X Oversights - Arbitration
XI Insolvency
XII DAC Tax - Taxes and Expenses
XIII Alterations to Agreement - Parties to Agreement - Good Faith -
Confidentiality
XIV Duration of Agreement - Severability - Benefit - Construction
EXHIBITS
A-I Business Covered
A-II Underwriting Forms and Issue Rules
B Application for Reinsurance
C Premium Rates and General Terms, Administration Instructions
D The Company's Retention Limits and Issue Limits
E The Reinsurer's Acceptance Limits
F Reinsurance Reports
G DAC Tax Election
ARTICLE I
Business This Agreement applies to all insurance policies and
Covered supplementary benefits and riders attached thereto (hereinafter
referred to as "policies"), as listed in Exhibit A-I, which
have been issued directly by the Company in accordance
with its underwriting rules, premium rates and policy forms
provided to the Reinsurer.
The Company will cede, and the Reinsurer will accept amounts of
these policies in accordance with the terms and conditions of
this Agreement.
The amounts retained by the Company on the business covered by
this Agreement shall not be reinsured elsewhere by the
Company on any basis whatsoever without prior written consent
from the Reinsurer.
Forms The Company shall provide full disclosure of all material facts
Manuals, regarding the policies. The forms, manuals and issue rules the
ISSUE RULES Company shall file with the Reinsurer include but are not limited
to the copies of the applicable policy forms, rates, retention
schedules, application forms, underwriting requirements
(inspection limits, non-smoking criteria, financial
questionnaires, smoking questionnaires etc.) and
authorization forms for release of medical information.
The underwriting evidence and issue rules to be filed with the
Reinsurer are also listed in Exhibit A-II. The Company hereby
declares that its forms are in accordance with current M.I.B.
regulations.
IF NEW MATERIAL IS PUBLISHED, OR CHANGES ARE MADE IN THE MATERIAL
ALREADY FILED, THE COMPANY AGREES TO PROMPTLY PROVIDE THE
REINSURER WITH COPIES OF SUCH MATERIAL. ANY MATERIAL CHANGE IN
THE UNDERWRITING AND ISSUE RULES SHALL BE SUBJECT TO THE APPROVAL
OF THE REINSURER BEFORE BEING APPLIED TO POLICIES COVERED BY
THIS AGREEMENT.
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ARTICLE II
Automatic Except as provided below for facultative coverage, the Company
Coverage will retain the amount stipulated in Exhibit D according to
the age and morbidity rating at the time of underwriting. The
Company will automatically cede the amount of reinsurance
to the Reinsurer according to the Automatic Acceptance Limits
specified in Exhibit E, taking into account the age and
morbidity rating at the time of underwriting.
If any of the following situations have occurred, the Reinsurer
may revise the Automatic Acceptance Limits in Exhibit E by
giving ninety (90) days written notice to the Company of the new
limits and their effective date:
(a) the Reinsurer has conducted an audit of the records,
books and documents relating to the reinsurance under this
Agreement;
(b) the Company has changed its practices and procedures
applicable to the policies covered under this Agreement;
(c) a material change in the underwriting personnel of the
Company has occurred.
It is understood that the amount retained by the Company shall
include its critical illness retention under any in force policies.
Facultative Ifthe Company receives an application that meets any of the
reinsurance criteria below, the Coverage shall be on a facultative basis:
(a) the amount applied for exceeds the sum of the Company's
Retention Limit set out in Exhibit D and the Automatic Acceptance
Limit set out in Exhibit E;
(b) the total of the new reinsurance required and the
amount already reinsured on that life under this Agreement and
all other Agreements between the Reinsurer and the Company,
exceeds the Automatic Acceptance Limits set out in Exhibit E;
(c) the Company intends to retain less than the Retention Limit
set out in Exhibit D taking into account the applicant's
age and morbidity rating;
(d) the amount applied for and the amount already in force on
the same life exceeds the Jumbo Limit set out in Exhibit E;
(e) the application is on a life for which an application
had been submitted by the Company on a facultative basis to
the Reinsurer or any other reinsurer, within the last 3 years
unless the reason for submitting facultatively no longer applies.
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Any application for a policy on any plan, supplementary benefits or rider
shown in Exhibit A-I may be offered facultatively.
The relevant terms and conditions of this Agreement shall apply to those
facultative applications that are accepted by the Reinsurer.
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ARTICLE III
Reinsurance Policies reinsured under this Agreement shall be on the basis
Basis set out in Exhibit C.
Reinsurance The premiums to be paid to the Reinsurer by the Company for
Premiums reinsurance shall be in accordance with the terms set out in
Exhibit C.
Currency All submissions under this Agreement shall be effected in
the currency specified in Exhibit A-I and the premiums
and liabilities shall be expressed and payable in that currency.
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ARTICLE IV
Mode of AUTOMATIC SUBMISSIONS
Submission For all automatic submissions the Company shall advise the
Reinsurer in the manner described in Exhibit F.
The Company agrees to send to the Reinsurer upon request,
copies of the application, underwriting papers and other papers
on any life reinsured automatically under this Agreement.
FACULTATIVE SUBMISSIONS
The Company may apply for reinsurance by sending to the Reinsurer,
copies of all pertinent papers, including the original
application, medical examination, inspection reports, physician's
statements, urinalyses, and all other information which the
Company may have relating to the insurability of the risk
along with an Application for reinsurance, a sample of which
is attached as Exhibit B.
After consideration of the reinsurance application and
papers, the Reinsurer shall promptly inform the Company of its
underwriting decision.
If the underwriting decision is acceptable to the Company and the
Company's policy is subsequently placed in force in
accordance with the issuance rules provided to the Reinsurer, the
Company shall advise the Reinsurer in the manner described in
Exhibit F.
If any application to the Reinsurer is not to be placed with the
Reinsurer, the Company shall advise the Reinsurer in writing
(indicating the reason for non-placement) so that the Reinsurer
can complete its records.
Data For all business reinsured under this Agreement, the Company
Notification shall self-administer reinsurance transactions in a format
in substantial accordance with the Society of Actuaries
Guidelines. The Company shall provide the Reinsurer with
the reports as set out in Exhibit F. The Company, upon
request, will provide the Reinsurer with any additional
information related to the business reinsured under this
Agreement and which the Reinsurer requires in order to
complete its financial statements.
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ARTICLE V
Premium Reporting
Accountin The Company undertakes to send to the Reinsurer, during
each accounting period, a report as set out in Exhibit F
showing all first year and renewal premiums which became
due during the previous accounting period. Also included
will be any adjustments made necessary by changes in
reinsurance effective during the previous period, or changes
due to any corrections to a previous report.
The balance due shall then become payable. If the balance so
calculated is due to the Reinsurer, the Company shall forward
a remittance in settlement with the report. If the balance is
due to the Company, the Reinsurer shall forward a remittance
in settlement within fifteen (15) days of receipt of the report.
Interest may be charged on overdue premiums.
NON-PAYMENT OF PREMIUMS
The Reinsurer may terminate its liability for any reinsurance
for which the reinsurance premiums have not been paid within
sixty (60) days after billing,by giving fifteen (15) days
written notice by registered mail of such action to the Company.
The Reinsurer's right to terminate reinsurance for
non-payment of premium shall not prejudice its right to
collect premiums for the period the reinsurance was in
force.
During the period premiums are outstanding, the Reinsurer
may offset the amount of any premiums in arrears against amounts
owed to the Company.
The Company shall not force termination under the
provisions of this paragraph solely to avoid the recapture
requirements or to transfer to another reinsurer the block of
business reinsured under this Agreement.
UNEARNED PREMIUM
The Company shall take credit, without interest, for any
unearned premiums, net of allowances, arising due to
reductions or lapses or cancellations or critical illness claims
or death claims, in its account. The Company shall pay the
balance of arrears of premiums due under a reinstated policy.
In the event of termination, lapse, or critical illness
claim, or death claim, unearned premiums, net of allowances
and policy fees, will be refunded.
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ARTICLE VI
Policy Changes to policies reinsured under this Agreement shall
Changes be made in accordance with the provisions set out below.
If the change affects the plan, the amount of reinsurance,
premiums or allowances under the submission, the Company shall
inform the Reinsurer in the subsequent Reinsurance Report as set
out in Exhibit F.
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PLAN CHANGES
(i) Automatic Submissions:
Unless otherwise agreed, whenever the plan of insurance on any
policy reinsured hereunder is being changed to a new critical
illness plan, including internal replacements, and the Company
is not obtaining evidence in accordance with the Company's full
new business issue underwriting rules, the reinsurance shall remain
in effect with the Reinsurer on the following basis;
(a) the reinsurance rates and the durations shall
be based on those applicable to the original submission;
(b) the reinsurance amount at risk shall be determined
according to the terms of this Agreement but in no event
shall be more than the original submission at the time
of the change in plan.
(ii) Facultative Submissions:
Any changes shall be subject to the Reinsurer's approval only
if the Company is obtaining evidence in accordance with the
Company's new business underwriting rules. The applicable
reinsurance terms shall be agreed by the Company and the Reinsurer.
INCREASE IN AMOUNT AND REUNDERWRITING
(i) Automatic Submissions:
Any reunderwriting, (including any change in morbidity rating), or
non-contractual increase in amount at risk for any submission
shall be subject to the Company's full new business underwriting
rules or as agreed otherwise with the Reinsurer.
The amount of the increase shall be subject to the terms set
out in Exhibit C.
If the amount of the policy shall increase above the jumbo limit
(Exhibit E) or if the amount to be reinsured exceeds the
automatic coverage limits, the increase shall be subject to the
Reinsurer's approval.
(ii) Facultative Submissions:
Any reunderwriting or non-contractual increase, including any
change in morbidity rating shall be subject to the Reinsurer's
approval.
REDUCTIONS
If the amount of insurance of a policy issued by the Company is
reduced then the amount of reinsurance on that life shall be reduced
effective the same date by the lesser of the full amount of the
reduction under the original policy or the full amount of reinsurance,
unless the reinsurance is a quota share of the policy issued by the
Company, in which case the reduction would be proportional.
The reduction will first apply to any reinsurance on the policy being
reduced and then in a chronological order according to policy date
("first in, first out") to any reinsurance on other critical illness
policies in force on the life. However, the Company shall not be
required to assume a risk for an amount in excess of its regular
retention for the age at issue and the morbidity rating of the
policy under which reinsurance is being terminated.
If the reinsurance for a policy has been placed with more than one
reinsurer, the reduction shall be applied to all reinsurers in
proportion to the amounts originally reinsured with each reinsurer.
SPECIAL CHANGES
If any special or unusual change, which is not covered above and
which may affect the terms of the submission in question, is requested,
the Reinsurer's approval shall be obtained before such a change
becomes effective.
Lapses When a reinsured policy lapses, the submission in question
shall be canceled effective the same date.
Reinstatements If a policy reinsured on an automatic basis is reinstated in
accordance with its terms or the rules of the Company,
as provided to the Reinsurer, the reinsurance shall be
reinstated automatically by the Reinsurer. The
Reinsurer's approval is required only for the reinstatement
of a facultative policy when the Company's regular
reinstatement rules indicate that more evidence than a
Statement of Good Health is required.
Minimum The minimum amount to be reinsured shall be as set out in
Reinsurance Exhibit C.
LIMIT
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ARTICLE VII
Increase in The reinsurance under this Agreement shall be maintained in
Retention force without reduction except as specifically provided for
elsewhere in this Agreement.
The Company may increase the maximum dollar amount(s) of its
limits of retention, as opposed to its quota share of each
policy, on new business being issued at any time by giving
written notice to the Reinsurer of the new limits of
retention and the effective date of such new retention
schedule.
The Company's critical illness retention limits are set out in
Exhibit D.
Recapture The Company may apply the new limits of critical illness
retention to existing reinsurances and reduce reinsurance in
force provided:
(a) The Company gives the Reinsurer written notice of its
intention to recapture within 90 days of the effective date of
the increase in its retention.
(b) Such reductions are made on the next anniversary of
each policy affected and with no reduction being made until
such reinsurance has been in force for the period stated in
Exhibit C.
(c) The Company had retained its full critical illness
retention (not a special retention limit) for the plan, age
and morbidity rating at the time the policy was issued.
(d) The Company has applied its increase in retention in a
consistent manner to all categories of its Retention Limits
set out in Exhibit D.
No reduction shall be made if the Company has either obtained
or increased stop loss reinsurance coverage as
justification for the increase in retention.
In applying its new retention to existing reinsurance, the
rating at the time of issue and the issue age of the existing
reinsurance shall be used to determine the amount of the
Company's new retention.
Recapture as provided herein shall be optional with the
Company, but if any reinsurance is recaptured, all reinsurance
eligible for recapture under the provisions of this Article
must be recaptured. If there is reinsurance in other companies
on risks eligible for recapture, the necessary reduction is to
be applied pro rata to the total outstanding reinsurance.
The amount of reinsurance eligible for recapture is based on
the reinsurance net amount at risk as of the date of recapture.
The Reinsurer shall not be liable, after the effective date of
recapture, for any reinsured policies or portions of such
policies eligible for recapture, which the Company has
overlooked. The Reinsurer shall be liable only for a credit of
the premiums received after the recapture date, less any
allowance and without interest.
The terms and conditions for the Company to recapture
reinsurance in force under this Agreement due to the
insolvency of the Reinsurer are set out in the Insolvency
clause in Article XI of this Agreement.
If the Company transfers business which is reinsured under this
Agreement to a successor company, then the successor company
has the option to recapture the reinsurance, in accordance with
the recapture criteria outlined in this Article, only if the
successor company has a higher retention limit than the Company.
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ARTICLE VIII
Liability AUTOMATIC REINSURANCE
The Reinsurer's liability for any policy ceded automatically
under this Agreement shall begin simultaneously with the
Company's contractual liability for the policy reinsured.
FACULTATIVE REINSURANCE
If a policy covered under this Agreement is offered
facultatively to the Reinsurer only, then the Reinsurer's
liability shall begin simultaneously with the Company's
contractual liability for this facultative policy. The amount
of the Reinsurer's liability shall be the lesser of the
Reinsurer's offer or the Automatic Acceptance Limits set
out in Exhibit E. The Reinsurer's liability ceases if
the Reinsurer declines the risk and duly notifies the Company.
The Reinsurer's liability would also cease if the Company
declines the Reinsurer's offer.
If, however, a policy is offered facultatively to any other
reinsurer, in addition to the Reinsurer, the liability of the
Reinsurer shall commence when the Reinsurer has received
notice from the Company, during the lifetime of the
insured, that the Reinsurer's offer has been accepted. The
Company shall have one hundred and twenty (120) days from the
date of the Reinsurer's final offer in which to place the
policy with the insured/owner, after which time the
Reinsurer's offer shall expire unless the Reinsurer explicitly
states in writing that the offer is extended for some further
period.
The Reinsurer may assume liability for claims arising prior to
the time of notification if it is shown to the satisfaction of
the Reinsurer that the policy would have been reinsured with the
Reinsurer.
DURATION
The liability of the Reinsurer for all submissions under
this Agreement shall cease at the same time as the liability
of the Company ceases and shall not exceed the Company's
contractual liability under the terms of its policies.
Notwithstanding the foregoing, the Reinsurer may terminate
its liability for any policies for which premium payments are
in arrears, according to the terms set out in Article V of this
Agreement.
It is understood that the Reinsurer's liability for a claim
shall be based on the reinsured net amount at risk as of the
date the claim is incurred.
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ARTICLE IX
Claims Notice
The Company will notify the Reinsurer as soon as reasonably
possible after the Company receives the claim. All papers
in connection with the claim shall be submitted to the
Reinsurer and the Company shall wait for up to ten days from
the date of submission for the Reinsurer's recommendation
before conceding liability or making settlement to the claimant.
The Company shall provide the Reinsurer with all further
reports and papers required by the Reinsurer for its
consideration of the claim.
PAYMENT
Provided there is no existing breach of this Agreement by the
Company, the Reinsurer shall be liable to the Company for
the benefits reinsured and the reinsurance shall not exceed
the Company's contractual liability under the terms of its
policies. The Reinsurer's share of interest, which is based
on the critical illness proceeds paid by the Company, shall
be payable in addition to the critical illness claim settlement.
CONTESTED CLAIMS
The Company will notify the Reinsurer of its intention
to contest, compromise or litigate a claim involving a
reinsured policy. The Company will also provide the Reinsurer
prompt notice of any legal proceedings initiated against the
Company in response to its denial of a claim on a reinsured
policy. Should any claim be settled on a reduced compromise
basis, or should a contested claim be settled for a
reduced sum, the Company and the Reinsurer shall participate
in such reductions in proportion to their respective
liabilities under the policy or policies reinsured.
EXPENSES
The Reinsurer shall pay its share of reasonable
investigation and legal expenses incurred in adjudicating
or litigating the claim. The Reinsurer shall not be liable
for any portion of any routine investigative or
administrative expenses incidental to the settlement of
claims (such as compensation of salaried employees) which are
incurred by the Company; nor for any expenses incurred in
connection with a dispute or contest arising out of
conflicting claims of entitlement to policy proceeds or
benefits that the Company admits are payable.
In the event that the Reinsurer does not deem it advisable to
contest a claim, and pays the Reinsurer's share of the
critical illness benefit, the Reinsurer shall not be liable
for any subsequent expenses incurred by the Company.
EXTRA CONTRACTUAL OBLIGATIONS
Extra contractual obligations include punitive damages, bad
faith damages, compensatory damages, other damages or
statutory penalties which may arise from the willful and/or
negligent acts or omissions by the Company.
The Reinsurer is not liable for extra contractual obligations
unless it concurred in writing and in advance of the Company's
actions which ultimately led to the imposition of the extra
contractual obligations.
In such circumstances, the Company and the Reinsurer shall
share in extra contractual obligations, in equitable
proportions, but all factors being equal, the division of any
such assessments would be in proportion to the total risk
accepted by each party for the plan of insurance involved.
Notwithstanding anything stated herein, this Agreement will not
apply to any extra contractual obligations incurred by the
Company as a result of any fraudulent and/or criminal act by
any employee of the Company acting individually, collectively
or in collusion in the presentation, defense, or settlement of
any claim.
MISSTATEMENT OF AGE OR SEX
In the event of an increase or reduction in the amount payable
under a policy due to misstatement in age or sex, the
proportionate liabilities under this Agreement shall be the
basis for determining each party's share of any increase or
reduction in settlement of the claim. The Reinsurance shall
be rewritten from commencement on the basis of the adjusted
amounts using premiums and amounts at risk for the correct ages
and sex, and the proper adjustment for the difference in
reinsurance premiums, without interest, shall be made.
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ARTICLE X
Oversights Any unintentional or accidental failure to comply with the
terms of this Agreement which can be shown to be the result of
an oversight, misunderstanding or clerical error on the part of
either party shall not be deemed to be an abrogation of the
Agreement or an invalidation of the reinsurance. Upon
discovery, the error shall be promptly corrected by both
parties being restored to the position they would have
occupied had the oversight, misunderstanding or clerical
error not occurred. Should it not be possible to restore
both parties to such a position, the party responsible
for the oversight, misunderstanding or clerical error shall
be responsible for any resulting liabilities and expenses.
This provision shall apply only to oversights,
misunderstandings or clerical errors relating to the
administration of reinsurance covered by this Agreement
and not to the administration of the insurance provided by
the Company to its insured. Any negligent or deliberate acts
or omissions by the Company regarding the insurance provided
are the responsibility of the Company and its liability
insurer, if any, but not that of the Reinsurer. For example,
if the Company decides to perform an alpha index search only
on its applications for amounts over a certain limit, then
the Reinsurer shall not be liable for any amounts not reported
for reinsurance as a result of this practice.
Arbitration Any controversy or claim arising out of or relating to this
contract, or the breach thereof, shall be settled by
arbitration, and the arbitrators, who shall regard this
Agreement from the standpoint of practical business as well
as the law, are empowered to determine as to the
interpretation of the treaty obligation.
Each party shall appoint one arbitrator and these two
arbitrators shall select a third arbitrator within two weeks
of the appointment of the second. The second arbitrator is to
be selected within two weeks after the notice is provided that
the first arbitrator is selected. Should the two arbitrators
not agree on the choice of the third, then each party shall
name four (4) candidates to serve as the arbitrator.
Beginning with the party who did not initiate arbitration, each
party shall eliminate one candidate from the eight listed
until one candidate remains. If this candidate declines to
serve as the arbitrator, the candidate last eliminated will
be approached to serve. This process shall be repeated until a
candidate has agreed to serve as the third arbitrator. All
three arbitrators must be officers of Life Insurance Companies
or Life Reinsurance Companies, excluding however, officers of
the two parties to this Agreement, their affiliates or
subsidiaries or past employees of any of these entities. The
place of meeting of the arbitrators shall be decided by a
majority vote of the arbitrators. The written decision of a
majority of the arbitrators shall be final and binding on both
parties and their respective successors and assigns. All costs
of the arbitration and expenses and fees of the arbitrators
shall be borne equally by the parties, unless otherwise ordered
by the arbitrators.
The arbitrators shall render a decision within four
months of the appointment of the third arbitrator, unless both
parties agree otherwise.
In the event no decision is rendered within four months, new
arbitrators shall be selected as above.
Alternatively, if both parties consent, any controversy may
be settled by arbitration in accordance with the rules of the
American Arbitration Association.
Judgement upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof.
It is specifically the intent of both parties that these
arbitration provisions shall replace and be in lieu of any
statutory arbitration provision, if the law so permits.
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ARTICLE XI
Insolvency For the purpose of this Agreement, the Company or the Reinsurer
shall be deemed "insolvent" when it:
(a) applies for or consents to the appointment of a
rehabilitator, conservator, liquidator or statutory successor
of its properties or assets; or
(b) makes an assignment for the benefit of its creditors; or
(c) is adjudicated as bankrupt or insolvent; or
(d) files or consents to the filing of a petition in
bankruptcy, seeks reorganization or an arrangement with
creditors or takes advantage of any bankruptcy, dissolution,
liquidation, or similar law or statute; or
(e) becomes the subject of 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 of the insolvency of either the Reinsurer or the
Company, any amounts owed by the Company to the Reinsurer and
by the Reinsurer to the Company with respect to this Agreement
shall be set-off and only the balance shall be paid.
The Reinsurer shall be liable only for the amounts reinsured and
shall not be or become liable for any amounts or reserves to be
held by the Company on policies reinsured under this Agreement.
In the event of the insolvency of the Company, the reinsurance
obligations under this Agreement shall be payable by the
Reinsurer directly to the Company, its liquidator,
rehabilitator, conservator or statutory successor, immediately
upon demand, with reasonable provision for verification on the
basis of the claims allowed against the insolvent company by
any court of competent jurisdiction or by any rehabilitator,
conservator, liquidator or statutory successor having
authority to allow such claims without diminution
because of the insolvency of the Company, or because the
rehabilitator, conservator, liquidator or statutory successor
has failed to pay all or a portion of any claims.
It is understood, however, that in the event of such
insolvency, the rehabilitator, conservator, liquidator or
statutory successor of the Company shall give written notice of
the pendency of a claim against the Company on the policy
reinsured within a reasonable time after such claim is filed
in the insolvency proceedings, and that during the pendency
of such claim the Reinsurer may investigate such claim and
interpose, at its own expense, in the proceedings where such
claim is to be adjudicated, any defense or defenses which it
may deem available to the Company or its liquidator,
rehabilitator, conservator 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 conservation or
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. Where two or more
reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense
shall be apportioned in accordance with the terms of the
Agreement as though such expense had been incurred by the
Company.
In the event of the insolvency of the Reinsurer, the Company may
cancel this Agreement for new business by promptly providing
the Reinsurer, its rehabilitator, conservator, liquidator or
statutory successor with written notice of the cancellation
effective the date on which the Reinsurer's insolvency is
established by the authority responsible for such determination.
Any requirement for a notification period prior to the
cancellation of the Agreement would not apply under such
circumstances.
In addition, the Company may provide the Reinsurer, its
rehabilitator, conservator, liquidator or statutory successor
with written notice of its intent to recapture all reinsurance
in force under this Agreement regardless of the duration the
reinsurance has been in force or the amount retained by the
Company on the policies reinsured hereunder. The effective
date of a recapture due to insolvency would be the date on
which the Reinsurer's insolvency is established by the authority
responsible for such determination. Such a recapture would be
subject to the monetary terms specified in Exhibit C.
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ARTICLE XII
DAC Tax The Company and the Reinsurer agree to the DAC Tax Election
pursuant to Section 1.848-2(g)(8) of the Income Tax Regulation
under Section 848 of the Internal Revenue code of 1986, as amended,
whereby:
(a) the party with the net positive consideration for this
Agreement for each taxable year will capitalize specified policy
acquisition expenses with respect to this Agreement without regard
to the general deductions limitation of Section 848(c)(1); and
(b) both parties agree to exchange information pertaining to the
amount of net consideration under this Agreement each year to
ensure consistency.
The term "net consideration" will refer to either net
consideration as defined in Regulation Section 1.848-2(f)
(or gross amount of premiums and other consideration as defined
in Regulation Section 1.848-3(b), as appropriate).
The method and timing of the exchange of this information is set
out in Exhibit G.
This DAC Tax Election shall be effective for all years for which
this Agreement remains in effect.
The Company and the Reinsurer represent and warrant that they are
subject to U.S. taxation under either the provisions of
subchapter L of Chapter 1 or the provisions of subpart F of
subchapter N of Chapter 1 of the Internal Revenue Code of 1986,
as amended.
Taxes and Apart from any taxes, allowances, refunds, and expenses
Expenses specifically referred to elsewhere in this Agreement,
no allowances, taxes or proportion of any expense shall be paid
by the Reinsurer to the Company in respect of any submission.
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ARTICLE XIII
Alterations Any alteration to this Agreement shall be null and void unless
to Agreement attached to the Agreement and signed by both parties.
Parties to This is an Agreement solely between the Company and the
Agreement Reinsurer. The acceptance of reinsurance hereunder shall
not create any right or legal relation between the Reinsurer
and the insured, beneficiary, or any other party to any
policy of the Company which may be reinsured hereunder.
This Agreement represents the entire agreement between the
Company and the Reinsurer and supersedes, with respect to its
subject matter, any prior oral or written agreements between
the parties.
Good Faith The Company and Reinsurer agree that all matters with
respect to this Agreement require the utmost good faith of
both parties.
The Reinsurer, or its duly appointed representatives, shall
have access to the records of the Company concerning the
business reinsured hereunder for the purpose of inspecting,
auditing and photocopying those records. Such access shall
be provided at the office of the Company and shall be during
reasonable business hours.
Provided there is business in force under this Agreement,
the Reinsurer's right of access as specified above will
survive the term of the Agreement.
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.
The Reinsurer has entered into this Agreement in
reliance upon the Company's representations and warranties.
The Company affirms that it has and will continue to
disclose all matters material to this Agreement and each
submission. Examples of such matters are a change in
underwriting or issue practices or philosophy, a change
in underwriting management personnel, or a change in the
Company's ownership or control.
Confidentiality Both the Company and the Reinsurer will hold confidential
and not disclose or make competitive use of any shared
proprietary information unless otherwise agreed in writing,
or unless the information otherwise becomes publicly
available or the disclosure of which is required for
retrocession purposes or has been mandated by law.
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ARTICLE XIV
Duration of This Agreement is effective as of the effective date set out
Agreement in Exhibit A-I and is unlimited as to its duration. It may be
terminated for further new reinsurance on all or certain
policies specified in Exhibit A-I by either party giving at
least ninety (90) days notice to that effect in writing to the
other party. During the period of such ninety (90) days the
Reinsurer shall continue to accept new reinsurance under the
terms of this Agreement. This notification period would be
waived in the event the Reinsurer is deemed insolvent.
Further, the Reinsurer remains liable for all reinsured
policies existing at the date of the expiration set forth in
the notice until their natural expiration, unless the parties
mutually decide otherwise or as specified otherwise in this
Agreement.
Notwithstanding the above, the Company agrees, in
recognition of the Reinsurer's contribution to the product
development of critical illness business, to reinsure its
critical illness products exclusively with the Reinsurer for
a period of three (3) years commencing with the effective
date of this Agreement.
If, during this initial three year period, circumstances
in the market place develop which necessitate a revision to the
critical illness products reinsured under this Agreement, the
Company is bound to work with Reinsurer in developing revised
critical illness products and reinsure them with the
Reinsurer. Should the Reinsurer be unable to support the
revision, the above exclusivity provision would not apply.
The Company would then not be obligated to develop or reinsure
the revised critical illness products with the Reinsurer.
Severability If any provision of this Agreement is determined to be
invalid or unenforceable, such determination will not affect or
impair the validity or the enforceability of the remaining
provisions of this Agreement.
Benefit Except as otherwise provided, this Agreement shall be
binding upon the parties hereto and their respective successors
and assigns.
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Construction This Agreement shall be construed and administered in
accordance with the laws of the State of Indiana and the
rights and obligations of this Agreement shall, at all times,
be regulated under the laws of the State of Indiana.
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Made in duplicate and executed by both parties.
Signed for and on behalf of STANDARD LIFE INSURANCE COMPANY OF INDIANA
Indianapolis, this day of , 19
Signed for and on behalf of THE MERCANTILE AND GENERAL LIFE REASSURANCE COMPANY
OF AMERICA (A MEMBER OF THE SWISS RE GROUP)
Toronto, this day of , 19
Prepared by _________________________
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EXHIBIT A-I
BUSINESS COVERED
EFFECTIVE DATE:
June 1, 1997. The commencement dates for specific business are shown below.
BUSINESS COVERED:
The policies on the plans shown below with policy issue dates falling in the
period that begins with the Commencement Date and ends with the Termination
Date are covered subject to any limitations shown below or elsewhere in this
Agreement.
Riders and supplementary benefits shall also be covered in accordance with the
Limitations, Commencement Date and Termination Date of the base policy to which
they are attached unless stated otherwise.
These policies, riders and supplementary benefits are on lives resident in the
United States or territories of the United States.
CURRENCY: US$
LIMITATIONS:
1. A seventy percent (70%) first dollar quota share of each policy, up to
the limits specified in Exhibit E, is eligible for automatic coverage on
all policies on lives with surnames commencing with the letters A to Z
inclusive. (Any application may be offered on a facultative basis.)
PLANS, RIDERS AND BENEFITS:
PLAN(S) AND EXHIBIT COMMENCEMENT TERMINATION
Form No(s). Reference Limitations` Date Date
Critical Choice, S/NS C, C- I 1. June 1, 1997
Policy Form: CIS197A
RIDERS
N/A
SUPPLEMENTARY BENEFITS
N/A
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EXHIBIT A-II
COMPANY'S UNDERWRITING FORMS AND
EVIDENCE AND ISSUE RULES
The following information and items are to be provided to the Reinsurer:
1. Policy Application Form
2. Policy Delivery Rules and Reinstatement Rules
3. Non-medical and Medical Requirements
4. Financial and Non-smoking Questionnaires
5. Preferred Underwriting Guidelines, if applicable
It is understood that the Company will be using the Reinsurer's critical
illness underwriting manual.
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EXHIBIT C
GENERAL TERMS
1. REINSURANCE BASIS: Coinsurance
2. RATE CRITERIA: The rates set out in the sub-section(s) of Exhibit C
shall be used for automatic reinsurance of any policy covered by this
Agreement. These rates also apply to the reinsurance of a facultative
policy covered by this Agreement provided the Company retains:
(i) at least 25% of the policy to be reinsured, or
(ii) the Company's maximum retention then available for the issue
age and rating applicable to the policy to be reinsured.
3. ALLOWANCE LIMIT: The allowances set out in the sub-section(s) of
Exhibit C will apply to all reinsurances, provided the total of the new
reinsurance amount and the amount already reinsured on the life under
this Agreement, and all other Agreements with the Reinsurer, does not
exceed the amount shown in the table below. Individual consideration
will be given to the allowances for any amounts over the limit shown in
the table below.
Issue Age STD. (100%) - 250%
[S] [C]
20 $500,000
- 64
4. AGE BASIS: Last
5. PREMIUM TAX: There shall be no separate reimbursement of Premium Tax.
6. RATE GUARANTEE: The reinsurance rates set out in the sub-section(s) of
Exhibit C of this Agreement cannot be guaranteed for more than one year.
The Reinsurer reserves the right to increase the reinsurance rates if the
Company has increased its rates.
7. MINIMUM REINSURANCE LIMIT: $10,000 Individual
7,000 Worksite
8. RECAPTURE: Due to Increase in the Company's Retention.
Inforce Period: 10 Years.
Due to Insolvency of the Reinsurer.
Inforce Period: Not Applicable.
EXHIBIT C
Page 2
The Recapture Fee
applicable shall be mutually agreed upon by the Company
and the Reinsurer, its rehabilitator, conservator,
liquidator, or statutory successor.
9. RETURN OF PREMIUMS: If death occurs after the 10th policy year, all
premiums paid will be refunded without interest.
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EXHIBIT C-I
INSTRUCTIONS FOR ADMINISTRATION
1. BASIS OF REINSURANCE: The Company shall pay to the Reinsurer a basic
premium at the same rate of premium as is applicable on the original
policy but not including any policy fee payable on the original policy.
The premium rates set out in Exhibit C-I shall be payable on a cash
basis, with the Company matching the mode of payment of the premiums
under the original insurance. The Company shall continue to pay the
appropriate premium to the Reinsurer as long as the policy is in force.
On all policies the due proportion of any extra premiums payable on
account of additional morbidity risk shall be payable to the Reinsurer.
Premiums remain level to age 100.
Modal factors are as follows:
monthly .09
quarterly .2625
semi-annual .515
Premium bands are as follows:
Individual Worksite
[S] [C] [C]
$15,000 - $49,999 $10,000 - $49,999
$50,000 - $99,999 $50,000 - $99,999
$100,000 - $500,000 $100,000 - $500,000
2. ALLOWANCES:
(a) ON BASIC PLAN(S)
The Reinsurer shall pay to the Company the following
allowances on the premiums payable hereunder:
YEAR 1 YEARS 2 THROUGH 9 THEREAFTER
100% 10% 2%
(b) ON MULTIPLE EXTRA PREMIUMS
The same allowances as those payable on the basic policy.
EXHIBIT C-I
Page 2
DEFINITIONS OF COVERED IMPAIRMENTS
and POLICY CONDITIONS
Covered Impairments:
1. ALZHEIMER'S DISEASE - The diagnosis by a Physician who is a consultant
neurologist resulting in the inability to perform independently three or
more of the following activities of daily living: bathing, dressing,
toileting, transferring (moving in or out of a bed or chair), continence
and feeding. Systemic disorders and other brain diseases which could
account for the loss of independent performance must be specifically
ruled out. "Diagnosis" means clinical diagnosis not dependent on
pathological confirmation, but employing nationally accepted criteria.
2. BLINDNESS - Permanent and uncorrectable loss of sight in both eyes, as
confirmed by Physician who is an ophthalmologist. The corrected visual
acuity must be worse than 20/200 in both eyes or the field of vision must
be less than 20 degrees in both eyes.
3. CANCER (LIFE THREATENING) - An invasive malignancy characterized by the
uncontrolled growth and spread of malignant cells and the invasion of
tissue. Cancers NOT covered by this definition include:
Stage A prostate cancer;
Pre-malignant lesions, benign tumors or polyps;
Carcinoma in situ;
Any skin cancer, except invasive malignant melanoma
into the dermis or deeper.
4. CORONARY ARTERY BYPASS SURGERY - The undergoing of heart surgery to
correct narrowing or blockage of one or more coronary arteries with
bypass grafts. Surgery must have been recommended by a Physician who is
a cardiologist.
5. CORONARY ANGIOPLASTY - The undergoing of balloon angioplasty or laser
embolectomy to correct narrowing or blockage of one or more coronary
arteries. Surgery must have been recommended by a Physician who is a
cardiologist.
6. DEAFNESS - Permanent loss of hearing in both ears, with an auditory
threshold of more than 90 decibels, as confirmed by Physician who is an
otolaryngologist.
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EXHIBIT C-I
Page 3
7. Heart Attack - (Myocardial Infarction) The death of a portion of the
heart muscle resulting from a blockage of one or more coronary arteries.
The diagnosis is based on an event which consists of all of the
following:
Chest pain;
Associated new electrocardiographic (EKG) changes
consisting of new Q waves and localized T wave Inversions; and
Elevation of cardiac (heart) enzymes.
8. PARALYSIS - Complete and permanent loss of the use of two or more limbs
through paralysis, for a continuous period of 180 days, confirmed by a
Physician.
9. STROKE - Cerebrovascular accident caused by infarction of brain tissue,
hemorrhage or embolism, producing measurable neurological deficit
persisting for at least 30 days following the occurrence of the stroke.
Conditions NOT covered by this definition include, but are not limited
to, transient ischemic attack (TIA).
Policy Conditions:
1. WAITING PERIOD - Coverage commences 30 days after the Policy Issue
Date (or the Policy Reinstatement Date, if applicable). The Waiting
Period would be waived if a covered impairment was caused by an accident
which occurred while the policy was in force.
2. SURVIVAL PERIOD - Benefits are payable provided the insured is living
30 days after the date the clinical or pathological diagnosis of a
covered impairment is made by a physician.
3. CURRENT BENEFIT AMOUNT - The initial Benefit Amount less any amount of
partial benefits paid to date.
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EXHIBIT C-I
Page 4
SCHEDULE OF BENEFITS PAYABLE
IMPAIRMENT COVERED SHARE OF BENEFIT AMOUNT *
1. Alzheimer's 25%
Disease
2. Blindness 25%
3. Cancer** 100%
(Life Threatening)
4. Coronary Artery 25%
Bypass Surgery
5. Coronary 10%
Angioplasty
6. Deafness 25%
7. Heart Attack 100%
8. Paralysis 100%
9. Stroke 100%
10. Death Return of Premiums***
EXHIBIT C-I
Page 5
* The Benefit Amount after age 65 is equal to 50% of the Current Benefit
Amount. For policies with issue ages 61 - 64, the benefit amount will
remain level for the first five (5) years, then will reduce by 50%.
** If the first diagnosis of breast cancer, testicular cancer or invasive
malignant melanoma occurs after the waiting period and before the policy
has been in force for 151 days, the benefit will be limited to 10% of the
benefit amount. Subsequent cancer claims will be paid only if the
subsequent cancer is determined to be new and unrelated to the previous
cancer.
*** A death benefit, equal to the sum of all premiums paid, without
interest, is payable provided that death occurs after the policy has been
in force for ten (10) years. (A limited death benefit of $500 payable if
death occurs during the first 10 policy years may be applicable in some
states.)
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EXHIBIT D
THE COMPANY'S RETENTION AND ISSUE LIMITS
FOR CRITICAL ILLNESS
RETENTION LIMIT:
Thirty percent (30%) of each policy issued up to a maximum of $50,000 on any
one life.
ISSUE LIMIT:
$500,000 per life
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EXHIBIT E
THE REINSURER'S ACCEPTANCE LIMITS
FOR CRITICAL ILLNESS
AUTOMATIC LIMIT:
To be mutually agreed upon at a later date. Initially all policies will be
issued on a facultative basis.
JUMBO LIMIT:
$500,000 inforce and applied for on any one life.
PARTICIPATION LIMIT:
$500,000 per life (maximum total inforce with all companies).
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EXHIBIT F
REINSURANCE REPORTS
DATA NOTIFICATION: The Company shall send to the Reinsurer reports, in
substantial compliance with the Society of Actuaries Guidelines, at the times
indicated below:
REPORT FREQUENCY DUE DATE EXAMPLE REFERENCE
1. Policy Detail Report Monthly 21st Exhibit F, p. 2
(Reinsurance Ceded)
2. Accounting & Policy Monthly 21st Exhibit F, p. 3
Exhibit (Movement Summary)
3. Valuation Reserve Annually Jan. 10th Exhibit F, p. 4
Certification
4. Quarterly Valuation Quarterly 10 days Exhibit F, p. 4
Reserve after quarter
5. Tax Reserve Certification Annually June 1st Exhibit F, p. 5
NOTIFICATION OF ACCEPTANCE OF FACULTATIVE OFFER: The Company will advise the
Reinsurer of its acceptance of the Reinsurer's underwriting decision pertaining
to facultative business by sending written notice to the Reinsurer. The
Company shall provide the full details of the facultative new business on the
next Policy Detail Report.
ERRORS AND OMISSIONS: Should any items be inadvertently omitted from or
entered in error on a reinsurance report, such omissions or errors shall not
affect the liability of the Reinsurer in regard to any submission and the
mistakes shall be rectified upon discovery. This does not waive any rights
outlined in Article X.
RESERVES:
FIRST THREE QUARTERS' RESERVES: Actual reserve figures are required within
10 days after the close of each of the first 3 quarters. Any estimated figures
provided should be confirmed by actual reserve figures.
YEAR END RESERVES: The Company shall advise the Reinsurer by January 10th of
each year of the amount of reserves calculated on the reinsurance in force
under this Agreement as of December 31st of the preceding year and will also
indicate the valuation method used. These reserves shall be certified by the
Company's valuation actuary.
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EXHIBIT F
Page 4
VALUATION RESERVE FOR
SELF-ADMINISTERED BUSINESS CEDED TO
THE MERCANTILE AND GENERAL LIFE REASSURANCE COMPANY
OF AMERICA
FROM (NAME OF COMPANY)
Inforce and Reserves at 19xx:
Plan: Type:
SM/NSM/AGGR/TOTAL
Inforce Reinsured Amount: _____________
Inforce Number of Policies: _____________
Valuation Reserve as at 19xx:
RESERVE RESERVE BASIS
TYPE AMOUNT ($) (TABLE, INTEREST
RATE AND METHOD)
Health
Substandard Life
Other (specify)
Total
As the valuation actuary of the above named company I certify that the
information above is correct as shown. *
Name:
Signature:
Actuarial Designation:
Title:
Date:
* Required only for Year End Valuation Reserves.
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EXHIBIT F
Page 5
TAX RESERVE CERTIFICATION FOR
SELF-ADMINISTERED BUSINESS CEDED TO
THE MERCANTILE AND GENERAL LIFE REASSURANCE COMPANY
OF AMERICA
FROM (NAME OF COMPANY)
Inforce and Reserves at December 31, 19xx:
Plan: Type:
SM/NSM/AGGR/TOTAL
Inforce Reinsured Amount: _____________
Inforce Number of Policies: _____________
Tax Reserve as at December 31, 19xx:
RESERVE RESERVE BASIS
TYPE AMOUNT ($) (TABLE, INTEREST
RATE AND METHOD)
Health
Substandard Life
Other (specify)
Total
As the valuation actuary of the above named company I certify that the
information above is in compliance with the tax code.
Name:
Signature:
Actuarial Designation:
Title:
Date:
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EXHIBIT G
DAC TAX ELECTION
Method of Exchanging Information
The Reinsurer and the Company agree to the DAC Tax Election and accordingly
will exchange information in the following manner:
1. The Reinsurer will submit a Schedule to the Company by May 1, of each
year, of its calculation of the net consideration (as referred to in
Article XII) for the preceding calendar year.
2. The Company, in turn, will complete the Schedule by indicating
acceptance of the Reinsurer's calculations of the net consideration or by
noting any discrepancies. The Company will return the completed Schedule
to the Reinsurer by June 1, of each year.
3. If there are any discrepancies between the Company's and the
Reinsurer's calculation of the net consideration, the parties will act in
good faith to resolve the discrepancies by July 1, of each year.
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