REINSURANCE AGREEMENT
THIS AUTOMATIC SELF ADMINISTERED YRT REINSURANCE AGREEMENT
Effective March 1, 2007
(hereinafter referred to as the "Agreement")
is made between
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
of Ft. Xxxxx, Indiana
(hereinafter referred to as "the Company")
and
SAMPLE REINSURANCE COMPANY
of Anytown, USA
(hereinafter referred to as "the Reinsurer")
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TABLE OF CONTENTS
PREAMBLE
ARTICLE 1
1.1 Scope of Coverage
ARTICLE 2
2.1 Automatic Reinsurance
2.2 Facultative Reinsurance
ARTICLE 3
3.1 Automatic Submissions
3.2 Facultative Submissions
ARTICLE 4
4.1 Liability
4.2 Commencement of Automatic Reinsurance Liability
4.3 Commencement of Facultative Reinsurance Liability
4.4 Conditional or Interim Receipt Liability
ARTICLE 5
5.1 Premium Accounting
5.2 Non-Payment of Premiums
ARTICLE 6
6.1 Right of Offset
ARTICLE 7
7.1 Continuations
7.2 Policy Changes
7.3 Reductions
7.4 Lapses
7.5 Reinstatements
7.6 Last Survivor
7.7 Death Benefit Option C - Return of Premium
ARTICLE 8
8.1 Retention Limit Changes
8.2 Recapture
ARTICLE 9
9.1 Claims Notice
9.2 Claims Payment
9.3 Contested Claims
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9.4 Extra Contractual Obligations
9.5 Misstatement of Age or Sex
ARTICLE 10
10.1 Errors and Omissions
10.2 Dispute Resolution
10.3 Arbitration
ARTICLE 11
11.1 Insolvency
ARTICLE 12
12.1 DAC Tax
12.2 Taxes and Expenses
ARTICLE 13
13.1 Entire Agreement
13.2 Inspection of Records
13.3 Good Faith
13.4 Confidentiality
ARTICLE 14
14.1 Duration of Agreement
14.2 Severability
14.3 Construction
14.4 Regulatory Compliance
14.5 Assets in Trust
14.6 Letters of Credit
ARTICLE 15
Notification
EXECUTION
EXHIBITS
A Business Covered
A-1 Required Forms, Manuals & Issue Rules - Conditional Receipt Amount
B Temporary Life Insurance Agreement Form
C General Terms (including Reinsurance Rates and Allowances)
C-1 Specific Terms
D The Company's Retention Limits
E The Reinsurer's Automatic Acceptance Limits
E-1 Automatic Reduction To Standard (ARTS)
F Reinsurance Reports
F-1 Policy Exhibit Summary
F-2 Valuation Summary
F-3 Valuation Reserve Certification
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F-4 Tax Reserve Certification
G Guaranteed Issue Application
H Simplified Issue Application
PREAMBLE
This Agreement is an agreement for indemnity reinsurance solely between the
Company and the Reinsurer. The acceptance of risks under this Agreement
will create no right or legal relation between the Reinsurer and the
insured, owner, or beneficiary of any insurance policy or other contract of
the Company.
This Agreement will be binding upon the parties hereto and their respective
successors and assigns.
ARTICLE 1
1.1 SCOPE OF COVERAGE
This Agreement applies to all insurance policies and supplementary
benefits and riders attached thereto (hereinafter referred to as
"Policies") listed in Exhibit A that have been issued directly by the
Company in accordance with its new business underwriting rules, premium
rates and policy forms as provided to the Reinsurer. This Agreement
applies only to the issuance of such business by the Company to lives
resident in the countries stated in Exhibit A, if issued in or issued for
delivery in such country, and constitutes the transaction of business in a
jurisdiction in which the Company is properly licensed.
On and after the effective date of this Agreement, the Company will cede,
and the Reinsurer will accept risk on the above referenced Policies in
accordance with the terms and conditions of this Agreement. The policies
accepted by the Reinsurer will be hereinafter referred to as "Reinsured
Policies".
This Agreement does not cover the following unless specified elsewhere in
this Agreement:
1.1.1 Non-contractual conversions, rollovers, exchanges or group
conversions; or
1.1.2 Any business issued under a program where full current evidence of
insurability consistent with the amount of insurance is not
obtained, or where conventional selection criteria are not applied
in underwriting the risk; or
1.1.3 Any conversion of a previously issued policy that had been reinsured
with another reinsurer.
Conversions arising from subsections 1.1.1 and 1.1.3 will be covered under
this Agreement provided that the conversions are underwritten as new
business.
Each policy covered under this Agreement must provide for the maximum
normal periods of suicide and contestability protection permitted in the
state in which the policy is executed.
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ARTICLE 2
2.1 AUTOMATIC REINSURANCE
The Company will automatically cede the Reinsurer's share of the Policies,
supplementary benefits and riders covered under this Agreement to the
Reinsurer in accordance with the Automatic Acceptance Limits specified in
Exhibit E, provided that:
2.1.1 the Company has retained the amount stipulated in Exhibit D
according to the age and mortality rating at the time of
underwriting; and
2.1.2 the total of the new reinsurance required and the amount already
reinsured on that life under this Agreement and all other life
agreements between the Reinsurer and the Company, does not exceed
the Automatic Acceptance Limits set out in Exhibit E; and
2.1.3 the amount of insurance does not exceed the Jumbo Limits as defined
in Exhibit C-1; and
2.1.4 the application is on a life for which an application has not been
submitted by the Company on a facultative basis, (excluding lives
submitted for facultative excess of the Company's automatic binding
capacity), to any reinsurer within the last 3 years, unless the
original reason for submitting facultatively no longer applies.
2.2 FACULTATIVE REINSURANCE
If the Company receives an application for a policy covered under this
Agreement that does not meet the automatic coverage criteria listed in
Article 2.1 above, it may submit the application facultatively to the
Reinsurer for its consideration. The reinsurance will also be on a
facultative basis if the Company submits an application to the Reinsurer
for facultative consideration on a plan or rider that qualifies for
automatic reinsurance under this Agreement
The relevant terms and conditions of this Agreement will apply to those
facultative offers made by the Reinsurer that are accepted by the Company.
ARTICLE 3
3.1 AUTOMATIC SUBMISSIONS
The Company will submit automatic Policies to the Reinsurer in an
electronic TAI format.
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3.2 FACULTATIVE SUBMISSIONS
The Company will apply for reinsurance on a facultative basis by sending
to the Reinsurer an Application for Reinsurance. Unless specified
elsewhere in the Agreement, accompanying this Application for Reinsurance
will be copies of all underwriting evidence that is available for risk
assessment including, but not limited to, copies of the application for
insurance, medical examiners' reports, attending physicians' statements,
inspection reports, and other papers bearing on the insurability of the
risk. The Company will also notify the Reinsurer of any outstanding
underwriting requirements at the time of the facultative submission. Any
subsequent information received by the Company that is pertinent to the
risk assessment will be transmitted to the Reinsurer immediately.
After consideration of the Application for Reinsurance and related papers,
the Reinsurer will promptly inform the Company of its underwriting
decision. The Reinsurer's offer will expire at the end of the period
stated in Exhibit A, unless otherwise specified by the Reinsurer. If the
underwriting decision is acceptable to the Company and the Company's
policy is subsequently placed in force in accordance with the issue rules
provided to the Reinsurer, the Company will duly notify the Reinsurer of
its acceptance in writing.
If any risk is submitted to more than one reinsurer for consideration,
facultative placement is based on the order of the responses received from
the reinsurers, first offer in, taking into consideration the amount and
rating requested by the Company.
The Company will submit placed facultative policies to the Reinsurer in an
electronic TAI format.
ARTICLE 4
4.1 LIABILITY
Unless specified elsewhere in the Agreement, the Reinsurer's liability for
the Reinsured Policies is restricted to its share of the Company's
liability as limited by the terms and conditions of the particular policy
under which the Company is liable.
The Reinsurer's liability to the Company for the reinsurance due shall be
based on the net amount at risk at the time of the Insured Individual
death. The Reinsurer's liability to the Company for the net amount at risk
on a Policy that is reinsured shall be determined based on a ratio of the
Reinsurer's liability to the total net amount at risk under the Policy at
the time the reinsurance is placed. The Reinsurer shall share in any
decrease in the net amount at risk in proportion to its share of the
reinsurance on the Policy.
The Reinsurer may terminate its liability for any Policies for which
reinsurance premium payments are in arrears, according to the terms set
out in Article 5.2 of this Agreement.
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4.2 COMMENCEMENT OF AUTOMATIC REINSURANCE LIABILITY
The Reinsurer's liability for any Reinsured Policy accepted automatically
will begin simultaneously with the Company's contractual liability for
that policy.
4.3 COMMENCEMENT OF FACULTATIVE REINSURANCE LIABILITY
The Reinsurer's liability for any Reinsured Policy will begin
simultaneously with the Company's contractual liability for that policy
once the Reinsurer's facultative offer has been accepted by the Company in
writing.
4.4 CONDITIONAL OR INTERIM RECEIPT LIABILITY
Temporary Insurance Agreement coverage applicable to automatic reinsurance
under this Agreement will be limited to amounts accepted within the
company's usual cash-with-application procedures that provide temporary
coverage up to the limits shown in Exhibit A-1.
However, for facultative reinsurance, the Reinsurer's liability will not
commence until the Reinsurer's facultative offer has been accepted by the
Company; and then is limited to the company's usual cash-with-application
procedures, which provide temporary coverage up to the limits shown in
Exhibit A-1.
ARTICLE 5
5.1 PREMIUM ACCOUNTING
The Company will pay the Reinsurer premiums in accordance with the terms
specified in Exhibit C.
5.2 NON-PAYMENT OF PREMIUMS, PREMIUM REFUNDS, AND CLAIM REIMBURSEMENTS
The payment of reinsurance premiums to the Reinsurer, premium refunds to
the Company, and claim reimbursements to the Company are conditions
precedent to the liability of the Reinsurer and the Company for
reinsurance covered by this Agreement. In the event that any of these
amounts are not paid within 90 days of the Due Date stated in Exhibit F,
the party due payment will have the right to terminate the reinsurance
under all policies having reinsurance premiums in arrears without penalty.
Neither The Company nor the Reinsurer will force termination under the
provisions of this Article solely to avoid the recapture requirements of
this Agreement or to transfer the Reinsured Policies to another reinsurer.
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ARTICLE 6
6.1 RIGHT OF OFFSET
The Company and the Reinsurer will have the right to offset any balance or
balances whether on account of premiums, allowances or claims due from one
party to the other, under this Agreement or under any other reinsurance
agreement between the Company and the Reinsurer.
The right of offset will not be affected or diminished because of the
insolvency of either party.
ARTICLE 7
7.1 CONTINUATIONS
If a Reinsured Policy is converted, exchanged or internally replaced, the
Company will promptly notify the Reinsurer. A policy arising from the
non-contractual internal replacement of a policy that is five years or
more removed from initial underwriting will require full underwriting.
Non-contractual internal replacements that are less than five years
removed from initial underwriting will require modified underwriting using
parameters previously agreed to by the Reinsurer. All changes to the
existing modified underwriting parameters must be submitted to and
approved by the Reinsurer as provided for in Exhibit A-1. The new policy
arising from an underwritten internal replacement that provides for the
maximum new suicide and contestable periods permitted in the state in
which the policy is executed will be considered new business under the
terms of this Agreement. Reinsurance on the new policy will be on a first
year YRT basis using the rates specified in Exhibit C-1.
A non-underwritten policy arising from the contractual conversion,
exchange or replacement of a Policy previously covered under this
Agreement will continue to be reinsured with the Reinsurer. A
non-underwritten policy arising from the contractual conversion, exchange
or replacement of a Policy previously covered under a former Jefferson
Pilot Life Insurance Company, Jefferson Pilot Financial Insurance Company
or Jefferson Pilot LifeAmerica Insurance Company agreement will continue
to be reinsured with the Reinsurer under this Agreement. The amount to be
reinsured will be determined on the same basis as used for the original
policy but will not exceed the amount reinsured as of the date of
conversion unless mutually agreed otherwise. A conversion, exchange, or
replacement that is fully underwritten shall be treated as new business.
Continuations to risks with Death Benefit Option C (Return of Premium)
must be fully underwritten.
The above terms will apply unless specified otherwise in Exhibit C-1.
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7.2 POLICY CHANGES
If the plan, the amount of reinsurance, or the premiums of a Reinsured
Policy are changed, the Company will promptly inform the Reinsurer.
Whenever a Reinsured Policy is changed and the Company's underwriting
rules do not require that full evidence be obtained, the reinsurance will
remain in effect with the Reinsurer. The suicide, contestability and
recapture periods applicable to the original Reinsured Policy will apply
to the reissued Reinsured Policy and the duration will be measured from
the effective date of the original Reinsured Policy.
Whenever a Reinsured Policy is changed and the Company's underwriting
rules require that full evidence be obtained, the change will be subject
to the Reinsurer's approval, if:
7.2.1 the new amount of the Reinsured Policy would be in excess of the
Automatic Acceptance Limit, in effect at the time of the change, as
set out in Exhibit E; or
7.2.2 the new amount of the policy and the amount already in force on the
same life exceeds the Jumbo Limit stated in Exhibit C-1; or
7.2.3 the Reinsured Policy is submitted for facultative excess of
Company's automatic binding capacity.
The amount of any non-contractual increase will be subject to the terms
stated in Exhibit C and the Limits stated in Exhibit C-1 and Exhibit E.
For changes not covered under this Agreement, which affect the terms of
any Reinsured Policy, the Company must obtain the Reinsurer's approval
before such changes become effective.
7.3 REDUCTIONS
Unless specified otherwise in this Agreement, if the amount of insurance
of a policy issued by the Company is reduced and:
7.3.1 the amount of reinsurance is on excess basis, then the amount of
reinsurance on that life will be reduced effective the same date by
the full amount of the reduction under the original policy. If the
amount of insurance terminated equals or exceeds the amount of
reinsurance, the full amount of reinsurance is terminated; or
7.3.2 the amount of reinsurance is on a quota share basis, then the amount
of reinsurance on that life will be reduced effective the same date
by the same proportion as the reduction under the original policy.
The reduction will first apply to any reinsurance on the policy being
reduced and then if applicable in a chronological order according to
policy date ("first in, first out") to any reinsurance on the other
policies in force on the life. However, the Company will not be required
to assume a risk for an amount in excess of its regular retention for the
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age at issue and the mortality rating of the policy under which
reinsurance is being terminated.
If the reinsurance for a policy has been placed with more than one
reinsurer, the reduction will be applied to all reinsurers pro rata to the
amounts originally reinsured with each reinsurer.
7.4 LAPSES
When a Reinsured Policy lapses, reinsurance thereon will be terminated
effective the same date.
Unless specified otherwise in this Agreement, if a policy fully retained
by the Company lapses, the terms under the preceding Reductions clause
would apply.
If a Reinsured Policy lapses and extended term insurance is elected under
the terms of the Policy, the reinsurance thereon will continue on the same
basis as the original Policy until the expiry of the extended term period.
If a Reinsured Policy lapses and reduced paid-up insurance is elected
under the terms of the Policy, the amount of reinsurance will be reduced
according to the terms under the preceding Reductions clause.
If the Company allows the Reinsured Policy to remain in force under its
automatic premium loan regulations, the reinsurance will continue
unchanged and in force as long as such regulations remain in effect,
except as provided for otherwise in this Agreement.
The Reinsurer does not participate in policy loans or other forms of
indebtedness on policies reinsured under this Agreement. Therefore, policy
loans do not affect the amount of reinsurance.
7.5 REINSTATEMENTS
If a policy reinsured on an automatic basis is reinstated in accordance
with its terms or the rules of the Company the Reinsurer will, upon
notification of reinstatement, reinstate the Reinsured Policy
automatically. The Reinsurer's approval is required only for the
reinstatement of a facultative policy when the Company's regular
reinstatement rules indicate that more evidence than a Statement of Good
Health is required.
7.6 LAST SURVIVOR
With respect to any Last Survivor Policy covered hereunder, the Company's
retention shall be equal to the highest amount which could have been
retained by the Company as set forth in Exhibit D taking into account
amounts issued and retained on either of the lives insured under the Last
Survivor Policy. However, at no time will the highest corporate retention
shown in Exhibit D be exceeded.
The Company may reinsure the policy automatically if both insureds fall
within the appropriate age limits and underwriting classes as specified in
Exhibit C-1.
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In the event the Last Survivor Policy permits the insureds to split the
Last Survivor Policy into separate policies on the life of each insured
under the Last Survivor Policy, the new policies shall be Continuations as
Defined in Article 7.1 of this Agreement. Any substandard or flat extras
assessed a life under the Last Survivor Policy shall be payable under the
appropriate Continuation Policy. The reinsured premiums for the Individual
Policies shall be in accordance with the terms specified in Exhibit C.
In the event one life is determined to be uninsurable, the provisions of
this Article will continue to apply with the following exceptions:
a) The Company may reinsure the policy automatically if the
insurable life falls within the appropriate age limit and
underwriting class as specified in Exhibit C1 and the policy
meets the criteria specified in Article 2.1.
b) The Company need only apply its standard underwriting rules
and practices to the insurable life.
c) The reinsurance premium shall be computed on the age and
premium rates applicable to the insured risk.
7.7 DEATH BENEFIT OPTION C - RETURN OF PREMIUM
For VUL and UL Life type plans with DBO C, specified amount plus return of
premium less withdrawals, the net amount at risk equals the difference
between the share of the death benefit reinsured and the applicable cash
or fund value. These risks will be reinsured on a first-dollar quota-share
basis with the Company retaining 50% of the initial specified amount up to
the amounts shown in Exhibit D. Future fluctuations in NAR will be shared
by the Company and the Reinsurer proportionately as defined by the initial
cession.
Conversions and exchanges to Death Benefit Option C are not allowed.
ARTICLE 8
8.1 RETENTION LIMIT CHANGES
If the Company changes its retention limits, it will provide the Reinsurer
with written notice of the new retention limits and the effective date.
A change to the Company's Retention Limits in Exhibit D will not affect
the Reinsured Policies in force at the time of such a change except as
specifically provided for elsewhere in this Agreement. Furthermore, such a
change will not affect the Automatic Acceptance Limits in Exhibit E unless
mutually agreed by the Company and the Reinsurer.
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8.2 RECAPTURE
When the Company increases the dollar retention limit the amount of in
force Reinsured Policies may be reduced provided:
8.2.1 the Company gives the Reinsurer written notice of its intention to
recapture within 90 days of the effective date of the retention
increase; and
8.2.2 the amount eligible for recapture will be the difference between the
amount originally retained and the amount the Company would have
retained on the same quota share basis as referenced in Exhibit D
had the new retention limit schedule been in effect at the time of
issue; and
8.2.3 such recaptures are made on the next anniversary of each Reinsured
Policy affected unless mutually agreed otherwise by the Company and
the Reinsurer and with no recapture being made until the Reinsured
Policy has been in force for the period stated in Exhibit C-1. For a
conversion or re-entry, the recapture terms of the original policy
will apply and the duration for the recapture period will be
measured from the effective date of the original policy; and
8.2.4 the Company has maintained from the time the policy was issued, its
full retention as set out in Exhibit D for the plan and the
insured's classification; and
8.2.5 the Company has applied its increased Retention Limits in a
consistent manner to all categories of its Retention Limits set out
in Exhibit D unless otherwise agreed to by the Reinsurer.
In applying its increased Retention Limits to Reinsured Policies, the age
and mortality rating at the time of issue will be used to determine the
amount of the Company's increased retention.
Recapture as provided herein is optional with the Company, but if any
Reinsured Policy is recaptured, all Reinsured Policies eligible for
recapture under the provisions of this Article must be recaptured. If
there is reinsurance in other companies on risks eligible for recapture,
the necessary reduction is to be applied pro rata to the total outstanding
reinsurance.
The amount of reinsurance eligible for recapture is based on the
reinsurance net amount at risk as of the date of recapture.
The Company may not revoke its election to recapture for Reinsured
Policies becoming eligible at future anniversaries.
No recapture of Reinsured Policies will occur if the Company has either
obtained or increased stop loss reinsurance coverage as justification for
the increase in retention.
The Reinsurer will not be liable, after the effective date of recapture,
for any Reinsured Policies or portions of such Reinsured Policies eligible
for recapture that the Company
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has overlooked. The Reinsurer will be liable only for a credit of the
premiums, received after the recapture date, less any allowance.
The terms and conditions for the Company to recapture in force Reinsured
Policies due to the insolvency of the Reinsurer are set out in the
Insolvency clause in Article 11.
If the Company transfers business that is reinsured under this Agreement
to a successor company, then the successor company has the option to
recapture the reinsurance, in accordance with the recapture criteria
outlined in this Article, only if the successor company has or adopts a
higher retention limit than that of the Company.
ARTICLE 9
9.1 CLAIMS NOTICE
The Company shall give the Reinsurer prompt notice of any claim submitted
on a policy reinsured under this Agreement. The settlement made by the
Company on any such claim, whether made under strict policy conditions or
compromised for a lesser amount, shall be binding on the Reinsurer. The
Company agrees to act in good faith on all claim settlements made under
this Agreement. The Reinsurer's liability for the insurance benefits
reinsured under this Agreement will be the same as the Company's liability
for such benefits. All reinsurance claim settlements will be subject to
the terms and conditions of the particular contract under which the Ceding
Company are liable.
9.2 CLAIMS PAYMENT
The Company shall furnish the Reinsurer with copies of the proofs of
claims on all coverages with face amounts greater than $50,000. "Proofs of
claim" consist of death certificate, claimant's statement and proof of
payment by the Company, and any other documentation which might reasonably
be requested by the Reinsurer. The Company will also provide other
documents bearing on such claim or proceeding upon the request of the
Reinsurer. Payment in settlement of the reinsurance under a claim approved
and paid by the Company for a life reinsured hereunder shall be made by
deducting the reinsurance proceeds from the premium due the Reinsurer. The
Company does reserve the right, however, to request a cash payment from
the Reinsurer on any particular Claim rather than deducting the payment
from the premium due. The payment of reinsurance proceeds shall be in one
lump sum, regardless of the method of settlement under the Policy. The
Reinsurer will pay to the Company its proportionate share of expenses
subject to the limitations of Article 9.3.
9.3 CONTESTED CLAIMS
The Company will promptly notify the Reinsurer of its intention to
contest, compromise or litigate any claim (a "Contested Claim"). The
Company will provide the Reinsurer all relevant information and documents,
as such become available, pertaining to Contested Claims and will promptly
report any developments during the Reinsurer's review. The parties
acknowledge that any denial of a claim during the policy contestable
period will be a Contested Claim. Upon receipt of notice of a Contested
Claim, the Reinsurer will promptly notify the Company of its decision
whether or not to
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accept any such action within 10 business days. If the Reinsurer declines
to be a party to the contest, compromise or litigation, the Reinsurer
shall pay the Company its share of the reinsured net amount at risk,
interest and routine investigative expenses to date and thereby be fully
discharged of any further liability and subsequent expenses and will not
share in any subsequent reduction or increase in liability. If the
Reinsurer accepts participation and the Company's contest, compromise, or
litigation results in a reduction or increase in liability, the Reinsurer
will share proportionately in any such reduction or increase. Failure by
the Reinsurer to respond within 10 business days after notification by the
Company of the Contested Claim will bind the Reinsurer to the Company's
recommended action to contest, compromise, or litigate the claim. The
Reinsurer agrees not to subsequently modify the original decision to
participate unless the Company provides the Reinsurer with additional
information that is material to the original decision. Both parties agree
that subsequent notification of litigation of a contested claim does not
in itself constitute a material change. If the Reinsurer accepts the
decision to contest, the Reinsurer shall share in the expense of any
contest, compromise or litigation of a claim.
The Reinsurer's share of any such expenses shall be in the same proportion
that the net amount at risk reinsured with the Reinsurer bears to the
total net amount at risk of the Company under all policies on the life
being contested by the Company. The Reinsurer shall share in the total
amount of any reduction in liability in the same proportion. However, the
Reinsurer will not have to reimburse the Company for the following
expenses:
9.3.1 salaries of employees or other internal expenses of the Company; and
9.3.2 expenses incurred in connection with a dispute or contest arising
out of conflicting claims of entitlement to policy proceeds or
benefits.
The Reinsurer will pay to the Company its proportionate share of the
following expenses arising out of the settlement or litigation of a claim:
9.3.3 investigative expenses;
9.3.4 attorneys' fees;
9.3.5 penalties and interest imposed automatically against the Company by
statute or arising out of a judgment rendered against the Company in
a suit for policy benefits; and
9.3.6 interest paid to the claimant on death benefit proceeds according to
the Company's practices. Reimbursements of interest in excess of 9%,
unless otherwise dictated by local legislation, will require the
Reinsurer's approval.
9.4 EXTRA CONTRACTUAL OBLIGATIONS
Extra Contractual Obligations are obligations outside of the contractual
obligations and include but are not limited to punitive damages, bad faith
damages, compensatory damages, and other damages or statutory penalties
which may arise from the willful and/or negligent acts or omissions by the
Company. The Reinsurer is not liable for Extra Contractual Obligations
unless it concurred in advance and in writing with the
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actions of the Company which ultimately led to the imposition of the Extra
Contractual Obligations.
In such situations, the Company and the Reinsurer will share in Extra
Contractual Obligations, in equitable proportions, but all factors being
equal, the division of any such assessments would be in proportion to the
total risk accepted by each party for the plan of insurance involved.
Notwithstanding anything stated herein, this Agreement will not apply to
any Extra Contractual Obligations incurred by the Company as a result of
any fraudulent and/or criminal act by any employee or officer of the
Company or an agent representing the Company, acting individually,
collectively or in collusion in the presentation, defense, or settlement
of any claim.
The Reinsurer and the Company both acknowledge that good faith will be
used in determining whether or not the Company is reimbursed by the
Reinsurer for any Extra Contractual Obligations.
9.5 MISSTATEMENT OF AGE OR SEX
In the event of an increase or reduction in the amount of the Company's
insurance on any policy reinsured hereunder because of a misstatement of
age and/or sex being established after the death of the insured, the
Company and the Reinsurer shall share in such increase or reduction in
proportion to their respective net amounts at risk under such policy.
ARTICLE 10
10.1 ERRORS AND OMISSIONS
No delays, errors or omissions on the part of the Company or the Reinsurer
shall relieve the other party of liability provided such delays, errors or
omissions are rectified as soon as possible after discovery. However, the
Reinsurer shall not be liable with respect to any reinsurance which may
have been inadvertently included in the premium calculation but which
ought to not have been included by reason of the terms and conditions of
this Agreement. Such inadvertent premium payments shall be returned.
10.2. DISPUTE RESOLUTION
If either the Company or the Reinsurer has given written notification of a
dispute to the other party, then within 15 days of such notification both
parties must designate an officer of their respective companies to attempt
to resolve the dispute. The officers will meet at a mutually agreeable
location as soon as possible and as often as necessary, in order to gather
and furnish the other with all appropriate and relevant information
concerning the dispute. The officers will discuss the problem and will
negotiate in good faith without the necessity of any formal arbitration
proceedings. During the negotiation process, all reasonable requests made
by one officer to the other for information will be honored. The specific
format for such discussions will be decided by the designated officers.
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If these officers are unable to resolve the dispute within 30 days of
their first meeting, the dispute will be submitted to formal arbitration,
unless the parties agree in writing to extend the negotiation period for
an additional 30 days.
10.3 ARBITRATION
If the Company and Reinsurer are unable to mutually resolve a dispute or
controversy relating to policies covered under this Agreement or the
breach thereof, the matter will be referred to arbitration.
To initiate arbitration, either the Company or the Reinsurer will notify
the other party in writing of its desire to arbitrate, stating the nature
of its dispute and the remedy sought. There will be three arbitrators
selected who will be officers of Life Insurance Companies or Life
Reinsurance Companies excluding officers of the parties to this Agreement,
their affiliates or subsidiaries or past employees of any of these
entities. The arbitrators, who will regard this Agreement from the
standpoint of practical business as well as the law, are empowered to
determine the interpretation of the treaty obligation.
Each party will appoint one arbitrator and these two arbitrators will
select a third arbitrator within 2 weeks of the appointment of the second.
If either party refuses or neglects to appoint an arbitrator within 60
days after receipt of the written request for arbitration, the other party
may appoint a second arbitrator. Should the two arbitrators not agree on
the choice of the third within 30 days after the appointment of the second
arbitrator, then each party will name four candidates to serve as the
arbitrator. Beginning with the party who did not initiate arbitration,
each party will eliminate one candidate from the eight listed until one
candidate remains. If this candidate declines to serve as the arbitrator,
the candidate last eliminated will be approached to serve. This process
will be repeated until a candidate has agreed to serve as the third
arbitrator.
The place of meeting of the arbitrators will be decided by a majority vote
of the arbitrators. The written decision of a majority of the arbitrators
will be final and binding on both parties and their respective successors
and assigns.
The arbitrators will render a decision within 4 months of the appointment
of the third arbitrator, unless both parties agree otherwise. In the event
no decision is rendered within 4 months, new arbitrators will be selected
as above. There will be no appeal from the decision. Either party to the
arbitration may petition any court having jurisdiction over the parties to
reduce the decision to judgment. Alternatively, if both parties consent,
any controversy may be settled by arbitration in accordance with the rules
of the American Arbitration Association.
Unless the Arbitrators decide otherwise, each party will bear the expense
of its own arbitration, including its appointed arbitrator and any outside
attorney and witness fees. The parties will jointly and equally bear the
expense of the third arbitrator and other costs of the arbitration.
It is specifically the intent of both parties that these arbitration
provisions will replace and be in lieu of any statutory arbitration
provision, if the law so permits.
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ARTICLE 11
11.1 INSOLVENCY
A party to this Agreement will be deemed "insolvent" when it:
11.1.1 applies for or consents to the appointment of a receiver,
rehabilitator, conservator, liquidator or statutory successor
(hereinafter referred to as the Authorized Representative) of its
properties or assets; or
11.1.2 is adjudicated as bankrupt or insolvent; or
11.1.3 files or consents to the filing of a petition in bankruptcy, seeks
reorganization or an arrangement with creditors or takes advantage
of any bankruptcy, dissolution, liquidation, or similar law or
statute; or
11.1.4 becomes the subject of an order to rehabilitate or an order to
liquidate as defined by the insurance code of the jurisdiction of
the party's domicile.
In the event of the insolvency of the Company, all reinsurance made,
ceded, renewed or otherwise becoming effective under this Agreement will
be payable by the Reinsurer directly to the Company or to its Authorized
Representative, on the basis of the liability of the Company under the
Reinsured Policies without diminution because of the insolvency of the
Company.
The Reinsurer will be liable only for the amounts reinsured and will not
be or become liable for any amounts or reserves to be held by the Company
on Policies reinsured under this Agreement. The Authorized Representative
will give written notice to the Reinsurer of all pending claims against
the Company on any Policies reinsured within a reasonable time after such
claims are filed in the insolvency proceedings. While a claim is pending,
the Reinsurer may investigate such claim and interpose, at its own
expense, in the proceedings where the claim is to be adjudicated, any
defense or defenses, which it may deem available to the Company or the
Authorized Representative.
The expense incurred by the Reinsurer will be chargeable, subject to court
approval, against the Company as part of the expense of conservation or
liquidation to the extent of a proportionate share of the benefit which
may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer. Where two or more reinsurers are involved in the same claim
and a majority in interest elects to interpose a defense to such claim,
the expense will be apportioned in accordance with the terms of the
Agreement as though such expense had been incurred by the Company.
In the event of insolvency, the Right of Offset afforded under Article 6.1
will remain in full force and effect to the extent permitted by applicable
law.
In the event of the insolvency of the Reinsurer, the Company may cancel
this Agreement for new business by promptly providing the Reinsurer, its
receiver, rehabilitator, conservator, liquidator or statutory successor
with written notice of the cancellation, effective on the date on which
the Reinsurer's insolvency is established by the authority responsible for
such determination. Any requirement for a notification
17
period prior to the cancellation of the Agreement would not apply under
such circumstances.
In addition, the Company may provide the Reinsurer, its receiver,
rehabilitator, conservator, liquidator or statutory successor with written
notice of its intent to recapture all reinsurance in force under this
Agreement regardless of the duration the reinsurance has been in force or
the amount retained by the Company on the Policies reinsured hereunder.
The effective date of a recapture due to insolvency would be at the
election of the Company and would not be earlier than the date on which
the Reinsurer's insolvency is established by the authority responsible for
such determination. Upon recapture the Reinsurer will pay the unearned
reinsurance premium reserve (if any) to the Company on the risks reinsured
under this Agreement.
ARTICLE 12
12.1 DAC TAX
The Company and the Reinsurer agree to the DAC Tax Election pursuant to
Section 1.848-2(g)(8) of the Income Tax Regulations effective December 29,
1992, under Section 848 of the Internal Revenue code of 1986, as amended,
whereby:
12.1.1 the party with the net positive consideration for this Agreement
for each taxable year will capitalize specified policy acquisition
expenses with respect to this Agreement without regard to the
general deductions limitation of Section 848(c)(1); and
12.1.2 both parties agree to exchange information pertaining to the amount
of net consideration under this Agreement each year to ensure
consistency. To achieve this, the Company shall provide the
Reinsurer with a schedule of its calculation of the net
considerations for all reinsurance agreements in force between them
for a taxable year by no later than May 1 of the succeeding year.
The Reinsurer shall advise the Company no later than May 31,
otherwise the amounts will be presumed correct and shall be
reported by both parties in their respective tax returns for such
tax year. If the Reinsurer contests the Company's calculation of
net consideration, the parties agree to act in good faith to
resolve any differences within thirty (30) days of the date the
Reinsurer submits its alternative calculation and report the
amounts agreed upon in their respective tax returns for such year.
The term "net consideration" will refer to the net consideration as
defined in Regulation Section 1.848-2(f).
The Company and the Reinsurer will report the amount of net consideration
in their respective federal income tax returns for the previous calendar
year.
The Company and the Reinsurer will also attach a schedule to their
respective federal income tax returns, which identifies the Agreement as a
reinsurance agreement for which the DAC Tax Election under Regulation
Section 1.848.2 (g) (8) has been made.
This DAC Tax Election will be effective for all years for which this
Agreement remains in effect.
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The Company and the Reinsurer represent and warrant that they are subject
to U.S. taxation under either the provisions of subchapter L of Chapter 1
or the provisions of subpart F of subchapter N of Chapter 1 of the
Internal Revenue Code of 1986, as amended.
12.2 TAXES AND EXPENSES
Apart from any taxes, allowances, refunds, and expenses specifically
referred to elsewhere in this Agreement, no taxes, allowances, or
proportion of any expense will be paid by the Reinsurer to the Company in
respect of any Reinsured Policy.
ARTICLE 13
13.1 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties with
respect to the business reinsured hereunder. There are no understandings
between the Company and the Reinsurer with respect to the business
reinsured hereunder other than as expressed in this Agreement.
Any alteration to this Agreement will be null and void unless made by
written amendment, attached to the Agreement and signed by both parties.
13.2 INSPECTION OF RECORDS
The Reinsurer, or its duly appointed representatives, will have access to
the records of the Company concerning the business reinsured hereunder for
the purpose of inspecting, auditing and photocopying those records. Such
access will be provided at the office of the Company and will be during
reasonable business hours.
Provided there is business in force under this Agreement, the Reinsurer's
right of access as specified above will survive the term of the Agreement.
13.3 GOOD FAITH
All matters with respect to this Agreement require the utmost good faith
of both parties.
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 will promptly notify the other if it is subsequently
financially impaired.
The Reinsurer and the Ceding Company have entered into this Agreement in
reliance upon each other's representations and warranties. The Ceding
Company and the Reinsurer each affirms that it has and will continue to
disclose all matters material to this Agreement. Material for purposes of
this Article will mean information that a prudent actuary would consider
as reasonably likely to affect the Reinsurer's terms under this Agreement.
Examples of such matters are material changes in policy distribution
methods, policy provisions, issue practices, underwriting or claims
practices that are intentional and within the control of the Company.
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The Reinsurer will have the right to accept in writing any material change
as applied to a Policy before accepting any liability with respect to
these Policies. Any outsourcing by the Ceding Company of material
functions concerning the Policies will be deemed material. The Company
will secure the Reinsurer's right to audit any outsourcing of any material
Ceding Company functions concerning the Policies.
13.4 CONFIDENTIALITY
Both the Company and the Reinsurer will hold confidential and not disclose
or make competitive use of any shared client and proprietary information
unless otherwise agreed to in writing, or unless the information otherwise
becomes publicly available or the disclosure of which is required for
retrocession purposes or has been mandated by law or is duly required by
external auditors.
Client information includes medical, financial and other personal
information about proposed, current and former policyowners, insureds,
applicants, and beneficiaries of policies issued by the Company.
Proprietary Information includes but is not limited to underwriting
manuals and guidelines, applications and contract forms and premium rates
and allowances of the Reinsurer and the Company.
In addition, the Company and the Reinsurer will comply with relevant
privacy legislation.
ARTICLE 14
14.1 DURATION OF AGREEMENT
This Agreement is unlimited as to its duration. The Reinsurer or the
Company may terminate this Agreement with respect to the reinsurance of
new business by giving at least 90 days written notice of termination to
the other party.
During the 90-day notification period, the Company will continue to cede
and the Reinsurer will continue to accept policies covered under the terms
of this Agreement.
Further, the Reinsurer remains liable for all Reinsured Policies in force
at the date of the termination stated in the notice of termination, until
their natural expiration, unless the parties mutually decide otherwise or
as specified otherwise in this Agreement.
The Company shall have the option of terminating this Agreement for new
business at anytime, upon delivery of written notice to the Reinsurer of
at least 30 days prior to such termination of any of the following events:
14.1.1 the Reinsurer's rating by A.M. Best is reduced from the rating
which existed at the time this Agreement became effective to a
Best's rating below A- and the Reinsurer's surplus falls below 300%
of Authorized Control Level; or
14.1.2 the Reinsurer is placed on a "watch list" by its domiciliary
state's insurance regulators due to the Reinsurer's failure to
maintain the financial standards required in its domiciliary state;
or
20
14.1.3 the regulatory authority of any state in which the Reinsurer is
authorized to do business revokes the Reinsurer's right to continue
conducting business in that state and the Reinsurer has not met the
requirements of Article 14 subsection 14.4, 14.5 or 14.6; or
14.1.4 an order appointing a receiver or trustee for management of the
Reinsurer is entered or a proceeding is commenced for
rehabilitation, liquidation, supervision, or conservation of the
Reinsurer; or
14.1.5 the Reinsurer notifies the Company of a request for increase in
premium. However, the right of the Company to recapture the
business will not be triggered if the Reinsurer is simply following
a rate increase that the Company is giving to the underlying
policyholders; or
14.1.6 If, despite its best efforts, the Reinsurer is unable or fails to
comply with the terms of Articles 14.4, 14.5 or 14.6 and the
Company is unable to receive full statutory accounting credit for
reinsurance ceded to the Reinsurer under this Agreement.
14.2 SEVERABILITY
If any provision of this Agreement is determined to be invalid or
unenforceable, such determination will not affect or impair the validity
or the enforceability of the remaining provisions of this Agreement.
14.3 CONSTRUCTION
The rights and obligations under this Agreement will be construed and
administered in accordance with the laws of the Company's state of
domicile stated in Exhibit A.
14.4 REGULATORY COMPLIANCE
Each party hereto warrants that it has secured all necessary federal and
state licenses and approvals and that it is operating in compliance with
federal and state insurance laws and regulations.
It is the intention of the Company and the Reinsurer that the Company will
receive full statutory reserve credit for the insurance risks ceded to the
Reinsurer under this Agreement in all jurisdictions in which the Company
is authorized to do business or accredited as a reinsurer. Said reserve
credit shall be in an amount no less than the amount calculated as the
Treaty Reserve and shall be supported by Collateral. In addition to the
requirements of other provisions of this Agreement, the Reinsurer agrees
to take any other steps necessary for the Company to receive such
statutory accounting treatment. In furtherance thereof, on its balance
sheet, the Reinsurer shall hold a reserve at least equal to the minimum US
statutory reserve credit specified above.
If, despite its best efforts, the Reinsurer is unable or fails to comply
with the terms of this Article, it shall immediately notify the Company,
and the Company shall have the right to terminate this Agreement and
recapture all reinsurance hereunder pursuant to Articles 8 and 14.
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If the Reinsurer is not authorized, admitted as a reinsurer, approved as a
non-admitted reinsurer or the regulatory authority revokes the right of
the Reinsurer to continue conducting business in any jurisdiction where
the Company is authorized to do business, the Reinsurer shall have 60 days
to apply for and provide the Company with letters of credit, assets in
trust, or other form of Collateral agreeable to both parties that will
allow the Company to take full statutory reserve credit for the insurance
risks ceded to the Reinsurer under this Agreement.
14.5 ASSETS IN TRUST
14.5.1 In order for the Company to take full reinsurance credit in any and
all jurisdictions where the Company conducts business or is
accredited as a reinsurer, the Reinsurer may provide, at its sole
expense, one or more trust accounts for the sole use, benefit and
security of the Company. The Reinsurer and any such trust
account(s) shall comply with all applicable Indiana laws, including
I.C. 27-6-10-14 and Indiana Administrative Code title 760, Section
1-56-10 as well as the relevant provisions of other states' laws,
including but not limited to those of the State of New York. To the
extent that the Reinsurer opts to use one or more trust accounts as
Collateral, the following subsections in this Article shall apply
to such trust(s).
14.5.2 Prior to depositing assets with the trustee, the Reinsurer shall
execute assignments, endorsements in blank, or transfer legal title
to the trustee of all shares, obligations or any other assets
requiring assignments, and take any other steps required in order
that the Company, or the trustee upon the direction of the Company,
may whenever necessary, negotiate any such assets without consent
or signature from the Reinsurer or any other person or entity.
14.5.3 The assets in the trust(s) shall be invested and reinvested by the
Reinsurer so as to satisfy its obligation to ensure that the
Company receives full statutory accounting credit for reinsurance
ceded to the Reinsurer in all jurisdictions in which the Company is
authorized to do business or accredited as a reinsurer. All
investments shall be limited to those permitted by both I.C.
Section 27-6-10-14(c)(2) and Title 11 New York Codes, Rules and
Regulations Section 126 and any successors thereto.
14.5.4 If at the end of any calendar quarter, the Treaty Reserve for the
Reinsurer's share of the reinsured risks on the Contracts exceeds
the fair market value of all Collateral, the Reinsurer shall either
deposit cash or securities which meet the requirements of
subsection 14.5.3 in an amount equal to the shortfall into the
trust(s), or furnish one or more letters of credit consistent with
the terms of Article 14.6, so that the total Collateral meets the
requirements of Article 14.4. However, if at the end of any
calendar quarter the fair market value of all Collateral exceeds
the Treaty Reserve required for the Reinsurer's quota share of the
risks reinsured, the Reinsurer may request that the Company
withdraw from the trust(s) an amount not greater than such excess
amount and deliver that amount to the Reinsurer, consistent with
applicable legal requirements. In addition, the Reinsurer shall
have the discretion to add additional amounts to the trust(s) or to
refrain from withdrawing excess funds from the trust(s). All
withdrawals of assets from the trust(s) shall be made by the
Company.
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14.5.5 The Reinsurer shall pay all trustee and custodial fees for the
trust(s). Assets in the trust(s) shall not be used to pay any such
fees.
14.5.6 The Company or its successors in interest may draw against the
assets in said trust account(s) at any time, notwithstanding any
other provision in this Agreement, and shall utilize the amount
drawn for one or more of the following reasons only:
(a) To pay the Reinsurer's share or to reimburse the Company for
the Reinsurer's share of any premiums returned to the owners
of Individual Policies reinsured under this Agreement on
account of cancellations of such Policies;
(b) To reimburse the Company for the quota share of surrenders
and benefits or losses by the Company under the terms and
conditions of the Individual Policies reinsured under this
Agreement;
(c) To fund an account with the Company in an amount at least
equal to the deduction, for reinsurance ceded, from the
ceding insurer's liabilities for Contracts ceded under this
Agreement (such amount shall include, but not be limited to,
amounts for statutory policy reserves, claims and losses
incurred, and unearned premiums);
(d) To pay any other amounts due under this Agreement.
The foregoing limitation on the use of withdrawn funds shall apply to the
Company or any successor, including, without limitation, any liquidator,
rehabilitator, receiver or conservator of the Company, and shall apply
without diminution because of insolvency on the part of the Company or the
Reinsurer.
14.5.7 The Company agrees to return promptly to the Reinsurer any amounts
drawn on such letters of credit in excess of the actual amounts
required for Subparagraphs 14.5.6 (a), (b) and (c), above, or in
the case of Subparagraph 14.5.6 (d), above, any amounts that are
subsequently determined to be in excess of the amounts due.
14.5.8 The rights and liabilities of the Company and the Reinsurer, as set
forth in this Article shall not be diminished in any manner by the
insolvency of the other party.
14.6 LETTERS OF CREDIT
14.6.1 The Reinsurer may meet its obligations as described in Article
14.4, by providing to the Company letters of credit made payable to
the Company in an amount sufficient to meet such obligation, after
taking into account any and all Collateral already contained in one
or more trust accounts as described in Article 14.5. The amount of
such letters of credit shall be adjusted periodically so that the
amount of such letters of credit is at least equal to the amount
specified in this subsection as of the last day of each calendar
quarter. Any letters of credit entered into pursuant to this
23
subsection shall comply with all applicable laws, including but not
limited to the insurance laws of the States of Indiana and
New York.
14.6.2 The Reinsurer and the Company agree that any letters of credit
provided by the Reinsurer may be drawn upon by the Company at any
time, notwithstanding any other provisions in this Agreement, and
be utilized and applied by the Company or any successor by
operation of law of the Company, including, without limitation, any
liquidator, rehabilitator, receiver or conservator of the Company,
without diminution because of insolvency on the part of the Company
or the Reinsurer, only for the following purposes:
(a) To pay the Reinsurer's share or to reimburse the Company for
the Reinsurer's share of any premiums returned to the owners
of Individual Policies reinsured under this Agreement on
account of cancellations of such Policies;
(b) To reimburse the Company for the quota share of surrenders
and benefits or losses by the Company under the terms and
conditions of the Individual Policies reinsured under this
Agreement;
(c) To fund an account with the Company in an amount at least
equal to the deduction, for reinsurance ceded, from the
ceding insurer's liabilities for Contracts ceded under this
Agreement (such amount shall include, but not be limited to,
amounts for statutory policy reserves, claims and losses
incurred, and unearned premiums);
(d) To pay any other amounts due under this Agreement.
The foregoing limitation on the use of withdrawn funds shall apply to the
Company or any successor, including, without limitation, any liquidator,
rehabilitator, receiver or conservator of the Company, and shall apply
without diminution because of insolvency on the part of the Company or the
Reinsurer.
14.6.3 The Company agrees to return promptly to the Reinsurer any amounts
drawn on such letters of credit in excess of the actual amounts
required for subsections 14.6.2 (a), (b) and (c), above, or in the
case of subsection 14.6.2 (d), above, any amounts that are
subsequently determined to be in excess of the amounts due.
14.6.4 Payment to the Company by the issuing banks of amounts drawn on the
letters of credit pursuant to subsections 14.6.2 (a), (b) and (d),
above, shall constitute payment by the Reinsurer pursuant to this
Agreement and shall discharge the Reinsurer of the obligation which
gave rise to the draw, provided however the Reinsurer may later
contest whether it had failed to reimburse or pay the Company as
required by this Agreement.
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ARTICLE 15
NOTIFICATIONS
1. Notices shall only be effective if made by either the Company or
Reinsurer in writing and shall be sent to the intended recipient at
its address or number as set out below:
Company: Company Name
Mailing address
Attn: to be inserted
Title: to be inserted
Fax: to be inserted
Reinsurer:
2. Either the Company or Reinsurer may change its Notice details on
giving Notice to the other of the change in accordance with this
Article. Such change shall be effective five (5) business days after
the Notice has been given, or such later date as may be specified in
the Notice.
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EXECUTION
This Agreement has been made in duplicate and hereby executed by both parties.
Signed for and on behalf of THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: By:
--------------------------------- ------------------------------
Title: Title:
--------------------------------- ------------------------------
Date: Date:
--------------------------------- ------------------------------
Place: Place:
--------------------------------- ------------------------------
Signed for and on behalf of SAMPLE REINSURANCE COMPANY
By: By:
--------------------------------- ------------------------------
Title: Title:
--------------------------------- ------------------------------
Date: Date:
--------------------------------- ------------------------------
Place: Place:
--------------------------------- ------------------------------
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