AUTOMATIC AND FACULTATIVE REINSURANCE AGREEMENT
(YEARLY RENEWABLE TERM)
EFFECTIVE June 1, 1998
USAA LIFE INSURANCE COMPANY
(CEDING COMPANY)
0000 Xxxxxxxxxxxxxx Xxxx
Xxx Xxxxxxx, Xxxxx 00000
And
SECURITY LIFE OF DENVER INSURANCE COMPANY
(SECURITY)
Security Life Center
0000 Xxxxxxxx
Xxxxxx, Xxxxxxxx 00000-0000
02711916
URT97 (7/1/97)
AUTOMATIC AND FACULTATIVE REINSURANCE AGREEMENT
(YEARLY RENEWABLE TERM)
This Agreement is between
USAA LIFE INSURANCE COMPANY (CEDING COMPANY), 0000 Xxxxxxxxxxxxxx Xxxx, Xxx
Xxxxxxx, Xxxxx 00000
and
SECURITY LIFE OF DENVER INSURANCE COMPANY (SECURITY), Security Life Center, 0000
Xxxxxxxx, Xxxxxx, Xxxxxxxx 00000-0000.
SECURITY agrees to reinsure certain portions of 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, USAA and SECURITY have by their respective officers
executed and delivered this Agreement in duplicate on the dates indicated below,
with an effective date of June 1, 1998.
USAA LIFE SECURITY LIFE OF DENVER
INSURANCE COMPANY INSURANCE COMPANY
By:__________________________________ By:__________________________________
Title:_______________________________ Title:_______________________________
Date:________________________________ Date:________________________________
By:__________________________________ By:__________________________________
Title:_______________________________ Title:_______________________________
Date:________________________________ Date:________________________________
2
02711916
URT97 (7/1/97)
AUTOMATIC AND FACULTATIVE REINSURANCE AGREEMENT
-----------------------------------------------
Table of Contents
1. PARTIES TO AGREEMENT........................................1
2. REINSURANCE BASIS...........................................1
3. AUTOMATIC REINSURANCE TERMS.................................1
a. CONVENTIONAL UNDERWRITING ...........................1
b. RETENTION ...........................................1
c. AUTOMATIC ACCEPTANCE LIMITS .........................1
d. AUTOMATIC IN FORCE AND APPLIED FOR LIMIT.............2
e. RESIDENCE............................................2
f. MINIMUM CESSION......................................2
g. FACULTATIVE QUOTES...................................2
4. AUTOMATIC REINSURANCE NOTICE PROCEDURE .....................2
5. FACULTATIVE REINSURANCE.....................................2
6. COMMENCEMENT OF REINSURANCE COVERAGE........................3
a. AUTOMATIC REINSURANCE ...............................3
b. FACULTATIVE REINSURANCE .............................3
c. PRE-ISSUE COVERAGE ..................................3
7. BASIS OF REINSURANCE AMOUNT AND REINSURANCE PREMIUM RATES ..3
a. LIFE REINSURANCE ....................................3
b. SUPPLEMENTAL BENEFITS ...............................3
i. WAIVER OF PREMIUM ............................3
c. PRELIMINARY TERM INSURANCE ..........................4
d. TERM INSURANCE RENEWALS..............................4
e. TABLE RATED SUBSTANDARD PREMIUMS.....................4
f. FLAT EXTRA PREMIUMS..................................4
g. RATES NOT GUARANTEED.................................4
8. CASH VALUES OR LOANS........................................4
9. PAYMENT OF REINSURANCE PREMIUMS.............................4
a. PREMIUM DUE..........................................4
b. FAILURE TO PAY PREMIUMS..............................4
c. PREMIUM ADJUSTMENT...................................4
3
02711916
URT97 (7/1/97)
10. PREMIUM TAX REIMBURSEMENT ..................................5
11. DAC TAX AGREEMENT ..........................................5
12. REPORTS.....................................................6
13. RESERVES FOR REINSURANCE ...................................6
14. CLAIMS .....................................................6
a. NOTICE ..............................................6
b. PROOFS...............................................6
c. AMOUNT AND PAYMENT OF BENEFITS.......................6
d. CONTESTED CLAIMS ....................................6
e. CLAIM EXPENSES.......................................6
f. EXTRACONTRACTUAL DAMAGES ............................7
15. MISREPRESENTATION, SUICIDE, AND MISSTATEMENT ...............7
16. POLICY CHANGES..............................................7
a. NOTICE ..............................................8
b. INCREASES ...........................................8
c. REDUCTION OR TERMINATION.............................8
d. OTHER POLICY CHANGES, CONVERSIONS, EXCHANGES, ETC....8
e. EXTENDED TERM AND REDUCED PAID-UP INSURANCE .........8
17. REINSTATEMENTS .............................................8
a. AUTOMATIC REINSTATEMENT .............................8
b. FACULTATIVE REINSTATEMENT............................8
c. PREMIUM ADJUSTMENT ..................................8
d. NONFORFEITURE REINSURANCE TERMINATION ...............9
18. INCREASE IN RETENTION.......................................9
a. NEW BUSINESS ........................................9
b. RECAPTURE............................................9
19. ERRORS AND OMISSIONS........................................9
20. INSOLVENCY.................................................10
21. ARBITRATION................................................10
a. GENERAL.............................................10
b. NOTICE..............................................10
c. PROCEDURE...........................................10
d. COSTS...............................................11
4
02711916
URT97 (7/1/97)
22. GOOD FAITH; FINANCIAL SOLVENCY.............................11
23. TERM OF THIS AGREEMENT.....................................11
24. MEDICAL INFORMATION BUREAU ................................11
5
02711916
URT97 (7/1/97)
Listing of Schedules:
SCHEDULE A
1. Plans Reinsured
2. Automatic Portion Reinsured
3. Automatic Retention Limit
4. Automatic Acceptance Limits
5. Automatic In Force and Applied for Limit
6. Premium Due
7. Recapture Period
8. Net Amount at Risk
9. Additional Underwriting Requirements
SCHEDULE B - AUTOMATIC REINSURANCE PREMIUMS
1. Life Insurance
2. 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
6
02711916
URT97 (7/1/97)
AUTOMATIC AND FACULTATIVE REINSURANCE AGREEMENT
1. PARTIES TO AGREEMENT. This Agreement is solely between SECURITY and
CEDING COMPANY. There is no third party beneficiary to this Agreement.
Reinsurance under this Agreement will not create any right nor legal
relationship between SECURITY and any other person, for example, any
insured, policyowner, agent, beneficiary, or assignee. CEDING COMPANY
agrees that it will not make SECURITY a party to any litigation between
any such third party and CEDING COMPANY. CEDING COMPANY shall not use
SECURITY's name with regard to CEDING COMPANY's agreements or transactions
with these third parties unless SECURITY gives prior written approval for
the use of its name.
2. REINSURANCE BASIS. This Agreement, including the attached Schedules,
states the terms and conditions of automatic and facultative reinsurance
which shall be on a Yearly Renewable Term basis. This Agreement is
applicable only to reinsurance of policies directly written by 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. SECURITY 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 CEDING COMPANY with
conventional underwriting and issue practices which 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 which 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 nonmedical 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 with contestability and suicide
clauses with time limitations that are shorter than the maximum
allowed by state law.
CEDING COMPANY must comply with additional underwriting requirements
at least as restrictive as those set forth in Schedule A. These
requirements may be changed by SECURITY. SECURITY will provide 120
days advance written notice to CEDING COMPANY before the effective
date of such change.
b. RETENTION. CEDING COMPANY will retain, and not otherwise reinsure,
an amount
7
02711916
URT97 (7/1/97)
of insurance on each life equal to its retention shown in Schedule
A. If 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
shall not exceed the Automatic Acceptance Limits shown in
Schedule A.
d. AUTOMATIC IN FORCE AND APPLIED FOR LIMIT. On any one life, the
total life insurance in force and applied for with all companies of
which CEDING COMPANY is aware, cannot exceed the In Force and
Applied For Limits as 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
SECURITY will accept is $10,000 and reinsurance will be terminated
when the amount reinsured is less than $10,000.
g. FACULTATIVE QUOTES. The risk shall not have been submitted on a
facultative basis to SECURITY or any other reinsurer.
4. AUTOMATIC REINSURANCE NOTICE PROCEDURE. After the policy has been paid for
and delivered, CEDING COMPANY shall submit all relevant individual policy
information, as defined in Schedule C, in its next statement to SECURITY.
5. FACULTATIVE REINSURANCE. CEDING COMPANY may apply for facultative
reinsurance with SECURITY 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 CEDING COMPANY wishes to obtain a facultative quote from
other reinsurers on a case eligible for automatic reinsurance, the case
shall also be submitted to SECURITY for a facultative offer. The following
items must be submitted to obtain a facultative quote:
a. A form substantially similar to SECURITY'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 CEDING COMPANY regarding the insurability of the risk.
After receipt of CEDING COMPANY's application, SECURITY will promptly
examine the materials and notify CEDING COMPANY either of the terms and
conditions of SECURITY's
8
02711916
URT97 (7/1/97)
offer for facultative reinsurance or that no offer will be made.
SECURITY's offer expires 120 days after the offer is made, unless the
written offer specifically states otherwise. If CEDING COMPANY accepts
SECURITY's offer, then CEDING COMPANY shall note its acceptance in its
underwriting file and mail, as soon as possible, a formal reinsurance
cession to SECURITY using a form substantially similar to the
"Notification of Reinsurance" form shown in Schedule D. If CEDING
COMPANY does not accept SECURITY's offer, then CEDING COMPANY shall
notify SECURITY 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 SECURITY's
reinsurance coverage on any policy or pre-issue risk under this Agreement
is described below:
a. AUTOMATIC REINSURANCE. SECURITY's reinsurance coverage for any
policy that is ceded automatically under this Agreement shall begin
and end simultaneously with CEDING COMPANY's contractual liability
for the policy reinsured.
b. FACULTATIVE REINSURANCE. SECURITY's reinsurance coverage for any
policy that is ceded facultatively under this Agreement shall begin
when CEDING COMPANY accepts SECURITY's offer. If CEDING COMPANY has
submitted the application for reinsurance to other reinsurers,
SECURITY's offer shall be considered revoked when a better offer, as
determined by table rating, is made by another reinsurer.
c. PRE-ISSUE COVERAGE. SECURITY will not be liable for benefits paid
under 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. SECURITY's
liability under 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 SECURITY as shown in
Schedule A.
ii. The amount for which 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 no matter how many receipts were
issued or initial premiums were accepted by CEDING COMPANY.
After a policy has been issued, no reinsurance benefits are
payable under this pre-issue coverage provision.
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
9
02711916
URT97 (7/1/97)
risk less 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.
b. SUPPLEMENTAL BENEFITS. For the supplemental benefits reinsured
under this Agreement, the following provisions will apply:
i. WAIVER OF PREMIUM. The reinsurance benefit is the premium
waived on a policy for the amount reinsured with SECURITY.
Reinsurance premiums for this benefit are shown in Schedule B.
c. PRELIMINARY TERM INSURANCE. Premiums for reinsurance of
preliminary term insurance are at the second year rate for the
insured's attained age, as shown in Schedule B, for the fraction of
a year covered.
d. TERM INSURANCE RENEWALS. 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 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 CEDING COMPANY's policy is issued with a
flat extra premium, the reinsurance premiums shown in Schedule B
will apply.
g. RATES NOT GUARANTEED. The reinsurance premium rates are not
guaranteed. SECURITY reserves the right to change the rates at any
time. If SECURITY changes the rates, it will give 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.
8. CASH VALUES OR LOANS. This Agreement does not provide reinsurance for
cash surrender values. In addition, SECURITY will not participate in
policy loans or other forms of indebtedness on reinsured business.
9. PAYMENT OF REINSURANCE PREMIUMS.
-------------------------------
a. PREMIUM DUE. Reinsurance premiums for each reinsurance cession are
due as shown in Schedule A. On any payment date, monies payable
between SECURITY and
10
02711916
URT97 (7/1/97)
CEDING COMPANY may be netted to determine the payment due.
b. FAILURE TO PAY PREMIUMS. If 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 SECURITY may terminate the reinsurance upon 30 days
prior written notice. SECURITY will have no further liability as of
the termination date. CEDING COMPANY will be liable for the
prorated reinsurance premiums to the termination date. 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. PREMIUM ADJUSTMENT. If CEDING COMPANY overpays a reinsurance premium
and SECURITY accepts the overpayment, SECURITY's acceptance will not
constitute nor create a reinsurance liability nor result in any
additional reinsurance. Instead, SECURITY will be liable to CEDING
COMPANY for a credit in the amount of the overpayment. If a
reinsured policy terminates, SECURITY will refund the reinsurance
premium. This refund will be on a prorated basis without interest
from the date of termination of the policy to the date to which a
reinsurance premium has been paid.
10. PREMIUM TAX REIMBURSEMENT. Premium taxes shall not be reimbursed.
11. DAC TAX AGREEMENT.
-----------------
CEDING COMPANY and SECURITY, 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. CEDING COMPANY and SECURITY 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. CEDING COMPANY will submit to SECURITY 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 CEDING COMPANY stating that CEDING
COMPANY will report such net consideration in its tax return for the
preceding calendar year;
11
02711916
URT97 (7/1/97)
d. SECURITY may contest such calculation by providing an alternative
calculation to CEDING COMPANY in writing within 30 days of
SECURITY's receipt of CEDING COMPANY's calculation. If SECURITY does
not so notify CEDING COMPANY, SECURITY will report the net
consideration as determined by CEDING COMPANY in SECURITY's tax
return for the previous calendar year.
e. If SECURITY contests 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
SECURITY submits its alternative calculation. If CEDING COMPANY
and SECURITY reach agreement on the net amount of consideration,
each party shall 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 1 of the Internal Revenue Code of 1986, as amended.
12. REPORTS. The reporting period shall be monthly. The administrating party
shall be CEDING COMPANY. For each reporting period, CEDING COMPANY will
submit a statement to SECURITY with information that is substantially
similar to the information displayed in Schedule C. The statement will
include information on the risks reinsured with SECURITY, premiums owed,
policy exhibit activity, and an accounting summary. Within fifteen days
after the end of each calendar quarter, the administrating party will
submit a reserve credit summary similar to that shown in Schedule C.
13. RESERVES FOR REINSURANCE. The statutory reserve basis for the reinsurance
will be shown on the reserve credit summary provided each quarter.
14. CLAIMS.
------
a. NOTICE. CEDING COMPANY will notify SECURITY, as soon as reasonably
possible, after it receives a claim request.
b. PROOFS. CEDING COMPANY will promptly provide SECURITY with proper
claim proofs, all relevant information respecting the claim, and an
itemized statement of the benefits paid by CEDING COMPANY.
c. AMOUNT AND PAYMENT OF BENEFITS. As soon as SECURITY receives proper
claim notice and proof of the claim, SECURITY will promptly pay the
reinsurance benefits due CEDING COMPANY. CEDING COMPANY's
contractual liability for claims is binding on SECURITY. The maximum
benefit payable to CEDING COMPANY under each reinsured policy is the
amount specifically reinsured with SECURITY. The total reinsurance
in all companies on a policy shall not exceed
12
02711916
URT97 (7/1/97)
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 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.
d. CONTESTED CLAIMS. CEDING COMPANY will notify SECURITY of its
intention to contest, compromise, or litigate a claim involving a
reinsured policy. If CEDING COMPANY's contest, compromise, or
litigation results in a reduction in its liability, SECURITY will
share in the reduction in the proportion that SECURITY's net
liability bears to the sum of the net liability of all reinsurers on
the insured's date of death. If SECURITY should decline to
participate in the contest, compromise or litigation, SECURITY will
then release all of its liability by paying CEDING COMPANY its full
share of reinsurance and not sharing in any subsequent reduction in
liability.
e. CLAIM EXPENSES. SECURITY will pay its share of reasonable
investigation and legal expenses connected with the litigation or
settlement of contractual liability claims unless SECURITY has
released its liability, in which case SECURITY will not participate
in any expenses after the date of release. However, claim expenses
do not include routine claim and administration expenses, including
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 CEDING
COMPANY admits are payable are not a claim expense under this
Agreement.
f. EXTRACONTRACTUAL DAMAGES. In no event will SECURITY participate in
punitive or compensatory damages which are awarded against CEDING
COMPANY as a result of an act, omission or course of conduct
committed by CEDING COMPANY in connection with the insurance under
this Agreement. SECURITY will, however, pay its share of statutory
penalties awarded against CEDING COMPANY in connection with the
insurance reinsured under this Agreement. The parties recognize
that circumstances may arise in which equity would require SECURITY,
to the extent permitted by law, to share proportionately in certain
assessed damages. Such circumstances are difficult to define in
advance, but generally would be those situations in which SECURITY
was an active party and directed, consented to, or ratified the act,
omission, or course of conduct of CEDING COMPANY which ultimately
resulted in the assessment of punitive and/or compensatory damages.
In such situations, CEDING COMPANY and SECURITY would share such
damages assessed in equitable proportions.
Routine expenses incurred in the normal settlement of uncontested
claims and the salary of an officer or employee of CEDING COMPANY
are excluded from this provision. For purposes of the provision, the
following definitions will apply:
"Punitive Damages" are those damages awarded as penalties, the
amounts of which are not governed nor fixed by statute;
13
02711916
URT97 (7/1/97)
"Statutory Penalties" are those amounts awarded as penalties, and
are fixed in amount by statute;
"Compensatory Damages" are those amounts awarded to compensate for
actual damages sustained, and are not awarded as penalties, nor
fixed in amount by statute.
15. MISREPRESENTATION, SUICIDE, AND MISSTATEMENT. If either a
misrepresentation on an application or a death of an insured by suicide
results in the return of policy premiums by CEDING COMPANY under the
policy rather than payment of policy benefits, SECURITY will refund all of
the reinsurance premiums paid for that policy to CEDING COMPANY. This
refund will be in lieu of all other benefits under this Agreement. If
there is an adjustment for a misrepresentation or misstatement of age or
sex, a corresponding adjustment to the reinsurance benefit will be made.
16. POLICY CHANGES.
--------------
a. NOTICE. If a reinsured policy is changed, a corresponding change
will be made in the reinsurance for that policy. CEDING COMPANY will
notify SECURITY of the change in 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, then the increase shall be
automatically accepted by SECURITY, 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.
c. REDUCTION OR TERMINATION. If life insurance on a reinsured policy is
reduced, then reinsurance will be reduced by the amount of the
reduction on the date of such change. If more than one reinsurer
participates in the reinsurance, the reinsurance with each reinsurer
will be reduced proportionately. If life insurance on a reinsured
policy is terminated, then reinsurance will cease on the date of
such termination.
d. OTHER POLICY CHANGES, CONVERSIONS, EXCHANGES, ETC. Exchanges, term
conversions or other changes in the insurance reinsured with
SECURITY, where not fully underwritten as a new issue, will continue
to be ceded to SECURITY. Reinsurance rates for these policies will
be the YRT conversion rates shown in Schedule B or may be mutually
agreed upon. 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
issuance of a new policy.
14
02711916
URT97 (7/1/97)
e. EXTENDED TERM AND REDUCED PAID-UP INSURANCE. When a reinsured policy
changes to extended term or reduced paid-up insurance, CEDING
COMPANY will notify SECURITY of the new amount of reinsurance.
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.
17. REINSTATEMENTS.
--------------
a. AUTOMATIC REINSTATEMENT. If CEDING COMPANY reinstates a policy that
was originally ceded to SECURITY as automatic reinsurance using
conventional underwriting practices, SECURITY's reinsurance for that
policy shall be reinstated.
b. FACULTATIVE REINSTATEMENT. If CEDING COMPANY has been requested to
reinstate a policy that was originally ceded to SECURITY as
facultative reinsurance, then CEDING COMPANY will again submit the
case to SECURITY for underwriting approval before the reinsurance
can be reinstated.
c. PREMIUM ADJUSTMENT. Reinsurance premiums for the interval during
which the policy was lapsed will be paid to SECURITY on the same
basis as CEDING COMPANY charged its policy owner for the
reinstatement.
d. NONFORFEITURE REINSURANCE TERMINATION. If 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 shall be
followed.
18. INCREASE IN RETENTION.
---------------------
a. NEW BUSINESS. If CEDING COMPANY increases its retention limits, then
it may, at its option and with written notice to SECURITY, increase
its retention shown in Schedule A for policies issued after the
effective date of the retention increase.
b. RECAPTURE. If CEDING COMPANY increases its retention limits, then it
may, with 90 days written notice to SECURITY, 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 shall 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.
15
02711916
URT97 (7/1/97)
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 retention limits.
iii. If more than one policy per life is eligible for recapture,
then starting with the earliest policy issue date, the
recapture will be in chronological order according to policy
issue date.
iv. Recapture of reinsurance will not be allowed on any policy for
which CEDING COMPANY did not keep its maximum retention at
issue. CEDING COMPANY's 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 SECURITY's
reinsurance on that policy shall be in proportion to the total
amount of reinsurance on the life with all reinsurers.
vi. Recapture will not be on a basis that may result in any
anti-selection against SECURITY as it, in its discretion, may
determine.
19. ERRORS AND OMISSIONS. If either SECURITY or CEDING COMPANY fails to comply
with any of the terms of this Agreement and it is shown that the failure
was unintentional or the result of a misunderstanding or an administrative
oversight on the part of either party, this Agreement will remain in
effect. If the failure to comply changes the operation or effect of this
Agreement, both parties will be put back to the positions they would have
occupied if the failure to comply had not occurred.
20. INSOLVENCY. In the event that CEDING COMPANY is deemed insolvent, all
reinsurance claims payable hereunder shall be payable by SECURITY directly
to CEDING COMPANY, its liquidator, receiver or statutory successor,
without diminution because of the insolvency of CEDING COMPANY. It is
understood, however, that in the event of such insolvency, the liquidator
or receiver or statutory successor of CEDING COMPANY shall give written
notice to SECURITY of the pendency of a claim against SECURITY on a risk
reinsured hereunder within a reasonable time after such claim is filed in
the insolvency proceeding.
Such notice shall indicate the policy reinsured and whether the claim
could involve a possible liability on the part of SECURITY. During the
pendency of such claim, the reinsurer may investigate such claim and
interpose, at their own expense, in the proceeding where such claim is to
be adjudicated, any defense or defenses it may deem available to CEDING
COMPANY, its liquidator, receiver or statutory successor. It is further
understood that the expense thus incurred by SECURITY shall be chargeable,
subject to court approval, against CEDING COMPANY as part of the expense
of liquidation to the extent of a proportionate share of the benefit which
may accrue to CEDING COMPANY solely as a result of the defense undertaken
by SECURITY.
16
02711916
URT97 (7/1/97)
21. ARBITRATION.
-----------
a. GENERAL. All disputes and differences under this Agreement that
cannot be amicably agreed upon by the parties will be decided by
arbitration. The arbitrators will have the authority to interpret
this Agreement and, in doing so, will consider the customs and
practices of the life insurance and life reinsurance industries. The
arbitrators will consider this Agreement an honorable engagement
rather than merely a legal obligation, and they are relieved of all
judicial formalities and may abstain from following the strict rules
of the law.
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 date of the mailing of the notification initiating the
arbitration, then select the third arbitrator. Should either party
fail to appoint an arbitrator or should the two initial arbitrators
be unable to agree on the choice of a third arbitrator, each
arbitrator will nominate three candidates, two of whom the other
will decline, and the decision will be made by drawing lots on the
final selection. Once chosen, the three arbitrators will have the
authority to decide all substantive and procedural issues by a
majority vote. The arbitration hearing will be held on the date
fixed by the arbitrators at a location agreed upon by the parties.
The 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 which has jurisdiction of the subject of the
arbitration.
d. COSTS. Each party will pay the fees of its own attorneys, the
arbitrator appointed by that party, and all other expenses connected
with the presentation of its own case. The two parties will share
equally in the cost of the third arbitrator.
22. GOOD FAITH; FINANCIAL SOLVENCY. CEDING COMPANY agrees that all matters
with respect to this Agreement require its utmost good faith. SECURITY or
its representatives have the right at any reasonable time to inspect
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.
SECURITY has entered
17
02711916
URT97 (7/1/97)
into this Agreement in reliance upon CEDING COMPANY's representations and
warranties. CEDING COMPANY affirms that it has and will continue to
disclose all matters material to this Agreement and each 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
CEDING COMPANY's ownership or control.
23. TERM OF THIS AGREEMENT. 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.
SECURITY will continue to accept reinsurance during this 90 day period.
SECURITY's acceptance will be subject to both the terms of this Agreement
and 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.
24. MEDICAL INFORMATION BUREAU. SECURITY is required to strictly adhere to the
Medical Information Bureau Rules, and CEDING COMPANY agrees to abide by
these Rules, as amended from time to time. CEDING COMPANY will not submit
a preliminary notice, application for reinsurance, or reinsurance cession
to SECURITY unless CEDING COMPANY has an authentic, signed preliminary or
regular application for insurance in its home office and the current
required Medical Information Bureau authorization.
18
02711916
URT97 (7/1/97)
SCHEDULE A
1. PLANS REINSURED:
The policy and supplemental benefit forms automatically and facultatively
reinsured are:
Variable Universal Life
Disability Waiver of Premium Benefit
2. AUTOMATIC PORTION REINSURED:
Security shall automatically reinsure 15% of Ceding Company's pool, on a
first dollar quota share basis. Ceding Company shall keep 10% of each risk
up to Ceding Company's retention limits and place the remainder into the
Ceding Company's pool.
3. AUTOMATIC RETENTION LIMIT:
a. Life Insurance:
i. Non-Military Life
$600,000 per life
ii. Enlisted Military Personnel On Active Duty
$50,000 per life
iii. All Other Military Personnel
==========================================================
Rank Standard and Substandard
----------------------------------------------------------
W0 through 0-3 $250,000
----------------------------------------------------------
0-4 and above $350,000
==========================================================
SCHEDULE A, CONTINUED
1
02711916
URT97 (7/1/97)
b. Disability Waiver of Premium Benefit:
==========================================================
Issue Age Standard and Substandard
----------------------------------------------------------
15-55 $600,000
==========================================================
c. Accidental Death Benefit
Not reinsured under this Agreement
4. AUTOMATIC ACCEPTANCE LIMITS:
a. Life Insurance:
i. Enlisted Military Personnel on Active Duty,
The maximum issue limit is $200,000 per life.
SECURITY shall automatically reinsure up to $10,000 per life.
ii. Non-Military Life and All Other Military Personnel
On any one life, the amount automatically reinsured under all agreements
with all reinsurers shall not exceed the following:
=========================================================================================================
ISSUE STANDARD - TABLE 8 TABLES 9 - 16
AGE
---------------------------------------------------------------------------------------------------------
0 - 75 11 TIMES CEDING COMPANY'S RETENTION 11 TIMES CEDING COMPANY'S RETENTION AS
AS STATED IN SCHEDULE A OF THIS AGREEMENT, STATED IN SCHEDULE A OF THIS AGREEMENT, SUBJECT
SUBJECT TO A MAXIMUM OF $6,600,000. TO A MAXIMUM OF $6,600,000.
---------------------------------------------------------------------------------------------------------
76-80 11 TIMES CEDING COMPANY'S RETENTION AUTOMATIC REINSURANCE IS NOT AVAILABLE.
AS STATED IN SCHEDULE A OF THIS AGREEMENT,
SUBJECT TO A MAXIMUM OF $6,600,000.
---------------------------------------------------------------------------------------------------------
81+ 11 TIMES CEDING COMPANY'S RETENTION AS AUTOMATIC REINSURANCE IS NOT AVAILABLE.
STATED IN SCHEDULE A OF THIS AGREEMENT,
SUBJECT TO A MAXIMUM OF $6,600,000.*
=========================================================================================================
* Standard Only
SCHEDULE A, CONTINUED
2
02711916
URT97 (7/1/97)
b. Disability Waiver of Premium Benefit:
SECURITY shall automatically reinsure Disability Waiver of Premium
Benefits up to a maximum of $2,000,000 of Benefit face amount per
life.
c. Accidental Death Benefit:
Not reinsured under this Agreement
The total mortality rating on each life shall not be higher than 500%.
5. AUTOMATIC IN FORCE AND APPLIED FOR LIMIT:
$25,000,000
6. PREMIUM DUE:
Reinsurance premiums are due annually in advance. These premiums are due
on the issue date and each subsequent policy anniversary.
7. RECAPTURE PERIOD:
The minimum number of years for a cession to be reinsured before it is
eligible for recapture is 10 years.
8. NET AMOUNT AT RISK:
The net amount at risk for purposes of this agreement is the policy face
amount less the policy account value.
SCHEDULE A, CONTINUED
3
02711916
URT97 (7/1/97)
9. ADDITIONAL UNDERWRITING REQUIREMENTS:
The following requirements apply to business reinsured under this
Agreement. These requirements are in addition to the conventional
underwriting and issue practices described in Section 3.a. of this
Agreement.
BLOOD PROFILE LIMITS:
Where permitted by law, a blood profile including an AIDS test is required
according to the age and amount conditions described below. The AIDS test
is to be an HIV or, when the HIV is not permitted, a T-Cell ratio.
=====================================================
Issue Age Applied For Amount
-----------------------------------------------------
0-14 $200,000
-----------------------------------------------------
15+ $100,000
=====================================================
4
02711916
URT97 (7/1/97)
SCHEDULE B
AUTOMATIC REINSURANCE PREMIUMS - YEARLY RENEWABLE TERM BASIS
1. LIFE INSURANCE:
a. Standard annual reinsurance premiums per $1000 reinsured shall be
the following percentages of the 91 Xxxxx Table Premium rates
attached to this Schedule B:
=======================================================================
YEAR PREFERRED PREFERRED PREFERRED STANDARD STANDARD
ULTRA PLUS PLUS
-----------------------------------------------------------------------
1 0% 0% 0% 0% 0%
-----------------------------------------------------------------------
2+ 32% 40% 48% 41% 52%
=======================================================================
b. Table rated substandard reinsurance premiums shall be at the
appropriate multiple of the standard reinsurance premiums (25%
per table).
c. Flat Extra reinsurance premiums shall be the following percentages
of such premiums charged the insured:
======================================================================
Permanent flat extra premiums (for more than 5 years duration)
--------------------------------------------------------------------
First Year 25%
--------------------------------------------------------------------
Renewal Years 90%
====================================================================
====================================================================
Temporary flat extra premiums (for 5 years or less duration)
--------------------------------------------------------------------
All Years 90%
====================================================================
2. SUPPLEMENTAL BENEFITS:
Disability Waiver of Premium Benefit reinsurance premiums shall be
the following percentages of such premiums charged the insured:
====================================================================
Year Percentage
--------------------------------------------------------------------
1 0%
--------------------------------------------------------------------
2+ 80%
====================================================================
1
02711916
URT97 (7/1/97)
SCHEDULE B, CONTINUED
3. AGE BASIS:
Age Last Birthday
4. OTHER POLICY CHANGES, CONVERSIONS, EXCHANGES, ETC.:
Annual reinsurance premiums for conversions shall be as shown in the
Security Life Reinsurance Rates For After Conversion attached to this
Schedule B. Reinsurance rates shall be based on the original issue age,
duration since issuance of the original policy and original underwriting
classification.
5. FACULTATIVE RATE LIMIT:
The automatic reinsurance rates in this Agreement can be used for
facultative reinsurance up to the limits shown below. If either limit
would be exceeded, then the reinsurance rates shall be mutually agreed
upon.
a. The total individual in force and applied for in all companies, for
each life, does not exceed $35,000,000.
b. The total amount reinsured with SECURITY, for each life, does not
exceed the following:
===================================================================================
Issue Age Std - Table 4 Tables 5 - 8 Tables 9 - 16
-----------------------------------------------------------------------------------
0-75 $20,000,000 $15,000,000 $10,000,000
-----------------------------------------------------------------------------------
76-80 $15,000,000 $10,000,000 $5,000,000
-----------------------------------------------------------------------------------
81-85 $5,000,000 $2,000,000 $0
===================================================================================
2
02711916
URT97 (7/1/97)
SCHEDULE C
REPORTING INFORMATION
INFORMATION ON RISKS REINSURED
* 1. Full Name of Insured
* 2. Date of Birth
* 3. Sex
* 4. Nonsmoker/Smoker
* 5. Insured's State of Residence
* 6. Issue Age
7. Policy Number
8. Issue Date
9. Policy Plan Code
10. Type of Transaction
11. Effective Date of Transaction
12. Automatic/Facultative Indicator
13. Duration from Original Policy Date
14. Face Amount Issued
15. Reinsured Amount (Initial Amount)
16. Reinsured Amount (Current Amount at Risk)
17. Change in Amount at Risk Since Last Report
18. Death Benefit Option (For Universal Life Type Plans)
19. ADB Amount (If Applicable)
20. Substandard Rating
21. Flat Extra Amount Per Thousand
22. Duration of Flat Extra
24. Previous Policies (Yes or No)
25. Premiums categorized by:
Life, Riders, Waivers, Accidental Death Benefits and Flat Extras
26. Statutory Reserves for:
Life, Substandard Risks, Waivers and Accidental Death Benefits
*Please provide this information for every insured on each policy
SCHEDULE C, CONTINUED
1
02711916
URT97 (7/1/97)
SAMPLE
POLICY EXHIBIT SUMMARY
(Life Reinsurance Only)
CEDING COMPANY: _____________________________________________________________
REINSURER: _____________________________________________________________
ACCOUNT NO: _____________________________________________________________
PREPARED BY: _______________ Phone: _(____________) ___________________
DATE PREPARED: _____________________________________________________________
TYPE OF REINSURANCE:
Yearly Renewable Term _______________________________________
Coinsurance _______________________________________
Modified Coinsurance _______________________________________
Other _______________________________________
VALUATION DATE: _______________
NUMBER OF AMOUNT OF
POLICIES REINSURANCE
A. In Force Beginning
of Period___/___/___ _____________ ___________________
B. New Paid Reinsurance Ceded _____________ ___________________
C. Reinstatements _____________ ___________________
D. Revivals _____________ ___________________
E. Increases (Net) _____________ ___________________
F. Conversion In _____________ ___________________
G. Transfers In _____________ ___________________
H. Total Increases (B - G) _____________ ___________________
I. Deaths _____________ ___________________
J. Maturities _____________ ___________________
K. Cancellations _____________ ___________________
L. Expiries _____________ ___________________
M. Surrenders _____________ ___________________
N. Lapses _____________ ___________________
O. Recaptures _____________ ___________________
P. Other Decreases (Net) _____________ ___________________
Q. Reductions _____________ ___________________
R. Conversions Out _____________ ___________________
S. Transfers Out _____________ ___________________
T. Total Decreases (I - S) _____________ ___________________
U. Current In Force___/___/___ _____________ ___________________
(A + H - T)
SCHEDULE C, CONTINUED
SAMPLE
------
2
02711916
URT97 (7/1/97)
RESERVE CREDIT SUMMARY
CEDING COMPANY: _____________________________________________________________
REINSURER: _____________________________________________________________
ACCOUNT NO: _____________________________________________________________
PREPARED BY: _______________ Phone: _(____________) __________________
DATE PREPARED: _____________________________________________________________
TYPE OF REINSURANCE:
Yearly Renewable Term _______________________________________
Coinsurance _______________________________________
Modified Coinsurance _______________________________________
Other _______________________________________
VALUATION DATE: _______________
TYPE OF RESERVES:
Statutory _______________________________________
GAAP _______________________________________
Tax _______________________________________
VALUATION BASIS ISSUE IN
YEAR FORCE IN FORCE RESERVE
MORTALITY INTEREST VALUATION RANGE COUNT AMOUNT CREDIT
A. Life
Insurance ____________ __________ ___________ _________ _________ _________ __________
____________ __________ ___________ _________ _________ _________ __________
B.
Accidental
Death
Benefit ____________ __________ ___________ _________ _________ _________ __________
C.
Disability
Active
Lives ____________ __________ ___________ _________ _________ _________ __________
D.
Disability
Disabled
Lives ____________ __________ ___________ _________ _________ _________ __________
E. Other
Please
Explain ____________ __________ ___________ _________ _________ _________ __________
GRAND TOTAL: _________
SCHEDULE C, CONTINUED
SAMPLE
------
3
02711916
URT97 (7/1/97)
ACCOUNTING SUMMARY
CEDING COMPANY: _____________________________________________________________
REINSURER: _____________________________________________________________
ACCOUNT NO: _____________________________________________________________
PREPARED BY: _______________ Phone: _(____________) __________________
DATE PREPARED: _____________________________________________________________
TYPE OF REINSURANCE:
Yearly Renewable Term _______________________________________
Coinsurance _______________________________________
Modified Coinsurance _______________________________________
Other _______________________________________
VALUATION DATE: _______________
LIFE WP AD TOTAL
Premiums
First Year ___________ ___________ ___________ ___________
Renewal ___________ ___________ ___________ ___________
Allowances
First Year ___________ ___________ ___________ ___________
Renewal ___________ ___________ ___________ ___________
Adjustments
First Year ___________ ___________ ___________ ___________
Renewal ___________ ___________ ___________ ___________
Net Due REINSURER
First Year ___________ ___________ ___________ ___________
Renewal ___________ ___________ ___________ ___________
TOTAL DUE ___________ ___________ ___________ ___________
(The above information should be a summary of the detail
information provided to REINSURER.)
4
02711916
URT97 (7/1/97)
SCHEDULE D
FACULTATIVE FORMS
Application for Reinsurance
Notification of Reinsurance
1
02711916
URT97 (7/1/97)
