[ ] REASSURANCE COMPANY
--------------------------------------------------------------------------------
Automatic Reinsurance Agreement
effective April 5,1999
between
THE TRAVELERS INSURANCE COMPANY AND
TRAVELERS LIFE AND ANNUITY COMPANY
HARTFORD, CONNECTICUT
(hereinafter called the Ceding Company)
and
[ ] REASSURANCE COMPANY
[ ]
(hereinafter called [ ])
Treaty ID: [ ]
T A B L E O F C O N T E N T S
Article I Basis of Reinsurance 1
Article II Mode of Notification and Cession 2
Article III Liability of [ ] 2
Article IV Plan of Reinsurance 2
Article V Reinsurance Premiums 3
Article VI Tax Procedures 3
Article VII Claims 4
Article VIII Policy Changes 6
Article IX Accounting 7
Article X Expenses of Original Policy 8
Article XI Errors and Omissions 8
Article XII Retention Limit Changes (Recapture) 8
Article XIII Inspection of Records 9
Article XIV Insolvency 9
Article XV Arbitration 10
Article XVI Parties to Agreement; Entire Agreement 11
Article XVII Duration of Agreement; Termination 12
Article XVIII Effective Date; Execution 13
Exhibits [ ]
ARTICLE I BASIS OF REINSURANCE
1. On and after the effective date of April 5, 1999, the
Ceding Company will automatically cede to [ ] its
share of the risk as defined in Exhibit II. [ ]
will automatically accept such share within the limits
shown in Exhibit II, provided the Ceding Company keeps
its regular retention share and applies its normal
underwriting standards. The Ceding Company's regular
retention share limits are shown in Exhibit III. Normal
underwriting standards are explained in paragraph 7 of
this article.
2. If the Ceding Company is already on the risk for its
regular retention under previously issued policies,
[ ] will automatically accept reinsurance up to
the limits shown in Exhibit II, provided the Ceding
Company has applied the same underwriting rules it
would have applied if the new policy had fallen
completely within its regular retention.
3. If the Ceding Company retains less than its regular
retention on a risk, [ ] will automatically accept
an amount not exceeding the amount retained by the
Ceding Company on the current application.
Facultative Submissions
4. The Ceding Company may submit any risk that is eligible
for automatic reinsurance to [ ] for its
underwriting opinion. If such risk is acceptable, it
will be reinsured automatically under this agreement.
5. In addition, the Ceding Company may apply to [ ]
for facultative reinsurance of any individual life
risk.
6. The Ceding Company will make such facultative
submissions by sending [ ] copies of all papers
relating to the insurability of the risk, together with
a Reinsurance Submission Form (Exhibit I). [ ]
will examine the papers and notify the Ceding Company
of its underwriting action promptly. Any offer made by
[ ] will expire as indicated in the offer unless
the Ceding Company withdraws its application earlier.
If no expiration date is shown in the offer, the offer
will expire after 120 days from the date of the offer.
The Ceding Company must notify [ ] of its
acceptance of an offer before the expiration of the
offer and during the lifetime of the insured.
1
--------------------------------------------------------------------------------
Underwriting Standards
7. The Ceding Company and [ ] have agreed to
determine underwriting risk classifications according
to Exhibit IX Underwriting Guidelines. The Ceding
Company should discuss any proposed changes in
underwriting standards, requirements, or other criteria
with [ ] before implementation.
ARTICLE II MODE OF NOTIFICATION AND CESSION
1. There will be no individual cessions for risks
reinsured hereunder. Instead, each month the Ceding
Company will supply [ ] with three lists
containing the information shown in Exhibit VI, "List
of Risks Reinsured," Exhibit VII, "List of Amendments,"
and Exhibit VIII, "In-Force Summary." The Ceding
Company will submit all monthly lists to [ ] no
later than the tenth day of the following month.
In addition, the Ceding Company will submit quarterly
reserve reports. These are described in Article IX,
"Accounting."
2. If the Ceding Company chooses to report its reinsurance
transactions via electronic media, it will consult with
[ ] to determine the appropriate format. The
Ceding Company will notify [ ] before making any
changes in the data format or code structure of any
such reports.
ARTICLE III LIABILITY OF [ ]
For automatic reinsurances, [ ]'s liability will
begin at the same time as the Ceding Company's
liability. For facultative submissions, [ ]'s
liability will begin at the same time as the Ceding
Company's liability if all the requirements of Articles
I and II have been met.
ARTICLE IV PLAN OF REINSURANCE
Life reinsurance will be ceded on the risk premium
basis for the net amount at risk under the policy. The
Net Amount at Risk Reinsured will be rounded to the
nearest dollar. It will be calculated monthly for
interest sensitive and universal life policies, and
annually for all other policies.
Interest Sensitive and Universal Life
The Net Amount at Risk Reinsured will equal the
Proportion of the Policy Reinsured multiplied by the
Total Death Benefit (inclusive of Term Rider amounts)
divided by the Death Benefit Interest Factor (currently
defined in the Policy Form as [ ]; this value may
be changed by the Ceding Company, who will then notify
[ ]) minus the cash value included in
2
--------------------------------------------------------------------------------
the death benefit. Any increase or decrease in the
death benefit will be shared proportionately by the
Ceding Company and [ ] until the Ceding Company
has reached its retention limit. Additional increases
will be assumed by [ ] subject to the provisions
for increased amounts specified in Article VIII and
Exhibit II.
ARTICLE V REINSURANCE PREMIUMS
1. The reinsurance premium rates for life insurance are in
Exhibit IV.
2. The annual rates in Exhibits IV and V will be divided
by twelve to determine monthly rates. Such monthly
rates will be rounded to four decimal places. The
Ceding Company will pay the reinsurance premiums on a
monthly basis at the beginning of each calendar month
following the date of issue. No premium will be due for
the calendar month of issue, nor will there be any
adjustment for unearned premiums for any month in which
any reinsurance is reduced or terminated. Any scheduled
change in reinsurance premiums effective on a policy
anniversary will be deemed effective on the first day
of the calendar month following such anniversary.
3. [ ] cannot guarantee the life reinsurance premium
rates for more than one year; however, [ ] expects
to continue accepting premiums on these rates
indefinitely. [ ] can only increase rates to the
Ceding Company if it decides to do so on an entire
class of business and has given the Ceding Company
ninety (90) days notice in writing. At that point, the
Ceding Company would have the right to recapture any
business affected by such changes.
ARTICLE VI TAX PROCEDURES
1. When [ ] does not have to pay state premium taxes
on the reinsurance premiums it receives from the Ceding
Company, it will reimburse the Ceding Company for its
share of any such taxes the Ceding Company has to pay.
The reimbursement percentage will be [ ].
2. Both companies hereby enter into an election under
Treasury Regulations Section 1.848-2(g)(8) whereby:
3
--------------------------------------------------------------------------------
a. For each taxable year under this agreement, the
party with net positive consideration, as defined
in Treasury Code Section 848, will capitalize
specified policy acquisition expenses with respect
to this reinsurance agreement without regard to
the general deductions limitation of Section
848(c)(1).
b. Both companies agree to exchange information about
the amount of net consideration for all
reinsurance agreements in force between them to
ensure consistency for purposes of computing
specified policy acquisition expenses.
c. This election will be effective as of the
beginning of the taxable year that includes the
effective date of this agreement. This election
will remain in effect for all future taxable years
for which this agreement remains in effect.
ARTICLE VII CLAIMS
1. If the Ceding Company pays a claim in full, [ ]
will pay the Ceding Company the full Net Amount at Risk
Reinsured for the policy year of death. For monthly
decreasing term plans, [ ]'s share will be the
total death benefit under the policy for the month of
death multiplied by the proportion the initial amount
reinsured with [ ] bears to the total amount of
insurance under the original policy. If the Ceding
Company pays less than the full amount of a claim,
[ ] and the Ceding Company will share
proportionately in the reduction.
2. If any special expenses are involved in the settlement
of a claim, [ ] and the Ceding Company will share
the expenses proportionately. Such special expenses
include, but are not limited to, court and arbitration
costs, special investigations, etc. The following will
not be considered special expenses:
a. Salaries of the Ceding Company's and [ ]'s
employees
b. Expenses incurred in connection with a dispute or
contest arising out of conflicting claims of
entitlement to policy proceeds or benefits that
the Ceding Company admits are payable
c. Expenses, fees, settlements, or judgements arising
out of or in connection with claims made against
the Ceding Company for extra-contractual damages,
such as punitive damages, bad faith damages, or
compensatory damages that may arise from acts or
omissions of the
4
--------------------------------------------------------------------------------
Ceding Company in its conduct with its own
insured, policy owner, beneficiary or assignee of
the policy, or others; provided, however, that
[ ] will pay its proportionate part of any
such expenses, fees, settlements, and judgements
solely to the extent that such expenses, fees,
settlements, and judgements result directly from
acts or omissions of [ ], or acts or
omissions of the Ceding Company to which [ ]
affirmatively consented in writing or that were
directed, ratified, or agreed to by [ ] in
writing
3. Both companies will share proportionately in any
increase or reduction resulting from an insured's
misstatement of age or sex.
4. In every case of loss, any proofs acceptable to the
Ceding Company will be sufficient for [ ].
However, the Ceding Company must furnish [ ] with
copies of the proofs.
Contestable Claims
5. The Ceding Company will immediately notify [ ] if
it intends to contest, compromise or litigate a claim
involving reinsurance. If [ ] prefers not to
participate in the contest, it will notify the Ceding
Company of its decision within fifteen days of its
receipt of all documents requested, and [ ] will
immediately pay the Ceding Company the full amount of
reinsurance due. Once [ ] has paid its reinsurance
liability, [ ] will not be liable for legal and/or
investigative expenses and will have no further
liability for expenses associated with the contest,
compromise or litigation.
When [ ] agrees to participate in a contest,
compromise or litigation involving reinsurance, the
Ceding Company will give [ ] prompt notice of the
beginning of any legal proceedings involving the
contested policy. The Ceding Company will promptly
furnish [ ] with copies of all documents
pertaining to a lawsuit or notice of intent to file a
lawsuit by any of the claimants or parties to the
policy.
[ ] will share in the payment of legal or
investigative expenses relating to a contested claim in
the same proportion as its liability bears to the
Ceding Company's liability. [ ] will not reimburse
expenses associated with non-reinsured policies.
5
--------------------------------------------------------------------------------
If the Ceding Company's compromise or litigation
results in a reduction in the liability of the
contested policy, [ ] will share in the reduction
in the same proportion that the amount of reinsurance
bore to the amount payable under the terms of the
policy on the date of death of the insured.
ARTICLE VIII POLICY CHANGES
1. The Ceding Company will include any changes in the List
of Amendments described in Exhibit VII.
2. If the face amount or death benefit is increased
according to procedures in the policy, the Net Amount
at Risk Reinsured and the Proportion of the Policy
Reinsured will be recalculated. Such increases are
subject to the submission of satisfactory evidence of
insurability and will therefore be treated as new
issues, subject to the provisions of Article I and the
limitations shown in Exhibit II. Reinsurance premiums
for such increased amounts will be calculated as for
other new issues.
3. If any portion of the total insurance retained by the
Ceding Company on any life is reduced or terminated,
the amount of reinsurance carried by the Ceding Company
on that life will be reduced by a like amount. The
reinsurance on the policy or policies reduced or
terminated will be the first to be reduced. If further
reduction in reinsurance is required, the cessions to
be reduced or terminated will be determined by the
order in which they were reinsured. The first to be
reinsured would be the first to be reduced or
terminated, and so on. If the reinsurance is shared by
two or more reinsurers, the reduction will be prorated
among all the reinsurers.
4. If a policy reinsured automatically lapses and is
reinstated in accordance with the Ceding Company's
standard rules and procedures, reinsurance for the
amount at risk effective at the time of the lapse will
be reinstated automatically at the date of
reinstatement of the policy. The Ceding Company will
notify [ ] of the reinstatement on its periodic
statement of account. The Ceding Company will send
[ ] copies of its reinstatement papers only upon
request.
[ ] will not need to approve reinstatement of a
policy reinsured under this Agreement on a facultative
basis when:
a) the Ceding Company has kept its full retention on
the policy; and
6
--------------------------------------------------------------------------------
b) the reinsured amount falls within the Automatic
Acceptance Limits shown in Exhibit A.
Otherwise, the Ceding Company will need [ ]'s
prior review and approval for reinstatement of any
facultative reinsurance. The Ceding Company will
send [ ] prompt written notice of its
intention to reinstate the policy along with
copies of the reinstatement papers required by its
standard rules and procedures. The reinsurance
will be reinstated at the same time as the policy,
subject to [ ]'s written approval of the
reinstatement.
The Ceding Company will notify [ ] of all
reinstatements on its periodic statement of account,
and will pay all reinsurance payments due from the date
of reinstatement to the date of the current statement
of account, including a proportionate share of interest
collected. Thereafter, reinsurance payments will be in
accordance with Article V.
ARTICLE IX ACCOUNTING
1. Within thirty days of each calendar month, the Ceding
Company will send [ ] the List of Risks Reinsured,
the List of Amendments, and the In-Force Summary,
including all the information required by Exhibits VI,
VII, and VIII.
2. If the Ceding Company owes [ ], it will remit the
amount owed with the statement. [ ] will remit any
amount it owes the Ceding Company within twenty working
days after receiving the statement.
3. Within thirty days of each calendar quarter the Ceding
Company will submit to [ ] a listing of the
reserves for all in-force risks reinsured under this
agreement as of the end of the preceding quarter. This
list will include the following:
a. Life insurance amount reinsured
b. Life insurance reserve reinsured
c. Substandard reserve reinsured
d. WPD--active life reserve (if disability is
reinsured)
e. ADB reserve and amount (if ADB is reinsured)
f. Reserve basis for:
(i) Life insurance
(ii) WPD and ADB
4. Claim payments will be settled individually when they
are due.
7
--------------------------------------------------------------------------------
5. Any debts or credits in favor of or against the Ceding
Company or [ ] under this agreement, or any other
agreement heretofore or hereafter entered into between
the Ceding Company and [ ], may be set off with
only the balance being paid.
ARTICLE X EXPENSES OF ORIGINAL POLICY
The Ceding Company will pay for all medical
examinations, inspection fees, and other charges
incurred in issuing policies.
ARTICLE XI ERRORS AND OMISSIONS
1. Errors and omissions on any statement or reinsurance
record will not affect [ ]'s liability for any
reinsurance under this agreement. Any error affecting
reinsurance premiums will be rectified as soon as
possible after discovery.
2. If the failure of either party to comply with any
provision of this agreement is unintentional or the
result of a misunderstanding or oversight, both parties
will be restored as closely as possible to the
positions they would have occupied if no error or
oversight had occurred.
3. This article will not apply to any facultative
submission until the Ceding Company has notified
[ ] of its acceptance of [ ]'s offer in
accordance with Article I.
ARTICLE XII RETENTION LIMIT CHANGES (RECAPTURE)
1. The reinsurance under this agreement will remain in
force without reduction as long as the original policy
remains in force without reduction, except as provided
below.
2. If the Ceding Company increases its regular retention
limits, it may choose to recapture. Such recapture will
increase the total amount the Ceding Company carries on
each case up to its then maximum retention. If the
Ceding Company chooses to recapture, it must send
[ ] a written request.
3. Recaptures will take effect on the later of the
following dates:
a. The first policy anniversary date after the Ceding
Company notifies [ ] of its retention limit
increase
b. When the policy has been in force for twenty (20)
years
8
--------------------------------------------------------------------------------
If any reinsurance on any policy reinsured hereunder is
recaptured, all other eligible policies must be
similarly recaptured, subject to the restrictions
herein.
4. If the reinsurance to be reduced is shared by two or
more reinsurers, the reduction will be prorated among
all the reinsurers.
5. Reductions or cancellations that were overlooked will
be made when discovered. [ ]'s acceptance of
reinsurance premiums after the effective dates of any
overlooked reductions or cancellations will not
constitute or determine a liability of [ ].
[ ] will be liable only for a refund of the
premium so received.
6. No recapture will be made if the Ceding Company
retained less than its regular retention limit at issue
or if the Ceding Company retained no part of the risk.
ARTICLE XIII INSPECTION OF RECORDS
Both [ ] and the Ceding Company will have the
right to inspect all books, records, and documents
relating to the reinsurance under this agreement. Both
parties will have the right to make such inspections at
any reasonable time at the office of the other party.
ARTICLE XIV INSOLVENCY
1. If the Ceding Company becomes insolvent, [ ] will
pay all reinsurance directly to the liquidator,
receiver or statutory successor without reduction
because of the insolvency. The liquidator, receiver, or
statutory successor will give [ ] written notice
of any pending claims on policies reinsured hereunder.
Such notice will be given within a reasonable time
after a claim is filed in the insolvency proceeding.
2. While any such claim is pending, [ ] may
investigate the claim and interpose in the name of the
Ceding Company (its liquidator, receiver, or statutory
successor) at its own expense in the proceeding where
such claim is to be adjudicated. Any expense thus
incurred by [ ] will be chargeable, subject to
court approval, against the Ceding Company as part of
the expense of liquidation. Where two or more
reinsurers are participating in the same claim and a
majority in interest elects to interpose a defense or
defenses to any such claim, the expense will be
apportioned in accordance with the terms of the
reinsurance agreements as though the Ceding Company had
incurred such expense.
3. [ ] will notify the Ceding Company in the event of
its
9
--------------------------------------------------------------------------------
insolvency and the appointment of receivers, and
[ ] will be considered in default under this
Agreement. [ ]'s liability for business in force
and ceded under this Agreement prior to the date of its
insolvency will neither decrease nor terminate but will
continue, subject to the Ceding Company's payment of
premiums as shown in Exhibit IV. Amounts due [ ]
will be paid directly to its liquidator, receiver or
statutory successor without diminution because of its
insolvency.
In the event of [ ]'s insolvency, the Ceding
Company will have the right to recapture all
reinsurance in force under this Agreement upon giving
[ ] or its receiver prior written notice and
subject to the payment of a mutually agreed upon
recapture fee.
ARTICLE XV ARBITRATION
1. The Ceding Company and [ ] specifically agree
that, even if this reinsurance agreement has been
terminated for new business, any dispute or difference
of opinion arising out of or concerning the validity of
this agreement will be submitted to and settled by a
Panel of Arbitration.
2. Either party may initiate arbitration by notifying the
other party.
3. The Panel of Arbitration will consist of three members
unless the parties agree in writing to appoint and
abide by the decision of a single arbitrator.
a. The two parties will name the single arbitrator
within thirty days of their mutual agreement to
use a single arbitrator.
b. Under a three-member Panel of Arbitration, each of
the two parties will appoint an arbitrator. The
arbitrators must be appointed within thirty days
after receipt of the written notice initiating
arbitration.
c. An arbitrator must be an active or retired
executive from the life insurance industry. Each
arbitrator must be knowledgeable about life
insurance and life reinsurance and the aspect
thereof that is the basis of the dispute or
difference of opinion.
d. Within thirty days after the second of the
appointments is made, the two arbitrators will
appoint a third arbitrator. If the two arbitrators
cannot agree on a third arbitrator within such
time, the two arbitrators will obtain a list of at
least five qualified and available arbitrators
from the
10
--------------------------------------------------------------------------------
American Arbitration Association (AAA) or its successor
organization. Within fifteen days, the two appointed
arbitrators will select the third arbitrator from the
list. If mutual agreement is again not reached within
the prescribed time, the AAA will appoint the third
arbitrator as soon as possible.
4. The Panel of Arbitration will not be bound by formal
rules of legal procedure and will regard this agreement
in accordance with equity and the customary practices
of the life insurance and life reinsurance industries
rather than from a strict interpretation of the law.
5. The Panel of Arbitration will decide the issue by
majority vote and render a written decision within
sixty days after completion of the Panel of Arbitration
unless [ ] and the Ceding Company both agree to
extend the period of deliberation. The arbitration
proceedings will be held in Hartford, Connecticut. The
decision of the Panel of Arbitration will be accepted
by [ ] and the Ceding Company without right of
appeal.
6. Expenses of the individually selected arbitrators will
be the responsibility of the appointing party. The
expenses of the single or third arbitrator and all
other costs of arbitration, including any fees due the
American Arbitration Association, will be shared
equally by [ ] and the Ceding Company.
ARTICLE XVI PARTIES TO AGREEMENT; ENTIRE AGREEMENT
1. This is an agreement solely between the Ceding Company
and [ ]. [ ]'s acceptance of reinsurance
hereunder will not create any right or legal
relationship whatsoever between [ ] and the
insured or beneficiary under any policy that may be
reinsured hereunder.
2. This agreement represents the entire agreement between
[ ] and the Ceding Company concerning the business
reinsured hereunder. There are no understandings
between [ ] and the Ceding Company other than as
expressed in this agreement.
3. Any change or modification of this agreement will be
null and void unless made by an amendment to the
agreement and signed by both [ ] and the Ceding
Company.
11
--------------------------------------------------------------------------------
ARTICLE XVII DURATION OF AGREEMENT; TERMINATION
1. The duration of this agreement will be unlimited.
However, either party to this agreement may terminate
it at any time, for new business only, by giving ninety
days' notice in writing to the other party. [ ]
will continue to accept reinsurance during the ninety
day period and will remain liable on all reinsurance
already placed in force under the terms of this
agreement until such contracts are terminated between
the original insured and the Ceding Company.
2. The payment of reinsurance premiums will be a condition
precedent to the liability of [ ]. In the event
reinsurance premiums are not paid when due, [ ]
will have the right to terminate all reinsurance
coverage of those policies on which reinsurance
premiums are in arrears. If [ ] elects to exercise
this right of termination, it will give the Ceding
Company thirty days' written notice of its intention to
terminate said reinsurance. The Ceding Company will
have until the end of the thirty-day period to pay all
premiums that are in arrears. Otherwise, at the end of
the thirty-day period, [ ] will be relieved of all
liability for any policies on which premiums are in
arrears, including any that came to be in arrears
during the thirty-day period. The reinsurance of
policies on which reinsurance premiums subsequently
become due will automatically terminate on the dates
those premiums become due, unless the reinsurance
premiums on those policies are paid when due.
Terminated reinsurance may be reinstated, subject to
[ ]'s approval, within thirty days of the date of
termination, upon payment of all reinsurance premiums
in arrears. [ ] will have no liability for any
claims incurred between the date of termination and the
date of reinstatement of the reinsurance. The right to
terminate reinsurance will not prejudice [ ]'s
right to collect premiums for the period during which
reinsurance was in force prior to the expiration of the
thirty days' notice.
12
--------------------------------------------------------------------------------
ARTICLE XVIII EFFECTIVE DATE; EXECUTION
The said The Travelers Insurance Company and Travelers
Life and Annuity Company, Hartford, Connecticut, and
the said [ ] Reassurance Company, [ ],
declare that this agreement and all its terms will be
effective as of April 5, 1999, and will apply to all
eligible policies applied for on and after such date,
even though such policies may have been backdated for
up to six months to save age. In witness whereof they
have by their officers executed and delivered this
agreement in duplicate.
THE TRAVELERS INSURANCE COMPANY
By______________________________________
Title:
Attest_________________________________ Date____________________________________
TRAVELERS LIFE AND ANNUITY COMPANY
By______________________________________
Title:
Attest_________________________________ Date____________________________________
[ ] REASSURANCE COMPANY
By______________________________________
Title:
Attest_________________________________ Date____________________________________
13
--------------------------------------------------------------------------------
