EXECUTION COPY REINSURANCE AGREEMENT THIS REINSURANCE AGREEMENT (this "AGREEMENT"), dated as of April 1, 2001, is entered into by and between FORTIS BENEFITS INSURANCE COMPANY, a Minnesota stock life insurance company (the "COMPANY"), and HARTFORD...
EXECUTION COPY
THIS REINSURANCE AGREEMENT (this "AGREEMENT"), dated as of April 1, 2001,
is entered into by and between FORTIS BENEFITS INSURANCE COMPANY, a Minnesota
stock life insurance company (the "COMPANY"), and HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY, a Connecticut stock life insurance company ("REINSURER").
WHEREAS, the Company is engaged in the sale, marketing, underwriting,
issuance and administration of certain life insurance policies and annuity
contracts (the "BUSINESS"); and
WHEREAS, the Company and Reinsurer are parties to that certain Asset
Purchase Agreement dated January 25, 2001 (the "PURCHASE AGREEMENT"), by and
among Fortis, Inc., Fortis Benefits Insurance Company, Fortis Insurance Company,
First Fortis Life Insurance Company, Houston National Life Insurance Company,
Xxxx Xxxxx Life Insurance Company (collectively, the "SELLER PARTIES"), Hartford
Life, Inc., Hartford Life and Annuity Insurance Company, and Hartford Life
Insurance Company, pursuant to which, among other things, the Seller Parties
have agreed to sell and transfer to Reinsurer, and Reinsurer has agreed to
purchase and assume, certain assets and liabilities used in or related to the
operations of the Business subject to the terms, conditions and limitations
contained therein; and
WHEREAS, in connection with such sale and transfer of assets and
liabilities, the parties desire that the Company cede 100% of the Reinsured
Liabilities (as defined below) under the Reinsured Contracts (as defined below)
to Reinsurer, and Reinsurer desires to reinsure the Reinsured Liabilities, on
the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
As used herein and in the Schedules hereto, each of the following terms has
the meaning set forth below (such meaning to be equally applicable to both the
singular and plural forms of the term defined).
"ADJUSTED STATUTORY LIABILITIES" has the meaning set forth in the Purchase
Agreement.
"ADMINISTRATIVE SERVICES" has the meaning set forth in the Administrative
Services Agreement.
"AFFILIATE" means, with respect to any Person, at any relevant time, any
other Person controlling, controlled by or under common control with such
Person.
"ADMINISTRATIVE SERVICES AGREEMENT" means that certain Administrative
Services Agreement, dated as of the date hereof, by and between the Company and
Reinsurer, providing for the servicing and support of the Reinsured Contracts.
"AGENTS DEBIT BALANCES" means, with respect to the Company, the aggregate
of all agents balances and advanced Commissions owed to the Company with respect
to the Reinsured Contracts, determined in accordance with Applicable SAP and
appropriately includable on lines 2.1 and 0501 of Exhibit 13 of the NAIC Annual
Statement Blank or in comparable line items in successor NAIC annual statement
blanks.
"AGREEMENT" means this Reinsurance Agreement and all Schedules hereto, as
the same may be supplemented, modified or amended from time to time.
"APPLICABLE SAP" means the statutory accounting principles, consistently
applied, as prescribed or permitted by the insurance regulatory authorities in
the state of the Company's state of domicile.
"ASSERTED LIABILITY" has the meaning set forth in Section 5.3.
"BUSINESS DAY" means any day other than a Saturday, Sunday, a day on which
banking institutions in the States of New York and Connecticut are permitted or
obligated by Law to be closed, or a day on which the New York Stock Exchange is
closed for trading.
"CLAIMS NOTICE" has the meaning set forth in Section 5.3.
"COMMISSIONS" mean all commissions, expense allowances, benefit credits and
other fees and compensation payable to producers, agents, brokers or other such
sales representatives.
"COMPANY INDEMNITEES" has the meaning set forth in Section 5.1.
"COMPANY RETAINED LIABILITIES" means all liabilities or obligations of any
character or nature (whether known or unknown, absolute or contingent, disclosed
or undisclosed) that are not Reinsured Liabilities or otherwise required to be
paid by Reinsurer to the Company pursuant to the express terms and conditions of
this Agreement or the Administrative Services Agreement. By way of illustration
but without limitation to or exclusion of any category of Company Retained
Liability not specifically enumerated herein, the Company Retained Liabilities
shall include any liability or
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obligation arising from any of the following: (a) Premium taxes due in
respect of Premiums paid prior to the date hereof or on account of the
Premiums Receivable; (b) the Excluded Assets or Excluded Contracts (each of
which is defined in the Purchase Agreement); (c) Litigation against the
Company with respect to the Business that is pending on the date hereof or
that arises with respect to events occurring prior to the date hereof; (d)
any Seller Extra Contractual Obligations; and (d) any income Taxes of the
Company resulting from the transfer or assignment to Reinsurer of the
Transferred Investment Assets, Net Transfer Amount or Purchased Assets (each
of which are defined in the Purchase Agreement).
"CONTRACT" means any written or oral agreement, arrangement, commitment,
contract, indenture, lease, obligation, plan, understanding or undertaking of
any kind or character to which a party hereto is a party or that is binding on
any such party or its assets or business.
"CONTRACT STATES" means those jurisdictions listed on SCHEDULE 1.1 hereto.
"CONTRACTHOLDER" means the owner of a Reinsured Contract.
"DAC TAX REIMBURSEMENT" has the meaning set forth in Section 3.10(b).
"EFFECTIVE DATE" means, (i) with respect to each Existing Reinsured
Contract, 12:01 a.m. on the date of this Agreement, and (ii) with respect to
each New Reinsured Contract, the date and time after 12:01 a.m. on the date of
this Agreement upon which the Company's obligations under such New Reinsured
Contract begin.
"EXISTING REINSURED CONTRACTS" means only those contracts of insurance and
annuities described on SCHEDULE 1.2 that have been issued or reinsured by the
Company in connection with the Business and are in force on the date hereof, or
have been applied for prior to the date hereof, or are subject to being renewed
or reinstated in accordance with their terms on the date hereof, together with
all related binders, slips and certificates (including applications therefor and
all supplements, endorsements, riders and agreements in connection therewith).
SCHEDULE 1.3 lists the individual policy number for each such insurance or
annuity contract that was an Existing Reinsured Contract as of the close of
business on the third Business Day immediately preceding the date of this
Agreement.
"EXTRA CONTRACTUAL OBLIGATIONS" means all claims, actions, suits,
liabilities, obligations or losses, other than Reinsured Liabilities, arising
under the Reinsured Contracts including, without limitation, obligations or
losses in excess of the contractual policy benefits of the applicable Reinsured
Contract, any liability for fines, fees, penalties, punitive, special, exemplary
or other form of extra-contractual damages, which claims, actions, suits,
liabilities, obligations or losses arise from any act, error or omission,
whether or not intentional, negligent, in bad faith or otherwise relating to:
(i) the design, marketing, sale, underwriting, rating of or rates chargeable
under, issuance, cancellation or administration of the Reinsured Contracts; (ii)
the investigation, defense,
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trial, settlement or handling of claims, benefits, dividends or payments
under the Reinsured Contracts; or (iii) the failure to pay, the delay in
payment, or errors in calculating or administering the payment of benefits,
claims, dividends or any other amounts due or alleged to be due under the
Reinsured Contracts.
"GENERAL ACCOUNT RESERVES" means, with respect to the Company, the amount
of the reserves (other than any amount of reserves for Litigation or other
Company Retained Liabilities) of the Business determined in accordance with
Applicable SAP and appropriately includable in line items 1, 2, 3, 4.1, 4.2, 5,
10.1, 10.2 and 10.3 of the Liabilities, Surplus and Other Funds page of the NAIC
Annual Statement Blank or in comparable line items in successor NAIC annual
statement blanks.
"GOVERNMENTAL AUTHORITY" means any federal, state, county, local, foreign
or other governmental or public agency, instrumentality, commission, authority,
self-regulatory organization, board or body, including, without limitation, the
SEC, NASD and any state insurance regulatory authority.
"INDEMNIFIED PARTY" has the meaning set forth in Section 5.3.
"INDEMNIFYING PARTY" has the meaning set forth in Section 5.3.
"LAW" means any federal, state, local or foreign code, law, statute,
ordinance, regulation, rule, reporting or licensing requirement, policy,
guideline, administrative interpretation or other requirement of a
Governmental Authority (including those of the SEC, NASD, NAIC, any
self-regulatory organization or any state insurance department) applicable to
the parties hereto, or any of their respective Affiliates, properties,
assets, officers, directors, employees or agents, as the case may be.
"LITIGATION" means any action, cause of action (whether at law or in
equity), arbitration, claim or complaint by any Person alleging potential
liability, wrongdoing or misdeed of another Person (other than claims for policy
benefits in the ordinary course of business), or any administrative or other
similar proceeding, criminal prosecution or investigation by any Governmental
Authority alleging potential liability, wrongdoing or misdeed of another Person.
"LOSS" means any action, claim, loss, liability, damage, deficiency, cost,
expense (including reasonable fees and expenses of attorneys, actuaries,
accountants and other consultants), interest or penalty.
"MARKETING AGREEMENT" means that certain Agreement, dated as of the date
hereof, by and between the Company and Reinsurer, providing for, among other
things, the Company to provide certain marketing services on behalf of
Reinsurer.
"NAIC ANNUAL STATEMENT BLANK" means the form of annual statement for life
and accident and health insurance companies--association edition, as prescribed
by the NAIC, that was in effect for year-end 1999 filings.
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"NEW REINSURED CONTRACTS" means all of those contracts of life insurance
and annuities described on SCHEDULE 1.2 that are issued by the Company after the
date hereof pursuant to the Marketing Agreement, together with all contracts of
life insurance issued by the Company after the date hereof pursuant to Section
2.9 hereof.
"NON-GUARANTEED ELEMENTS" mean cost of insurance charges, loads and expense
charges, credited interest rates, mortality and expense charges, participating
policy dividends, administrative expense risk charges, variable Premium rates
and variable paid-up amounts, as applicable, under the Reinsured Contracts.
"PERSON" means any individual, corporation, partnership, firm, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization, governmental, judicial or regulatory body,
division, business unit or other entity.
"POLICY LOAN RECEIVABLES" means, with respect to the Company, the aggregate
principal and accrued interest thereon of all policy loans with respect to the
Reinsured Contracts, determined in accordance with Applicable SAP and
appropriately includable on lines 5 and 17 of the Assets page of the NAIC Annual
Statement Blank or in comparable line items in successor NAIC annual statement
blanks.
"PREMIUMS" mean premiums, considerations, deposits and similar receipts
with respect to the Reinsured Contracts.
"PREMIUMS RECEIVABLE" means, with respect to the Company, the aggregate of
all Premiums receivable (including any due and deferred premiums) with respect
to the Reinsured Contracts, determined in accordance with Applicable SAP and
appropriately includable on lines 15 and 16 of the Assets page of the NAIC
Annual Statement Blank or in comparable line items in successor NAIC annual
statement blanks.
"REINSURANCE RECOVERABLES" means, with respect to the Company, the
aggregate of all amounts recoverable from reinsurers with respect to the
Reinsured Contracts, determined in accordance with Applicable SAP and
appropriately includable on lines 12.1, 12.2, 12.3 and 12.4 of the Assets page
of the NAIC Annual Statement Blank or in comparable line items in successor NAIC
annual statement blanks.
"REINSURED CONTRACTS" means collectively the Existing Reinsured Contracts
and the New Reinsured Contracts.
"REINSURED LIABILITIES" means all (i) liabilities of the types for which
amounts are included in the Adjusted Statutory Liabilities arising under or with
respect to the Reinsured Contracts, regardless of whether such liabilities arise
before, on or after the Effective Date, and (ii) all Extra Contractual
Obligations that arise out of acts or omissions by Reinsurer or any of their
respective directors, officers, employees,
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Affiliates, agents or representatives which acts or omissions occur (or, in
the case of omissions, fail to occur) at any time on or after the date hereof.
"REINSURER INDEMNITEES" has the meaning set forth in Section 5.2.
"SELLER EXTRA CONTRACTUAL OBLIGATIONS" means all Extra Contractual
Obligations that arise out of acts or omissions occurring (or in the case of
omissions, failing to occur) at any time prior to the date hereof by the Company
or its directors, officers, employees, Affiliates, agents or representatives.
"SEPARATE ACCOUNT(S)" means the FBIC Separate Account C and FBIC Separate
Account D, each of which is a unit investment trust and is registered as an
investment company under the 1940 Act and was established by the Company
pursuant to applicable state insurance and federal securities Laws, with respect
to the Reinsured Contracts that are variable life insurance policies or variable
annuity contracts.
"SEPARATE ACCOUNT RECEIVABLES" means the aggregate amount owed by the
Separate Accounts to the Company determined in accordance with Applicable SAP
and appropriately includable on line 13A of the Liabilities, Surplus and Other
Funds page of the NAIC Annual Statement Blank or in comparable lines in
successor NAIC annual statement blanks.
"SEPARATE ACCOUNT REVENUES" means, for all Reinsured Contracts that are
variable life insurance policies or variable annuity contracts, the net cash
flows (including any change in the Separate Account Receivables) associated with
the Separate Accounts.
"TAX" means any federal, state, local, foreign or other income, premium,
payroll, withholding, excise, sales, use, gains, transfer, real and personal
property, use and occupation, capital stock, franchise or other tax, assessment
or governmental charge in the nature of a tax, including interest and penalties
thereon.
"THIRD PARTY CLAIM" has the meaning set forth in Section 5.4(a). "THIRD
PARTY CLAIMANT" has the meaning set forth in Section 5.4(a).
"TRUST AGREEMENT" means that certain Trust Agreement, dated as of the
date hereof, by and among the Company, Reinsurer and the Trustee.
"TRUSTEE" is defined in the Trust Agreement.
"TRUST RESERVES" means the General Account Reserves less the Separate
Account Receivables, the Policy Loan Receivables, the Premiums Receivable, the
Reinsurance Recoverables and the Agents Debit Balances.
"UNASSIGNED THIRD PARTY REINSURANCE AGREEMENTS" means the following
agreements that relate to reinsurance for the Reinsured Contracts, to the extent
that, as of
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the date of this Agreement, any such agreement is not either assigned to
Reinsurer as contemplated by Section 5.10 of the Purchase Agreementor replaced
by a similar agreement between Reinsurer and the counterparty thereto:
(i) all of the Third Party Reinsurance Contracts of the Company
identified on Schedule 3.13 to the Purchase Agreement.
ARTICLE 2
COINSURANCE
2.1 COINSURANCE.
(a) As of the Effective Date, the Company hereby cedes to Reinsurer
and Reinsurer hereby accepts reinsurance on a coinsurance basis of one hundred
percent (100%) of the Reinsured Liabilities under the Reinsured Contracts, net
of any Third Party Reinsurance collected by the Company under any Unassigned
Third Party Reinsurance Agreements. The liability of Reinsurer under this
Agreement with respect to any Reinsured Contract will begin simultaneously with
that of the Company, but not prior to the Effective Date. It is understood and
agreed by the parties that in no event shall Reinsurer assume, or have any
responsibility or obligation for, any Company Retained Liabilities. Subject to
any termination that might occur pursuant to Section 6.2 hereof, Reinsurer's
liability with respect to any Reinsured Contract will terminate on the date the
Company's liability on such Reinsured Contract is terminated in accordance with
its terms. Termination of Reinsurer's liability herein is subject to the
Company's actual receipt of payments which discharge such liability in full in
accordance with the provisions of this Agreement. In no event shall the
interpretation of this Section 2.1 imply a unilateral right of Reinsurer to
terminate this Agreement.
(b) In no event shall such coinsurance be in force and binding unless
the underlying Reinsured Contract as issued by the Company is in force and
binding as of the Effective Date, or has lapsed but would be entitled to
reinstatement by its terms, as of the Effective Date, and is reinstated
thereafter in accordance with its terms.
(c) With respect to each of the Reinsured Contracts, the amount of
coinsurance hereunder shall be maintained in force without reduction so long as
the Reinsured Contract remains in force without reduction. If there is a
reduction with respect to a Reinsured Contract, Reinsurer's liability with
respect thereto shall be equally reduced. If the Company collects Premiums in
arrears in connection with a reinstated Reinsured Contract, the Company shall
pay such Premiums to the Reinsurer.
(d) On and after the Effective Date, Reinsurer shall have the
responsibility of all payments for Reinsured Liabilities.
(e) The Company shall use all commercially reasonable efforts to
comply with directions from Reinsurer with respect to all matters affecting
Reinsurer's
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reinsurance obligations hereunder, so long as such directions comply with all
applicable Laws and are not inconsistent with the provisions of this
Agreement or the Administrative Services Agreement.
2.2 PARTIES TO COINSURANCE. This Article 2 provides for indemnity
reinsurance solely between the Company and Reinsurer. The reinsurance under this
Agreement shall not create any right or legal relation between Reinsurer and the
Contractholder or insured under a Reinsured Contract.
2.3 SERVICING OF REINSURED CONTRACTS. The parties hereby agree that the
Reinsured Contracts shall be administered by Reinsurer or an Affiliate of
Reinsurer in accordance with the terms and conditions of the Administrative
Services Agreement.
2.4 MAINTENANCE OF RESERVES. Reinsurer shall maintain General Account
Reserves with respect to the Reinsured Contracts determined in accordance with
generally accepted actuarial standards and all applicable Laws, rules and
requirements for the filing of the Company's statutory financial reports in the
Company's state of domicile. All such General Account Reserves will be accounted
for by the Company as ceded reinsurance and by Reinsurer as coinsured
reinsurance.
2.5 CREDIT FOR CEDED REINSURANCE AND TRUST ACCOUNT.
(a) Reinsurer shall maintain all licenses or otherwise take any and
all action under its control for the Company to qualify for statutory
reinsurance credit for the Reinsured Liabilities in all Contract States in
which Reinsured Contracts are outstanding at any time.
(b) Simultaneously with the execution and delivery of this Agreement,
Reinsurer, the Company and the Trustee have executed and delivered the Trust
Agreement, pursuant to which Reinsurer has, on the date hereof, established a
trust account for the sole benefit of the Company. The parties agree that such
trust shall be treated as a "grantor trust" for federal income tax purposes, and
Reinsurer shall report all items of income, gain or loss with respect to the
assets held therein on its federal income tax return.
2.6 SEPARATE ACCOUNTS. The parties acknowledge and agree that certain of
the Reinsured Contracts are variable universal life insurance policies and
variable annuity contracts for which the Company has established the Separate
Account(s) pursuant to applicable state insurance and federal securities Laws.
The parties acknowledge and agree that the Separate Account liabilities are
being reinsured hereunder by Reinsurer on a 100% modified coinsurance basis, and
as a result the Company shall maintain the Separate Account reserves. The
parties also acknowledge and agree that it is the intent of the parties that (i)
the funds required to be maintained in such Separate Accounts shall continue to
be so maintained in such Separate Accounts of the Company, (ii) the General
Account Reserves shall be transferred to Reinsurer as described in Section
3.1(a) hereof, in the Purchase Agreement and in the Trust Agreement, and (iii)
pursuant to the
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Administrative Services Agreement, Reinsurer shall perform all administrative
services required with respect to the Reinsured Contracts, including, without
limitation, administrative services with respect to such Separate Accounts
and the transfer of funds to and from the Separate Accounts.
2.7 CERTAIN POLICY ELEMENTS. From and after the Effective Date, Reinsurer
may make recommendations to the Company with respect to the Non-Guaranteed
Elements of the Reinsured Contracts. Subject to applicable Laws and the
Company's then existing procedures, the Company shall establish all
Non-Guaranteed Elements of the Reinsured Contracts taking into account the
recommendations of Reinsurer with respect thereto.
2.8 POLICY CHANGES. The Company agrees that after the Effective Date it
shall not make (a) any changes to the terms and conditions of a Reinsured
Contract, or (b) withdraw or terminate any form of Reinsured Contract on file
with any Governmental Authority, except in the case of either clause (a) or (b),
with the Reinsurer's prior written consent; PROVIDED, HOWEVER, that the Company
shall be entitled to make changes to a Reinsured Contract or withdraw or
terminate the form of a Reinsured Contract to the extent such action is required
by applicable Law or pursuant to the terms of the Reinsured Contract, and the
Company shall have given written notice thereof to the Reinsurer in advance of
taking such action.
2.9 CONVERSIONS. In addition to any New Reinsured Contracts that the
Company issues pursuant to the terms and conditions of the Marketing Agreement,
the Company shall issue individual life insurance coverage following the
exercise of conversion rights or similar coverage options by Contractholders in
accordance with the terms and conditions of the Reinsured Contracts giving rise
to such rights. Any coverage issued by the Company pursuant to such conversion
rights or coverage options shall be deemed a New Reinsured Contract for purposes
of this Agreement and the Administrative Services Agreement.
ARTICLE 3
PAYMENTS AND REPORTS
3.1 REINSURANCE PREMIUMS.
(a) As initial consideration for Reinsurer's reinsurance of the
Existing Reinsured Contracts, the Company is paying to Reinsurer on the date
hereof a reinsurance premium equal to [REDACTED], subject to adjustment in
accordance with the Purchase Agreement.
(b) As additional consideration for Reinsurer's reinsurance of the
Reinsured Liabilities under the Reinsured Contracts, the Company hereby
absolutely and irrevocably sells, transfers, conveys, grants, assigns and
delivers to the Reinsurer, free and clear of all claims, liens, interests and
encumbrances, and the Reinsurer hereby
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accepts from the Company, all of the Company's existing and future right,
title and interest in and to the following items received by or on behalf of
the Company after the Effective Date with respect to the Reinsured Contracts:
(i) Premiums Receivable;
(ii) Policy Loan Receivables;
(iii) Reinsurance Recoverables;
(iv) Agents Debit Balances;
(v) Separate Account Revenues; and
(vi) all other fees, charges and amounts, including, without
limitation, Premiums and payments of policy loan principal and interest.
(c) The Company agrees to execute and deliver to the Reinsurer any
further instruments or assurances that the Reinsurer may reasonably request for
more effectual vesting of the Reinsurer's right, title and interest in the items
set forth in subsection (b) above. Notwithstanding anything in this Agreement to
the contrary, all of the Reinsurer's obligations hereunder, including without
limitation, the Reinsurer's obligation to pay the Reinsured Liabilities ceded
hereunder, are expressly conditioned upon the Company and its Affiliates,
successors and assigns not asserting any claim to ownership of, or title to, any
of the amounts set forth in subsection (b) above on or after the Effective Date,
except as provided in Section 3.7(c) hereof.
(d) Reinsurer hereby is authorized by the Company to endorse for
payment all checks, drafts and money orders payable to the Company as payment of
Premiums, loan repayments and other amounts with respect to the Reinsured
Contracts. The Company hereby authorizes the Reinsurer, in the name of the
Company or otherwise, to ask, demand, collect, receive and furnish receipts for
Premiums, loan repayments and other amounts with respect to the Reinsured
Contracts. The Company hereby assigns to Reinsurer, in accordance with the terms
and conditions of the Administrative Services Agreement, all the Company's
rights and privileges to draft or debit the accounts of any Contractholders for
Premiums and other amounts earned under the Reinsured Contracts on or after the
Effective Date, including existing pre-authorized bank draft or electronic fund
transfer arrangements between the Company and such Contractholders. The Company
will promptly endorse and remit to Reinsurer any Premiums, loan repayments and
other amounts under the Reinsured Contracts received by the Company on or after
the Effective Date. The Company shall treat any such amounts as the property of
the Reinsurer to be held for the sole benefit of Reinsurer.
(e) On and after the Effective Date, the Company shall pay or cause to
be paid through the Administrative Services Agreement to the Reinsurer an amount
equal to 100% of the items set forth in subsection (b) above.
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3.2 CEDING COMMISSION. In consideration of the Company's transfer of the
Existing Reinsured Contracts to Reinsurer as provided herein, Reinsurer is
paying to the Company on this date a ceding commission in the amount of [REDACTED].
3.3 BENEFITS AND ASSUMED PAYMENTS. Reinsurer shall reimburse the Company
for all Reinsured Liabilities that are paid by the Company on and after the
Effective Date, provided that any such payments by the Company shall be in
accordance with the terms and conditions of the Reinsured Contracts or other
applicable Contract within the Reinsured Liabilities.
3.4 PREMIUM TAXES. Reinsurer shall reimburse the Company for Premium
taxes (including retaliatory taxes) paid by the Company on account of Premiums
and other amounts received on the Reinsured Contracts on and after the Effective
Date, on the basis specified herein. For each calendar year, Reinsurer shall
reimburse such Premium tax payments, with respect to each state and
municipality, on an annual basis, within thirty calendar days after receipt of a
billing for Reinsurer's share of such Premium taxes paid. Reinsurer's share
shall be determined on the basis of each such state's actual tax rate for
Reinsured Contract Premiums multiplied by the Premiums received in such state
during the annual period. Such Premium taxes shall be reduced to the extent of
any credit that the Company is entitled to take in any such year on its Premium
tax returns for any amounts paid by Reinsurer pursuant to Section 3.5 below.
Notwithstanding the foregoing, because the Company is required by Law to pay
estimated Premium taxes on a quarterly basis throughout each calendar year,
Reinsurer will pay the Company such Premium tax reimbursements on a quarterly
basis within fifteen calendar days after receipt of a written estimate prepared
by the Company, and the parties will make any necessary adjustment at the end of
the calendar year so that Reinsurer only reimburses the Company for the actual
Premium taxes on the basis specified above.
3.5 GUARANTY FUND ASSESSMENTS. The Company shall retain the obligation to
pay, without any right to reimbursement from Reinsurer, all amounts arising from
participation in any guaranty fund, insolvency fund, plan, pool, association or
similar organization that are assessed with respect to the Existing Reinsured
Contracts as a result of Premiums paid to the Company prior to the date hereof
or on account of the Premiums Receivable. Reinsurer shall reimburse the Company
for any and all such assessments with respect to the Reinsured Contracts as a
result of Premiums paid on or after the date hereof, except to the extent
included in the Premiums Receivable.
3.6 QUARTERLY REPORTS. For so long as this Agreement is in effect,
Reinsurer shall provide the Company with a quarterly report relating to the
Reinsured Contracts no later than twenty Business days after the end of each
calendar quarter, in accordance with the terms of the Administrative Services
Agreement.
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3.7 PAYMENTS.
(a) All amounts due to be paid to either the Company or Reinsurer
shall be determined on a net basis as of the last day of the calendar quarter to
which such payment is attributable. All such amounts will be due and accrued as
of such date. Payment shall be based upon the report delivered by Reinsurer
pursuant to Section 3.6. If, based upon such report, it is determined that
Reinsurer owes a payment to the Company, such payment shall be made within five
calendar days after delivery of such report. If, based upon such report, it is
determined that the Company owes a payment to Reinsurer, such payment shall be
made within fifteen calendar days after delivery of such report. All such
payments shall be made in cash.
(b) If there is a delayed settlement of any payment due hereunder,
interest will accrue on such payment at the three month London Interbank
Offering Rate ("LIBOR") as published in THE WALL STREET JOURNAL, Eastern
Edition, in effect on the day such payment is due. For purposes of this Section
3.7, a payment will be considered overdue, and such interest will begin to
accrue, on the date which is five Business Days after the date such payment is
due.
(c) Any debts or credits between the Company and Reinsurer under this
Agreement and the Administrative Services Agreement are deemed mutual debts and
credits, as the case may be, and the Company and Reinsurer shall have, and may
exercise at any time and from time to time, the right to net or offset any such
debts or credits under this Agreement and the Administrative Services Agreement
and only the balance shall be allowed or paid hereunder. This right of netting
and offset shall not be affected or diminished because of insolvency of either
party to this Agreement. Without limiting the generality of the foregoing, in
the event of insolvency of either party, the items described in Section 3.1(b)
of this Agreement may be netted or offset against payments of Reinsured
Liabilities described in Section 2.1(d).
3.8 ANNUAL REPORTS. Each party shall provide to the other on a timely
basis after the end of each calendar year such information as may be reasonably
requested in order for the requesting party to prepare statutory filings, tax
returns and other similar filings and reports.
3.9 WIRE TRANSFERS. Any payment of cash required under this Agreement
shall be paid to the recipient in immediately available funds, United States
Dollars, by means of a wire transfer, if the recipient provides to the payer
appropriate wire transfer instructions at least two Business Days prior to the
required date of payment, and otherwise by means of a certified check.
3.10 DAC TAX MATTERS.
(a) To the extent that Section 848 of the Internal Revenue Code of
1986 (the "CODE"), and corresponding Regulations 1.848-1 and 1.848-2 are
applicable to the Reinsured Contracts, the Company and Reinsurer agree as
follows:
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(i) Pursuant to the joint election set forth in Section 1.848-2(g)(8)
of the Regulations corresponding to the Code, 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 Code
Section 848(c)(1). The first taxable year for which the joint election will
be effective is the tax year ending December 31, 2001. Both parties shall
attach a joint schedule to their 2001 federal income tax returns that
identifies this Agreement as an agreement for which the joint election has
been made.
(ii) Both parties shall exchange information pertaining to the amount
of net consideration under this Agreement each year to ensure consistency
or as otherwise required by the Internal Revenue Service.
(iii) Reinsurer will submit a schedule to the Company by April 1 of
each year providing Reinsurer's calculation of the net consideration for
the preceding calendar year. This schedule will be accompanied by a
statement signed by an officer of Reinsurer stating that Reinsurer will
report such net consideration in its tax return for the preceding calendar
year.
(iv) The Company may contest such calculation by providing an
alternative calculation to Reinsurer in writing within thirty calendar days
of the Company's receipt of Reinsurer's calculation. If the Company does
not so notify Reinsurer, the Company will report the net consideration as
determined by Reinsurer in the Company's tax return for the previous
calendar year. If the Company contests Reinsurer's calculation of the net
consideration, the parties will act in good faith to reach an agreement as
to the correct amount within thirty calendar days of the date the Company
submits its alternative calculation.
(b) [REDACTED]
3.11 FINANCING STATEMENTS. The Company shall take all action reasonably
requested by the Reinsurer to assist the Reinsurer to record and perfect its
right, title and interest in and to the items transferred to the Reinsurer
pursuant to this Article 3. Such action shall include without limitation the
Company's execution and delivery of any financing statements reasonably
requested by the Reinsurer to the extent that it may appear appropriate to the
Reinsurer to file such financing statements under Article 9 of the Uniform
Commercial Code.
ARTICLE 4
INSOLVENCY
4.1 PAYMENTS BY REINSURER. Reinsurer hereby agrees that all Reinsured
Liabilities shall be payable by Reinsurer on the basis of the liability of the
Company under the Reinsured Contracts, without diminution because of the
insolvency, liquidation or rehabilitation of the Company or the appointment of a
conservator, receiver, liquidator or statutory successor of the Company,
directly to the Company or to its conservator, receiver, liquidator or other
statutory successor.
4.2 CLAIMS. It is agreed that any conservator, receiver, liquidator or
statutory successor of the Company shall give prompt written notice to Reinsurer
of the pendency or submission of a claim under any such Reinsured Contract.
During the pendency of such claim, Reinsurer may investigate such claim and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense available to the Company or its conservator, receiver,
liquidator or statutory successor. The expense thus incurred by Reinsurer is
chargeable against the Company as a part of the expense of insolvency,
liquidation or rehabilitation to the extent of a proportionate share of the
benefit which accrues to the Company solely as a result of the defense
undertaken by Reinsurer.
ARTICLE 5
INDEMNIFICATION
5.1 REINSURER INDEMNIFICATION. From and after the date of this Agreement,
Reinsurer shall indemnify, defend and hold harmless the Company and the Separate
Account(s) and their Affiliates (and their respective directors, officers,
employees, successors and permitted assigns) (the "COMPANY INDEMNITEES") from
and against all Losses asserted against, imposed upon or incurred by such
Company Indemnitees resulting from, arising out of, based upon or otherwise in
respect of any of the following: (a) any breach of any covenant or agreement
made or to be performed by Reinsurer pursuant to this Agreement, (b) any
directions of Reinsurer given pursuant to Section
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2.1(e) or 2.7 hereof and followed by the Company in a timely manner, (c) the
payment of or failure to pay any Reinsured Liabilities, (d) any fraud, theft
or embezzlement by officers, employees or agents of Reinsurer during the term
of this Agreement, (e) the failure of Reinsurer to comply with any applicable
Law during the term of this Agreement, and (f) the reasonable costs to the
Company Indemnitees of enforcing this indemnity against Reinsurer.
5.2 COMPANY INDEMNIFICATION. From and after the date of this Agreement,
the Company shall indemnify, defend and hold harmless Reinsurer and its
Affiliates (and their respective directors, officers, employees, successors and
permitted assigns) (the "REINSURER INDEMNITEES") from and against all Losses
asserted against, imposed upon or incurred by such Reinsurer Indemnitees
resulting from, arising out of, based upon or otherwise in respect of any of the
following: (a) any breach of any covenant or agreement made or to be performed
by the Company pursuant to this Agreement, (b) any Company Retained Liabilities,
(c) any fraud, theft or embezzlement by officers, employees or agents of the
Company or the Separate Account(s) during the term of this Agreement, (d) the
failure of the Company to follow the Reinsurer's recommendations pursuant to
Section 2.7 hereof or Section 3.15 of the Administrative Services Agreement,
unless following such recommendation was prohibited by applicable Law or the
terms of the applicable Reinsured Contracts, (e) the failure of the Company to
comply with any applicable Law during the term of this Agreement, (f) the
failure of the Separate Accounts(s) to comply with any applicable Law during the
term of this Agreement, unless such failure is caused by Reinsurer's actions or
omissions under the Administrative Services Agreement, and (g) the reasonable
costs to Reinsurer Indemnitees of enforcing this indemnity against the Company.
The parties agree that, for purposes of the Company's indemnification
obligations hereunder, the Company shall not be liable for the acts of any of
its agents or other producers who are appointed by the Company pursuant to
Section 2.2 of the Marketing Agreement to the extent such agents or other
producers are engaged in the sales or marketing of New Reinsured Contracts.
5.3 NOTICE OF LOSS, ASSERTED LIABILITY. As promptly as practicable after
(a) becoming aware of circumstances that have resulted in a Loss for which a
party entitled to indemnification pursuant to Section 5.1 or Section 5.2 intends
to seek indemnification under such Section (the "INDEMNIFIED PARTY") or (b)
receipt by the Indemnified Party of written notice of any demand, claim or
circumstances which, with the lapse of time, the giving of notice or both, would
give rise to a claim or the commencement of any Litigation that may result in a
Loss (an "ASSERTED LIABILITY"), the Indemnified Party shall give notice thereof
(the "CLAIMS NOTICE") to any other party obligated to provide indemnification
pursuant to Section 5.1 or Section 5.2 (the "INDEMNIFYING PARTY"). The Claims
Notice shall describe the Loss or the Asserted Liability in reasonable detail
and shall indicate the amount (estimated, if necessary) of the Loss or Asserted
Liability that has been or may be suffered by the Indemnified Party. If a Claims
Notice is not provided within the time required by the first sentence of this
Section 5.3, the Indemnified Party nonetheless shall be entitled to
indemnification by the Indemnifying Party except to the extent that the
Indemnifying Party is actually prejudiced by such late receipt of the Claims
Notice.
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5.4 OPPORTUNITY TO CONTEST.
(a) If an Indemnified Party asserts, or may in the future seek to
assert, a claim for indemnification hereunder because of a claim or demand made,
or an action, proceeding or investigation instituted, by any Person not a party
to this Agreement (a "THIRD PARTY CLAIMANT") that may result in a Loss with
respect to which the Indemnified Party would be entitled to indemnification
pursuant to this Article 5 (a "THIRD PARTY CLAIM"), the Indemnified Party shall
deliver to the Indemnifying Party a Claims Notice with respect thereto, which
Claims Notice shall, in accordance with the provisions of Section 5.3, be
delivered as promptly as practicable after such Third Party Claim is actually
known to the Indemnified Party. Failure to deliver a Claims Notice with respect
to a claim in a timely manner as specified in the preceding sentence shall not
be deemed a waiver of the Indemnified Party's right to indemnification hereunder
for Losses in connection with such claim, but the amount of reimbursement to
which the Indemnified Party is entitled shall be reduced by the amount, if any,
by which the Indemnified Party's Losses would have been less had such Claims
Notice been timely delivered.
(b) The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party, to investigate, contest, defend or settle any Third
Party Claim that may result in a Loss with respect to which the Indemnified
Party is entitled to indemnification pursuant to this Article 5; PROVIDED, that
the Indemnified Party may, at its option and at its own expense, participate in
the investigation, contesting, defense or settlement of any such Third Party
Claim through representatives and counsel of its own choosing; and, PROVIDED
FURTHER, that the Indemnifying Party shall not settle any Third Party Claim
unless (i) such settlement is on exclusively monetary terms and provides a
complete release of, or dismissal with prejudice of, all claims against any
Indemnified Party potentially affected by such Third Party Claim for all matters
that were or could have been asserted in connection with such claim, or (ii) the
Indemnified Party shall have consented to the terms of such settlement, which
consent shall not unreasonably be withheld, conditioned or delayed. If requested
by the Indemnifying Party, the Indemnified Party will, at the expense of the
Indemnifying Party, cooperate with the Indemnifying Party and its counsel in
contesting any Third Party Claim or, if appropriate and related to the Third
Party Claim in question, in making any counterclaim against the Third Party
Claimant, or any cross-complaint against any Person (other than the Indemnified
Party or its Affiliates). Unless and until the Indemnifying Party elects to
defend the Third Party Claim, the Indemnified Party shall have the right, at its
option and at the Indemnifying Party's expense, to do so in such manner as it
deems appropriate; PROVIDED, HOWEVER, that the Indemnified Party shall not
settle or compromise any Third Party Claim for which it seeks indemnification
hereunder without the prior written consent of the Indemnifying Party (which
shall not be unreasonably withheld, conditioned or delayed).
(c) The Indemnifying Party shall be entitled to participate in (but
not to control) the defense of any Third Party Claim that it has elected not to
defend with its own counsel and at its own expense.
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(d) Except as provided in the first sentence of Section 5.4(b), the
Indemnifying Party shall bear all costs of defending any Third Party Claim and
shall indemnify the Indemnified Party for all costs, fees and expenses incurred
in connection with defending such Third Party Claim.
(e) The parties shall make available to each other all relevant
information in their possession relating to any Third Party Claim (except to the
extent that such action would result in a loss of attorney-client privilege) and
shall cooperate with each other in the defense thereof.
(f) No party otherwise entitled to indemnification under this
Agreement shall be indemnified pursuant to this Agreement to the extent that
such party's Losses are increased or extended by the willful misconduct,
violation of applicable Law or bad faith of such party.
5.5 CERTAIN REDUCTIONS; SUBROGATION RIGHTS. All indemnification
payments payable hereunder shall be reduced by the amount of insurance proceeds
received by, or any Tax benefits inuring to the benefit of, the Indemnified
Party as a result of the Loss for which the Indemnified Party is seeking
indemnification. In the event that the Indemnifying Party shall be obligated to
indemnify the Indemnified Party pursuant to this Article 5, the Indemnifying
Party shall, upon payment of such indemnity in full, be subrogated to all rights
of the Indemnified Party with respect to the Loss to which such indemnification
relates; PROVIDED, HOWEVER, that the Indemnifying Party shall only be subrogated
to the extent of any amount paid by it pursuant to this Article 5 in connection
with such Loss.
ARTICLE 6
TERM AND TERMINATION
6.1 DURATION. This Agreement shall continue in force until such time that
Reinsurer's liability with respect to all Reinsured Contracts reinsured
hereunder is terminated pursuant to Section 6.2.
6.2 TERMINATION. This Agreement (i) may be terminated at any time upon
the mutual written consent of the parties hereto, which writing shall state the
effective date of termination, and (ii) shall terminate automatically at such
time as none of the Reinsured Contracts remains in force.
6.3 SURVIVAL OF CERTAIN ARTICLES AND SECTIONS. Notwithstanding the other
provisions of this Article 6, the rights and obligations of the parties pursuant
to Sections 3.4, 3.5, 3.7 and 3.10, and Articles 1, 5, 7 and 8 shall survive the
termination of this Agreement for a two year- period following such termination
with respect to matters or events occurring during the term of this Agreement.
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ARTICLE 7
DISPUTE RESOLUTION
7.1 DISPUTE RESOLUTION. The parties acknowledge and agree that either
party may pursue judicial remedies at Law or equity in the event of a dispute
with respect to the interpretation, construction or enforcement of this
Agreement.
ARTICLE 8
MISCELLANEOUS
8.1 COOPERATION. Each party hereto shall cooperate with the other party
and, individually or collectively, shall promptly take such further action and
promptly execute such further documents, certificates, instruments, statements,
filings, conveyances, and agreements as may be reasonably necessary to
effectuate the purposes of this Agreement.
8.2 OVERSIGHTS AND ERRORS. It is agreed that in the event that any
unintentional or accidental failure to comply with the terms of this Agreement
can be shown to be the result of a misunderstanding, oversight or clerical
error, both parties shall be restored to the position they would have occupied
had the misunderstanding, oversight or error not occurred.
8.3 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. Except as otherwise
expressly provided herein, this Agreement (including the Schedules hereto)
constitutes the entire agreement between the parties with respect to the
transactions contemplated hereby and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement,
expressed or implied, is intended to confer upon any Person, other than the
parties or their respective successors and permitted assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement.
8.4 AMENDMENTS. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by all parties.
8.5 WAIVERS. The failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
8.6 BINDING EFFECT; ASSIGNMENT. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other party, except that, without
having to obtain such
19
consent, either party may assign this Agreement to a Person who acquires all
or substantially all of the equity or assets of such party. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns. Reinsurer or the Company, as the case may be, shall promptly notify
each other following any "change of control" filing with respect to such
party made with an insurance regulatory authority, the approval of any plan
to liquidate, merge or dissolve Reinsurer or the Company, as applicable, or
of any proceeding or lawsuit that materially affects Reinsurer's or the
Company's ability to perform this Agreement, including, but not limited to,
insolvency or rehabilitation proceedings.
8.7 NOTICES. All notices or other communications that are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by certified mail postage pre-paid, or by courier or
overnight carrier, to the Persons at the addresses set forth below (or at such
other address as may be provided hereunder), and shall be deemed to have been
delivered as of the date so delivered:
The Company: Fortis Benefits Insurance Company
0000 Xxxxx Xxxxxxxxx
Xxxxxx Xxxx, XX 00000
Attention: General Counsel
Fax: 000-000-0000
Phone: 000-000-0000
and
Fortis, Inc.
Xxx Xxxxx Xxxxxxxxx Xxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxx
Fax: 000-000-0000
Phone: 000-000-0000
With copy to counsel Xxxxxx & Bird LLP
(which shall not 0000 Xxxx Xxxxxxxxx Xxxxxx
constitute notice): Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxx
Fax: 000-000-0000
Phone: 000-000-0000
Reinsurer: Hartford Life and Annuity Insurance Company
000 Xxxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: General Counsel
Fax: 000-000-0000
Phone: 000-000-0000
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With copy to counsel Lord, Bissell & Brook
(which shall not 000 X. XxXxxxx Xxxxxx
constitute notice): Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxx
Fax: 000-000-0000
Phone: 000-000-0000
8.8 GOVERNING LAW. Notwithstanding the place where this Agreement may be
executed by any of the parties, the parties expressly agree that this Agreement
shall in all respects be governed by, and construed in accordance with, the Laws
of the State in which the Company is domiciled, without regard for any conflicts
of laws principles.
8.9 CAPTIONS. The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement. All references herein to
Articles, Sections and Schedules shall be deemed references to such parts of
this Agreement, unless the context shall otherwise require.
8.10 INTERPRETATION.
(a) For purposes of this Agreement, the words "hereof," "herein,"
"hereby" and other words of similar import refer to this Agreement as a whole
unless otherwise indicated. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." Whenever the singular is used herein, the same
shall include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate. All dollar references in this Agreement
are to the currency of the United States.
(b) No uncertainty or ambiguity herein shall be construed or resolved
against any party, whether under any rule of construction or otherwise. No party
to this Agreement shall be considered the draftsman. The parties acknowledge and
agree that this Agreement has been reviewed, negotiated and accepted by all
parties and their attorneys and shall be construed and interpreted according to
the ordinary meaning of the words used so as to fairly accomplish the purposes
and intentions of all parties hereto.
8.11 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
8.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Reinsurance
Agreement as of the date first above written.
FORTIS BENEFITS INSURANCE
COMPANY
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
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