AUTOMATIC AND FACULTATIVE
YEARLY RENEWABLE TERM REINSURANCE AGREEMENT
Effective March 1, 0000
Xxxxxxx
XXXXX XXXXXXX LIFE INSURANCE COMPANY
("Ceding Company")
0000 Xxxxxxxx Xxxx
Xxxxxxxxxx, Xxxx 00000
And
SECURITY LIFE OF DENVER INSURANCE COMPANY
("Reinsurer")
Security Life Center
0000 Xxxxxxxx
Xxxxxx, Xxxxxxxx 00000-0000
Reinsurer Agreement No. 0020-2186
00202186
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AUTOMATIC AND FACULTATIVE
YEARLY RENEWABLE TERM REINSURANCE AGREEMENT
This Agreement is between
UNION CENTRAL LIFE INSURANCE COMPANY (Ceding Company),
0000 Xxxxxxxx Xxxx, Xxxxxxxxxx, Xxxx 00000
And
SECURITY LIFE OF DENVER INSURANCE COMPANY (Reinsurer),
Security Life Center, 0000 Xxxxxxxx, Xxxxxx, Xxxxxxxx 00000-0000
The Reinsurer agrees to reinsure certain portions of the Ceding
Company's contract risks as described in the terms and
conditions of this Agreement.
This reinsurance Agreement constitutes the entire Agreement
between the parties with respect to the business being reinsured
hereunder and there are no understandings between the parties
other than as expressed in this Agreement.
Any change or modification to this Agreement is null and void
unless made by amendment to this Agreement and signed by both
parties.
In witness of the above, the Ceding Company and the Reinsurer
have by their respective officers executed and delivered this
Agreement in duplicate on the dates indicated below, with an
effective date of March 1, 2000.
UNION CENTRAL LIFE SECURITY LIFE OF DENVER
INSURANCE COMPANY INSURANCE COMPANY
By: /s/ Xxx X. Xxxxxxxx By: /s/ Xxxx X. Lak
Title: V.P. & Actuary Title: Senior Research Actuary
Date: 2/18/02 Date: October 17, 2001
By: /s/ Xxx X. XxXxxxxx By: /s/ Xxxxx Xxxxx
Title: 2nd VP. Reins Operations Title: VP I Business Operations
Date: 2/11/02 Date: 10/18/01
00202186
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AUTOMATIC AND FACULTATIVE REINSURANCE AGREEMENT
Table of Contents
1. PARTIES TO AGREEMENT
2. REINSURANCE BASIS
3. AUTOMATIC REINSURANCE TERMS
a. CONVENTIONAL UNDERWRITING
b. RETENTION
c. AUTOMATIC ACCEPTANCE LIMITS
d. AUTOMATIC IN FORCE AND APPLIED FOR LIMIT
e. RESIDENCE
f. MINIMUM CESSION
g. FACULTATIVE QUOTES
4. AUTOMATIC REINSURANCE NOTICE PROCEDURE,
5. FACULTATIVE REINSURANCE
6. COMMENCEMENT OF REINSURANCE COVERAGE
a. AUTOMATIC REINSURANCE
b. FACULTATIVE REINSURANCE
c. PRE-ISSUE COVERAGE .
7. BASIS OF REINSURANCE AMOUNT AND REINSURANCE PREMIUM
a. LIFE REINSURANCE
b. SUPPLEMENTAL BENEFITS
i. WAIVER OF PREMIUM FOR DISABILITY BENEFIT
ii. TOTAL DISABILITY RIDER
iii. GUARANTEED INSURABILITY RIDER
iv. ONE-YEAR TERM RIDER
v. MATURITY EXTENSION ENDORSEMENT
vii. SCHEDULED INCREASE RIDER
c. PRELIMINARY TERM INSURANCE .
d. TERM INSURANCE RENEWALS
e. TABLE RATED SUBSTANDARD PREMIUMS
f. FLAT EXTRA PREMIUMS
g. PREMIUM ADJUSTMENTS
8. CASH VALUES OR LOANS
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9. PAYMENT OF REINSURANCE PREMIUMS
a. PREMIUM DUE
b. FAILURE TO PAY PREMIUMS
c. OVERPAYMENT OF REINSURANCE PREMIUM
d. UNDERPAYMENT OF REINSURANCE PREMIUM
e. RETURN OF REINSURANCE PREMIUM
f. UNEARNED PREMIUMS
10. PREMIUM TAX REIMBURSEMENT.
11. DAC TAX AGREEMENT .
12. REPORTS
13. RESERVES FOR REINSURANCE.
14. DEATH CLAIMS
a. NOTICE OF DEATH
b. PROOFS
c. DEATH CLAIMS PAYABLE
d. AMOUNT AND PAYMENT OF DEATH CLAIMS .
e. CONTESTED CLAIMS .
f. CLAIM EXPENSES .
g. EXTRACONTRACTUAL DAMAGES .
15. POLICY CHANGES .
a. NOTICE. .
b. INCREASES
c. REDUCTION OR TERMINATION .
d. EXCHANGES, CONVERSIONS AND OTHER POLICY CHANGES
e. EXTENDED TERM AND REDUCED PAID-UP INSURANCE
16. REINSTATEMENTS
a. AUTOMATIC REINSTATEMENT .
b. FACULTATIVE REINSTATEMENT .
c. PREMIUM ADJUSTMENT .
d. NONFORFEITURE REINSURANCE TERMINATION
17. INCREASE IN RETENTION
18. ERRORS AND OMISSIONS .
19. INSOLVENCY
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20. ARBITRATION.
a. GENERAL
b. NOTICE
c. PROCEDURE
d. COSTS
e. OFFSET
21. GOOD FAITH: FINANCIAL SOLVENCY.
22. TERM OF THIS AGREEMENT ...................................
23. MEDICAL INFORMATION BUREAU
24. SEVERABILITY
0020-2186
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Listing of Schedules:
SCHEDULE A
1. Plans Reinsured
2. Automatic Portion Reinsured
3. Automatic Retention Limits
4. Automatic Acceptance Limits
5. Automatic In Force and Applied for Limits
6. Premium Due
7. Recapture Period
8. Net Amount at Risk
SCHEDULE B - AUTOMATIC REINSURANCE PREMIUMS
1. Life Insurance
2. Riders and Supplemental Benefits
3. Age Basis
4. Other Policy Changes, Conversions, Exchanges, Etc,
5. Facultative Rate Limit
SCHEDULE C - REPORTING INFORMATION
Information on Risks Reinsured
Policy Exhibit Summary
Reserve Credit Summary
Accounting Summary
SCHEDULE D - FACULTATIVE FORMS
Application for Reinsurance
Notification of Reinsurance
EXHIBIT I
Underwriting Guidelines
EXHIBIT 2
1975-80 Basic Select and Ultimate Mortality Table
EXHIBIT 3
Rates
EXHIBIT 4
Rates After Conversion
0020-2186 iv
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AUTOMATIC AND FACULTATIVE AGREEMENT
1. PARTIES TO AGREEMENT.
This Agreement is solely between the Reinsurer and the Ceding
Company. There is no third party beneficiary to this Agreement.
Reinsurance under this Agreement will not create any right nor
legal relationship between the Reinsurer and any other person,
for example, any insured, policy owner, agent, beneficiary,
assignee, or other reinsurer. The Ceding Company agrees that it
will not make the Reinsurer a party to any litigation between
any such third party and the Ceding Company. The Ceding Company
and the Reinsurer will not disclose the other's name to these
third parties with regard to the agreements or transactions that
are between the Ceding Company and the Reinsurer, unless the
Ceding Company or the Reinsurer gives prior approval for the use
of its name.
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; this Agreement terminates, or
the underlying policies are no longer in force. This Agreement
shall not be bifurcated, partially assigned, or partially
assumed.
2. REINSURANCE BASIS.
This Agreement, including the attached Schedules; states the
terms and conditions of automatic and facultative reinsurance
that is on a Yearly Renewable Term basis. This Agreement is
applicable only to reinsurance of policies directly written by
the Ceding Company. Any policies acquired through merger of
another company, reinsurance, or purchase of another company's
policies are not included under the terms of this Agreement.
3. AUTOMATIC REINSURANCE TERMS.
The Reinsurer agrees to automatically accept contractual risks
on the life insurance plans and supplemental benefits shown in
Schedule A, subject to the following requirements:
a. CONVENTIONAL UNDERWRITING.
Automatic reinsurance applies only to insurance
applications underwritten by the Ceding Company with
conventional underwriting and issue practices that are
consistently applied. Conventional underwriting and
issue practices are those customarily used and
generally accepted by life insurance companies. Some
examples of non-customary underwriting practices that
are not accepted for automatic reinsurance under this
Agreement are guaranteed issue, any form of simplified
underwriting, short-form applications, any form of
non-customary non medical underwriting limits, or
internal or external policy exchanges that do not
require conventional underwriting. An example of an
unacceptable issue practice is the issuance of a policy
that has contestability or suicide clauses with time
limitations that are shorter than the maximum allowed
by state law.
0020-2186 1
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The Ceding Company must comply with Underwriting
Guidelines at least as restrictive as those set forth
in Exhibit I. These requirements may be changed by the
Reinsurer. The Reinsurer will provide 120 days advance
written notice to the Ceding Company before the effective
date of such change.
b. RETENTION.
The Ceding Company will retain, and not otherwise
reinsure, an amount of insurance on each life equal to
its retention shown in Schedule A. If the Ceding
Company's scheduled retention is zero, automatic
reinsurance is not available.
c. AUTOMATIC ACCEPTANCE LIMITS.
On any one life, the amount automatically reinsured
under all agreements with all reinsurers must not
exceed the Automatic Acceptance Limits shown in
Schedule A.
d. AUTOMATIC IN FORCE AND APPLIED FOR LIMIT.
The total amount of life insurance in force and applied
for with all companies, of which the Ceding Company is
aware, must not exceed the In Force and Applied For Limit
shown in Schedule A.
e. RESIDENCE.
Each insured must be a resident of. the United States or
Canada at the time of issue.
f. MINIMUM CESSION.
The minimum amount of reinsurance per cession that the
Reinsurer will accept is $10,000 and reinsurance will be
terminated when the amount reinsured is less than $10,000.
g. FACULTATIVE QUOTES.
The risk must not have been submitted on a facultative
basis to the Reinsurer or any other reinsurer.
4. AUTOMATIC REINSURANCE NOTICE PROCEDURE.
After the policy has been paid for and delivered, the Ceding
Company will submit all relevant individual policy information,
as defined in Schedule C, in its next statement to the
Reinsurer.
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5. FACULTATIVE REINSURANCE.
The Ceding Company may apply for facultative reinsurance with
the Reinsurer 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. If the Ceding Company wishes to obtain
a facultative quote from other reinsurers on a case eligible for
automatic reinsurance, the case must also be submitted to the
Reinsurer for a facultative offer. The following items must be
submitted to obtain a facultative quote:
a. A form substantially similar to the Reinsurer's
"Application for Reinsurance" form shown in Schedule D.
b. Copies of the original insurance application, medical
examiner's reports, financial information, and all other
papers and information obtained by the Ceding Company
regarding the insurability of the risk.
After receipt of the Ceding Company's application, the Reinsurer
will promptly examine the materials and notify the Ceding
Company either of the terms and conditions of the Reinsurer's
offer for facultative reinsurance or that no offer will be made.
The Reinsurer's offer expires 120 days after the offer is made,
unless the written offer specifically states otherwise. If the
Ceding Company accepts the Reinsurer's offer, then the Ceding
Company will note its acceptance in its underwriting file and
mail, as soon as possible, a formal reinsurance cession to the
Reinsurer using a form substantially similar to the
"Notification of Reinsurance" form shown in Schedule D. If the
Ceding Company does not accept the Reinsurer's offer, then the
Ceding Company will notify the Reinsurer in writing, as soon as
possible. Automatic reinsurance rates can be used for
facultative business up to the limits shown in Schedule B.
6. COMMENCEMENT OF REINSURANCE COVERAGE.
Commencement of the Reinsurer's reinsurance coverage on any
policy or pre-issue risk under this Agreement is described
below:
a. AUTOMATIC REINSURANCE.
The Reinsurer's reinsurance coverage for any policy that
is ceded automatically under this Agreement will begin
and end simultaneously with the Ceding Company's
contractual liability for the policy reinsured.
b. FACULTATIVE REINSURANCE.
The Reinsurer's reinsurance coverage for any policy that
is ceded facultatively under this Agreement shall begin
when;
i. The Ceding Company accepts the Reinsurer's offer; and
ii. The policy has been issued.
0020-2186 YRT (02092001)
c. PRE-ISSUE COVERAGE.
The Reinsurer will not be liable for benefits paid under
the Ceding Company's conditional receipt or temporary
insurance agreement unless all the conditions for
automatic reinsurance coverage under Section 3 of this
Agreement are met. The Reinsurer's liability under
the Ceding Company's conditional receipt or temporary
insurance agreement is limited to the lesser of i. or
ii. below:
i. The Automatic Acceptance Limits with the Reinsurer
shown in Schedule A.
ii. The amount for which the Ceding Company is liable,
less its retention shown in Schedule A, less any
amount of reinsurance with other reinsurers.
The pre-issue liability applies only once on any given life
regardless of how many receipts were issued or initial premiums
were accepted by the Ceding Company. After a policy has been
issued, no reinsurance benefits are payable under this preissue
coverage provision.
In the event that the Ceding Company's rules with respect to
cash handling and the issuance of conditional receipt or
temporary insurance are not followed, the Reinsurer will
participate in the liability if the conditions for automatic
reinsurance are met and the Ceding Company does not knowingly
allow such rules to be violated or condone such a practice. Such
liability shall be limited to the lesser of i or ii above. As in
all cases, the provisions of Section 14 apply to such a claim.
7. BASIS OF REINSURANCE AMOUNT AND REINSURANCE PREMIUM RATES.
a. LIFE REINSURANCE.
The amount reinsured on a policy is the policy's net
amount at risk less the Ceding Company's retention
available on the policy less any amount of reinsurance
with other reinsurers. The retention on each life, or
both lives for joint policies, is shown in Schedule A.
The net amount at risk is shown in Schedule A. The
reinsurance premiums per $1000 are shown in Schedule B.
0020-2186 4
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b. SUPPLEMENTAL BENEFITS.
For the supplemental benefits and riders reinsured under
this Agreement, the following provisions will apply:
i. WAIVER OF PREMIUM FOR DISABILITY BENEFIT
(WAIVER OF MONTHLY DEDUCTIONS RIDER).
This rider will pay the monthly insurance and
expenses charges if the insured is totally disabled.
The coinsurance allowances for this rider are shown
in Schedule B.
ii. TOTAL DISABILITY RIDER.
The benefits of this rider are established at issue
and credited as premium payments during continued
covered disability. The rider pays not only the
cost of insurance charges, but pays the monthly
benefit amount that, if sufficient, can increase
cash values. The coinsurance allowances for this
rider are shown in Schedule B.
iii. GUARANTEED INSURABILITY RIDER.
Whenever the policy owner exercises this rider
for additional insurance, Ceding Company will pay
premiums and Reinsurer will pay coinsurance
allowances based on the original issue age,
duration since issuance of the original policy,
and the original underwriting classification.
iv. ONE-YEAR TERM RIDER.
This rider provides a level amount of additional
insurance on a single life basis and is payable
if the covered individual dies during the coverage
period. The reinsurance premiums for this rider
are shown in Exhibit B.
v. MATURITY EXTENSION ENDORSEMENT.
This endorsement allows the extension of the
maturity date beyond the maturity date defined in
the policy as long as the cash surrender values of
the policy is equal or greater than $1 on that date.
vi. SCHEDULED INCREASE RIDER.
This rider automatically increases the amount of
insurance each year by the benefit amount specified
by the policy owner at issue.
c. PRELIMINARY TERM INSURANCE.
The preliminary term insurance premiums per $1000
reinsured shall be 100% of Ceding Company's interim term
rates, as shown in Exhibit 3.
0020-2186 5
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d. TERM INSURANCE RENEWALS.
The reinsurance premium rates for term renewals are
calculated using the original issue age, duration
since issuance of the original policy, and the
original underwriting classification.
e. TABLE RATED SUBSTANDARD PREMIUMS.
If the Ceding Company's policy is issued with a table
rated substandard premium, the reinsurance premiums
shown in Schedule B will apply.
f. FLAT EXTRA PREMIUMS.
If the Ceding Company's policy is issued with a flat
extra premium, the reinsurance premiums shown in
Schedule B will apply.
g. PREMIUM ADJUSTMENTS.
The reinsurance premium rates are not guaranteed. The
Reinsurer reserves the right to change the rates at
any time. If the Reinsurer changes the rates, it will
give the Ceding Company 90 days' prior written notice
of the change. Any change applies only to reinsurance
premiums due after the expiration of the notice
period. The maximum reinsurance premiums are equal to
the statutory valuation premiums for yearly renewable
term insurance at the maximum interest rates and
minimum mortality rates for each year of issue.
8. CASH VALUES OR LOANS.
This Agreement does not provide reinsurance for cash surrender
values. In addition, the Reinsurer will not participate in
policy loans or other forms of indebtedness on reinsured
business.
9. PAYMENT OF REINSURANCE PREMIUMS.
a. PREMIUM DUE.
The reinsurance premiums for each reinsurance cession
are due, as shown in Schedule A. All amounts due or
otherwise accrued to any of the parties hereto or any
of their parents, affiliates, or subsidiaries, whether
by reason of premiums, losses, expenses, or otherwise,
under this agreement or any other contract heretofore
or hereafter entered into, will at all times be fully
subject to the right of offset and only the net balance
will be due and payable.
b. FAILURE TO PAY PREMIUMS.
If the reinsurance premiums are 60 days past due, for
reasons other than those due to error or omission as
defined below in Section 19, the premiums will be
considered in default and the Reinsurer may terminate
the reinsurance upon 30 days' prior written notice.
The Reinsurer will have no further liability as of the
termination date. The Ceding Company will be liable for
the prorated reinsurance premiums to the termination date.
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The Ceding Company agrees that it will not force termination
under the provisions of this paragraph solely to avoid the
recapture requirements or to transfer the block of business
reinsured to another reinsurer.
c. OVERPAYMENT OF REINSURANCE PREMIUM
If the Ceding Company overpays a reinsurance premium
and the Reinsurer accepts the overpayment, the
Reinsurer's acceptance will not constitute nor create
a reinsurance liability nor result in any additional
reinsurance. Instead, the Reinsurer will be liable to
the Ceding Company for a credit in the amount of the
overpayment, without interest.
d. UNDERPAYMENT OF REINSURANCE PREMIUM.
If the Ceding Company fails to make a full premium
payment for a policy or policies reinsured hereunder,
due to an error or omission as defined below in Section
18, the amount of reinsurance coverage provided by the
Reinsurer shall not be reduced. However, once the
underpayment is discovered, the Ceding Company will be
required to pay to the Reinsurer the difference between
the full premium amount and the amount actually paid,
without interest. If payment of the full premium is not
made within 60 days after the discovery of the
underpayment, the underpayment shall be treated as a
failure to pay premiums and subject to the conditions of
Section 9.b., above.
e. RETURN OF REINSURANCE PREMIUM.
If a misrepresentation or misstatement on an application
or a death of an insured by suicide results in the
Ceding Company returning the policy premiums to the
policy owner rather than pay the policy benefits, the
Reinsurer will refund all of the reinsurance premiums
it received on that policy to the Ceding Company,
without interest.
This refund given by the Reinsurer will be in lieu of
all other reinsurance benefits payable on that policy
under this Agreement. If there is an adjustment to the
policy benefits due to a misrepresentation or misstate-
ment of age or sex, a corresponding adjustment will be
made to the reinsurance benefits.
f. UNEARNED PREMIUMS.
Unearned premiums will be returned on deaths, surrenders
and other terminations. 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.
10. PREMIUM TAX REIMBURSEMENT.
The Reinsurer will not reimburse the Ceding Company for premium
taxes.
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11. DAC TAX AGREEMENT.
The Ceding Company and the Reinsurer herein collectively called
the "Parties", or singularly the "Party", hereby enter into an
election under Treasury Regulations Section 1.848-2(g) (8)
whereby:
a. For each taxable year under this Agreement, the party
with the net positive consideration, as defined in the
regulations promulgated under Treasury Code Section 848,
will capitalize specified policy acquisition expenses
with respect to this Agreement without regard to general
deductions limitation of Section 848(c)(1);
b. The Ceding Company arid the Reinsurer agree to exchange
information pertaining to the net consideration under
this Agreement each year to insure consistency or as
otherwise required by the Internal Revenue Service;
c. The Ceding Company will submit to the Reinsurer by
May 1 of each year its calculation of the net
consideration for the preceding calendar year. This
schedule of calculations will be accompanied by a
statement signed by an officer of the Ceding Company
stating that the Ceding Company will report such net
consideration in its tax return for the preceding
calendar year;
d. The Reinsurer may contest such calculation by providing
an alternative calculation to the Ceding Company in
writing within 30 days of the Reinsurer's receipt of
the Ceding Company's calculation. If the Reinsurer does
not so notify the Ceding Company, the Reinsurer will
report the net consideration as determined by the Ceding
Company in the Reinsurer's tax return for the previous
calendar year;
e. If the Reinsurer contests the Ceding Company's
calculation of the net consideration, the parties will
act in good faith to reach an agreement as to the
correct amount within 30 days of the date the Reinsurer
submits its alternative calculation. If the Ceding
Company and the Reinsurer reach agreement on the net
amount of consideration, each party will report such
amount in their respective tax returns for the
previous calendar year.
Both Parties 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 I of the Internal Revenue Code of 1986,
as amended.
0020-2186 8
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12. REPORTS.
The administering party is the Ceding Company. The reporting
period is monthly. For each reporting period, the Ceding Company
will submit a statement to the Reinsurer with information that
is substantially similar to the information displayed in
Schedule C. The statement will include information on the risks
reinsured with the Reinsurer, premiums owed, policy exhibit
activity, and an accounting summary. Within fifteen days after
the end of each calendar quarter, the Ceding Company will submit
a reserve credit summary similar to that shown in Schedule C.
13. RESERVES FOR REINSURANCE.
Statutory reserves shall be held by the Reinsurer on the
Reinsurer's portion of the risks reinsured hereunder.
14. DEATH CLAIMS.
a. NOTICE OF DEATH.
The Ceding Company will notify the Reinsurer, as soon
as reasonably possible, after it receives notice of a
death claim (or premium waiver disability claim) arising
from a death of an insured under a policy reinsured.
b. PROOFS.
The Ceding Company will promptly provide the Reinsurer
with proper death (or disability) claim proofs
(including, for example, proofs required under the
policy), all relevant information respecting the
existence and validity of the death claim, and an
itemized statement of the death claim benefits paid
by the Ceding Company under the policy.
c. DEATH CLAIMS PAYABLE.
Death claims are payable only as a result of the actual
death (or for waiver of premium due to disability) of
an insured, to the extent reinsured under this Agreement
and for which there is contractual liability for the
death claim under the issuing company's in force policy.
Except for accelerated death benefits for terminally
ill insured individuals (certified by a physician as
having an illness or physical condition that can
reasonably be expected to result in death in 24 months
or less after the date of certification), for which
benefits are contractually provided under the issuing
company's policy, and which are reinsured hereunder,
no acceleration nor estimation of death claims on
living individuals is permitted, will not be due,
owing or payable, nor form the basis of any claim
against the Reinsurer whatsoever.
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d. AMOUNT AND PAYMENT OF DEATH CLAIMS.
After the Reinsurer receives proper death claim notice,
proofs of the death (or disability) claim, and proof
of payment of the death claim by the Ceding Company,
the Reinsurer will promptly pay the reinsurance
benefits due and owing to the Ceding Company. The
Ceding Company's contractual liability for death
(and disability) claims is binding on the Reinsurer.
The maximum death benefit payable to the Ceding
Company under each reinsured policy is the net amount
specifically reinsured hereunder. The total
reinsurance in all companies on a policy shall not
exceed the Ceding Company's total contractual
liability on the policy, less its retention used on
the policy. The excess, if any, of the total
reinsurance in all companies plus the Ceding Company's
retention used on the policy over its contractual
liability under the reinsured policy will first be
applied to reduce all reinsurance on the policy. This
reduction in reinsurance will be shared among all the
reinsurers in proportion to their respective amounts
of reinsurance prior to the reduction.
e. CONTESTED CLAIMS.
The Ceding Company will notify the Reinsurer of its
intention to contest, compromise, or litigate a claim
involving a reinsured policy. If the Ceding Company's
contest, compromise, or litigation results in a
reduction in its liability, the Reinsurer will share
in the reduction in the proportion that the Reinsurer's
net liability bears to the sum of the net liability of
all reinsurers on the insured's date of death. If the
Reinsurer should decline to participate in the contest,
compromise or litigation, the Reinsurer will then
release all of its liability by paying the Ceding
Company its full share of reinsurance and not sharing
in any subsequent reduction in liability.
f. CLAIM EXPENSES.
The Reinsurer will pay its share of reasonable
investigation and legal expenses connected with the
litigation or settlement of contractual liability
claims unless the Reinsurer has released its liability,
in which case the Reinsurer will not participate in
any expenses after the date of release. However,
claim expenses do not include routine claim and
administration expenses, including the Ceding
Company'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 the Ceding Company
admits are payable are not a claim expense under this
Agreement.
0020-2186 10
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g. EXTRACONTRACTUAL DAMAGES.
The Reinsurer will not participate in and shall not be
liable to pay the Ceding Company or others for any
amounts in excess of the Reinsurer's share of the net
amount at risk on the mortality risk reinsured here-
under. Extracontractual damages or liabilities and
related expenses and fees are specifically excluded
from the reinsurance coverage provided under this
Agreement. Extracontractual damages are any damages
awarded against the Ceding Company, including, for
example, those resulting from negligence, reckless or
intentional conduct, fraud, oppression, or bad faith
committed by the Ceding Company in connection with
the mortality risk insurance reinsured under this
Agreement.
The excluded extracontractual damages shall include,
by way of example and not limitation:
i. Actual and consequential damages;
ii. Damages for emotional distress or oppression;
iii. Punitive, exemplary or compensatory damages;
iv. Statutory damages, fines, or penalties;
v. Amounts in excess of the risk reinsured hereunder
that the Ceding Company pays to settle a dispute
or claim;
vi. Third-party attorney fees, costs and expenses.
However, for claim denials and rescissions, the Reinsurer
will reimburse the Ceding Company for the Ceding
Company's extracontractual damages that result from
the Reinsurer's actions that directly and proximately
cause such extracontractual damages. Any such
reimbursement will be in proportion to the Reinsurer's
direct and proximate participation in the actions that
lead to the extracontractual damages.
0020-2186 11
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15. POLICY CHANGES.
a. NOTICE.
If a reinsured policy is changed, a corresponding
change will be made in the reinsurance for that
policy. The Ceding Company will notify the Reinsurer
of the change in the Ceding Company's next accounting
statement.
b. INCREASES.
If life insurance on a reinsured policy is increased
and the increase is subject to new underwriting
evidence, then the increase of life insurance on the
reinsured policy will be handled the same as the
issuance of a new policy. If the increase is not
subject to new underwriting evidence, and increases
are scheduled and known at issue, then the increase
will be automatically accepted by the Reinsurer, but
it is not to exceed the Automatic Acceptance Limits
shown in Schedule A. Reinsurance rates will be based
on the original issue age, duration since issuance
of the original policy and the original underwriting
classification. Other increases not subject to new
underwriting evidence are not allowed under this
Agreement.
c. REDUCTION OR TERMINATION.
If life insurance on a reinsured policy is reduced,
then reinsurance will be reduced proportionately so
that the portion reinsured, as outlined in Schedule A,
remains the same. If life insurance on a reinsured
policy is terminated, then reinsurance will cease on
the date of such termination.
Reductions and terminations are permitted only when
the underlying policyholder directs such a reduction
or termination of the issuing company policy that is
in force at the time that the reductions and
terminations take place.
d. EXCHANGES, CONVERSIONS AND OTHER POLICY CHANGES.
Exchanges, replacements or other changes in the
insurance reinsured with the Reinsurer, where not
fully underwritten as a new issue, will continue to
be ceded to the Reinsurer. The rates will' be based
on the original issue age and duration since issuance
of the original policy. When these changes are fully
underwritten, the policy will be handled the same
as the issuance of a new policy.
e. EXTENDED TERM AND REDUCED PAID-UP INSURANCE.
When a reinsured policy changes to extended term or
reduced paid-up insurance, the Ceding Company will
notify the Reinsurer of the new amount of reinsurance.
The reinsurance rates will remain the same as the rates
used for the original policy and will be based on the
original issue age, duration since issuance of the
original policy and the original underwriting
classification.
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YRT (02092001)
16. REINSTATEMENTS.
a. AUTOMATIC REINSTATEMENT.
If the Ceding Company reinstates a policy that was
originally ceded to the Reinsurer as automatic
reinsurance using conventional underwriting practices,
the Reinsurer's reinsurance for that policy will be
reinstated.
b. FACULTATIVE REINSTATEMENT.
If the Ceding Company has been requested to reinstate
a policy that was originally ceded to the Reinsurer as
facultative reinsurance, and the Ceding Company requires
underwriting approval prior to reinstatement, then the
Ceding Company will resubmit the case to the Reinsurer
for underwriting approval before the reinsurance can be
reinstated.
c. PREMIUM ADJUSTMENT.
The reinsurance premiums for the interval during which
the policy was lapsed will be paid to the Reinsurer on
the same basis as the Ceding Company charged its policy
owner for the reinstatement.
d. NONFORFEITURE REINSURANCE TERMINATION.
If the Ceding Company has been requested to reinstate
a policy that was reinsured while on extended term or
reduced paid-up then such reinsurance will terminate
and either automatic or facultative reinstatement
procedures will be followed.
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17. INCREASE IN RETENTION.
a. NEW BUSINESS.
If the Ceding Company increases its retention limits,
then it may, at its option and with written notice to
the Reinsurer, increase its maximum dollar retention
shown in Schedule A for policies issued after the
effective date of the retention increase.
b. RECAPTURE.
If the Ceding Company increases its retention limits,
then it may, with 90 days' written notice to the
Reinsurer, reduce or recapture the reinsurance in
force subject to the following requirements:
i. A cession is not eligible for recapture until it
has been reinsured for the minimum number of years
shown in Schedule A. The effective date of the
reduction in reinsurance will be the later of the
first policy anniversary following the expiration
of the 90-day notice period to recapture and the
policy anniversary date when the required minimum
of years is attained.
ii. On all policies eligible for recapture,
reinsurance will be reduced by the amount
necessary to increase the total insurance
retained up to the new maximum dollar retention
limits.
iii. If more than one policy per life is eligible for
recapture, then the eligible policies may be
recaptured beginning with the policy with the
earliest issue date and continuing in chronological
order according to the remaining policies' issue
dates.
iv. Recapture of reinsurance will not be allowed on
any policy for which the Ceding Company did not
keep its maximum dollar retention at issue. The
Ceding Company's maximum dollar retention limits
are stated in Section 3 of Schedule A.
v. If any policy eligible for recapture is also
eligible for recapture from other reinsurers,
the reduction in the Reinsurer's reinsurance on
that policy will be in proportion to the total
amount of reinsurance on the life with all
reinsurers.
vi. Recapture will not be made on a basis that may
result in any anti-selection against the Reinsurer.
The Reinsurer maintains the discretion to determine
when anti-selection has occurred.
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YRT (02092001)
18. ERRORS AND OMISSIONS.
Any unintentional or accidental failure of the Ceding Company or
the Reinsurer to comply with the terms of this Agreement which
can be shown to be the result of an oversight, misunderstanding
or clerical error, will not be deemed a breach of this
Agreement. Upon discovery, the error will be corrected so that
both parties are restored to the position they would have
occupied had the oversight, misunderstanding or clerical error
not occurred. Should it not be possible to restore both parties
to such a position, the Ceding Company and the Reinsurer shall
negotiate in good faith to equitably apportion any resulting
liabilities and expenses.
This provision applies only to oversights, misunderstandings or
clerical errors relating to the administration of reinsurance
covered by this Agreement. This provision does not apply to the
administration of the insurance provided by the Ceding Company
to its insured or any other errors or omissions committed by the
Ceding Company with regard to the policy reinsured hereunder.
19. INSOLVENCY.
In the event that the Ceding Company is deemed insolvent, all
reinsurance claims payable hereunder will be payable by the
Reinsurer directly to the Ceding Company, its liquidator,
receiver or statutory successor, without diminution because of
the insolvency of the Ceding Company. It is understood, however,
that in the event of such insolvency, the liquidator, receiver
or statutory successor of the Ceding Company will give written
notice to the Reinsurer of the pendency of a claim against the
Reinsurer on a risk reinsured hereunder within a reasonable time
after such claim is filed in the insolvency proceeding. Such
notice will indicate the policy reinsured and whether the claim
could involve a possible liability on the part of the Reinsurer.
During the pendency of such claim, the Reinsurer may investigate
such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses
it may deem available to the Ceding Company, its liquidator,
receiver or statutory successor. It is further understood that
the expense thus incurred by the Reinsurer will be chargeable,
subject to court approval, against the Ceding Company as part of
the expense of liquidation to the extent of a proportionate
share of the benefit that may accrue to the Ceding Company
solely as a result of the defense undertaken by the Reinsurer.
0020-2186 15
YRT (02092001)
20. ARBITRATION.
a. GENERAL.
Notwithstanding any other provision, all disputes and
other matters in question between the parties, arising
out of, or relating to this Agreement, shall be
submitted exclusively to arbitration upon the written
request of either party; except a party shall not be
prevented from filing and prosecuting a suit in a court
of competent jurisdiction solely for the purpose of
obtaining equitable relief, including for example, but
not limited to, injunction or enforcement of subpoenas.
The disputes and matters subject to arbitration include,
but are not limited to disputes upon or after
termination of this Agreement, and issues respecting
the existence, scope, and validity of this Agreement.
The arbitrators are to seek efficiencies in time and
expense. The arbitrators are not bound to comply
strictly with the rules of evidence. The arbitration
panel also has, for example, the authority to issue
subpoenas to third parties compelling prehearing
depositions, and for document production.
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
arbitrators. The arbitrators will be executive officers
of life insurance or reinsurance companies; however,
these companies will not be either party nor their
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 day
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 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.
0020-2186 16
YRT (02092001)
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 equally in the cost
of the third arbitrator.
The arbitrators shall operate in a fair but cost
efficient manner. For example, the arbitrators are not
bound by technical rules of evidence and may limit the
use of depositions and discovery.
The arbitration panel may, in its discretion, award
attorneys' fees, costs, expert witness fees, expenses
and interest, all as it deems appropriate to the
prevailing party.
e. OFFSET
All amounts due or otherwise accrued to any of the
parties hereto or any of their parents, affiliates,
or subsidiaries, whether by reason of premiums,
losses, expenses, or otherwise, under this agreement
or any other contract heretofore or hereafter entered
into, will at all times be fully subject to the right
of offset and only the net balance will be due and
payable.
21. GOOD FAITH: FINANCIAL SOLVENCY.
This Agreement is entered into in reliance on the utmost good
faith of the parties including, for example, their
representations and disclosures. It requires the continuing
utmost good faith of the parties; their representatives,
successors, and assigns. This includes a duty of full and fair
disclosure of all information respecting the formation and
continuation of this contract, the business reinsured, the
underwriting and policy issues (rules, practices, and staff),
the financial condition of the parties, studies and reports on
the business reinsured, and the solvency of the parties.
The Reinsurer or its representatives have the right at any
reasonable time to inspect the Ceding Company'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. The Reinsurer has entered into this
Agreement in reliance upon the Ceding Company's representations
and warranties. The Ceding Company affirms that it has disclosed
and will continue to disclose to the Reinsurer all matters
material to this Agreement and each reinsurance cession.
Examples of such matters are a change in underwriting or issue
practices or philosophy, a change in underwriting management
personnel, or a change in the Ceding Company's ownership or
control.
0020-2 I 86 17
YRT (02092001)
22. TERM OF THIS AGREEMENT.
The Ceding Company will maintain and continue the reinsurance
provided in this Agreement as long as the policy to which it
relates is in force or has not been fully recaptured. This
Agreement may be terminated, without cause, for the acceptance
of new reinsurance after 90 days' written notice of termination
by either party to the other. The Reinsurer will continue to
accept reinsurance during this 90-day period. The Reinsurer's
acceptance will be subject to both the terms of this Agreement
and the Ceding Company's payment of applicable reinsurance
premiums. 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 or financially impaired.
23. MEDICAL INFORMATION BUREAU.
The Reinsurer is required to strictly adhere to the Medical
Information Bureau Rules, and the Ceding Company agrees to abide
by these Rules, as amended from time to time. The Ceding Company
will not submit a preliminary notice, application for
reinsurance, or reinsurance cession to the Reinsurer unless the
Ceding Company has an authentic, signed preliminary or regular
application for insurance in its home office and the current
required Medical Information Bureau authorization.
24. SEVERABILITY
In the event that any provision or term of this Agreement shall
be held by any court, arbitrator, or administrative agency to be
invalid, illegal or unenforceable, all of the other terms and
provisions shall remain in full force and effect to the extent
that their continuance is practicable and consistent with the
original intent of the parties. In addition, if any provision or
term is held invalid, illegal or unenforceable, the parties will
attempt in good faith to renegotiate the Agreement to carry out
the original intent of the parties.
0020-2186 l8
YRT (02092001)
