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AUTOMATIC AND FACULTATIVE
YEARLY RENEWABLE TERM REINSURANCE
AGREEMENT
EFFECTIVE April 30, 2000
PRUCO LIFE INSURANCE COMPANY
(hereinafter referred to as "PRUCO")
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And
SWISS RE LIFE & HEALTH AMERICA INC
(hereinafter referred to as "SWISS RE")
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Table of Contents
1. PARTIES TO THE AGREEMENT..................................................3
2. EFFECTIVE DATE OF THE AGREEMENT...........................................3
3. SCOPE OF THE AGREEMENT....................................................3
4. DURATION OF THE AGREEMENT.................................................3
5. BASIS OF REINSURANCE......................................................3
6. AUTOMATIC REINSURANCE TERMS...............................................4
a. CONVENTIONAL UNDERWRITING............................................4
b. RESIDENCE............................................................4
c. OCCUPATION...........................................................4
d. AUTOMATIC PORTION REINSURED..........................................4
e. RETENTION............................................................4
f. AUTOMATIC ACCEPTANCE LIMIT...........................................4
g. JUMBO LIMIT..........................................................4
h. MINIMUM CESSION......................................................4
i. FACULTATIVE QUOTES...................................................4
7. AUTOMATIC REINSURANCE NOTICE PROCEDURE....................................4
8. FACULTATIVE OBLIGATORY REINSURANCE........................................4
9. FACULTATIVE REINSURANCE...................................................5
10. COMMENCEMENT OF REINSURANCE COVERAGE......................................5
a. AUTOMATIC REINSURANCE................................................5
b. FACULTATIVE OBLIGATORY REINSURANCE...................................5
c. FACULTATIVE REINSURANCE..............................................5
d. PRE-ISSUE COVERAGE...................................................6
11. REINSURANCE PREMIUM RATES.................................................6
a. LIFE REINSURANCE.....................................................6
b. RATES NOT GUARANTEED.................................................6
12. PAYMENT OF REINSURANCE PREMIUMS...........................................6
a. PREMIUM DUE..........................................................6
b. FAILURE TO PAY PREMIUMS..............................................6
c. PREMIUM ADJUSTMENT...................................................7
13. PREMIUM TAX REIMBURSEMENT.................................................7
14. DAC TAX AGREEMENT.........................................................7
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15. REPORTS...................................................................8
16. RESERVES FOR REINSURANCE..................................................8
17. CLAIMS....................................................................8
a. NOTICE...............................................................8
b. AMOUNT AND PAYMENT OF BENEFITS.......................................8
c. CLAIM SETTLEMENTS....................................................8
d. CLAIM EXPENSES.......................................................8
e. EXTRACONTRACTUAL DAMAGES.............................................8
18. MISREPRESENTATION, SUICIDE, AND MISSTATEMENT..............................9
19. POLICY CHANGES...........................................................9
a. NOTICE...............................................................9
b. INCREASES............................................................9
c. REDUCTION OR TERMINATION.............................................10
d. PLAN CHANGES.........................................................10
e. DEATH BENEFIT OPTION CHANGES.........................................10
f. REDUCED PAID-UP INSURANCE............................................10
20. RECAPTURE.................................................................10
21. REINSTATEMENTS............................................................11
a. AUTOMATIC REINSTATEMENT..............................................11
b. FACULTATIVE REINSTATEMENT............................................11
c. PREMIUM ADJUSTMENT...................................................11
22. ERRORS AND OMISSIONS......................................................11
23. INSOLVENCY................................................................11
24. ARBITRATION...............................................................12
a. GENERAL..............................................................12
b. NOTICE...............................................................12
c. PROCEDURE............................................................12
d. COSTS................................................................13
25. GOOD FAITH; FINANCIAL SOLVENCY............................................13
26. MEDICAL INFORMATION BUREAU................................................13
27. GOVERNING LAW.............................................................13
28. ASSIGNMENT................................................................13
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AUTOMATIC AND FACULTATIVE YEARLY RENEWABLE TERM
REINSURANCE AGREEMENT
1. PARTIES TO THE AGREEMENT
This Agreement is solely between SWISS RE and PRUCO, a life insurance
company domiciled in the State of Arizona. There is no third party
beneficiary to this Agreement. Reinsurance under this Agreement will not
create any right or legal relationship between SWISS RE and any other
person, for example, any insured, policyowner, agent, beneficiary, or
assignee. PRUCO agrees that it will not make SWISS RE a party to any
litigation between any such third party and PRUCO. PRUCO will not use or
disclose SWISS RE's name with regard to PRUCO's agreements or transactions
with these third parties unless SWISS RE gives prior written approval for
the use or disclosure of its name or unless PRUCO is compelled by law to
do so.
The terms of this Agreement are binding upon the parties, their
representatives, successors, and assigns. The parties to this Agreement
are bound by ongoing and continuing obligations and liabilities until the
later of (1) when this Agreement terminates and (2) when the underlying
policies are no longer in force. This Agreement shall not be bifurcated,
partially assigned, or partially assumed.
2. EFFECTIVE DATE OF THE AGREEMENT
This Agreement will be effective as of 12:01 A.M., April 30, 2000, and
will cover policies effective on and after that date.
3. SCOPE OF THE AGREEMENT
The text of this Agreement and all Exhibits, Schedules and Amendments are
considered to be the entire agreement between the parties. There are no
other understandings or agreements between the parties regarding the
policies reinsured other than as expressed in this Agreement. The parties
may make changes or additions to this Agreement, but they will not be
considered to be in effect unless they are made by means of a written
amendment that has been signed and dated by both parties.
4. DURATION OF THE AGREEMENT
The duration of this Agreement will be unlimited. However, either party
may terminate the Agreement for new business at any time by giving the
other a 90-day prior written notice. SWISS RE will continue to accept new
reinsurance during the 90-day period.
In addition, this Agreement may be terminated immediately for the
acceptance of new reinsurance by either party if one of the parties
materially breaches this Agreement or becomes insolvent.
Existing reinsurance will not be affected by the termination of this
Agreement with respect to new reinsurance. Existing reinsurance will
remain in force until the termination or expiry of the underlying policies
on which the reinsurance is based as long as PRUCO continues to pay
reinsurance premiums as described in Section 12. However, existing
reinsurance may be terminated in accordance with the recapture provision
described in Section 20.
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5. BASIS OF REINSURANCE
Reinsurance under this Agreement will be on the Yearly Renewable Term
basis for the net amount at risk on the portion of each policy that is
reinsured as described in Schedule A.
6. AUTOMATIC REINSURANCE TERMS
SWISS RE agrees to automatically accept contractual risks on the life
insurance plans shown in Schedule A, subject to the following
requirements:
a. CONVENTIONAL UNDERWRITING. Automatic reinsurance applies only to
insurance applications underwritten by PRUCO according to PRUCO's
conventional underwriting and issue practices. Upon request, PRUCO
shall provide SWISS RE with a copy of its current underwriting and
issue practices and guidelines.
In the event of significant changes in underwriting practices in the
industry, it may be appropriate for PRUCO or SWISS RE to request of
the other party changes in the underwriting requirements. The party
requesting the change must provide a 120-day advance written notice
to the other party before the effective date of such change.
Recognition of reinsurance premium rates related to these changes
must be determined within the 120-day period. If the underwriting
change or rate change is unacceptable to either party, this
Agreement may be unilaterally terminated for acceptance of new
business with a 90-day written termination notice to the other
party.
b. RESIDENCE. To be eligible for automatic reinsurance, each insured
must either be a resident of the United States or Canada at the time
of issue or be a resident of another country that meets PRUCO's
special underwriting requirements pertaining to foreign residence.
c. OCCUPATION. To be eligible for automatic reinsurance, the insured
must not be employed in an occupation as shown in the Occupation
Exclusion List in Schedule A.
d. AUTOMATIC PORTION REINSURED. For any policy reinsured under
automatic reinsurance, the portion reinsured is shown in Schedule A.
e. RETENTION. PRUCO will retain, and not otherwise reinsure, an amount
of insurance on each life equal to its retention shown in Schedule
A.
f. AUTOMATIC ACCEPTANCE LIMIT. For any policy to be reinsured under
automatic reinsurance, the face amount shall not exceed the
Automatic Acceptance Limit as shown in Schedule A.
g. JUMBO LIMIT. For any policy to be reinsured under automatic
reinsurance, the total amount of insurance in force and applied for
in all companies shall not exceed the Jumbo Limit as shown in
Schedule A.
h. MINIMUM CESSION. The minimum amount of reinsurance per cession that
SWISS RE will accept is shown in Schedule A.
i. FACULTATIVE QUOTES. The risk shall not have been submitted on a
facultative basis to SWISS RE or any other reinsurer.
7. AUTOMATIC REINSURANCE NOTICE PROCEDURE
After the policy has been paid for and delivered, PRUCO will submit all
relevant individual policy information, as defined in Schedule C, in its
next statement to SWISS RE.
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8. FACULTATIVE OBLIGATORY REINSURANCE
When a policy does not qualify for automatic reinsurance because (1) the
Automatic Acceptance Limit is exceeded, (2) the Jumbo Limit is exceeded or
(3) the applicant is employed in an occupation included in the Occupation
Exclusion List in Schedule A, PRUCO may make a request to reserve capacity
through facultative obligatory reinsurance by contacting SWISS RE by
telephone. If PRUCO reserves capacity and the policy is issued, PRUCO must
submit a form substantially similar to the "Notification of Reinsurance"
form shown in Schedule F.
9. FACULTATIVE REINSURANCE
PRUCO may apply for facultative reinsurance with SWISS RE on a risk if the
automatic reinsurance terms are not met or if the terms are met and it
prefers to apply for facultative reinsurance. To obtain a facultative
reinsurance quote, PRUCO must submit the following:
a. A form substantially similar to the "Application for Reinsurance"
form shown in Schedule E.
b. Copies of the original insurance application, medical examiner's
reports, financial information, and all other papers and information
obtained by PRUCO regarding the insurability of the risk.
After receipt of PRUCO's application, SWISS RE will promptly examine the
material and notify PRUCO either of the terms and conditions of SWISS RE's
offer for facultative reinsurance or that no offer will be made. SWISS
RE's offer expires 120 days after the offer is made unless the written
offer specifically states otherwise. If PRUCO accepts SWISS RE's offer,
then PRUCO will make a dated notation of its acceptance in its
underwriting file and mail as soon as possible a formal reinsurance
cession to SWISS RE using a form substantially similar to the Notification
of Reinsurance form shown in Schedule F. If PRUCO does not accept SWISS
RE's offer, then PRUCO will notify SWISS RE in writing as soon as
possible.
10. COMMENCEMENT OF REINSURANCE COVERAGE
Commencement of SWISS RE's reinsurance coverage on any policy or pre-issue
risk under this Agreement is described below:
a. AUTOMATIC REINSURANCE. SWISS RE's reinsurance coverage for any
policy that is ceded automatically under this Agreement will begin
and end simultaneously with PRUCO's contractual liability for the
policy reinsured.
In addition, SWISS RE will be liable for benefits paid under PRUCO's
conditional receipt or temporary insurance agreement if all of the
conditions for automatic reinsurance coverage under Section 6 of
this Agreement are met. SWISS RE's liability under PRUCO's
conditional receipt or temporary insurance agreement is limited to
the lesser of (1) SWISS RE's reinsured portion of the face amount of
the policy and (2) $200,000.
b. FACULTATIVE OBLIGATORY REINSURANCE. SWISS RE's reinsurance coverage
for any policy that is ceded under the terms of facultative
obligatory reinsurance in this Agreement will begin when (1) PRUCO
accepts SWISS RE's offer by making a dated notation of its
acceptance in its underwriting file and mailing the "Notification of
Reinsurance" form to SWISS RE and (2) the policy has been issued.
In addition, SWISS RE will be liable for benefits paid under PRUCO's
conditional receipt or temporary insurance agreement if the
conditions for automatic reinsurance stated in Section 6a, b, e, h,
and i of this Agreement are met. SWISS RE's liability under PRUCO's
conditional receipt or temporary insurance agreement will be limited
to the portion of
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$1,000,000 that is derived as the amount of capacity reserved by
PRUCO from SWISS RE divided by the total amount of capacity reserved
by PRUCO from all reinsurers.
c. FACULTATIVE REINSURANCE. SWISS RE's reinsurance coverage for any
policy that is ceded facultatively under this Agreement shall begin
when (1) PRUCO accepts SWISS RE's offer by making a dated notation
of its acceptance in its underwriting file and mailing the
"Notification of Reinsurance" form to SWISS RE and (2) the policy
has been issued.
In addition, SWISS RE will be liable for benefits paid under PRUCO's
conditional receipt or temporary insurance agreement. SWISS RE's
liability under PRUCO's conditional receipt or temporary insurance
agreement will be limited to the portion of $1,000,000 that is
derived as the amount of capacity reserved by PRUCO from SWISS RE
divided by the total amount of capacity reserved by PRUCO from all
reinsurers.
d. PRE-ISSUE COVERAGE. The pre-issue coverage for benefits paid under
PRUCO's conditional receipt or temporary insurance agreement will be
effective once all initial medical exams and tests have been
completed. The pre-issue liability applies only once on any given
life at one time no matter how many conditional receipts or
temporary insurance agreements are in effect. After a policy has
been issued, no reinsurance benefits are payable under this
pre-issue coverage provision.
11. REINSURANCE PREMIUM RATES
a. LIFE REINSURANCE. The reinsurance premiums per $1000 are shown in
Schedule B. Reinsurance premiums for renewals are calculated using
(1) the issue ages, (2) the duration since issuance and (3) the
current underwriting classification.
b. RATES NOT GUARANTEED. The reinsurance premium rates are not
guaranteed. SWISS RE reserves the right to change the rates at any
time. If SWISS RE changes the rates, it will give PRUCO a 90-day
prior written notice of the change. Any change applies only to
reinsurance premiums due after the expiration of the notice period.
SWISS RE further agrees that PRUCO's right of recapture under
Section 20 of this Agreement will be triggered if Prudential deems a
rate change unacceptable.
12. PAYMENT OF REINSURANCE PREMIUMS
a. PREMIUM DUE. For each policy reinsured under this Agreement,
reinsurance premiums are payable annually in advance. These premiums
are due on the issue date and each subsequent policy anniversary.
Within 30 days after the close of each reporting period, PRUCO will
send SWISS RE a statement of account for that period along with
payment of the full balance due. On any payment date, monies payable
between SWISS RE and PRUCO under this Agreement may be netted to
determine the payment due. This offset will apply regardless of the
insolvency of either party as described in Section 23. If the
statement of account shows a balance due PRUCO, SWISS RE will remit
that amount to PRUCO within 30 days of receipt of the statement of
account. All financial transactions under this Agreement will be in
United States dollars. If the reinsurance premium amounts cannot be
determined on an exact basis by the dates described below, such
payments will be paid in accordance with a mutually agreed upon
formula which will approximate the actual payments. Adjustments will
then be made to reflect actual amounts when such information is
available.
b. FAILURE TO PAY PREMIUMS. If reinsurance premiums are 90 days past
due, for reasons other than those due to error or omission as
defined below in Section 22, the premiums will be considered in
default and SWISS RE may terminate the reinsurance by providing a
30-day prior written notice, provided payment is not received within
that 30-
6
day period. SWISS RE will have no further liability as of the
termination date. PRUCO will be liable for the prorated reinsurance
premiums to the termination date. PRUCO agrees that it will not
force termination under the provisions of this paragraph solely to
avoid the recapture requirements or to transfer the block of
business reinsured to another reinsurer.
At the end of this 30-day period, SWISS RE's liability will
automatically terminate for all reinsurance on which balances remain
due and unpaid, including reinsurance on which balances became due
and unpaid during and after the 30-day notice period.
PRUCO may reinstate reinsurance terminated for non-payment of
balances due at any time within 60 days following the date of
termination. However, SWISS RE will have no liability for claims
incurred between the termination date and the reinstatement date.
c. PREMIUM ADJUSTMENT. If PRUCO overpays a reinsurance premium and
SWISS RE accepts the overpayment, SWISS RE's acceptance will not
constitute or create a reinsurance liability or increase in any
existing reinsurance liability. Instead, SWISS RE will be liable to
PRUCO for a credit in the amount of the overpayment. If a reinsured
policy terminates, SWISS RE will refund the excess reinsurance
premium. This refund will be on a prorated basis without interest
from the date of termination of the policy to the date to which a
reinsurance premium has been paid.
13. PREMIUM TAX REIMBURSEMENT
See Schedule B.
14. DAC TAX AGREEMENT
PRUCO and SWISS RE, herein collectively called the "Parties", or
singularly the "Party", hereby enter into an election under Treasury
Regulations Section 1.848-2(g) (8) whereby:
a. For each taxable year under this Agreement, the party with the net
positive consideration, as defined in the regulations promulgated
under Internal Revenue Code Section 848, will capitalize specified
policy acquisition expenses with respect to this Agreement without
regard to the general deductions limitation of Section 848 (c) (1);
b. PRUCO and SWISS RE agree to exchange information pertaining to the
net consideration under this Agreement each year to insure
consistency or as otherwise required by the Internal Revenue
Service;
c. PRUCO will submit to SWISS RE by May 1 of each year its calculation
of the net consideration for the preceding calendar year.
d. SWISS RE may contest such calculation by providing an alternative
calculation to PRUCO in writing within 30 days of SWISS RE 's
receipt of PRUCO's calculation. If SWISS RE does not so notify
PRUCO, SWISS RE will report the net consideration as determined by
PRUCO in SWISS RE's tax return for the previous calendar year;
e. If SWISS RE contests PRUCO's calculation of the net consideration,
the parties will act in good faith to reach an agreement as to the
correct amount within 30 days of the date SWISS RE submits its
alternative calculation. If PRUCO and SWISS RE do not reach
agreement on the net amount of consideration within such 30-day
period, then the net amount of consideration for such year shall be
determined by an independent accounting firm acceptable to both
PRUCO and SWISS RE within 20 days after the expiration of such
30-day period.
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f. PRUCO and SWISS RE agree that this election shall first be effective
for the 2000 calendar tax year and will be effective for all
subsequent taxable years for which this Agreement remains in effect.
SWISS RE and PRUCO represent and warrant that they are subject to U.S.
taxation under either Subchapter L of Chapter 1, or Subpart F of
Subchapter N of Chapter 1 of the Internal Revenue Code of 1986, as
amended.
15. REPORTS
The reporting period is shown in Schedule A. For each reporting period,
PRUCO will submit reports to SWISS RE with information that is
substantially similar to the information displayed in Schedule C.
In addition, the reports will include a billing and accounting summary and
a policy exhibit summary similar to the reports shown in Schedule D.
Within 15 business days after the end of each calendar year, PRUCO will
submit a reserve credit summary similar to that shown in Schedule D. PRUCO
will also submit this reserve credit summary within 10 business days after
the end of each other calendar quarter.
16. RESERVES FOR REINSURANCE
See Schedule A.
17. CLAIMS
a. NOTICE. PRUCO will notify SWISS RE as soon as reasonably possible
after PRUCO receives a claim for a policy reinsured under this
Agreement. After PRUCO has received all proper claim proofs and paid
the claim, PRUCO will send SWISS RE an itemized statement of the
benefits paid by PRUCO and all relevant information with respect to
the claim including the claim proofs. However, claim proofs will not
be required by SWISS RE if SWISS RE's net amount at risk is less
than or equal to $100,000 and PRUCO has paid the claim in full. In
such cases, PRUCO will provide SWISS RE with the cause of death.
b. AMOUNT AND PAYMENT OF BENEFITS. As soon as SWISS RE receives proper
claim notice and any required proof of the claim, SWISS RE will
promptly pay the reinsurance benefits due PRUCO. PRUCO's contractual
liability for claims is binding on SWISS RE. The maximum benefit
payable to PRUCO under each reinsured policy is the amount
specifically reinsured with SWISS RE.
c. CLAIM SETTLEMENTS. PRUCO will use its standard claim practice and
guidelines in the adjudication of all claims on policies reinsured
under this Agreement. Until such time as PRUCO has systems
capability to administer the right of SWISS RE to opt out of
contested claims, claim settlements made by PRUCO, including
compromises, shall be unconditionally binding on SWISS RE. SWISS RE
will share in any reduced amount in proportion to its share of the
liability.
d. CLAIM EXPENSES. SWISS RE will pay its share of reasonable
investigation and legal expenses connected with the litigation or
settlement of policy claims. SWISS RE will also pay its share of any
interest paid by PRUCO on any claim payment. However, claim expenses
do not include routine claim and administration expenses, including
PRUCO's home office expenses. Also, expenses incurred in connection
with a dispute or contest arising out of conflicting claims of
entitlement to policy proceeds or benefits that PRUCO admits are
payable are not a claim expense under this Agreement.
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e. EXTRACONTRACTUAL DAMAGES. In no event will SWISS RE participate in
punitive or compensatory damages which are awarded against PRUCO as
a result of an act, omission or course of conduct committed by PRUCO
in connection with the insurance under this Agreement. SWISS RE
will, however, pay its share of statutory penalties awarded against
PRUCO in connection with the insurance reinsured under this
Agreement. The parties recognize that circumstances may arise in
which equity would require SWISS RE, to the extent permitted by law,
to share proportionately in certain assessed damages. Such
circumstances are difficult to define in advance, but generally
would be those situations in which SWISS RE was an active party and
in writing either directed, consented to, or ratified the act,
omission, or course of conduct of PRUCO which ultimately results in
the assessment of punitive and/or compensatory damages. In such
situations, PRUCO and SWISS RE would share such damages assessed in
equitable proportions.
Routine expenses incurred in the normal settlement of uncontested
claims and the salary of an officer or employee of PRUCO are
excluded from this provision. For purposes of the provision, the
following definitions will apply:
"Punitive Damages" are those damages awarded as a penalty, the
amounts of which are not governed or fixed by statute;
"Statutory Penalties" are those amounts that are awarded as a
penalty, but are fixed in amount by statute;
"Compensatory Damages" are those amounts awarded to compensate for
actual damages sustained, and are not awarded as a penalty, nor
fixed in amount by statute.
18. MISREPRESENTATION, SUICIDE, AND MISSTATEMENT
If either a misrepresentation on an application or a death of an insured
by suicide results in the return of policy premiums by PRUCO under the
policy rather than payment of policy benefits, SWISS RE will refund all of
the reinsurance premiums paid for that policy to PRUCO. If there is an
adjustment for a misrepresentation or misstatement of age or sex, a
corresponding adjustment to the reinsurance benefit will be made.
19. POLICY CHANGES
a. NOTICE. If a reinsured policy is changed as described below, a
corresponding change will be made in the reinsurance for that
policy. PRUCO will notify SWISS RE of the change in PRUCO's next
report as stated in Section 15.
b. INCREASES. If a request for an increase in the amount of insurance
is made for a reinsured policy and the insured meets PRUCO's
underwriting requirements and PRUCO approves the increase under the
policy, then the amount of reinsurance under this Agreement will be
adjusted as of the effective date of the increase.
If a request for an increase is made for a reinsured policy and the
insured meets PRUCO's underwriting requirements and a new policy is
issued for the higher amount, then reinsurance under the old policy
will cease as of the effective date of the change, and reinsurance
under the new policy will commence as of the policy date of the new
policy.
If a request for an increase in a reinsured policy is granted
without the insured meeting PRUCO's underwriting requirements, then
reinsurance on the increase will not be allowed.
If a request for an increase does not meet all of the terms of
automatic reinsurance, then PRUCO may apply for facultative
obligatory reinsurance or facultative reinsurance as stated in
Section 8 and Section 9, respectively. When this happens, it is the
intent of PRUCO to
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reinsure the entire policy, i.e. the amount before the increase and
the amount of increase. If the facultative increase is allowed, the
automatic reinsurance on the amount before the increase will be
discontinued.
If a reinsured policy is increased as a result of a conversion from
term insurance and the increase is granted without the insured
meeting PRUCO's underwriting requirements, then reinsurance will
cease as of the effective date of the change.
c. REDUCTION OR TERMINATION. If the amount of insurance on a reinsured
policy is reduced, the reinsurance will be reduced proportionately
as of the effective date of the reduction.
If a reinsured policy is terminated, the reinsurance will cease on
the date of such termination.
d. PLAN CHANGES. If a reinsured policy is changed to another plan of
insurance that is not currently reinsured under this Agreement as
defined in Schedule A, then PRUCO will recapture in full the
coverage reinsured under this Agreement, and the reinsurance will
cease with respect to the policy as of the effective date of the
change.
If a policy that is not reinsured under this Agreement is changed to
a plan that is reinsured under this Agreement as defined in Schedule
A and the insured has met PRUCO's underwriting requirements for the
plan change, then reinsurance will commence as of the policy date of
the new plan.
e. DEATH BENEFIT OPTION CHANGES. If the death benefit option under a
reinsured policy is changed and the face amount of insurance is
either increased or decreased, the net amount at risk reinsured
under this Agreement after the change will be the same as before the
change.
f. REDUCED PAID-UP INSURANCE. If any policy reinsured under this
Agreement is changed to Reduced Paid-Up Insurance, the net amount at
risk reinsured will be adjusted as appropriate and reinsurance will
be continued in accordance with the provisions of the underlying
policy. Reinsurance payments for the adjusted policy will be
calculated using (1) the issue age of the original policy, (2) the
duration since issuance of the original policy and (3) the
underwriting classification immediately prior to the change to
Reduced Paid-Up Insurance.
20. RECAPTURE
At any time during the term of the Agreement, PRUCO may elect to recapture
in full the coverage reinsured under this Agreement following the
occurrence of either of the following events: (1) a "Risk Trigger Event"
as defined in Schedule A of this Agreement; or (2) a Plan Change as
described in Section 19 d. above: or (3) the Reinsurance Premium rates are
increased.
In addition, after the twentieth policy anniversary, PRUCO may elect to
recapture all or an appropriate portion of the coverage reinsured under
this Agreement to reflect increases in the maximum retention limits for
PRUCO and all of its affiliates, collectively, subsequent to the date of
policy issue. These maximum retention limits as of the effective date of
this Agreement are equal to the amounts shown in the Risk Retention Limits
table shown in Schedule A. The portion of the coverage that may be
recaptured would be directly related to the increase in the limits. To
illustrate, if the maximum retention limits are increased by 100%, then
the portion that may be recaptured from all reinsurers of the policies
reinsured under this Agreement would be equal to 100% of the portion of
each reinsured policy that is retained by PRUCO. Furthermore, the portion
that may be recaptured from SWISS RE would be determined as SWISS RE's
prorata share of the total portion reinsured with all reinsurers.
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If PRUCO elects to recapture the risks ceded to SWISS RE under this
Agreement as stated above, it will do so by giving written notice to SWISS
RE. Upon the delivery of such notice, all of the risks previously ceded
under each of the policies subject to this Agreement shall be recaptured,
effective as of the date specified in PRUCO's notice. If PRUCO does not
specify in the written notice the date that such recapture is to be
effective, then the recapture shall be effective immediately upon SWISS
RE's receipt of the notice.
If a policy is recaptured, SWISS RE will pay PRUCO the unearned
reinsurance premium as of the date of recapture. SWISS RE shall not be
liable, under this Agreement, for any claims incurred after the date of
recapture.
21. REINSTATEMENTS
a. AUTOMATIC REINSTATEMENT. If PRUCO reinstates a policy that was
originally ceded to SWISS RE as either automatic reinsurance or
facultative obligatory reinsurance using conventional underwriting
practices, SWISS RE's reinsurance for the policy shall be
reinstated.
b. FACULTATIVE REINSTATEMENT. If PRUCO has been requested to reinstate
a policy that was originally ceded to SWISS RE as facultative
reinsurance and the reinstatement is processed under PRUCO's Long
Form Reinstatement Process, then PRUCO will re-submit the
appropriate evidence for the case to SWISS RE for underwriting
approval before the reinsurance can be reinstated.
c. PREMIUM ADJUSTMENT. Reinsurance premiums for the interval during
which the policy was lapsed will be paid to SWISS RE on a YRT basis
by ▇▇▇▇▇.
▇▇. ERRORS AND OMISSIONS
If either SWISS RE or PRUCO fails to comply with any of the terms of this
Agreement and it is shown that the failure was unintentional or the result
of a misunderstanding or an administrative oversight on the part of either
party, this Agreement will remain in effect. If the failure to comply
changes the operation or effect of this Agreement, both parties will be
put back to the positions they would have occupied if the failure to
comply had not occurred. This section will not apply to any facultative
submission until PRUCO has mailed the Notification of Reinsurance form to
SWISS RE.
23. INSOLVENCY
For the purpose of this Agreement, PRUCO or SWISS RE shall be deemed
"insolvent" if it does one or more of the following:
a. A court-appointed receiver, trustee, custodian, conservator,
liquidator, government official or similar officer takes possession
of the property or assets of either PRUCO or SWISS RE; or
b. Either PRUCO or SWISS RE is placed in receivership, rehabilitation,
liquidation, conservation, bankruptcy or similar status pursuant to
the laws of any state or of the United States; or
c. Either PRUCO or SWISS RE becomes subject to an order to rehabilitate
or an order to liquidate as defined by the insurance code of the
jurisdiction of the domicile of PRUCO or SWISS RE, as the case may
be.
In the event that PRUCO is deemed insolvent, all reinsurance claims
payable hereunder shall be payable by SWISS RE on the basis of PRUCO's
liability under the policies reinsured without diminution because of the
insolvency of PRUCO. Such claims shall be payable by SWISS RE
11
directly to PRUCO, its liquidator or statutory successor. It is
understood, however, that in the event of such insolvency, the liquidator
or receiver or statutory successor of PRUCO shall give written notice to
SWISS RE of the pendency of a claim against SWISS RE on a risk reinsured
hereunder within a reasonable time after such claim is filed in the
insolvency proceeding. Such notice shall indicate the policy reinsured and
whether the claim could involve a possible liability on the part of SWISS
RE. Failure to give such notice shall not excuse the obligation of SWISS
RE unless it is substantially prejudiced thereby. During the pendency of
such claim, SWISS RE may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any
defense or defenses it may deem available to PRUCO, its liquidator,
receiver or statutory successor. It is further understood that the expense
thus incurred by SWISS RE shall be chargeable, subject to court approval,
against PRUCO as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to PRUCO solely as a
result of the defense undertaken by SWISS RE.
In the event SWISS RE is deemed insolvent, SWISS RE will be bound by any
legal directions imposed by its liquidator, conservator, or statutory
successor. However, and if not in conflict with such legal directions,
PRUCO shall have the right to cancel this Agreement with respect to
occurrences taking place on or after the date SWISS RE first evidences
insolvency. Such right to cancel shall be exercised by providing SWISS RE
(or its liquidator, conservator, receiver or statutory successor) with a
written notice of PRUCO's intent to recapture ceded business. If PRUCO
exercises such right to cancel and recapture ceded business, such election
shall be in lieu of any premature recapture fee. Upon such election, PRUCO
shall be under no obligation to SWISS RE , its liquidator, receiver or
statutory successor; however, SWISS RE , its liquidator, receiver or
statutory successor shall be liable for all claims incurred prior to the
date of recapture.
24. ARBITRATION
a. GENERAL. All disputes and differences under this Agreement that
cannot be amicably agreed upon by the parties shall be decided by
arbitration. The arbitrators will have the authority to interpret
this Agreement and, in doing so, will consider the customs and
practices of the life insurance and life reinsurance industry. The
arbitrators will consider this Agreement as an honorable engagement
rather than merely a legal obligation, and they are relieved of all
judicial formalities and may abstain from following the strict rules
of law. The arbitration shall take place within the United States.
b. NOTICE. To initiate arbitration, one of the parties will notify the
other, in writing, of its desire to arbitrate. The notice will state
the nature of the dispute and the desired remedies. The party to
which the notice is sent will respond to the notification in writing
within 10 days of receipt of the notice. At that time, the
responding party will state any additional dispute it may have
regarding the subject of arbitration.
c. PROCEDURE. Arbitration will be heard before a panel of three
disinterested arbitrators. The arbitrators will be current or former
executive officers or employees of life insurance or reinsurance
companies; however, these companies will not be either party or any
of their reinsurers or affiliates. Each party will appoint one
arbitrator. Notice of the appointment of these arbitrators will be
given by each party to the other party within 30 days of the date of
mailing of the notification initiating the arbitration. These two
arbitrators will, as soon as possible, but no longer than 45 days
after the date of the mailing of the notification initiating the
arbitration, then select the third arbitrator.
Should either party fail to appoint an arbitrator or should the two
initial arbitrators be unable to agree on the choice of a third
arbitrator, each arbitrator will nominate three candidates, two of
whom the other will decline, and the decision will be made by
drawing lots on the final selection. Once chosen, the three
arbitrators will have the authority to decide all substantive and
procedural issues by a majority vote. The arbitration hearing will
be held on the date fixed by the arbitrators at a location agreed
upon by the parties. The
12
arbitrators will issue a written decision from which there will be
no appeal. Either party may reduce this decision to a judgment
before any court that has jurisdiction of the subject of the
arbitration.
d. COSTS. Each party will pay the fees of its own attorneys, the
arbitrator appointed by that party, and all other expenses connected
with the presentation of its own case. The two parties will share
equal cost of the third arbitrator.
25. GOOD FAITH; FINANCIAL SOLVENCY
Each party agrees that all matters with respect to this Agreement require
its utmost good faith. Each party or its representatives has the right at
any reasonable time to inspect the other's records relating to this
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. SWISS RE has entered into this
Agreement in reliance upon PRUCO's representations and warranties. Each
party affirms that it has and will continue to disclose all matters
material to this Agreement and each cession. Examples of such matters are
a material change in underwriting or issue practices or philosophy, or a
change in each party's ownership or control.
SWISS RE represents and warrants to PRUCO that SWISS RE is a licensed or
accredited reinsurer under the applicable laws and regulations of Arizona
and that SWISS RE satisfies each of the current, applicable legal and
regulatory requirements in Arizona necessary to fully entitle PRUCO to
take the maximum permissible credit for the risks ceded under this
Agreement on each of its statutory financial statements. SWISS RE
acknowledges that PRUCO is entering into this Agreement in reliance upon
this and other representations and warranties of SWISS RE, and SWISS RE
agrees that, except as provided in the immediately following paragraph,
PRUCO's right of recapture under Section 20 of this Agreement will be
triggered if, at any point in the future during the term of this
Agreement, this representation and warranty is no longer true and correct.
26. MEDICAL INFORMATION BUREAU
SWISS RE is required to strictly adhere to the Medical Information Bureau
Rules, and PRUCO agrees to abide by these Rules, as amended from time to
time. PRUCO will not submit a preliminary notice, application for
reinsurance, or reinsurance cession to SWISS RE unless PRUCO has a signed,
currently required Medical Information Bureau authorization.
27. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Arizona
without giving effect to the principles of conflicts of laws thereof.
28. ASSIGNMENT
This Agreement is not assignable by either party except by the express
written consent of the other.
13
In witness of the above, PRUCO and SWISS RE have by their respective officers
executed and delivered this Agreement in duplicate on the dates indicated below,
with an effective date of April 30, 2000.
PRUCO LIFE INSURANCE COMPANY SWISS RE LIFE & HEALTH AMERICA INC
By: By:
------------------------------ ------------------------------
Title: Title:
------------------------------ ------------------------------
Date: Date:
------------------------------ ------------------------------
By: By:
------------------------------ ------------------------------
Title: Title:
------------------------------ ------------------------------
Date: Date:
------------------------------ ------------------------------
14
SCHEDULE A
REINSURANCE COVERAGE
--------------------------------------------------------------------------------
1. PLANS REINSURED:
This Agreement covers the following plans:
o PruLife Universal (UL) - Policies issued by PRUCO (Form Number
UL-2000 and all state variations)
o PruLife Custom Premier (VUL II) - Policies issued by PRUCO (Form
Number VUL-2000 and all state variations)
o Target Term Rider (TTR) issued by PRUCO (currently available on VUL
II policies)
Excluded from reinsurance under this Agreement are the Waiver of Premium
and Accidental Death Benefits included in the above reinsured policies.
Also excluded from reinsurance under this Agreement are riders that
provide additional life insurance on the lives of any dependent children
of the policyholder. Included under this Agreement is the Living Needs
Benefit rider.
2. AUTOMATIC PORTION REINSURED:
US/Canadian Residents
SWISS RE will automatically reinsure an amount equal to 20% of the net
amount at risk related to the face amount of insurance.
The net amount of risk is determined as of the issue date and each
subsequent policy anniversary and is defined as the death benefit minus
the contract fund.
Non US/Canadian Residents
SWISS RE will automatically reinsure an amount equal to 20% of the net
amount at risk related to the face amount of insurance.
3. AUTOMATIC RETENTION LIMIT:
PRUCO will retain at least 10% of each policy. PRUCO may cede up to 70% of
each policy on a first-dollar quota share basis to other reinsurers.
4. AUTOMATIC ACCEPTANCE LIMIT:
For any policy to be reinsured under automatic reinsurance, the face
amount will not exceed the amounts in the following tables:
US/Canadian Residents - No Foreign Travel
=======================================================================
Issue Age of Insured Pref. Best - Class D Class E - H
-----------------------------------------------------------------------
Ages: 18 - 65 $ 50,000,000 $ 35,000,000
-----------------------------------------------------------------------
66 - 70 $ 40,000,000 $ 25,000,000
-----------------------------------------------------------------------
71 - 75 $ 35,000,000 $ 15,000,000
-----------------------------------------------------------------------
76 - 77 $ 15,000,000 $ 10,000,000
-----------------------------------------------------------------------
78 - 80 $ 10,000,000 $ 5,000,000
-----------------------------------------------------------------------
81 - 85 $ 5,000,000 None
-----------------------------------------------------------------------
86 - 90 $ 1,500,000 None
=======================================================================
15
US/Canadian Residents - Foreign Travel
======================================================================
Pref. Best - Class C Class D - E Greater than
Class E
----------------------------------------------------------------------
Ages: 18 - 70 $ 10,000,000 $ 7,500,000 None
----------------------------------------------------------------------
71 - 75 $ 7,500,000 $ 5,000,000 None
----------------------------------------------------------------------
▇▇ - ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
======================================================================
Non US/Canadian Residents
======================================================================
Pref. Best - Class C Class D - E Greater than
Class E
----------------------------------------------------------------------
Ages: 18 - 70 $ 20,000,000 $ 15,000,000 None
----------------------------------------------------------------------
71 - 75 $ 15,000,000 $ 10,000,000 None
----------------------------------------------------------------------
▇▇ - ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
======================================================================
5. JUMBO LIMIT:
For any policy to be reinsured under automatic reinsurance, the total
amount of insurance in force and applied for in all companies will not
exceed the following amounts:
US/Canadian Residents- No Foreign Travel
$50,000,000 for all ages and rating classes.
US/Canadian Residents - Foreign Travel
$35,000,000 for issue ages through age 75 and rating classes through class
E. $0 for issue ages over 75 or rating classes higher than E.
Non US/Canadian Residents
$35,000,000 for issue ages through age 75 and rating classes through class
E. $0 for issue ages over 75 or rating classes higher than E.
6. OCCUPATION EXCLUSION LIST FOR AUTOMATIC REINSURANCE
o Entertainers
o High Profile Athletes
7. REPORTING PERIOD:
The reporting period will be monthly.
8. MINIMUM CESSION:
The minimum amount per cession that can be reinsured with SWISS RE is
$10,000.
9. RESERVES FOR REINSURANCE:
The reinsurance reserve is the one-year term reserve on the portion of
each policy reinsured. This reserve will be calculated using 1980 CSO
ultimate mortality and 4 1/2 % interest.
16
10. RISK TRIGGER EVENT:
A "Risk Trigger Event" means that any of the following has occurred:
1. SWISS RE does not have statutory surplus of at least $300
million;
2. SWISS RE's representation and warranty contained in Section 25
of this Agreement (dealing with licensure/accreditation status
and related matters) is no longer true and correct; or
3. SWISS RE no longer has in effect a Qualified Rating (as
defined below) from at least one of the Major Rating Agencies
shown in the chart below, which is at least as high as the
minimum levels shown:
=============================================================
Major Rating Agency Minimum Applicable Rating:
=============================================================
Fitch IBCA, Duff & ▇▇▇▇▇▇ A rating of "A-" or higher.
-------------------------------------------------------------
▇▇▇▇▇ Investor Services, Inc. A rating of "A3" or higher.
-------------------------------------------------------------
Standard & Poors Corporation A rating of "A-" or higher.
=============================================================
"Qualified Rating" shall mean the issuance of an insurance company
long-term, financial strength rating from one or more of the Major Rating
Agencies that remains in effect, that has not been suspended or withdrawn,
and that was issued as a result of the full interactive ratings review
process (including interviews with senior management) by the Major Rating
Agency in question. (Use of the modifiers "Q" or "Pi" by S&P or any
similar indication that a rating is a "qualified" or "limited" rating by
any other of the Major Rating Agencies means that the rating does not
constitute a "Qualified Rating" for purposes of this Agreement.)
11. RISK RETENTION LIMITS:
The total amount of insurance in force and applied for on an individual
life for PRUCO and its affiliates will not exceed the risk retention
limits in the following table.
=============================================================
Issue Age of Insured Pref. Best - Class D Class E - H
-------------------------------------------------------------
Ages: 18 - 65 $ 10,000,000 $ 10,000,000
-------------------------------------------------------------
66 - 70 $ 10,000,000 $ 10,000,000
-------------------------------------------------------------
71 - 75 $ 10,000,000 $ 10,000,000
-------------------------------------------------------------
76 - 77 $ 10,000,000 $ 5,000,000
-------------------------------------------------------------
78 - 80 $ 5,000,000 $ 2,500,000
-------------------------------------------------------------
81 - 85 $ 2,500,000 $ 1,000,000
-------------------------------------------------------------
86 - 90 $ 1,000,000 None
=============================================================
17
SCHEDULE B
AUTOMATIC AND FACULTATIVE REINSURANCE PREMIUMS
--------------------------------------------------------------------------------
1. STANDARD ANNUAL REINSURANCE PREMIUMS
The standard annual reinsurance premiums per $1,000 of net amount at risk
for (1) all cessions of automatic reinsurance and facultative obligatory
reinsurance and (2) all cessions of facultative reinsurance in the amount
of $20 million or less will be the product of the rates in the table
attached to this Schedule B and the following factors:
================================================================
Face amounts $100,000 and greater AND issue age 18 and greater
================================================================
Rating Class Factor
----------------------------------------------------------------
1 .315
----------------------------------------------------------------
2 .384
----------------------------------------------------------------
3 .493
----------------------------------------------------------------
4 .633
----------------------------------------------------------------
5 1.028
----------------------------------------------------------------
6 1.295
================================================================
================================================================
Face amount less than $100,000 OR issue age less than 18
================================================================
Rating Class Factor
================================================================
1 N/A
----------------------------------------------------------------
2 N/A
----------------------------------------------------------------
3 N/A
----------------------------------------------------------------
4 .705
----------------------------------------------------------------
5 N/A
----------------------------------------------------------------
6 1.473
================================================================
The standard annual reinsurance premiums per $1,000 for cessions of
facultative obligatory reinsurance and facultative reinsurance in excess
of $20 million will be the product of the rates in the table attached to
this Schedule B and the following factors:
================================================================
Rating Class Factor
================================================================
1 .346
----------------------------------------------------------------
2 .422
----------------------------------------------------------------
3 .542
----------------------------------------------------------------
4 .696
----------------------------------------------------------------
5 1.130
----------------------------------------------------------------
6 1.424
================================================================
18
2. SUBSTANDARD ANNUAL REINSURANCE PREMIUMS
Substandard extra premiums are available on classes 4 and 6 (Non-Smoker
and Smoker). For substandard issues, the substandard extra reinsurance
premium (plus any flat extra) is payable for 20 years. After this period,
the base reinsurance premium (plus any flat extra) is payable until the
end of the premium paying period.
The substandard extra annual reinsurance premiums per $1,000 for
substandard issues will be the product of the base reinsurance premiums
per $1,000 and the factor for the appropriate rating class.
Note that this is the total premium per $1,000, including both the base
and substandard premium.
The factors are as follows:
===============================================================
Rating Class Factor
---------------------------------------------------------------
A 1.40
---------------------------------------------------------------
B 1.65
---------------------------------------------------------------
C 1.90
---------------------------------------------------------------
D 2.25
---------------------------------------------------------------
E 2.75
---------------------------------------------------------------
F 3.25
---------------------------------------------------------------
G 3.75
---------------------------------------------------------------
H 4.50
===============================================================
3. FLAT EXTRA REINSURANCE PREMIUMS
The flat extra reinsurance premium per $1,000 will be the product of flat
extra premiums charged by PRUCO and the factors in the following table:
===============================================================
Permanent Flat Extra Premiums (i.e., for more than 5
years duration)
---------------------------------------------------------------
First year .25
---------------------------------------------------------------
Renewal year .90
===============================================================
===============================================================
Temporary Flat Extra Premiums (i.e., for 5 years
duration or less)
---------------------------------------------------------------
All years .90
===============================================================
4. AGE BASIS
Age Last Birthday.
5. PREMIUM TAXES
Premium taxes are not reimbursed.
19