Exhibit 10.41
RETROCESSION AGREEMENT
BETWEEN
ALLSTATE LIFE INSURANCE COMPANY
AND
ALLSTATE REINSURANCE, LTD.
RECITALS
This Reinsurance Agreement (hereinafter "Agreement") is made and entered into by
and between ALLSTATE LIFE INSURANCE COMPANY, a life insurance company domiciled
in the State of Illinois (hereinafter "Ceding Company") and ALLSTATE
REINSURANCE, LTD., a reinsurance company domiciled in Bermuda (hereinafter the
"Reinsurer").
WHEREAS, the Ceding Company has entered into a reinsurance agreement
(hereinafter the "Glenbrook Agreement")with Glenbrook Life and Annuity Company
(hereinafter "Glenbrook") under which Glenbrook cedes to the Ceding Company and
the Ceding Company accepts on a coinsurance basis 100% of the insurance
liabilities of Glenbrook, including liabilities for fixed annuity business
issued by Glenbrook to customers of PNC Bank Corp., including its subsidiaries
and affiliates (hereinafter referred to collectively as "PNC"); and
WHEREAS, the Ceding Company desires to retrocede to the Reinsurer, and the
Reinsurer desires to accept on a modified coinsurance basis 50% of the Ceding
Company's liabilities under the Glenbrook Agreement fixed annuity business
issued by PNC;
NOW THEREFORE, the Ceding Company and the Reinsurer mutually agree to reinsure
on the terms and conditions stated in this Agreement.
ARTICLE I
DEFINITIONS
Unless otherwise defined herein, as used in this Agreement the following terms
shall have the meanings ascribed to them below:
A. "Ceding Company's Product Capital" shall be equal to 200% of the NAIC RBC
Formula for C1, C3 and C4 Risk on the Policies. Effective January 1, 2001,
the amount will be equal to
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250% of the stated risk components for the Policies, unless the in-force
business of Glenbrook sold to PNC customers has been diversified so as to
meet the Product Diversification Requirement. The Ceding Company's Product
Capital will be calculated on a quarterly basis to be used in the estimate
for the Cost of Capital, as set forth in Exhibit C. The quarterly calculation
will be approved by the Reinsurer, which approval shall not be unreasonably
withheld.
B. "Ceding Company's Average Product Capital" shall mean the average of the
ceding Company's Product Capital at the end of a calendar year and the end of
the immediately preceding calendar year.
C. "Ceding Company's Cumulative Average Product Capital" shall mean the sum of
the Ceding Company's Average Product Capital all calendar years during which
this Agreement is in effect through December 31 of the most recent calendar
year.
D. "Ceded Policy Liabilities" shall have the meaning set forth in Article II.
E. "Code" shall mean the Internal Revenue Code of 1986, as amended.
F. "Commission and Expense Allowance" shall have the meaning set forth in
Exhibit B.
G. "Cumulative Product Rate of Return (CPRR)" shall mean the Statutory
Cumulative Net Income divided by the Ceding Company's Cumulative Average
Product Capital.
H. "Customer Account Value" shall mean the gross amounts due the owner of a
Policy at any point in time before deduction of any surrender or contract
termination fees.
I. "Effective Date" shall mean the effective date of this Agreement, which shall
be January 1, 1998.
J. "Interest Maintenance Reserve" shall mean the value which will be reported on
the Ceding Company's Annual Statement Balance Sheet Line 11.4 for the PNC
Reinsurance Custody Account activity.
K. "Modified Coinsurance Reserve" shall mean a 50% quota share of the statutory
reserves held by the Ceding Company with respect to the Policies. The
statutory reserve will be determined by using the valuation procedures as
prescribed and permitted by the Illinois Department of Insurance for
statutory financial statement filings.
L. "Modified Coinsurance Reserve Adjustment" shall have the meaning set forth in
Article V.
M. "NAIC RBC Formula" shall mean the amount of Risk Based Capital with respect
to the Policies as determined following the procedures as outlined in the
"NAIC Life Risk-Based Capital Report" as published annually (herein "the NAIC
Report"). The C1 Risk, as defined
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in the NAIC Report, will be based on the assets held in the PNC Reinsurance
Custody Account, and the C3 and C4 Risks, as such terms are defined in the
NAIC Report, will be based only on the premiums collected by the Ceding
Company and reserves held by the Ceding Company with respect to the Policies.
Any changes in the NAIC Report will be implemented on a prospective basis in
the year in which such changes first become effective.
N. "Net Benefits" shall mean the actual amounts paid or incurred by the Ceding
Company under the Glenbrook Agreement with respect to the Policies for all
surrenders, withdrawals (full and partial), death benefits, annuitizations,
and payments on supplemental contracts.
O. "Net Capital Gains and Losses" shall mean realized capital gains less
realized capital losses from the sale or maturity of invested assets held in
the PNC Reinsurance Custody Account, plus the unrealized capital gains less
the unrealized capital losses from the change in the difference between the
statutory book value and admitted value of the invested assets held in the
PNC Reinsurance Custody account as determined following the statutory annual
statement reporting requirements.
P. "Net Consideration" shall have the meaning set forth in Article VI.
Q. "Net Premiums" shall mean the reinsurance premiums due the Ceding Company
under the Glenbrook Agreement with respect to the Policies which shall
include premiums on new business and policy additions (including policy
updates and premium on supplemental contracts), minus premium refunds.
R. "PNC Reinsurance Custody Account" shall mean a separate segregated portfolio
managed by the Ceding Company to account for the assets purchased to support
the Policies.
S. "Policy or Policies" shall mean the insurance contracts listed in Exhibit A
which are fixed annuity contracts underwritten by Glenbrook and reinsured by
the Ceding Company under the Glenbrook Agreement.
T. "Product Diversification Requirement" shall mean that thirty percent (30%) of
statutory reserves held by Glenbrook for products sold to PNC customers are
for products other than flexible premium or single premium deferred annuity
contracts, including indexed annuities.
U. "Reinsurer's Capital" shall be equal to 200% of the NAIC RBC Formula for C1
and C4 Risk on the Reinsurer's quota share of the Policies. Effective January
1, 2001, the amount will be equal to 250% of the stated risk components if
the Product Diversification Requirements are not met. The Reinsurer's Capital
will be calculated on a quarterly basis to be used in the estimate for the
Cost of Capital, as set forth in Exhibit C. The quarterly calculation will be
approved by the Reinsurer, which approval shall not be unreasonably withheld.
V. "Reinsurer's Average Capital" is the average of the Reinsurer's Capital at
the end of a
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calendar year and the end of the immediately preceding calendar year.
W. "Reinsurer's Cumulative Average Capital" shall mean the sum of the
Reinsurer's Average Capital for all calendar years during which this
Agreement is in effect through December 31 of the most recent calendar year.
X. "Reinsurance Settlement" shall have the meaning set forth in Article IV.
Y. "Statutory Net Income" shall equal the statutory net income for a calendar
year on the Policies as determined by the Ceding Company in accordance with
the Statutory Accounting requirements as prescribed or permitted by the
Illinois Department of Insurance; provided, however, any expenses shall be
determined in accordance with Exhibit B of this Agreement.
Z. "Statutory Cumulative Net Income" shall equal the sum of the Statutory Net
Income on the Policies for each calendar year during which this Agreement is
in effect through the most recent calendar year.
AA."Terminal Accounting and Settlement" shall have the meaning set forth in
Article XVI.
BB."Terminal Reserve" and "Terminal Reserve Adjustment" shall have the meanings
set forth in Article XVI.
ARTICLE II
BASIS OF REINSURANCE
The Ceding Company agrees to cede and the Reinsurer agrees to accept 50% of the
Ceding Company's risk under the Glenbrook Agreement for applications received
and contracts issued with respect to the Policies on and after the Effective
Date (hereinafter the "Ceded Policy Liabilities"). The reinsurance provided
hereunder shall be on a modified coinsurance basis.
ARTICLE III
LIABILITY OF REINSURER
A. The liability of the Reinsurer with respect to any application received or
any contract issued after the Effective Date and reinsured hereunder will
begin simultaneously with that of the Ceding Company. The Reinsurer's
liability with respect to any Policy will terminate on the date the Ceding
Company's liability on such contract terminates or the date this Agreement
is terminated, whichever is earlier. However, termination of this Agreement
will not terminate the Reinsurer's liability for Net Benefits prior to the
date of termination. If any of the Policies are reduced or terminated by
payment of a death benefit, withdrawal or surrender, the reinsurance will
be reduced proportionately or terminated.
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B. The reinsurance provided under this Agreement is subject to the same
limitations and conditions as set forth in the Policies.
C. The Reinsurer will not indemnify the Ceding Company, Allstate, or Glenbrook
for, and will not be liable for, any extracontractual damages or
extracontractual liability of any kind whatsoever, including those
resulting from fraud, oppression, bad faith, strict liability, or
negligent, reckless or intentional wrongs on the part of the Ceding
Company, Allstate, Glenbrook, or their directors, officers, employees and
agents.
ARTICLE IV
REPORTING & SETTLEMENT
A. While this Agreement is in effect, a Reinsurance Settlement shall be
payable between the Ceding Company and the Reinsurer for each calendar
month with respect to the Ceded Policy Liabilities. The Reinsurance
Settlement shall be equal to the sum of Items (1) less the sum of Items
(2), (3), (4), (5), (6), and (7) below.
(1) Net Premiums due the Ceding Company.
(2) Net Benefits paid by the Ceding Company.
(3) Commission and Expense Allowances as set forth in Exhibit B.
(4) Cost of Capital Charged by the Ceding Company as set forth in
Exhibit C.
(5) The Modified Coinsurance Reserve Adjustment as set forth in
Article V.
(6) The Federal Income Tax Reserve Expense or Benefit as set forth in
Exhibit B.
(7) DAC tax reimbursement as computed in accordance with Article VI.
If the Reinsurance Settlement amount for the month is positive, the Ceding
Company shall remit such amount at the same time as it submits the monthly
accounting report described in paragraph C of this Article IV. If the
Reinsurance Settlement amount for the month is negative, the Reinsurer
shall remit such amount to the Ceding Company within twenty (20) days
following the date on which it receives the monthly accounting report
described in Paragraph C of this Article IV.
B. An initial Reinsurance Settlement shall be calculated as of the Effective
Date of this Agreement through the end of the month in which this Agreement
is executed by the parties. Such initial Reinsurance Settlement shall
include interest on the average outstanding settlement from the Effective
Date of this Agreement to the date of payment,
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which interest rate shall be based on the one year Treasury rate as
published in the Wall Street Journal on the date this Agreement is executed
by the Parties.
C. Monthly accounting reports will be submitted to the Reinsurer by the Ceding
Company for each calendar month not later than fifteen (15) business days
after the end of such month. Such reports shall include substantially the
information set forth in Exhibit D, and shall be in a form as mutually
agreed to in writing by the parties, as may be amended from time to time.
D. The Ceding Company will provide the Reinsurer with annual accounting
reports within thirty (30) days after the end of the calendar year for
which such reports are prepared. These reports will contain sufficient
information about the Policies to enable the Reinsurer to prepare its
annual financial reports and to verify the information reported in Exhibit
D of this Agreement.
ARTICLE V
MONTHLY RESERVE ADJUSTMENTS
A. While this Agreement is in effect, a Modified Coinsurance Reserve
Adjustment shall be paid monthly in accordance with the Reinsurance
Settlement requirements under Article IV. The Modified Coinsurance Reserve
Adjustment shall be equal to Item (1) less Items (2) and (3) below:
(1) the amount of Modified Coinsurance Reserves held at the end of the
month.
(2) the amount of Modified Coinsurance Reserves held at the end of the
immediately preceding month.
(3) the amount of interest as calculated in accordance with paragraph B of
this Article V.
B. The interest to be paid will be the Modco Interest Rate on the average of
the Modified Coinsurance Reserves held at the end of the month and those
held at the end of the immediately preceding month. The Modco Interest Rate
will equal the weighted average combined rate of the Modco Fixed Interest
Rate, as defined in Paragraph C of this Article V, plus the one month U.S.
Treasury Rate as determined on the first business day of each month. The
weighting applied to each such rate will be 98% for the Modco Fixed
Interest Rate and 2% for the one month U.S. Treasury Rate.
C. The Modco Fixed Interest Rate shall be calculated with respect to the
assets held in the PNC Reinsurance Custody Account using statutory
accounting values consistent with values required to be reflected in the
Ceding Company's statutory annual statement.
The Modco Fixed Interest Rate shall equal: 2I where:
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A + B -I
I - Gross investment income, plus net capital gains and losses, minus
the additions (which may be positive or negative) and plus the
amortization (which may be positive or negative) in the Interest
Maintenance Reserve on assets held in the PNC Reinsurance Custody
Account, less investment expenses equal to 15 basis points of the
average statutory book value of the invested assets in the PNC
Reinsurance Custody Account during the period; provided, however,
whenever actual investment expenses are determined, such actual
amounts will be used. The additions to and the amortization of the
Interest Maintenance Reserve will be grossed-up at the applicable
federal statutory tax rate in effect when the gains or losses were
deferred.
A - Statutory accounting value of assets held in the PNC Reinsurance
Custody Account at the beginning of the month .
B = Statutory accounting value of the assets held in the PNC
Reinsurance Custody Account at the end of month.
ARTICLE VI
DAC TAX REIMBURSEMENT AND ELECTION
A. On a monthly basis, the Reinsurer shall reimburse (or be reimbursed by, as
the facts may provide) the Ceding Company for DAC Taxes incurred on
Policies relating to the Ceded Policy Liabilities. The DAC Tax
reimbursement shall be computed by multiplying the DAC Tax Factor by (i)
100% of Net Premiums , plus (ii) the Ceding Company Net Consideration (as
defined in Section 848 of the Code and related Treasury Regulations)
relating to this Agreement. The "DAC TAX FACTOR" shall mean 0.257% for
"annuities," as such term is defined in Section 848 of the Code and related
Treasury Regulations. The Ceding Company and the Reinsurer mutually agree
to prospectively adjust the DAC Tax Factor to reflect any changes in the
federal income tax rate applicable to the Ceding Company or changes to
Section 848 of the Code or to the related Treasury Regulations.
B. With respect to this Agreement, the Ceding Company and the Reinsurer hereby
make the election provided for in Section 1.848-2(g)(8) of the Treasury
Regulations, and as set forth in Exhibit E. Each of the parties hereto
agrees to take such further actions as may be necessary to ensure the
effectiveness of such election.
C. The Ceding Company and the Reinsurer represent and warrant that they each
have made an election under Section 953(d) of the Code to be treated as a
United States Domestic Corporation, and that they are each subject to
United States taxation under either Subchapter L of Chapter 1, or Subpart F
of Subchapter N of Chapter 1 of the Code.
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ARTICLE VII
LETTER OF CREDIT
A. The Reinsurer shall provide to the Ceding Company, a letter of credit made
payable to, or, if the Reinsurer is the payee, assigned to, the Ceding
Company in an amount equal to the sums described in Paragraph B of this
Article VII. The letter of credit shall be issued by a bank approved by the
Ceding Company and shall be in a form approved by the Ceding Company, which
approval shall not be unreasonably withheld. Further, the letter of credit
must comply with any applicable laws and regulations. The amount of such
letter of credit will be adjusted annually and be in place by November 30
of each year.
B. The letter of credit shall be in an amount equal to 200% of the NAIC Risk
Based Capital Formula for C1 and C3 Risk on the Ceded Policy Liabilities as
estimated by the Ceding Company for the next fiscal year end, (including
any projected changes). Such estimate shall be approved by the Reinsurer,
which approval will not be unreasonably withheld. Effective January 1,
2001, the amount of the lettter of credit will increase to 250% if the
Product Diversification Requirements are not met.
C. The Ceding Company and the Reinsurer agree that the letter of credit
provided by the Reinsurer may be drawn upon by the Ceding Company,
notwithstanding any other provision in this Agreement, and be utilized and
applied by the Ceding Company or any successor by operation of law of the
Ceding Company including, without limitation, any liquidator,
rehabilitator, receiver, or conservator of the Ceding Company without
diminution because of insolvency on the part of the Ceding Company or the
Reinsurer, only for the following purposes:
(1) where the letter of credit is not renewed or replaced by September 30
of each year;
(2) where the letter of credit will be reduced or replaced by a letter of
credit for an amount below the requirements of Paragraph B of this
Article VII.
(3) to pay any other amounts due the Ceding Company if the Reinsurer has
breached any of the provisions of this Agreement, upon presentation
of documentation substantiating any such amounts.
D. The Ceding Company agrees to return promptly to the Reinsurer any amounts
drawn on such letter of credit in excess of the actual amounts required
under subparagraph B, or, in the case of subparagraphs C(1) or C(2), any
amounts that are subsequently determined to not be due.
E. Payment to the Ceding Company by the issuing banks of amounts drawn on the
letter of credit pursuant to subparagraphs C(1) and C(2) above, shall
constitute payment by the Reinsurer under this Agreement and shall
discharge the Reinsurer of the obligation that gave rise to the draw;
provided, however, the Reinsurer may later contest whether it had
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failed to reimburse or pay the Ceding Company as required under this
Agreement.
ARTICLE VIII
RESERVE CREDIT
In addition to the requirements of Article VII above, the Reinsurer shall, to
the extent necessary, together with all its subsequent retrocessionaires,
establish adequate net reserves, and shall agree in good faith to take any other
steps necessary, pursuant to the requirements of Illinois or any other state or
jurisdiction in which the Ceding Company is licensed or accredited, for the
Ceding Company to take statutory credit for reinsurance ceded to an unadmitted,
unauthorized or unaccredited reinsurer, up to the full amount of the reserve
that the Ceding Company would have established for the Policies if it had
retained the Policies.
ARTICLE IX
RATE-SETTING AND OPERATIONS REVIEW
A. The Ceding Company represents that it has the right to participate in the
following meetings with respect to the Policies, and that it has the
authority to delegate such rights to the Reinsurer. Accordingly, the
Reinsurer shall have the right to participate in the following meetings
with respect to the Policies, and may delegate such rights to its
retrocessionaires with respect to the Ceded Policy Liabilities:
(1) on a weekly basis, with respect to the establishment and adjustment of
new business crediting rates;
(2) on a monthly basis, with respect to the establishment and adjustment of
renewal crediting rates;
(3) on a quarterly basis, with respect to sales, investment , product,
marketing and expense initiatives.
B. Notwithstanding anything to the contrary in paragraph A above, Glenbrook
has the final decision authority with respect to all such matters.
ARTICLE X
OVERSIGHTS
The Reinsurer shall be bound as the Ceding Company is bound, and it is expressly
understood and agreed that if failure to reinsure or failure to comply with any
terms of this Agreement is shown to be unintentional and the result of
misunderstanding or oversight on the part of either the Ceding Company or the
Reinsurer, both the Ceding Company and the Reinsurer shall be
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restored to the positions they would have occupied had such error or oversight
not occurred.
ARTICLE XI
INSPECTION OF RECORDS
The Ceding Company and the Reinsurer shall have the right, upon reasonable prior
notice and at any reasonable time, to examine at the office of the other, any
books, documents, reports or records which pertain in any way to the contracts
reinsured under this Agreement.
ARTICLE XII
INSOLVENCY
A. In the event of the insolvency of the Ceding Company, reinsurance hereunder
is payable by the Reinsurer on the basis of its liability hereunder without
diminution because of the insolvency of the Ceding Company.
B. Further, in the event of the insolvency of the Ceding Company, the
liquidator, receiver or statutory successor of the insolvent Ceding Company
shall give written notice to the Reinsurer of the pendency of any
obligation of the insolvent Ceding Company on any Ceded Policy Liability,
whereupon the Reinsurer may investigate such claim and interpose at its own
expense, in the proceeding where such claim is to be adjudicated, any
defense or defenses which it may deem available to the Ceding Company or
its liquidator or statutory successor. The expense thus incurred by the
Reinsurer shall be chargeable, subject to court approval, against the
insolvent Ceding Company as part of the expenses of liquidation to the
extent of a proportionate share of the benefit which may accrue to the
Ceding Company solely as a result of the defense undertaken by the
Reinsurer.
C. In the event of the Reinsurer's insolvency, this treaty will terminate, and
the Terminal Accounting and Settlement described in Article XVI will occur.
Any payments due the Reinsurer from the Ceding Company pursuant to the
terms of this Agreement will be made directly to the Reinsurer or its
conservator, liquidator, receiver or statutory successor.
ARTICLE XIII
ARBITRATION
Any dispute arising with respect to this Agreement which is not settled by
mutual agreement of the parties shall be referred to arbitration. Within twenty
(20) days from receipt of written notice from one party that an arbitrator has
been appointed, the other party shall also name an arbitrator. The two
arbitrators shall choose a third arbitrator within twenty (20) days following
the appointment of the second arbitrator, and shall forthwith notify the
contracting parties of such
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choice. Each arbitrator shall be a present or former officer of a life insurance
company or life reinsurance company and should have no present or past
affiliation with this Agreement or with either party. The arbitrators shall
consider this Agreement as an honorable engagement rather than merely as a legal
obligation, and shall be relieved of all judicial formalities; provided,
however, the arbitration shall be governed pursuant to the rules of the American
Arbitration Association and the laws of Bermuda. The decision of the arbitrators
shall be final and binding upon the parties hereto, and may not be appealed to
any court or other forum. Each party shall bear the expenses of its own
arbitrator and shall jointly and equally bear the expenses of the third
arbitrator and of the arbitration. Any such arbitration shall take place at the
Home Office of Allstate, unless some other location is mutually agreed upon.
ARTICLE XIV
PARTIES TO AGREEMENT
This Agreement is solely between the Ceding Company and the Reinsurer. The
acceptance of reinsurance hereunder shall not create any right or legal relation
whatever between the Reinsurer and any party in interest under any Policy.
Glenbrook shall be and remain solely liable to any insured, contract owner, or
beneficiary under any contract reinsured hereunder.
ARTICLE XV
DURATION OF AGREEMENT AND TERMINATION
A. DURATION. This agreement will be effective as of January 1, 1998, and will
be unlimited as to its duration except as provided otherwise herein.
B. TERMINATION OF REINSURER'S LIABILITY. The Reinsurer's liability with
respect to a Ceded Policy Liability will terminate on the earliest of: (1)
the date such Ceded Policy Liability is recaptured in accordance with
paragraph C below; (2) the date the Ceding Company's liability on the
underlying Policy is terminated; or (3) the date this Agreement is
terminated pursuant to paragraph D of this Article XV. Termination of the
Reinsurer's liability is subject to payments in respect of such liability
in accordance with the provisions of Article XVI. In no event should the
interpretation of this Paragraph imply a unilateral right of the Reinsurer
to terminate this Agreement.
C. TERMINATION BY CEDING COMPANY. At any time after the occurrence (or
nonoccurrence, as the case may be) of any of the following, the Ceding
Company shall have the right, at its option, upon delivery of written
notice to the Reinsurer, to terminate this Agreement and recapture any and
all of the Ceded Policy Liabilities:
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(1) if the Reinsurer materially breaches any provision of this Agreement,
which breach is not cured within sixty (60) days after receipt by the
Reinsurer of notice thereof from the Ceding Company;
(2) if the Ceding Company provides sixty (60) days prior written notice to
the reinsurer.
D. TERMINATION BY THE REINSURER. This Agreement may be terminated by the
Reinsurer: (1) if the Ceding Company materially breaches this Agreement,
which breach is not cured within sixty (60) days after receipt by the
Ceding Company of written notice from the Reinsurer describing such breach;
or (2) if the Ceding Company fails to pay any amounts due the Reinsurer
pursuant to this Agreement within sixty (60) days following the end of any
specified period, upon thirty (30) days prior written notice to the Ceding
Company.
E. In the event of termination and recapture under paragraphs C and D of this
Article XV, there shall be a Terminal Accounting and Settlement pursuant to
Article XVI.
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ARTICLE XVI
TERMINAL ACCOUNTING AND SETTLEMENT
A. TERMINAL ACCOUNTING. In the event that this Agreement is terminated in
accordance with Paragraphs C or D of Article XV, a Terminal Accounting and
Settlement will take place.
B. DATE. The terminal accounting date will be the earliest of: (1) the
effective date of termination pursuant to any notice of termination given
under this Agreement, or (2) any other date mutually agreed to by the
parties in writing.
C. SETTLEMENT. The Terminal Accounting and Settlement will consist of the
Reinsurance Settlement as provided in Article IV, computed as of the
terminal accounting date as if this Agreement were still in effect. If the
calculation of the Terminal Accounting and Settlement produces an amount
owing to the Ceding Company, such amount will be paid by the Reinsurer to
the Ceding Company within thirty (30) days from the date of termination. If
the calculation of the Terminal Accounting and Settlement produces an
amount owing to the Reinsurer, such amount will be paid by the Ceding
Company to the Reinsurer within thirty (30) days from the date of
termination.
D. SUPPLEMENTARY ACCOUNTING AND SETTLEMENT. Within forty five (45) days after
the end of the quarter following the Terminal Accounting and Settlement as
provided above, a supplementary accounting will take place in accordance
with Paragraph C above. Any amount owed to the Ceding Company or to the
Reinsurer, as the case may be, by reason of such supplementary accounting
will be paid promptly upon the completion thereof.
ARTICLE XVII
GENERAL PROVISIONS
A. CURRENCY CLAUSE. All transactions with respect to this Agreement will be in
United States dollars. Any reference to "dollars" or "$" in this Agreement
and all schedules and exhibits attached hereto shall be interpreted as
referring to United States currency.
B. ENTIRE AGREEMENT. This Agreement constitutes the entire contract between
the Reinsurer and the Ceding Company with respect to the Policies. No
variation, modification or changes to this Agreement shall be binding
unless in writing and signed by an officer of each party.
C. NOTICES. Any notice or communication given pursuant to this Agreement must
be in writing and (1) delivered personally, (2) sent by facsimile
transmission, (3) delivered by overnight express, or (4) sent by registered
or certified mail, postage prepaid, as follows:
If to the Reinsurer: Xxxxx X. Xxxxxxx
Allstate Reinsurance, Ltd.
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0000 Xxxxxxx Xxxx
Xxxxx X0X
Xxxxxxxxxx, XX 00000-0000
If to the Ceding Company: Xxxxx X. Xxxxxxx
Vice President
Allstate Life Insurance Company
0000 Xxxxxxx Xxxx
Xxxxx X0X
Xxxxxxxxxx, XX 00000-0000
All notices and other communications required or permitted under the terms
of this Agreement that are addressed as provided in this Article XVII
shall: (1) if delivered personally or by overnight express, be deemed given
upon delivery; (2) if delivered by facsimile transmission, be deemed given
when electronically confirmed; and (3) if sent by registered or certified
mail, be deemed given when received. Any party from time to time may change
its address for notice purposes by giving a similar notice specifying a new
address, but no such notice shall be deemed to have been given until it is
actually received by the party sought to be charged with the contents
thereof.
D. EXPENSES. Except as may be otherwise expressly provided in this Agreement,
whether or not the transactions contemplated hereby are consummated, each
of the parties hereto shall pay its own costs and expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
E. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall
constitute one and the same instrument and shall become effective when one
or more counterparts have been signed by each of the parties and delivered
to the other parties.
F. NO THIRD PARTY BENEFICIARY. Except as otherwise provided herein, the terms
and provisions of this Agreement are intended solely for the benefit of the
parties hereto, and their respective successors or permitted assigns, and
it is not the intention of the parties to confer third-party beneficiary
rights upon any other person, and no such rights shall be conferred upon
any person or entity not a party to this Agreement.
G. AMENDMENT. This Agreement may only be amended or modified by a written
instrument executed on behalf of both parties hereto.
H. ASSIGNMENT; BIND EFFECT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole
or in part, by any of the parties hereto without the prior written consent
of the other party, which consent shall not be unreasonably withheld, and
any such assignment that is attempted without such consent shall be null
and void. Subject to the preceding sentence, this Agreement shall be
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binding upon, inure to the benefit of, and be enforceable by the parties
and their respective successors and permitted assigns.
I. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if
the rights or obligations of the parties hereto under this Agreement will
not be materially and adversely affected thereby, (1) such provision shall
be fully severable; (2) this Agreement shall be construed and enforced as
if such illegal, invalid, or unenforceable provision had never comprised a
part hereof; and (3) the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance herefrom.
J. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of Bermuda, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
K. WAIVER. Any term or condition of this Agreement may be waived in writing at
any time by the party that is entitled to the benefit thereof. A waiver on
one occasion shall not be deemed to be a waiver of the same or any other
breach or nonfulfillment on a future occasion. All remedies, either under
the terms of this Agreement, or by law or otherwise afforded, shall be
cumulative and not alternative, except as otherwise provided by law.
L. HEADINGS, ETC. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement. Unless the context of this Agreement
otherwise requires, (1) words using the singular or plural number also
include the plural or singular number, respectively; (2) the terms
"HEREOF," "HEREIN," "HEREBY," "HERETO," "HEREUNDER," and derivative or
similar words refer to this entire Agreement (including the exhibits
hereto); (3) the term "ARTICLE" refers to the specified Article of this
Agreement; (d) the term "EXHIBIT" refers to the specified Exhibit attached
to this Agreement; and (e) the term "PARTY" means, on the one hand, the
Ceding Company, and on the other hand, the Reinsurer.
M. OFFSET. Any debits or credits incurred after the Effective Date in favor of
or against either the Ceding Company or the Reinsurer with respect to this
Agreement are deemed mutual debits or credits, as the case may be, and
shall be set off, and only the balance shall be allowed or paid.
N. COMPLIANCE WITH LAWS. The parties hereto shall at all times comply with all
applicable laws in performing their obligations under this Agreement.
O. ERRORS AND OVERSIGHTS. Each party to this Agreement will act reasonably in
all matters within the terms of this Agreement. Clerical errors and
oversights occasioned in good faith in carrying out this Agreement will not
prejudice either party, and will be rectified promptly on an equitable
basis.
15
IN WITNESS HEREOF, the parties to this Agreement have caused it to be duly
executed in duplicate by their respective officers on the dates shown below.
ALLSTATE LIFE INSURANCE COMPANY
By
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Title
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Date
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ALLSTATE REINSURANCE, LTD.
By
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Title
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Date
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EXHIBIT A
CONTRACTS SUBJECT TO REINSURANCE
Glenbrook Advantage Annuity and contracts supplemental thereto, issued to
customers of PNC Bank Corp. and its subsidiaries and affiliates.
17
EXHIBIT B
COMMISSION AND EXPENSE ALLOWANCE
A. The following Commission and Expense Allowances are payable by the
Reinsurer to the Ceding Company with respect to Policies pursuant to
Article IV of this Agreement:
(1) Office expense allowance equal to 32.5 annual basis points on the
monthly average Customer Account Value during the period related to
Cede Policy Liabilities.
(2) Commissions and other sales compensation, including wholesaling
service expenses, if any, incurred by Glenbrook under agreements
entered into between Glenbrook and the following parties as of the
dates specified: PNC Insurance Services, Inc. (effective June 1,
1994); Provest Insurance Services, Inc. (effective June 1, 1994);
PINACO, Inc.(effective October 1, 1996); Provest Insurance Services
Agency, Inc. (effective June 1, 1994); PNC Brokerage Corporation
(effective October 1, 1996).
(3) Other promotional or marketing expenses as mutually agreed to in
writing by the parties.
(4) Premium taxes, licenses and fees (excluding Federal Income Tax not
otherwise referenced in this Agreement) and guaranty fund assessments
paid by the Ceding Company under the Allstate Agreement.
B. The Federal Income Tax Reserve Expense or Benefit.
If applicable, the tax benefit or expense charge to the Ceding Company for
the difference between the statutory reserves and the reserves allowed as a
deduction under Section 807 of the Internal Revenue Code will be passed
through and settled with the Reinsurer. The amount to be included in the
monthly settlement will be equal to the change in the difference between
the statutory reserves and the tax reserves for the period on the Ceded
Policy Liabilities divided by 65% to reflect the required after tax impact
for Allstate.
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EXHIBIT C
COST OF CAPITAL FORMULA
A. The Reinsurer will reimburse the Ceding Company for the Cost of Capital
Charge. The Cost of Capital Charge will be equal to the Reinsurer's Cumulative
Average Capital multiplied by the Cumulative Product Rate of Return (CPRR)
provided, however, the Cost of Capital Charge will not be assessed until the
year in which the Cumulative Product Rate of Return is projected to be positive.
The Cost of Capital Charge, if any, will be based on estimates calculated each
month by the Ceding Company, as described in paragraph B below, and will be
included in the Reinsurance Settlement under Article IV. Each year, the
estimated Cost of Capital Charge will be reconciled to the actual Cost of
Capital Charge pursuant to paragraph C below.
B. The monthly estimate for the Cost of Capital Charge will be based on the
Reinsurer's Cumulative Average Capital multiplied by the current expected
Cumulative Product Rate of return divided by 12. The Reinsurer's Cumulative
Average Capital will include the Reinsurer's Capital for the most recent quarter
in determining the Reinsurer's Average Capital for the current year. With
respect to the expected Cumulative Product Rate of Return, the estimate will be
equal to the Rate of Return determined through the prior quarter. To determine
this rate, Allstate's Product Capital for the most recent quarter will be used
as the end of the calendar year's capital in determining Allstate's Average
Product Capital for the current year.
C. The actual Cost of Capital Charge will be calculated within sixty (60) days
following the end of each calendar year. The actual Cost of Capital Charge will
be reconciled with the estimated Cost of Capital Charge for the particular
calendar year, and the difference will be included in the Reinsurance Settlement
each March under Article IV.
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EXHIBIT D
ACCOUNTING REPORTS
The Ceding Company agrees to provide the following information to the Reinsurer
in accordance with Article IV.
The number and dollar amount of benefits paid for surrenders, death
benefits, partial withdrawals, annuitization and payments on supplemental
contracts. For each calendar year, such information will be included for
the Policies sold during such calendar year.
Surrender and other charges collected from the policyholder.
End of period Customer Account Value and number of policies in force.
Estimated Statutory Reserves on in force business. For each quarter, the
report will include the actual statutory reserves.
Net statutory premiums received during the period.
Detail listing of the components of the Commission and Expense Allowances
payable.
New business crediting rates (each week).
Inforce crediting rates after first renewal including Customer Account
Value and number of Policies.
Cost of Capital Charge(for each calendar year)
Other such reports as mutually agreed to in writing by the parties.
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EXHIBIT E
TAX ELECTION
The Ceding Company and the Reinsurer hereby make an election pursuant to
Treasury Regulations Section 1.848-2(g)(8). This election shall be effective for
the tax year during which the Effective Date falls and all subsequent taxable
years for which this Agreement remains in effect. Unless otherwise indicated,
the terms used in this Exhibit are defined by reference to Treasury Regulations
Section 1.848-2 as in effect on the date hereof. As used below, the term "PARTY"
or "PARTIES" shall refer to the Ceding Company or the Reinsurer, or both, as
appropriate.
1. The party with the Net Positive Consideration (as defined in Section 848 of
the Code and related Treasury Regulations)with respect to the transactions
contemplated under this Agreement for any taxable year covered by this
election will capitalize specified policy acquisition expenses with respect
to such transactions without regard to the general deductions limitation of
Section 848(c)(1) of the Code.
2. The parties agree to exchange information pertaining to the amount of Net
Consideration (as defined in Section 848 of the Code and related Treasury
Regulations) under this Agreement each year to ensure consistency or as is
otherwise required by the Internal Revenue Service. The exchange of
information each year will follow the procedures set forth below:
(a) By April 1 of each year, the Ceding Company will submit a schedule to
the Reinsurer of its calculation of the Net Consideration for the
preceding calendar year. This schedule of calculations will be
accompanied by a statement signed by an authorized representative of
the Ceding Company stating the amount of the Net Consideration the
Ceding Company will report in its tax return for the preceding
calendar year.
(b) Within thirty (30) days of the Reinsurer's receipt of the Ceding
Company's calculation, the Reinsurer may contest such calculation by
providing an alternative calculation to the Ceding Company in writing.
If the Reinsurer does not notify the Ceding Company that it contests
such calculation within said 30-day period, the calculation will be
presumed correct and the Reinsurer shall also report the Net
Consideration as determined by the Ceding Company in the Reinsurer's
tax return for the preceding calendar year.
(c) If the Reinsurer provides an alternative calculation of the Net
Consideration pursuant to clause (b), the parties will act in good
faith to reach an agreement as to the correct amount of Net
Consideration within thirty (30) days of the date the Ceding Company
receives the alternative calculation from the Reinsurer. When the
Ceding Company and the Reinsurer reach agreement on an amount of Net
Consideration, each party shall report the applicable amount in their
respective tax returns for the preceding calendar year.
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Agreed and accepted:
ALLSTATE REINSURANCE, LTD.
By:
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Name:
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Title:
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ALLSTATE LIFE INSURANCE COMPANY
By:
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Name:
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Title:
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