VARIABLE ANNUITY GMDB REINSURANCE AGREEMENT
Between
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Hereinafter called the "CEDING COMPANY")
Worcester, Massachusetts
and
ACE TEMPEST LIFE REINSURANCE LTD.
(Hereinafter called the "REINSURER")
Hamilton, Bermuda
TABLE OF CONTENTS
ARTICLE PAGE
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Access to Records X 14
Arbitration XIV 16
Automatic Provisions IV 8
Currency XII 15
Definitions I 3
Effective Date, Term, and Termination III 6
Experience Refund VII 11
Insolvency XIII 15
Litigation IX 13
Miscellaneous XVI 17
Notices XVII 18
Offset XV 17
Parties to the Agreement II 5
Premium Accounting V 9
Reinsurance Claim Settlement VI 10
Reserves VIII 12
Unintentional Errors, Misunderstandings, or Omissions XI 15
SCHEDULES
A Description of Guaranteed Minimum Death Benefits (GMDBs)
B Investment Funds Subject to this Reinsurance Agreement
C-1 Limits and Rules of CEDING COMPANY
C-2 Limits and Rules of the REINSURER
D-1 REINSURANCE PREMIUM RATES by Treaty Year
D-2 REINSURANCE RETENTION RATE
E MORTALITY RATE by Attained Age and Sex of INSURED LIFE
F ANNUAL MORTALITY IMPROVEMENT FACTOR
G REINSURER Quota Share of Risk
H CEDING COMPANY Reporting Format and Data Requirements
I Surplus Position of REINSURER
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ARTICLE I - DEFINITIONS
A. DURATION OF AGREEMENT:
EFFECTIVE DATE means December 1, 2002.
ANNUAL VALUATION DATE means November 30.
BUSINESS DAY means any day that securities are traded on the New York Stock
Exchange.
MONTHLY VALUATION DATE means the last BUSINESS DAY of each month.
TERMINATION DATE means the earlier of November 30, 2012 and the last BUSINESS
DAY of the month following the month in which the AGGREGATE GMDB AMOUNT is less
than $4,000,000,000.
ANNUAL VALUATION PERIOD means the period from December 1 until November 30.
B. CONTRACT DEFINITIONS:
VARIABLE ANNUITY CONTRACT means a written annuity contract issued by the CEDING
COMPANY to a contract owner in accordance with which the CEDING COMPANY agrees
to provide specified benefits in accordance with specified terms and conditions.
INSURED LIFE means the oldest owner or annuitant, as specified in the VARIABLE
ANNUITY CONTRACT, upon whose death a claim may be due under this Agreement.
GMDB TYPE means one of the Guaranteed Minimum Death Benefits specified in the
VARIABLE ANNUITY CONTRACT and described in Schedule A.
ACCOUNT VALUE means for each VARIABLE ANNUITY CONTRACT, the sum of the invested
assets in the investment funds shown in Schedule B.
GMDB AMOUNT means the CEDING COMPANY's minimum required payment, pursuant to a
VARIABLE ANNUITY CONTRACT, on the death of the INSURED LIFE.
EXCLUDED CONTRACT means any VARIABLE ANNUITY CONTRACT that has (a) a GMDB
provision that is suspended due to change in owner or annuitant, (b) a GMDB
AMOUNT that is contractually set to the ACCOUNT VALUE, or (c) a spousal
continuation in conjunction with a death of an INSURED LIFE. Any EXCLUDED
CONTRACT shall be treated as such only on and after the date as of which it
satisfies any of the conditions identified as (a), (b), or (c) above.
ACTIVE CONTRACT means a VARIABLE ANNUITY CONTRACT, other than an EXCLUDED
CONTRACT, that remains in effect and has not terminated due to death, lapse,
surrender or some other valid contingency and has not been annuitized.
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AGGREGATE GMDB AMOUNT means the sum of the GMDB AMOUNT for all ACTIVE CONTRACTS
covered under this Agreement, as calculated on each MONTHLY VALUATION DATE.
NET AMOUNT AT RISK means for each ACTIVE CONTRACT, the excess, if any, of the
GMDB AMOUNT over the ACCOUNT VALUE.
C. REINSURED AMOUNT DEFINITIONS:
REINSURED NET AMOUNT AT RISK means the NET AMOUNT AT RISK multiplied by the
REINSURER's quota share of risk in accordance with Schedule G.
D. REINSURANCE PREMIUM DEFINITIONS:
REINSURANCE PREMIUM RATE means the numerical value provided in Schedule D-1.
MORTALITY RATE means a numerical value, provided in Schedule E, based on the
attained age and sex of the INSURED LIFE.
ANNUAL MORTALITY IMPROVEMENT FACTOR means a numerical value, provided in
Schedule F, for each ANNUAL VALUATION PERIOD.
MORTALITY IMPROVEMENT FACTOR means the product of all ANNUAL MORTALITY
IMPROVEMENT FACTORs from the inception of this Agreement at each ANNUAL
VALUATION DATE.
TERMINATION RATE means the percentage of AGGREGATE GMDB AMOUNT, based on the
AGGREGATE GMDB AMOUNT at the beginning of each ANNUAL VALUATION PERIOD, that
terminates for any reason except death or admission into a nursing home that
qualifies for waiver of surrender charges under the terms of the VARIABLE
ANNUITY CONTRACTs during each ANNUAL VALUATION PERIOD.
MONTHLY REINSURANCE PREMIUM means, for each ACTIVE CONTRACT covered by this
Agreement, the sum of the REINSURANCE PREMIUM RATE times the MORTALITY RATE
times the MORTALITY IMPROVEMENT FACTOR at the most recent ANNUAL VALUATION DATE
times the REINSURED NET AMOUNT AT RISK as of the MONTHLY VALUATION DATE.
REINSURANCE PREMIUM DUE DATE means the MONTHLY VALUATION DATE.
REMITTANCE DATE means the last BUSINESS DAY of the calendar month following the
REINSURANCE PREMIUM DUE DATE.
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E. REINSURANCE CLAIM DEFINITIONS:
GMDB CLAIM means the REINSURED NET AMOUNT AT RISK on the date that CEDING
COMPANY receives due proof of death.
MONTHLY GMDB CLAIM means the sum of all GMDB CLAIMs presented for payment by the
CEDING COMPANY to the REINSURER in a month, calculated on each MONTHLY VALUATION
DATE.
ANNUAL GMDB CLAIM means the sum of the most recent twelve MONTHLY GMDB CLAIMs,
as calculated on each ANNUAL VALUATION DATE.
AGGREGATE GMDB CLAIM means the sum of all GMDB CLAIMS calculated on the
TERMINATION DATE.
F. REINSURANCE CLAIM LIMIT DEFINITIONS:
MONTHLY CLAIM LIMIT means the sum of the MORTALITY RATE times the REINSURED NET
AMOUNT AT RISK, for each ACTIVE CONTRACT, as calculated on each MONTHLY
VALUATION DATE.
ANNUAL CLAIM LIMIT means the sum of the most recent twelve MONTHLY CLAIM LIMITs,
as calculated on each ANNUAL VALUATION DATE.
G. REINSURANCE EXPERIENCE REFUND DEFINITIONS:
REINSURANCE RETENTION RATE means the numerical value in Schedule D-2.
MONTHLY REINSURANCE RETENTION means, for each ACTIVE CONTRACT, the sum of the
REINSURANCE RETENTION RATE times the MORTALITY RATE times the REINSURED NET
AMOUNT AT RISK as of the MONTHLY VALUATION DATE.
ARTICLE II - PARTIES TO THE AGREEMENT
This Agreement shall be binding upon and shall inure solely to the benefit of
the CEDING COMPANY and the REINSURER. This Agreement shall not and is not
intended to create any legal relationship or confer any rights and obligations
between the REINSURER and any third party, including without limitation,
annuitants, contract owners, certificate owners, beneficiaries, applicants or
assignees under any ACTIVE CONTRACT.
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ARTICLE III - EFFECTIVE DATE, TERM AND TERMINATION
A. The Agreement covers VARIABLE ANNUITY CONTRACTs issued by the CEDING COMPANY
that:
(i) are among the GMDB TYPES identified in Schedule A;
(ii) have accounts invested in the investment funds listed in Schedule B;
(iii) are issued within the limits and rules described in Schedule C-1;
(iv) are ACTIVE CONTRACTS on the EFFECTIVE DATE;
(v) are in compliance with all of the other terms and provisions of this
Agreement
B. Subject to paragraphs C, D and F below, this Agreement will terminate on the
TERMINATION DATE.
C. The CEDING COMPANY shall have the option of terminating this Agreement with
ninety (90) days written notice to the REINSURER, after the occurrence of any
of the following:
1. The REINSURER's Standard and Poor's Claim Paying Rating is reduced to a
"BBB" or lower. The REINSURER must report any adverse change in
Standard and Poor's Claim Paying Rating to the CEDING COMPANY within
fifteen (15) days of the change. Any notice of termination given by the
CEDING COMPANY enabled by such rating reduction shall be deemed
withdrawn if the REINSURER's Standard and Poor's Rating is restored to
a level higher than "BBB" during the 90 day notice period;
2. An order appointing a receiver, conservator or trustee for management
of the REINSURER is entered or a proceeding is commenced for
rehabilitation, liquidation, supervision or conservation of the
REINSURER;
3. The REINSURER's U.S. GAAP surplus position is reduced to 70% or less of
the value of its U.S. GAAP surplus position as of December 31, 2001.
The REINSURER must report such a reduction within fifteen (15) days
after it occurs. The REINSURER's surplus position as of December 31,
2001 is provided in Schedule I. Any notice of termination given by the
CEDING COMPANY enabled by such surplus reduction shall be deemed
withdrawn if the REINSURER's U.S. GAAP surplus position is restored to
a level higher than 70% of its U.S. GAAP surplus position as of
December 31, 2001 during the 90 day notice period.
D. The REINSURER shall have the option of terminating this Agreement with ninety
(90) days written notice to the CEDING COMPANY after the occurrence of any of
the following:
1. The CEDING COMPANY fails to provide timely submissions of data in
accordance with Schedule H. The REINSURER must provide the CEDING
COMPANY with Notice of Termination. If, during the ninety (90) days
following this notification, the REINSURER receives all data
submissions in arrears, the notice of termination shall
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be deemed withdrawn. If the CEDING COMPANY fails to provide the
submission of data in accordance with Schedule H as of the close of the
last day of this ninety (90) day notice period, the REINSURER's
liability for all risks reinsured associated with the withheld data
under this Agreement will terminate.
2. The CEDING COMPANY fails to pay premium on or before the REMITTANCE
DATE. In the event that the premiums are not paid by the REMITTANCE
DATE, the REINSURER shall have the right to terminate this agreement by
giving ninety (90) days written notice of termination to the CEDING
COMPANY. If all premiums in default and interest owed in accordance
with Article III, paragraph E are received by the REINSURER within the
ninety (90) day time period, the Agreement will remain in effect and
the notice of termination shall be deemed withdrawn. If premiums remain
in default as of the close of the last day of this ninety (90) day
notice period, the REINSURER's liability for all risks reinsured
associated with the defaulted premiums under this Agreement will
terminate.
E. Except as otherwise provided herein, upon termination of this Agreement,
REINSURER shall have no reinsurance liability with respect to any VARIABLE
ANNUITY CONTRACT. Not withstanding termination of reinsurance as provided
herein, the CEDING COMPANY shall continue to be liable to the REINSURER for
all unpaid reinsurance premiums earned by the REINSURER under this Agreement
and the REINSURER shall continue to be liable to the CEDING COMPANY for all
unpaid GMDB CLAIMS owed to the CEDING COMPANY under this Agreement. Such
amounts owed by either party are subject to a daily interest charge from the
REMITTANCE DATE until the date paid. The daily interest rate is equal to
1/365 times the sum of (a) the 3-month LIBOR rate as of the most recent
MONTHLY VALUATION DATE, as published in the Wall Street Journal, and (b)
1.00%.
F. The CEDING COMPANY may recapture all ACTIVE CONTRACTS under this Agreement
prior to the TERMINATION DATE if (a) the EXPERIENCE REFUND ACCOUNT, measured
on the most recent ANNUAL VALUATION DATE; is a positive value and (b) the sum
of the NET AMOUNT AT RISK for all ACTIVE CONTRACTS is less than $750 million
on the most recent ANNUAL VALUATION DATE; and (c) the most recent ANNUAL
VALUATION DATE is after December 1, 2005. Such recapture is effective on the
third MONTHLY VALUATION DATE following written notification from the CEDING
COMPANY to the REINSURER.
G. At the time that recapture is elected by the CEDING COMPANY under the
conditions described in paragraph F, a Recapture Fee will be payable from the
CEDING COMPANY to the REINSURER. The Recapture Fee will be calculated as
follows: First determine the greater of $500,000 or the MONTHLY REINSURANCE
PREMIUM calculated on the MONTHLY VALUATION DATE immediately following the
date that the REINSURER receives written notification from the CEDING COMPANY
of its irrevocable intent to recapture. This figure will be divided by 60 and
multiplied by the number of months between the MONTHLY VALUATION DATE
immediately following the date that the REINSURER receives such notification
and November 30, 2012. The resulting amount will be the Recapture Fee which
is payable from the CEDING COMPANY to the REINSURER on the REMITTANCE DATE
immediately following the MONTHLY VALUATION DATE immediately following the
date that the REINSURER receives such notification.
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ARTICLE IV - AUTOMATIC PROVISIONS
A. Subject to Article III, on the EFFECTIVE DATE of this Agreement, the CEDING
COMPANY shall automatically cede and the REINSURER shall automatically accept
the ACTIVE CONTRACTS that are covered under this Agreement.
B. This Agreement covers only the liability for GMDB CLAIMS paid under VARIABLE
ANNUITY CONTRACT forms or benefit rider forms that were inforce prior to the
EFFECTIVE DATE.
C. This Agreement covers only the liability for GMDB CLAIMS paid under VARIABLE
ANNUITY CONTRACTs invested in Variable and Fixed investment funds listed on
Schedule B. If the CEDING COMPANY intends to cede to the REINSURER a
liability with respect to a new or revised investment fund it must provide
written notice to the REINSURER of such intention together with a copy of the
new or revised investment fund, and a revised Schedule B. The CEDING COMPANY
may add new or revise investment funds without REINSURER approval. Provided
the REINSURER receives notice of the new or revised fund within thirty (30)
days after the new or revised fund's initial availability, the effective date
of reinsurance hereunder shall be the date of the new or revised fund's
initial availability. Otherwise, the REINSURER may approve any new or revised
fund within thirty (30) working days of the date it receives notification and
a copy thereof, and any such fund shall be deemed disapproved if not so
approved.
D. This Agreement covers only the liability for GMDB CLAIMS where the date of
death of the INSURED LIFE is on or after the EFFECTIVE DATE and before or on
the TERMINATION DATE.
E. The REINSURER'S liability for GMDB CLAIMS may be limited in accordance with
Schedule C-2.
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ARTICLE V - PREMIUM ACCOUNTING
A. If reinsurance premiums are not paid by the REMITTANCE DATE, interest in
accordance with Article III, paragraph E will be assessed from the REMITTANCE
DATE.
B. On or before the REMITTANCE DATE, the CEDING COMPANY shall forward to the
REINSURER its statement of account and data requirements as set forth in
Schedule H together with its remittance for the MONTHLY REINSURANCE PREMIUM
as shown therein as well as any premium adjustments from the prior period.
C. If the amounts due cannot be determined by the REMITTANCE DATE, the CEDING
COMPANY shall have ninety (90) days to determine the appropriate premium and
remit with interest in accordance with Article III, paragraph E.
D. If a VARIABLE ANNUITY CONTRACT ceases to be an ACTIVE CONTRACT prior to the
MONTHLY VALUATION DATE, the MONTHLY REINSURANCE PREMIUM is adjusted to
include premium from the prior MONTHLY VALUATION DATE to the date the
VARIABLE ANNUITY CONTRACT ceases to be an ACTIVE CONTRACT.
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ARTICLE VI - REINSURANCE CLAIM SETTLEMENT
A. The REINSURER shall not be responsible for any obligation of the CEDING
COMPANY to any party under any VARIABLE ANNUITY CONTRACTS issued by the
CEDING COMPANY. The CEDING COMPANY is solely responsible for payment of
claims under the VARIABLE ANNUITY CONTRACTS.
B. On or before the REMITTANCE DATE, the CEDING COMPANY shall forward to the
REINSURER its statement of account and data requirements as set forth in
Schedule H, together with its request for reimbursement for GMDB CLAIMS as
shown therein. If requested by the REINSURER, the CEDING COMPANY shall
promptly provide the REINSURER with proof of claim, proof of claim payment
and any other claim documentation identified by the REINSURER, in accordance
with Schedule H.
C. For any calendar year, the REINSURER shall not be responsible for
reimbursement for any ANNUAL GMDB CLAIMS in excess of the ANNUAL CLAIM LIMIT.
If ANNUAL GMDB CLAIMS for any calendar year exceed the ANNUAL CLAIM LIMIT,
the request for reimbursement for GMDB CLAIMS shall be reduced so that the
sum of all such requests for reimbursement in that calendar year do not
exceed the ANNUAL CLAIM LIMIT.
D. If GMDB CLAIMS are not paid by the REMITTANCE DATE, interest calculated in
accordance with Article III, paragraph E will be assessed from the REMITTANCE
DATE and will continue until the GMDB CLAIMS are paid in full.
E. A final statement of accounts prepared by the CEDING COMPANY is due sixty
(60) days after the TERMINATION DATE. On or before this date, the CEDING
COMPANY shall forward to the REINSURER its final statement of account as set
forth in Schedule H. Based on the statement of account, any amounts owed by
either party must be paid within thirty (30) days of receiving the statement
of accounts. If amounts owed are not paid within thirty (30) days of
receiving the statement of account, the amounts owed are subject to an
interest charge in accordance with Article III, paragraph E, assessed
beginning thirty (30) days after receiving the statement of account.
F. The CEDING COMPANY shall have six (6) months after the TERMINATION DATE to
submit to REINSURER an amended final statement of account. Any amounts owed
by either the CEDING COMPANY or the REINSURER based on the amended final
statement of account, including any provision for Experience Refund in
accordance with Article VII, must be paid within thirty (30) days of receipt
of the amended final statement. If the amount owed is not paid within thirty
(30) days of receiving the statement of account, the amount owed is subject
to an interest charge in accordance with Article III, Paragraph E.
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ARTICLE VII - EXPERIENCE REFUND
A. The EXPERIENCE REFUND ACCOUNT shall be calculated on each MONTHLY VALUATION
DATE as the sum of the EXPERIENCE REFUND ACCOUNT on the previous MONTHLY
VALUATION DATE plus interest on the EXPERIENCE REFUND ACCOUNT on the previous
MONTHLY VALUATION DATE plus MONTHLY REINSURANCE PREMIUM less MONTHLY GMDB
CLAIM less MONTHLY REINSURANCE RETENTION.
B. Interest on the EXPERIENCE REFUND ACCOUNT shall be calculated using a monthly
interest rate equal to 1/12 times the sum of (a) the 3-month LIBOR rate on
the preceding MONTHLY VALUTION DATE as published in the Wall Street Journal
and (b) 0.50%.
C. The EXPERIENCE REFUND ACCOUNT on the EFFECTIVE DATE shall be the quantity
zero, and the EXPERIENCE REFUND ACCOUNT shall continue to be calculated until
the time that the amended final statement of account is produced by the
CEDING COMPANY in accordance with Article VI, Paragraph F.
D. If the EXPERIENCE REFUND ACCOUNT is a positive value, as reported in the
amended final statement of account as prepared by the CEDING COMPANY in
accordance with Article VI, paragraph F, an experience refund equal to 85% of
the EXPERIENCE REFUND ACCOUNT is payable to the CEDING COMPANY by the
REINSURER. Such experience refund, if payable, shall be included in the
amended final statement of account, as described in Article VI, paragraph F.
If the EXPERIENCE REFUND ACCOUNT is not a positive value as reported in the
amended final statement of account, no experience refund is payable.
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ARTICLE VIII - RESERVES
A. The reserve held by the REINSURER for reinsurance of the variable annuity
death benefit will be determined in accordance with the current applicable
NAIC Actuarial Guidelines, with reasonable adjustments for the
non-proportional aspects of this Agreement.
B. It is the intention of both the REINSURER and the CEDING COMPANY that the
CEDING COMPANY qualifies for reinsurance credit in the states of
Massachusetts and Delaware for reinsurance ceded hereunder. As a
non-authorized reinsurer in Massachusetts and Delaware, REINSURER will comply
with Massachusetts and Delaware Insurance Law relating to reinsurance credit
for non-authorized reinsurers, as promulgated in Massachusetts' and
Delaware's statutes on the effective date of this Agreement.
C. Provision for statutory reserves is satisfied by the REINSURER if either:
1. the funds (including any additional amounts legally required) are in a
trust that complies with the CEDING COMPANY's applicable regulations,
subject to withdrawal solely by, and under the exclusive control of the
CEDING COMPANY, held in a qualified United States financial
institution, as defined below, are at least as great as the statutory
reserves as of the ANNUAL VALUATION DATE;
2. cash or marketable securities are transferred to the CEDING COMPANY in
an amount at least as great as the statutory reserves as of the ANNUAL
VALUATION DATE, with the actual investment earnings on the proceeds
owned by the REINSURER.
3. clean, irrevocable, unconditional letters of credit, in an amount at
least as great as the statutory reserves as of the ANNUAL VALUATION
DATE, issued or confirmed by a qualified United States financial
institution, meeting applicable standards of issuer acceptability as of
the dates of their issuance.
4. a combination of (1), (2) and (3), such that the sum is at least as
great as the statutory reserves.
D. If at the end of any ANNUAL VALUATION PERIOD the statutory reserve is a
positive value less than $500,001, the REINSURER may, at its sole discretion,
make provision for this statutory reserve.
E. A qualified United States financial institution means an institution that
meets either subdivision (1) or (2):
1. Is organized, or in the case of a United States office of a foreign
banking organization, is licensed, under the laws of the United States
or any state in the United States, is regulated, supervised, and
examined by federal or state authorities having regulatory authority
over banks and trust companies, and has been determined by the
commissioner of Michigan to meet such standards of financial condition
and standing as are considered necessary and appropriate to regulate
the quality of
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financial institutions whose letters of credit will be acceptable to
the commissioners of Massachusetts and Delaware.
2. For those institutions that are eligible to act as a fiduciary of a
trust, is organized, or in the case of a United States branch or agency
office of a foreign banking organization, is licensed, under the laws
of the United States or any state in the United States, has been
granted authority to operate with fiduciary powers, and is regulated,
supervised, and examined by federal or state authorities having
regulatory authority over banks and trust companies.
ARTICLE IX - LITIGATION
In the event of any action brought against the CEDING COMPANY under any VARIABLE
ANNUITY CONTRACT that is subject to the terms and conditions of this Agreement,
the CEDING COMPANY shall provide a copy of such action and written notice of
such action within thirty (30) business days to the REINSURER.
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ARTICLE X - ACCESS TO RECORDS
A. The REINSURER, or its duly authorized representative, shall have access at
any reasonable time during regular business hours, to all records of the
CEDING COMPANY, including the right to photocopy and retain copies of such
documents, which reasonably pertain to this Agreement. Records shall be
maintained in accordance with prudent standards of insurance company record
keeping and must be retained for a period of at least three (3) years after
the final settlement date. Within one hundred and twenty (120) days following
the end of each calendar year, the CEDING COMPANY and the REINSURER will
provide each other with copies of their respective audited financial
statements.
B. The CEDING COMPANY and the REINSURER may come into the possession or
knowledge of Confidential Information of the other in fulfilling obligations
under this Agreement. Each party agrees to hold such Confidential Information
in the strictest confidence and to take all reasonable steps to ensure that
such Confidential Information is not disclosed in any form by any means by
each of them or by any of its employees to third parties of any kind, other
than attorneys, accountants, reinsurance intermediaries, consultants or
retrocessionaires having an interest in such information, except by advance
written authorization by an officer of the authorizing party; provided,
however, that either party will be deemed to have satisfied its obligations
as to the Confidential Information by protecting its confidentiality in the
same manner that such party protects its own proprietary or Confidential
Information of like kind which shall be at least a reasonable manner.
"Confidential Information" means any information which (1) is not generally
available to or known by the public, or (2) has not been lawfully obtained or
developed by either party independently and not in violation of this
Agreement or from any source other than the other party, provided that such
source is not bound by a duty of confidentiality to such other party, and
which consists of:
1. Information or knowledge about each party's products, processes,
services, finances, customers, research, computer programs, marketing
and business plans, claims management practices; and
2. Any medical or other personal, individually identifiable information
about people or business entities with whom the parties do business,
including customers, prospective customers, vendors, suppliers,
individuals covered by insurance plan, and each party's producers and
employees.
3. Records provided pursuant to Paragraph A, above.
C. If either the CEDING COMPANY or the REINSURER discloses Confidential
Information to interested parties such as, but not limited to, attorneys,
accountants, reinsurance intermediaries, consultants or retrocessionaires
having an interest in such information, such interested parties shall also be
bound by this Article's provisions on disclosing Confidential Information.
The CEDING COMPANY or the REINSURER must inform the interested party of the
provisions of this Article and agree to ensure that the interested parties
honor the provisions.
D. This Article expires 3 years after the TERMINATION DATE.
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ARTICLE XI - UNINTENTIONAL ERRORS, MISUNDERSTANDINGS OR OMISSIONS
It is expressly understood and agreed that if failure to comply with any terms
of this Agreement is hereby shown to be the result of an unintentional error,
misunderstanding or omission, on the part of either the CEDING COMPANY or the
REINSURER, both the CEDING COMPANY and the REINSURER, will be restored to the
position they would have occupied, had no such error, misunderstanding or
omission occurred, subject always to the correction of the error,
misunderstanding or omission.
ARTICLE XII - CURRENCY
All retentions and limits hereunder, and all monetary data elements as described
in Schedule H, are expressed in United States dollars and all premium and claim
payments shall be made in United States dollars.
ARTICLE XIII - INSOLVENCY
A. In the event of insolvency of the CEDING COMPANY, all reinsurance under this
Agreement will be payable directly by the REINSURER to the CEDING COMPANY or
to its liquidator, receiver, conservator or statutory successor on the basis
of the REINSURER's liability to the CEDING COMPANY without diminution because
of the insolvency of the CEDING COMPANY or because the liquidator, receiver,
conservator or statutory successor of the CEDING COMPANY has failed to pay
all or a portion of any claim.
B. In the event of insolvency of the CEDING COMPANY, the liquidator, receiver,
or statutory successor will, within reasonable time after the claim is filed
in the insolvency proceeding, give written notice to the REINSURER of all
pending claims against the CEDING COMPANY on any contracts reinsured. While a
claim is pending, the REINSURER may investigate and interpose, at its own
expense, in the proceedings where the claim is adjudicated, any defense or
defenses that it may deem available to the CEDING COMPANY or its liquidator,
receiver, or statutory successor. The expense incurred by the REINSURER will
be chargeable, subject to court approval against the CEDING COMPANY as part
of the expense of liquidation to the extent of a proportionate share of the
benefit that may accrue to the CEDING COMPANY solely as a result of the
defense undertaken by the REINSURER. Where two or more REINSURERs are
participating in the same claim and a majority in interest elect to interpose
a defense or defenses to any such claim, the expense will be apportioned in
accordance with the terms of the reinsurance agreement as though such expense
had been incurred by the CEDING COMPANY.
C. In the event of insolvency of the REINSURER, the CEDING COMPANY may recapture
immediately all ceded benefits upon written notice to the REINSURER, its
liquidator, receiver or statutory successor. The CEDING COMPANY shall also
have a claim on the REINSURER for any reinsurance credit amounts including
reserves, unearned premiums and other amounts due the CEDING COMPANY on such
reinsurance, at the date of recapture.
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ARTICLE XIV - ARBITRATION
A. As a condition precedent to any right of action hereunder, any dispute
between the parties with respect to the interpretation of this Agreement or
any right, obligation or liability of either party, whether such dispute
arises before or after termination of this Agreement, shall be submitted to
arbitration upon the written request of either party. Each party shall select
an arbitrator within thirty (30) days after the written request for
arbitration. If either party refuses or neglects to appoint an arbitrator
within thirty (30) days after the written request for arbitration, the other
party may appoint the second arbitrator. The two arbitrators shall select an
umpire within thirty (30) days after the appointment of the second
arbitrator. If the two arbitrators fail to agree on the selection of the
umpire within thirty (30) days after the appointment of the second
arbitrator, either party may submit a request to the American Arbitration
Association to select an umpire, subject to the requirements for such
arbitrator set forth below.
B. The arbitrators and the umpire all shall be active or retired, disinterested
executive officers of insurance or reinsurance companies. The umpire shall
preside at all hearings and meetings of the panel and shall announce the
decision of the panel. The majority vote of the arbitrators and the umpire
shall be the decision of the panel. The decision shall be in writing signed
by the majority in favor thereof.
C. The arbitration panel shall interpret this Agreement as an agreement entered
into in the highest good faith in keeping with the commercially recognized
customs and practices of the insurance business and shall make its decision
considering said customs and practices. The arbitration panel is released
from judicial formalities and shall not be bound by strict rules of procedure
and evidence. Interpreting this Agreement, should it become necessary to
refer to the laws of any particular jurisdiction, the arbitration panel shall
apply the laws of the state of Ohio without regard to the conflicts of laws
provision thereof.
D. The decision of the arbitration panel shall be final and binding on both
parties. The arbitration panel may, at its discretion, award costs and
expenses as it deems appropriate, including, but not limited to, attorneys'
fees, interest and compensatory damages. Judgment may be entered upon the
final decision of the arbitration panel in any court of competent
jurisdiction.
E. All meetings and hearings before the arbitration panel shall take place in
Worcester, Massachusetts unless some other place is mutually agreed upon by
both parties or ordered by the panel.
F. In the absence of a decision to the contrary by the arbitration panel, each
party shall bear the expense of the arbitrator chosen by or for it and shall
jointly and equally bear with the other party the expense of the umpire and
of the arbitration.
16
ARTICLE XV - OFFSET
Either party shall have, and may exercise at any time the right to offset any
balance or amounts whether on account of premiums, or on account of claims or
otherwise, due from one party to the other under the terms of this Agreement.
ARTICLE XVI - MISCELLANEOUS
A. This Agreement will be binding to the parties and their respective successors
and permitted assignees. This Agreement may not be assigned by either party
without the written consent of the other.
B. The REINSURER will pay the CEDING COMPANY a Federal Excise Tax allowance on
each MONTHLY VALUATION DATE equal to the amount of any Federal Excise Tax
paid by the CEDING COMPANY during the prior month, with the prior approval of
the REINSURER, in connection with the annuities reinsured hereunder. The
CEDING COMPANY will be responsible for the timely payment of Federal Excise
Tax and for the filing of all required tax, information returns or filings
with the Internal Revenue Service with respect to this Agreement.
C. This Agreement means the text hereof and all Exhibits, Schedules and
Amendments effected in accordance herewith. The Agreement constitutes the
entire statement of agreement between the parties with regard to the subject
matter hereof. There are no other understandings or agreements between the
parties regarding the contracts reinsured other than as expressed in this
Agreement. Any changes or additions to this Agreement must be effected by
means of a written amendment that has been signed by both parties.
D. Notwithstanding the termination of this Agreement as provided herein, its
provisions will continue to apply hereunder to the end that all obligations
and liabilities incurred by each party hereunder will be full performed and
discharged.
E. If any provision of this Agreement should be rendered invalid, illegal or
unenforceable, the parties will renegotiate the Agreement in good faith to
cure such invalid, illegal or unenforceable provision. If such negotiations
are unsuccessful to resolve the matter, then (i) such invalid, illegal or
unenforceable provision will be deleted from the Agreement, (ii) to the
maximum extent permitted by law, such invalidity, illegality or
unenforceability will not affect any other provisions of this Agreement and
(iii) this Agreement will be construed to give effect to the remaining
provisions hereof to carry out its original intent.
17
ARTICLE XVII - NOTICES
A. All notices required to be given hereunder shall be in writing and shall be
deemed delivered if personally delivered, sent via facsimile with evidence of
successful transmission, sent via reputable overnight carrier, or dispatched
by certified or registered mail, return receipt requested, postage prepaid,
addressed to the parties as follows:
Chief Financial Officer
First Allmerica Financial Life Insurance Company
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Phone: (000) 000-0000 Fax: (000) 000-0000
Chief Financial Officer
ACE Tempest Life Reinsurance Ltd.
Xxx XXX Xxxxxxxx, 00 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00 Xxxxxxx
Xxxxx: (000) 000-0000 Fax: (000) 000-0000
B. Notice shall be deemed given on the date it is received in accordance with
the foregoing. Any party may change the address to which to send notices by
notifying the other party of such change of address in writing in accordance
with the foregoing.
In witness whereof, the parties hereto have caused this Agreement to be signed
in duplicate on the dates indicated to be effective as of the date specified
above.
ACE Tempest Life Reinsurance Ltd. First Allmerica Financial Life
Insurance Company
By By
---------------------------------- --------------------------------
Date Date
------------------------------- -----------------------------
By By
---------------------------------- --------------------------------
Date Date
------------------------------- -----------------------------
18
SCHEDULE A
Description of Guaranteed Minimum Death Benefits (GMDBs)
The Guaranteed Minimum Death Benefits are completely described in the VARIABLE
ANNUITY CONTRACTS, riders, or prospectuses.
I. Dollar for Dollar Reduction for withdrawals:
Maximum of (AV, premium, 7yr ratchet)
Maximum of (AV, premium, 5yr ratchet)
II. Proportionate or Blended Reduction for Withdrawals:
Maximum of (AV, premium)
Maximum of (AV, premium, 5yr ratchet)
Maximum of (AV, 5% premium rollup, 1 yr ratchet)
Maximum of (AV, premium, 1 yr ratchet)
Maximum of (AV, 7% premium rollup)
Maximum of (AV, 7% premium rollup, 1 yr ratchet)
Maximum of (AV, premium, 15% Breakthrough ratchet)
Maximum of (AV, premium, 10% Breakthrough ratchet)
Maximum of (AV, 5% premium rollup, 15% Breakthrough ratchet)
Maximum of (AV, 5% premium rollup, 10% Breakthrough ratchet)
19
SCHEDULE B
Investment Funds Subject to this Reinsurance Agreement
All Investment Funds available to VARIABLE ANNUITY CONTRACT owners on the
EFFECTIVE DATE are subject to this Agreement. New Investment Funds, eligible for
reinsurance hereunder since the EFFECTIVE DATE, are listed below:
None
20
SCHEDULE C-1
Limits and Rules of the CEDING COMPANY
1) CEDING COMPANY will determine the Guaranteed Minimum Death Benefit for each
contract within fourteen (14) working days of receipt of due proof of death and
all required claim forms.
21
SCHEDULE C-2
Limits and Rules of the REINSURER
1) REINSURER's liability cannot be increased as a result of CEDING COMPANY's
actions with respect to contested claims.
2) The REINSURER will not be liable for extra contractual damages (whether they
constitute Compensatory damages, Statutory penalties, Exemplary or Punitive
damages) which are awarded against the CEDING COMPANY.
3) A contract where a spousal continuation occurs will be subject to this
Agreement; however, the REINSURER will not pay more than one GMDB CLAIM per
VARIABLE ANNUITY CONTRACT.
22
SCHEDULE D-1
REINSURANCE PREMIUM RATE by Treaty Year
The premium rates for reinsurance, subject to the terms and conditions of this
Agreement, are guaranteed while the reinsurance coverage is in effect.
TREATY YEAR BEGINNING IN REINSURANCE PREMIUM RATE
------------------------ ------------------------
2002 66.0%
2003 69.3%
2004 72.8%
2005 76.4%
2006 80.0%
2007 80.0%
2008 80.0%
2009 80.0%
2010 80.0%
2011 80.0%
23
SCHEDULE D-2
REINSURANCE RETENTION RATE
REINSURANCE RETENTION RATE .08
24
SCHEDULE E
MORTALITY RATE by INSURED LIFE ATTAINED AGE and SEX
94 MGDB MONTHLY REINSURANCE PREMIUM RATES
(Rates per $1 of NAR, based on oldest owner's age last birthday)
AGE MALE FEMALE
--- ---- ------
0 0.00005 0.00004
1 0.00005 0.00004
2 0.00004 0.00003
3 0.00003 0.00002
4 0.00002 0.00002
5 0.00002 0.00002
6 0.00002 0.00002
7 0.00002 0.00001
8 0.00002 0.00001
9 0.00002 0.00001
10 0.00002 0.00001
11 0.00002 0.00001
12 0.00002 0.00002
13 0.00003 0.00002
14 0.00003 0.00002
15 0.00004 0.00002
16 0.00004 0.00002
17 0.00004 0.00003
18 0.00005 0.00003
19 0.00005 0.00003
20 0.00005 0.00003
21 0.00005 0.00003
22 0.00006 0.00003
23 0.00006 0.00003
24 0.00006 0.00003
25 0.00007 0.00003
26 0.00007 0.00003
27 0.00007 0.00003
28 0.00008 0.00003
29 0.00008 0.00003
30 0.00008 0.00004
31 0.00008 0.00004
32 0.00008 0.00004
33 0.00008 0.00004
34 0.00008 0.00005
35 0.00008 0.00005
36 0.00009 0.00005
37 0.00009 0.00006
38 0.00010 0.00006
39 0.00010 0.00007
40 0.00011 0.00007
41 0.00012 0.00008
42 0.00013 0.00008
43 0.00014 0.00009
44 0.00015 0.00009
45 0.00016 0.00010
46 0.00018 0.00011
47 0.00020 0.00011
48 0.00022 0.00012
49 0.00024 0.00013
50 0.00027 0.00015
51 0.00030 0.00016
52 0.00033 0.00018
53 0.00037 0.00020
54 0.00041 0.00022
55 0.00046 0.00024
56 0.00052 0.00027
57 0.00059 0.00031
58 0.00066 0.00036
59 0.00074 0.00041
60 0.00084 0.00047
61 0.00094 0.00054
62 0.00107 0.00062
63 0.00120 0.00070
64 0.00135 0.00080
65 0.00152 0.00090
66 0.00169 0.00101
67 0.00187 0.00111
68 0.00205 0.00121
69 0.00224 0.00130
70 0.00245 0.00141
71 0.00268 0.00155
72 0.00294 0.00172
73 0.00321 0.00191
74 0.00351 0.00212
75 0.00384 0.00236
76 0.00423 0.00264
77 0.00469 0.00296
78 0.00522 0.00330
79 0.00580 0.00368
80 0.00643 0.00410
81 0.00709 0.00458
82 0.00777 0.00512
83 0.00846 0.00570
84 0.00919 0.00633
85 0.00998 0.00704
86 0.01088 0.00783
87 0.01192 0.00874
88 0.01308 0.00975
89 0.01435 0.01085
90 0.01571 0.01203
91 0.01715 0.01329
92 0.01866 0.01462
93 0.02029 0.01602
94 0.02201 0.01750
95 0.02377 0.01906
96 0.02549 0.02069
97 0.02715 0.02241
98 0.02875 0.02421
99 0.03031 0.02610
100 0.03188 0.02805
101 0.03350 0.03003
102 0.03521 0.03209
103 0.03711 0.03429
104 0.03909 0.03659
105 0.04099 0.03880
106 0.04263 0.04075
107 0.04387 0.04232
108 0.04473 0.04358
109 0.04530 0.04458
110 0.04564 0.04530
111 0.04580 0.04571
112 0.04583 0.04583
113 0.04583 0.04583
114 0.04583 0.04583
115 0.08333 0.08333
25
SCHEDULE F
ANNUAL MORTALITY IMPROVEMENT FACTOR
TERMINATION RATE ANNUAL MORTALITY IMPROVEMENT FACTOR
5% or greater 1.00
4% - 4.99% 0.99
3% - 3.99% 0.98
2% - 2.99% 0.97
1% - 1.99% 0.96
0% - 0.99% 0.95
26
SCHEDULE G
REINSURER Quota Share of Risk
For each VARIABLE ANNUITY CONTRACT, REINSURED NET AMOUNT AT RISK will be based
on the share of risk from the table below.
VARIABLE ANNUITY CONTRACTS SHARE OF RISK
-------------------------- -------------
CB10006745 0.0%
CB10010371 0.0%
CB10014103 0.0%
GN00126341 0.0%
GN00131909 0.0%
PN00451756 0.0%
SB10004198 0.0%
VN00414175 0.0%
All other 25.0%
27
SCHEDULE H
Reporting Format and Data Requirements
MONTHLY REPORTING DATA REQUIREMENTS (PREPARED BY CEDING COMPANY)
ACTIVE CONTRACTS ONLY:
INSURED LIFE SSN (available no later than June 1, 2003)
Contract Identifier
Joint Life Indicator
INSURED LIFE
Issue Age
INSURED LIFE Sex
Issue Date
Initial Purchase Payment
Total Purchase Payment
Cumulative Withdrawals
Account value by subaccount
GMDB Type
GMDB Amount
NET AMOUNT AT RISK
Qualified Status
Termination Indicator (reported in first monthly report following termination)
QUARTERLY REPORTING REQUIREMENTS (PREPARED BY REINSURER)
GAAP Surplus position
Standard and Poor's Ratings
ADDITIONAL MONTHLY CLAIM REPORTING DATA REQUIREMENTS (PREPARED BY CEDING
COMPANY)
DEATHS ONLY:
This includes Monthly Reporting Data Requirements as of the Date of Notification
(the date that death related paperwork is submitted in full), plus the
following:
Date of Death
Date of Notification
Death Benefit Paid
Death Benefit Proceeds in Excess of Account Value
MONTHLY STATEMENT OF ACCOUNT (PREPARED BY CEDING COMPANY)
(prepared for each GMDB TYPE and in aggregate)
1. Calculated value of ANNUAL CLAIM LIMIT and ANNUAL GMDB CLAIMS
2. Calculated value of MONTHLY REINSURANCE BASE PREMIUMS
3. Calculated value of REINSURED NET AMOUNT AT RISK and MONTHLY REINSURANCE
PREMIUM
28
SCHEDULE I
Surplus Position of REINSURER
U.S. GAAP Surplus for the REINSURER as of December 31, 2001: $1,654,810,000 USD
29
