COINSURANCE AGREEMENT
This Coinsurance Agreement ("Agreement") is made and entered into by
World Service Life Insurance Company of America ("World Service" or the
"Company") and American Capitol Insurance Company ("Reinsurer").
Recitals
A. World Service is an Alabama domiciled stock life insurance company.
B. As of the Effective Date of this Agreement, World Service has in
effect "Policies" as hereinafter defined, the holders of which
reside in six (6) states in which World Service is licensed and
otherwise qualified to do business.
C. Reinsurer is a Texas domiciled stock life insurance company licensed
or otherwise qualified to do business in all jurisdictions where
holders of the Policies reside except Tennessee and Kentucky.
D. In accordance with the terms and conditions as set forth in this
Agreement, World Service desires that Reinsurer reinsure a portion
of the future liabilities arising under the Policies and Reinsurer
desires to reinsure such portion of the future liabilities arising
under the Policies as more specifically set forth in this Agreement.
E. Prior to the drafting of this particular Agreement, the parties
entered into an agreement known as the "Agreement and Reinsurance
and Assumption" dated May 9, 1996, and effective on the Effective
Date hereof (the "Assumption Agreement") and subsequently modified
said agreement by entering into an agreement known as the
"Reinsurance Agreement" also effective on the Effective Date (the
"Reinsurance Agreement"). This Agreement is for the purpose of
consolidating the said two agreements into a single, "stand-alone"
document. Accordingly, this Agreement supersedes the Assumption
Agreement and the Reinsurance Agreement and said two agreements
shall be referred to for interpretation purposes as set forth in
Section 14.21 below. The parties' intention is that this Agreement
has the effect of said two agreements and by and large the language
of said two agreements has been transferred to this Agreement.
Nevertheless, some of the language and provisions of said two
agreements have been altered or deleted to account for the passage
of time and the fact that some of the provisions of the Assumption
Agreement have been rendered moot by virtue of the changes made by
the Reinsurance Agreement. The future tense is sometimes used in
this Agreement in order to capture language that was appropriate at
the time, even though this document is drafted by the parties in
October, 1996, and many of the identified events and conditions have
transpired or changed.
Terms and Conditions
In consideration of the mutual benefits to be received by the
parties hereto and the mutual covenants and agreements contained herein,
the parties agree that the recitals set forth above are hereby adopted
and made a part of this Agreement, and further agree to the following
terms and conditions:
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Article I
Definitions
Except as defined elsewhere in this Agreement, terms used with
initial capitalization when the rules of grammar or form would not so
require have the meanings set forth below:
(a) The term "Policies" shall mean all of World Service's life insurance
and annuity policies in force with issue dates prior to the
Effective Date on such policy forms and plans as were used in the
May 31 Actuarial Appraisal, and which individually shall be referred
to as "Policy." In addition, World Service continues to market
policies on and subsequent to the Effective Date, which policies are
included in the definition of the "Policies" or "Policy" except as
to policies marketed subsequent to the termination of the marketing
arrangement between the parties as provided in Section 9.1 below, or
as to policies otherwise excluded from the marketing arrangement as
provided in Section 9.1(d) below. If the South Texas Bankers
Policies are added to the Policies as set forth in Section 14.4
below, such polices shall include all of South Texas Bankers life
insurance and annuity policies in force with issue dates prior to
the Effective Date on such policy forms and plans as were used in
the May 31 Actuarial Appraisal.
(b) The term "Transfer Value" means the consideration to be transferred
to Reinsurer from World Service, not including the effect of the
Ceding Fee, as set forth in Section 4.1.
(c) The term "Ceding Fee" has the meaning set forth in Section 4.2.
(d) The terms "Reserves" and "IBNR Claims Reserves" have the meaning set
forth in Section 10.5.
(e) The term "Closing" has the meaning set forth in Section 13.1.
(f) The term "Closing Date" has the meaning set forth in Section 13.2.
(g) The term "Commissions" has the meaning set forth in Section 3.4.
(h) The term "Reinsured Policy Obligations" or "Policy Obligations"
means benefits under and by virtue of the terms of the Policies that
arise and become payable on account of a death or other event
covered by the terms of the Policies occurring on or after the
Effective Date, and as further defined in Section 2.2.
(i) "Reinsurer's Portion," "Company's Portion" and "Coinsurance Ratio"
have the meanings set forth in Section 2.1, subject to the revisions
in Section 14.4 as, if and when the South Texas Bankers policies are
assumed by World Service as provided in Section 14.4.
(j) "Assumption Agreement" and "Reinsurance Agreement" have the meaning
set forth in the above Recitals.
(k) "Administration Agreement" has the meaning set forth in Section 2.2.
(l) The terms "Defense" or "Defenses" means any (i) known or unknown,
actual or contingent, rights, defenses, offsets, counterclaims, and
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cross-actions, and (ii) any and all rights, limitations, terms,
conditions, and provisions provided for in this Agreement relative
to the assumption of the Policies.
(m) The term "Effective Date" means June 1, 1996.
(n) The term "Documents and Records" has the meaning set forth in
Section 12.4.
(o) The term "December 31 Actuarial Appraisal" means the actuarial
appraisal prepared by Actuarial Resources Corporation based on the
insurance and annuity polices in force in World Service as of
December 31, 1995, and referred to therein as the "WSL05" policies,
prepared as of April 9, 1996, and delivered to Reinsurer April 16,
1996.
(p) The term "May 31 Actuarial Appraisal" has the meaning set forth in
Section 4.2.
(q) The term "South Texas Bankers" means South Texas Bankers Life
Insurance Company, a Texas life insurance corporation which is a
wholly owned subsidiary of World Service.
(r) The term "South Texas Bankers Agreement" means a Reinsurance and
Assumption Agreement (similar to the Assumption Agreement) entered
into between Reinsurer and South Texas Bankers on or about the same
date as the Assumption Agreement was entered into, and was closed
by the parties on the same date as the Closing Date of this
Agreement, subject to regulatory approval.
Article II
Reinsurance of Policy Obligations
Section 2.1. Ceding. Subject to the terms and conditions of this
Agreement, the Company hereby cedes to Reinsurer and Reinsurer hereby
reinsures Ninety Three and Sixty Hundredths percent (93.60%) (the
"Reinsurer's Portion") of the Policy Obligations. The portion of the
Policy Obligations not reinsured is sometimes referred to herein as the
"Company's Portion" and the numerical relationship (93.60/6.40) is
sometimes referred to herein as the "Coinsurance Ratio." (Referring to
Section 14.4 below, in the event the Company assumes the South Texas
Bankers Policies, the Coinsurance Ratio shall change, retroactive to the
Effective Date, in accordance with Section 14.4 below.) Apart from the
Policy Obligations allocated between the Reinsurer and the Company in
accordance with the Coinsurance Ratio, the Company shall continue to have
all liabilities not specifically reinsured by the Reinsurer hereunder,
including any liabilities relating to pre-need contracts issued in
connection with the Policies, and the Company shall indemnify the
Reinsurer and hold the Reinsurer harmless from all liabilities not
specifically reinsured by the Reinsurer hereunder, including any costs
incurred by the Reinsurer in respect to claims or litigation involving
any such liabilities not specifically reinsured by the Reinsurer
hereunder.
Section 2.2. Standard of Performance; Liability. Concurrently with
the Effective Date of this Agreement, Reinsurer and the Company have
entered into a "Policy Administration and Data Processing Services
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Agreement," attached hereto as Exhibit 3.1 ("Administration Agreement.")
Beginning on the Effective Date, Reinsurer shall be liable for the
payment of the Reinsurer's Portion of the Policy Obligations. Except for
payments of claims relating to IBNR claims as set forth in Section 4.1,
Reinsurer shall not be liable for any claims or Policy benefits that
arise or become payable by virtue of a death or other event occurring
before the Effective Date. Reinsurer shall not be liable for any
actions, inactions, errors, or omissions made by World Service, and any
of its respective employees, agents, and representatives in the
solicitation, sale, servicing, renewal, or processing of any claim under
the Policies or in communications with insureds, beneficiaries, or any
other third party with respect to the Policies or otherwise.
Section 2.3. Duration of Risk. Except as otherwise provided
herein, this Agreement shall be unlimited in duration.
Section 2.4. Reinsurer's Liability. The Reinsurer's Portion of the
liability with respect to any Policy will begin simultaneously with that
of the Company's, but not prior to the Effective Date of this Agreement.
The Reinsurer's Portion of the liability with respect to any Policy will
terminate simultaneously with that of the Company's.
Section 2.5. Recapture. The Reinsurer's Portion of the Policies is
eligible for recapture commencing after the twelfth (12th) consecutive
month of this Agreement provided the Company gives the Reinsurer ninety
(90) days advance notice as set forth below of its intent to recapture
such policies, and further provided that: (a) such recapture comprises
all of the Policies, (b) such notice designates the effective date of the
intended recapture (which date shall be the end of a month that ends
after the expiration of the aforesaid ninety (90) day period), (c) the
Company pays the Reinsurer a recapture fee to be determined as of the
effective date of the recapture and (d) such recapture fee shall be an
amount equal to the sum of (i) the value of the Reinsurer's Portion of
the Policies that is being recaptured determined by an actuarial
valuation performed in respect to the Policies as of the effective date
of the recapture subject to such valuation being acceptable to and agreed
to by both the Company and the Reinsurer, the cost of which shall be
borne by the Company, plus (ii) a recapture "premium" in an amount equal
to twenty-three percent (23%) of the value determined by said actuarial
valuation, plus (iii) all amounts due to the Reinsurer from the Company
as a result of the Monthly Cash Settlements as set forth in Section 5.3
below through the effective date of recapture. In the event of recapture
as aforesaid, the Company shall assume and be responsible for all
liabilities of the recaptured Policies and all administration and data
processing responsibilities relating thereto, thereby totally and
absolutely relieving the Reinsurer, as of the effective date of such
recapture, of all of its responsibilities and liabilities otherwise
existing by virtue of this Agreement. The Reinsurer shall transfer to
the Company within thirty (30) days following the effective date of the
recapture assets equal to the Reinsurer's Portion of the liabilities of
the recaptured Policies. Such assets shall consist of the policy assets
associated with the Reinsurer's Portion of the Policies (i.e., policy
loans and due and deferred premiums) and the balance, at the election of
the Reinsurer, shall consist of cash, or investment grade bonds valued so
as to have a yield to maturity equal to seven percent (7%), or the
mortgage loans heretofore transferred to the Reinsurer by the Company in
connection with the Assumption Reinsurance Agreement (valued at the
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aggregate amount of the loan balances of said loans at the effective date
of the recapture), or a combination thereof.
Section 2.6. Election to Transfer Company's Portion to Reinsurer.
At any time, the Company may elect to transfer the Company's Portion of
the Policy liabilities to the Reinsurer ("transfer") provided that: (a)
such transfer comprises all of the Company's Portion of the Policy
liabilities, (b) such notice designates the effective date of the
intended transfer (which date shall be the end of a month), (c) the
Reinsurer pays the Company a transfer fee to be determined as of the
effective date of the recapture and (d) such transfer fee shall be an
amount equal to (i) the value of the Company's Portion of the Policies
that is being transferred determined by an actuarial valuation performed
in respect to the Policies as of the effective date of the transfer
subject to such valuation being acceptable to and agreed to by both the
Company and the Reinsurer, the cost of which shall be borne by the
Company, less (ii) all amounts due to the Reinsurer from the Company as a
result of the Monthly Cash Settlements as set forth in Section 5.3 below
through the effective date of transfer. In the event of transfer as
aforesaid, the Reinsurer shall assume and be responsible for the
Reinsurer's Portion as well as the Company's Portion of the Policy
liabilities (as of the effective date of such transfer) and shall
continue to perform all administration and data processing
responsibilities relating thereto. Except for the fact that the
Reinsurer's Portion of the Reinsured Policy Obligations shall increase to
100% as a result of such transfer if it occurs, the Company shall
continue to have all liabilities not specifically included in the
Reinsurer's Portion as so increased, including any liabilities relating
to pre-need contracts issued in connection with the Policies, and the
Company shall indemnify the Reinsurer and hold the Reinsurer harmless
from all liabilities not specifically reinsured by the Reinsurer
hereunder, including any costs incurred by the Reinsurer in respect to
claims or litigation involving any such liabilities not specifically
reinsured by the Reinsurer hereunder. The Company shall transfer to the
Reinsurer no later than the effective date of the transfer assets equal
to the Company's Portion of the liabilities of the Policies. Such assets
shall consist of the policy assets associated with the Company's Portion
(i.e., policy loans and due and deferred premiums) and the balance shall
be cash.
Article III
ADMINISTRATION
Section 3.1. Administration. The Reinsurer shall perform the
policy administration and data processing services for the Policies
beginning on the Effective Date in accordance with the Administration
Agreement as set forth in Exhibit 3.1. The Reinsurer shall be entitled
to collect and retain a servicing fee as set forth in said Exhibit 3.1.
Section 3.2. Policy Loans. The Company and the Reinsurer shall
share monthly all interest earned, on an incurred basis, on any of the
outstanding policy loans on the Policies. The Company shall pay to the
Reinsurer the Reinsurer's portion of the decrease, if any, in the
principal balance on any outstanding policy loans on the Policies. The
Reinsurer shall pay to the Company the Reinsurer's portion of the
increase, if any, in the principal balance on any outstanding policy
loans on the Policies.
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Section 3.3. Premiums. The Reinsurer and the Company shall be
entitled to share all premiums collected on the Policies in proportion to
the Coinsurance Ratio established by this Agreement as of and following
the Effective Date of this Agreement. The Reinsurer, in its capacity as
administrator of the Policies as herein provided, shall receive and
administer premiums remitted to the Company, and shall account for any
and all such collected premiums as of the end of each calendar month to
the Company as part of the Monthly Cash Settlement as set forth below.
The Company shall not change the premium rates with respect to business
subject to this Agreement and issued subsequent to May 31, 1996, without
the express written consent of the Reinsurer.
Section 3.4. Commission Allowance. Subject to the limitations
expressed in the immediately succeeding sentence, with respect to
Policies issued on or before May 31, 1996, the Reinsurer shall reimburse
the Company as a part of the Monthly Cash Settlement the Reinsurer's
Portion of the actual Commissions earned on the Policies by the Company's
agents based on the commission schedules in force as of the Effective
Date of this Agreement. Such commissions shall not exceed, however, the
amount or amounts, as the case may be, shown in the December 31 Actuarial
Appraisal in respect to the Transferred Policies ("Commissions"). World
Service agrees to indemnify and hold Reinsurer harmless from any
liability, loss, or expense from claims of agents or brokers for
commissions, service fees, or producer compensation in excess of said
Commissions. With respect to Policies issued subsequent to May 31, 1996,
the Reinsurer shall pay (i.e., allow) the Company as a part of the
Monthly Cash Settlement the Reinsurer's Portion of the Commissions
calculated in accordance with Exhibit 3.4 attached hereto. There shall
be no increases to any of the commission schedules referred to herein
without the express written consent of the Reinsurer.
Section 3.5. Premium Assessment Reimbursement. The Reinsurer
shall pay to the Company as a part of the Monthly Cash Settlement the
Reinsurer's Portion of any and all assessments based upon and measured by
the amount of premium income attributable to the Policies, including
premium taxes, paid by the Company on account of such Policies by any
state, county, parish, or municipal authority.
Section 3.6. Income Tax Reimbursement. The Company and the
Reinsurer agree to remain liable for their respective Federal Income Tax
liabilities, including any "DAC" taxable income that may be incurred by
the reinsurance of the Policies by the Reinsurer.
Section 3.7. Payment of Benefits. Except as otherwise provided
in this Agreement, the Reinsurer, as administrator governed by the
provisions of Exhibit 3.1, shall service and pay, on behalf of the
Company, all claims and other Policy benefits (with the exception of
policyholder dividends, which shall be governed as set forth in Section
3.8 below) falling within the scope of the Reinsured Policy Obligations
directly to the policyholders or other designated beneficiaries of the
Policies in the ordinary course of business in accordance with the terms
and conditions of such Policies, other documentation and applicable law.
In the event of any claim that, in the Reinsurer's sole discretion, falls
outside of the terms and conditions of such Policies, or exceeds the
benefits provided by such Policies, the Reinsurer shall seek instructions
from the Company and shall respond to and pay or refuse to pay, as the
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case may be, such claim in compliance with such instructions, in which
case the Reinsurer's liability in respect to such claim shall be limited
to its share of the Policy liability that falls within the limits of the
Policy and its terms and conditions. The failure on the part of the
Company to issue instructions, or a delay by the Company in issuing
instructions which are requested, shall be deemed to be instructions to
refuse to pay such claim unless and until the receipt by the Reinsurer of
instructions to the contrary. Instructions shall be deemed not to be
issued unless and until the same are received by the Reinsurer in
writing. The Reinsurer shall maintain records of the servicing of claims
such that the Company will be able to conduct an audit of such servicing
as herein provided.
Section 3.8. Liability and Payment. Except as provided in
Section 3.7 of this Agreement, the Company will accept the decision of
the Reinsurer on payment of a claim or other benefit on a Policy
reinsured hereunder. The Reinsurer and the Company shall share monthly
the cost of the claims and other benefits on the Policies as herein set
forth.
Section 3.9. Dividends to Policyholders. The Company shall have
sole discretion and control regarding the declaration and payment of
dividends to the holders of the Policies during any and all calendar
months for which this Agreement is in effect. If the amount of such
dividends exceeds the amount needed to provide for a 1% increase in the
original face amount of participating Policies, the Company shall be
solely responsible for funding the payment of the portion of such
dividends that is in excess of 1%; otherwise, dividends paid in respect
to the Policies shall be shared, based on the Coinsurance Ratio, by the
Reinsurer and the Company as set forth herein. The Reinsurer shall not
be liable in respect to any claim against the Reinsurer relating to the
declaration or payment of any dividend, or the failure to declare or pay
any dividend, and the Company shall indemnify and hold the Reinsurer
harmless in respect to any such claim.
Section 3.10. Contested Claims. In the event of a decision by
the Company to contest, compromise, or litigate a claim involving a
Policy pursuant to Section 3.7 or Section 3.8 of this Agreement, the
Reinsurer and the Company will share, based on the Coinsurance Ratio, the
costs of the contest in addition to the amount of the claim itself, or
the Reinsurer may choose not to participate. However, if the Reinsurer
chooses not to participate, it will discharge its liability by agreeing
to pay to the Company the full amount of the Reinsurer's liability on the
subject Policy, in which case all aspects (including costs, assessments,
judgments, etc.) of the contest, compromise and/or litigation shall be
the sole responsibility of the Company. The Reinsurer, at its election
and expense, shall have the right to be present and/or represented in any
related proceedings.
Article IV
Transfer of Assets and Ceding Fee
Section 4.1. Transfer of Assets. At the time of Closing, the
Company transferred to Reinsurer an amount of assets equal to the
Reserves and other policy liabilities attributable to the Policies
determined from the policy data maintained by the Company as of December
31, 1995, less a "Ceding Fee," pursuant to the Assumption Agreement
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subject to a recalculation of the assets, liabilities and the Ceding Fee
based on the policy data maintained by the Company as of May 31, 1996, as
contemplated by the Assumption Agreement. In connection with such
recalculation, the parties agreed to change the transaction from 100%
assumption reinsurance (as the Assumption Agreement contemplated) to a
partial coinsurance, which agreement was documented in the Reinsurance
Agreement. The Reinsurance Agreement resolved also the projected re-
evaluation of the Policies in 1998, and also the matter of any need to
make adjustments for the IBNR reserves. This Coinsurance Agreement is a
restatement of the agreement set forth in the Assumption Agreement as
modified by the Reinsurance Agreement. The calculation of assets for
purposes of transfer pursuant to the Assumption Agreement were adjusted
pursuant to the Reinsurance Agreement and such adjustments are set forth
in Exhibit 4.1 attached hereto, and said adjustments are hereby accepted
and agreed to by the parties in complete and final settlement of all
matters to be adjusted as contemplated by the Assumption Agreement.
Section 4.2. Ceding Fee. In the manner described in Section 4.1,
the Ceding Fee was determined by an Actuarial Valuation using policy data
maintained by the Company as of December 31, 1995, and was subsequently
updated in a May 31 Actuarial Appraisal using policy data maintained by
the Company as of May 31, 1996, and changes agreed upon by the parties,
as contemplated by the Assumption Agreement. The Reinsurance Agreement
resolved all matters contemplated by the Assumption Agreement, the
results of which are set forth in said Exhibit 4.1. Said Exhibit 4.1 has
three versions: (a) the aforementioned adjustments affecting the
Company's Policies only, (b) the aforementioned adjustments affecting
South Texas Bankers Policies only (in respect to which, see Section 14.4
below) and (c) the aforementioned adjustments consolidating the
adjustments affecting the Company's and South Texas Bankers Policies (in
respect to which, see Section 14.4 below). The Ceding Fee adjustment is
set forth in Exhibit 4.1.
ARTICLE V
ACCOUNTING AND SETTLEMENT
Section 5.1. Agreement Accounting Period. The accounting period
for this Agreement shall be on a calendar month basis unless otherwise
specified herein. The first report was for the period beginning June 1,
1996, through August 31, 1996 and has been submitted by the Reinsurer to
the Company and settled.
Section 5.2. Monthly Report. Within fifteen (15) working days
after the end of each calendar month following the period identified in
Section 5.1, the Reinsurer will submit to the Company a Monthly Cash
Settlement (as defined in Section 5.3 below) report which shall contain
the amount of premiums, commissions, administration expense allowances,
benefits, dividends to policyholders, reserves, outstanding policy loans
and interest incurred thereon, due and unpaid premiums, due and deferred
premiums, any and all claim reserves as calculated in accordance with
NAIC Convention Blank Exhibit 11, and number of Policies and in force for
such calendar month.
Section 5.3. Monthly Cash Settlements. Within five (5) working
days after the receipt of each Monthly Cash Settlement report as
specified in Sections 5.1 and 5.2, the Company shall pay to the Reinsurer
the Reinsurer's Portion (for such accounting period) of:
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(a) the net amount of premiums as defined in Section 3.3; and
(b) the interest on outstanding policy loans as defined in Section
3.2; and
(c) the decrease, if any, in outstanding policy loans as defined in
Section 3.2.
Simultaneously, the Company shall pay to the Reinsurer the Company's
Portion of the administration fees as defined in Section 3.1.
Simultaneously, the Reinsurer shall pay to the Company the Reinsurer's
Portion of:
(d) the commission allowances as defined in Section 3.4; and
(e) the Policy benefit payments as defined in Section 3.7; and
(f) the dividends to policyholders as defined in Section 3.8; and
(g) the increase, if any, in outstanding policy loans as defined in
Section 3.2; and
(h) the premium assessment reimbursement as defined in Section 3.5.
The settlement as above described is sometimes referred to in this
Agreement as the "Monthly Cash Settlement."
Section 5.4. Amounts Due Monthly. Except as otherwise
specifically provided in this Agreement, all amounts due to be paid to
either the Company or the Reinsurer under this Agreement on a monthly
basis shall be determined on a net basis as of the last day of each
calendar month and shall be due and payable as of such date. If the
amounts, as defined in Section 5.3 above, cannot be determined at such
dates as defined herein on an exact basis, such payments will be paid in
accordance with an approximate amount determined by the Reinsurer, which
amount shall be adjusted to the actual amount determined as soon as
practicable thereafter.
Section 5.5. Delayed Payments. For purposes of Section 5.4
above, if there is a delayed settlement of a payment due, interest will
be added, in an amount calculated as: the amount of the payment which is
delinquent, multiplied by ten percent (10%), multiplied by the number of
days such amount has been delinquent, regardless of holidays or weekends,
and divided by the whole number 365. For purposes of this paragraph, a
payment shall be deemed to be delinquent after five (5) working days from
the date such payment is due. For purposes of this Agreement, the number
of days a payment is delinquent shall commence on the day following the
date such payment is due, as defined above, and shall end on the date
such payment is received by the party entitled to receipt.
Section 5.6. Offset of Payments. All monies due either to the
Company or to the Reinsurer under this Agreement shall be offset against
each other, dollar for dollar, regardless of any insolvency of either
party.
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Article VI
MUTUAL COVENANTS
Section 6.1. Covenants. The Reinsurer and the Company agree as
follows:
(a) to indemnify, defend and hold harmless the other, its directors,
officers, employees and agents from any and all claims, actions,
suits, judgments, damages (including punitive or exemplary
damages), fines and other proceedings, whether civil, criminal
(only to the extent permitted by law or public policy),
administrative, investigative or otherwise, together with all
costs, expenses and other amounts, including attorney's fees,
arising out of any failure to performance its duties, obligations
or responsibilities to the other party, its directors, officers,
employees and agents, under this Agreement; and
(b) the Reinsurer shall have no obligation arising out of any breach
of any duty on the part of the Company to any holder, insured,
assignee, beneficiary or other claimant under any Policy. Except
for any liability on the part of the Reinsurer to the Company
resulting solely from any negligence on the part of the Reinsurer
as administrator, the Company shall remain solely liable for all
fines, penalties or other assessments imposed against the Company
by any Insurance Department or other governmental entity for any
conduct of the Company, its employees or authorized
representatives, which was not expressly authorized, in writing,
by the Reinsurer; and
(c) any and all materials, information, proposals, studies or other
documents relative to this Agreement are confidential and
proprietary. Neither party shall disclose, directly or
indirectly, any information obtained from the other party,
relative to this Agreement, to any third party without the express
written consent of the other unless applicable statute, law or
regulation requires such disclosure.
Section 6.2. Policy Conservation. The Company warrants that it
will take no action that would encourage the holders of the Policies to
surrender, reduce or otherwise terminate their existing coverages either
through direct or indirect acts, including but not limited to, a plan of
internal replacement.
Section 6.3. Fees Payable. Each of the parties hereto represents
that no commission, fee or compensation is due to any third person by
virtue of having negotiated or arranged the transactions herein, except
that Reinsurer shall be solely responsible for the payment of a finder's
fee to Trent & Associates of Oklahoma City, Oklahoma. Each of the
parties agrees to pay all costs incurred by it for actuarial, legal and
other services received or utilized in connection herewith.
ARTICLE VII
ARBITRATION
Section 7.1. Agreement. Except for matters relating to recapture
and transfer as set forth in Section 2.5 and Section 2.6, respectively,
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all disputes and differences between the Company and the Reinsurer on
which an agreement cannot be reached will be decided by arbitration,
regardless of the insolvency of either party, unless the conservator,
receiver, liquidator, or statutory successor is specifically exempted
from an arbitration proceeding by applicable state law. Such arbitration
shall be conducted in accordance with Exhibit 7.1 attached hereto and
made a part hereof.
ARTICLE VIII
INSOLVENCY
Section 8.1. Agreement. In the event of the Company's
insolvency, the Reinsurer's contractual liability on the Policies shall
continue to be determined by all the terms, conditions and limitations
under this Agreement, but the Reinsurer will make settlement (1) directly
to the Company's liquidator, receiver or statutory successor, and (2)
without increase or diminution because of the Company's insolvency. The
liquidator, receiver or statutory successor of the Company shall give the
Reinsurer written notice of the pendency of a claim against the Company
on any Policy within a reasonable time after such claim is filed in the
insolvency proceeding. During the pendency of any such claim, the
Reinsurer may investigate such claim and interpose in the Company's name
(or in the name of the Company's liquidator, receiver or statutory
successor), in the proceeding where such claim is to be adjudicated, any
Defense or Defenses which the Reinsurer may deem available to the Company
or its liquidator, receiver or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court approval,
against the Company as a part of the expense of liquidation to the extent
of a proportionate share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.
Article IX
Termination
Section 9.1. Termination With Respect to New Business. This
Agreement may be terminated with regard to new business only as follows:
(a) By the Company, on any date following the first twelve (12) months
upon written notice by the Company to the Reinsurer as herein
provided following the expiration of ninety (90) days from the
date on which such notice is given; or
(b) By the Reinsurer, upon written notice by the Reinsurer to the
Company as herein provided following the expiration of ninety (90)
days from the date on which such notice is given; or
(c) By either party, upon advance written notice to the other party as
herein provided, for "cause" as herein defined, provided such
notice sets forth with reasonable detail the specific facts and
nature of the "cause" (or "causes" as the case may be) on which
the terminating party is relying in exercising its right of
termination under this subparagraph. "Cause" means a material
breach of this Agreement by a party which has the effect of
materially jeopardizing the interest of the other party or
materially burdening the ability of the other party to perform its
11
responsibilities under this Agreement, or the occurrence of an
event or set of facts that renders a party incapable of performing
its responsibilities under this Agreement.
(d) Notwithstanding anything to the contrary herein contained, in
respect to applications submitted by an agent of the Company
subsequent to May 31, 1996, the Reinsurer, by giving written
notice to the Company, may refuse to reinsure policies, beginning
after such notice is given, issued on such applications by such
agent if the Reinsurer in its sole discretion decides that the
applications submitted by such agent are materially below the
quality of the applications generally being received from other
agents, or that such agent's applications materially fall below
the Reinsurer's underwriting standards, or that such agent has a
history or record of performance or conduct that would be
unacceptable when measured by relevant industry standards.
Article X
Representations and Warranties of World Service
World Service hereby represents and warrants to Reinsurer that:
Section 10.1. Organization and Existence. World Service is an
Alabama-domiciled stock insurance company duly incorporated, validly
existing, and in good standing under the corporation and insurance laws
of the State of Alabama. World Service has all requisite corporate power
and authority to carry on its business as it is now being conducted, and
to own, lease, and operate its properties.
Section 10.2. Qualification and Power. World Service is duly
qualified and in good standing to do business in every jurisdiction in
which such qualification is necessary because of the nature of its
business or of the properties owned, leased, or operated by it.
Section 10.3. Validity: No Violation. This Agreement is a valid
and binding obligation of World Service, enforceable against it in
accordance with its terms and conditions. Neither the execution and
delivery of this Agreement, nor World Service's compliance with any of
the provisions of this Agreement, will:
(a) conflict with or result in a breach of any provision of the
Articles of Incorporation or Bylaws of World Service, or result in
a default (or give rise to any right of termination, cancellation,
or acceleration) under any of the terms, conditions, or provisions
of any note, lien, bond, mortgage, indenture, license, lease,
agreement, consent order, or other instrument or obligation to
which World Service is a party or by which it may be bound;
(b) violate any judgment, order, writ, injunction, or decree of any
court, administrative agency, or governmental body applicable to
World Service or to any of its properties or assets; or
(c) cause, or give any person grounds to cause (with or without
notice, the passage of time or both), the maturity of any
liability of World Service to be accelerated or increased.
12
Section 10.4. No authorization, consent or approval of, or filing
with, any public body or authority is necessary for World Service to
obtain for the consummation of this Agreement, except that such
transaction requires the approvals, authorizations and clearances
contemplated by Section 12.1(b) hereof. No authorization, consent or
approval of any other person or entity is necessary for World Service to
obtain for the consummation of the transactions contemplated by this
Agreement, and no person or entity has an option, right of first refusal
or preferential right to purchase all or any part of the Policies or that
is otherwise triggered as a result of the transactions contemplated
hereby.
Section 10.5. The reserves with respect to each of the Policies
included in the Policies for the period ended May 31, 1996 and
established on the books of World Service (i) were calculated and
determined in accordance with generally accepted actuarial and statutory
accounting standards consistently applied, (ii) are based on actuarial
assumptions that are in accordance with those specified in the related
Policies and (iii) meet the requirements of the insurance laws of the
State of Texas. The reserves for the period ended May 31, 1996 and
established on the books of World Service with respect to the incurred
but unreported policy claims are referred to herein as the "IBNR Claims
Reserves." The reserves as set forth in this Section 10.5 shall be
referred to in this Agreement as "Reserves."
Section 10.6. Since December 31, 1995, there has not been any
material adverse change, or changes in the Policies or operations of
World Service taken as a whole which in the aggregate may be deemed
materially adverse or which could affect the validity or enforceability
of this Agreement, consummation of the transactions contemplated hereby
or compliance with the terms hereof by World Service.
Section 10.7. World Service has the right to use, free and clear
of any royalty or other payment obligations, claims of infringement or
alleged infringement or other lien or encumbrance, all systems software
included in or used to process the Policies and no third party will be
entitled to any payment or other benefit as a result of the transfer the
data processing system by World Service to Reinsurer in accordance with
this Agreement.
Section 10.8. There are no claims, actions, suits, investigations
and administrative, arbitration or other proceedings (i) pending against
World Service with respect to the Policies or (ii) threatened against
World Service with respect to the Policies. World Service is not subject
to or in default with respect to any order, writ, judgment, decree,
injunction or similar order of any court or any foreign, federal, state
or other governmental body. There are no claims, actions, suits,
investigations or administrative, arbitration or other proceedings
pending or threatened against or affecting World Service which
individually or in the aggregate could have a material adverse effect on
the Polices which could affect the validity or enforceability of this
Agreement, consummation by World Service of the transactions contemplated
hereby or compliance by World Service with the terms of this Agreement,
and (ii) World Service is not subject to or in default with respect to
any order, writ, judgment, decree, injunction or similar order of any
court or any foreign, federal, state or other governmental body, the
result of which being subject to or of which default individually or in
13
the aggregate could have a material adverse effect on the Polices or
which could affect the validity or enforceability of this Agreement,
consummation by World Service of the transactions contemplated hereby or
compliance by World Service with the terms of this Agreement.
Section 10.9. World Service is in compliance in all respects with
all laws, ordinances, regulations, orders, judgments, injunctions, or
decrees of any court, arbitrator or governmental authority where the
failure to comply, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on the Policies.
Section 10.10. The Actuarial Appraisal referred to in Section 4.1
includes all commissions which are payable to agents of World Service.
World Service is not in default under any of the terms, provisions or
conditions of any contract between World Service and any of its agents,
past or present. The failure of any agent who wrote business for World
Service to have been duly licensed (for the type of business which such
agent wrote) as an agent in the particular jurisdiction in which such
agent wrote for World Service will not individually or in the aggregate
have a material adverse effect on the Policies of World Service. To the
knowledge of World Service, there is no actual or threatened plan on the
part of any insurance agent or broker to rewrite any of the policies or
contracts of insurance included in the Policies.
Section 10.11.
(a) It has been the practice of World Service to send all
communications involving policyholders directly to the affected
policyholders, and the Documents and Records of World Service to
be delivered to Reinsurer contain adequate information to enable
Reinsurer as administrator to send written notifications or other
communications directly to each policyholder whose policy or
contract is included in the Policies;
(b) no master list of all or any substantial number of the holders of
the Policies has been provided by World Service to any third party
except to World Service's consulting actuary, and such master list
is not available in the public domain; and
(c) no policyholder or group of policyholders, which individually or
in the aggregate account for five percent or more of the premium
income included in the Policies has threatened to terminate its or
their relationship with World Service.
Section 10.12. With respect to each of the Policies:
(a) World Service is a party to each of such and owns all of the
rights and interests of an insuring, reinsuring or ceding party,
as the case may be, in and to each of such Policies, free and
clear of any Lien;
(b) each of such Policies is in full force and effect and constitutes
a valid and legally binding obligation of each of the parties
thereto in accordance with its terms; the transactions
contemplated by this Agreement will not affect the validity or
binding character of any such Policy; World Service is not in
14
violation, breach or default of any such Policy and no event has
occurred which (with or without notice or lapse of time or both)
constitutes a breach or default by World Service under any such
Policy and no such Policy contains any provision providing that
the other party thereto may terminate the same by reason of the
transactions contemplated by this Agreement or any other provision
which would be altered or otherwise become applicable by reason of
such transactions;
(c) such Policies are, to the extent required under applicable law, on
forms approved by the insurance regulatory authority of the
jurisdiction where issued or have been filed with and not objected
to by such authority within the period provided for objection;
(d) all current benefits payable by World Service under any such
Policy have been paid or will be paid in the ordinary course of
business under the terms of the Policies under which they arose or
to the satisfaction of the parties thereto;
(e) no such Policy entitles the holder thereof or any other person or
entity to receive dividends or similar benefits in which the right
to receive such dividends or benefits is determined other than at
the discretion of the board of directors of World Service;
(f) the underwriting standards utilized and ratings applied by World
Service with respect to Policies issued by World Service conform
in all material respects to customary insurance industry practices
as such practices apply to the markets in which World Service has
sold its policies and, with respect to any such Policy reinsured
in whole or in part, conform in all material respects to the
standards and ratings required pursuant to the terms of the
related reinsurance, coinsurance or other similar Policy;
(g) each of such Policy was issued and has been serviced in the
ordinary course of business; and
(h) there has been no discrimination in violation of applicable
insurance laws among the policyholders whose policies and
contracts of insurance are included in such Policies with respect
to the rates charged such policyholders for the insurance in force
afforded such policyholders by such Policies.
Section 10.13. The Documents and Records are accurate and
complete in all material respects and there are no deficiencies in the
Documents and Records which could reasonably be expected to have a
material adverse effect on either Reinsurer's satisfaction of its
obligations in respect of the Policies or the servicing by Reinsurer of
the Policies in accordance with customary insurance industry practices.
There are no facts or other circumstances that would prevent the
Reinsurer (or which raises a material probability that the Reinsurer
might be prevented) from servicing the Policies in accordance with
customary insurance industry practice and in the manner in which the
Policies have been serviced prior to the Effective Date.
Section 10.14. As of the Effective Date, neither this Agreement
nor any certificate or document furnished by World Service to Reinsurer
in connection with this Agreement or the transactions contemplated hereby
15
contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading in light of the circumstances in which they were made.
Section 10.15. Survival of Representations and Warranties. The
representations and warranties of World Service contained in this Article
X and elsewhere in this Agreement shall survive the Closing until all of
the liabilities reinsured hereunder have been discharged or otherwise
expire.
Article XI
Representations and Warranties of Reinsurer
Reinsurer hereby represents and warrants to World Service that:
Section 11.1. Organization and Existence. Reinsurer is a Texas-
domiciled stock insurance company duly incorporated, validly existing,
and in good standing under the corporation and insurance laws of the
State of Texas. Reinsurer has all requisite corporate power and
authority to carry on its business as it is now being conducted, and to
own, lease, and operate its properties.
Section 11.2. Qualification and Power. Reinsurer is duly
qualified and in good standing to do business in every jurisdiction in
which such qualification is necessary because of the nature of its
business or of the properties owned, leased, or operated by it.
Section 11.3. Validity; No Violation. This Agreement is a valid
and binding obligation of Reinsurer, enforceable against it in accordance
with its terms and conditions. Neither the execution and delivery of
this Agreement, nor Reinsurer's compliance with any of the provisions of
this Agreement, will:
(a) conflict with or result in a breach of any provision of the
Articles of Incorporation or Bylaws of Reinsurer, or result in a
default (or give rise to any right of termination, cancellation,
or acceleration) under any of the terms, conditions, or provisions
of any note, lien, bond, mortgage, indenture, license, lease,
agreement, consent order, or other instrument or obligation to
which Reinsurer is a party or by which it may be bound;
(b) violate any judgment, order, writ, injunction, or decree of any
court, administrative agency, or governmental body applicable to
Reinsurer or to any of its properties or assets; or
(c) cause, or give any person grounds to cause (with or without
notice, the passage of time or both), the maturity of any
liability of Reinsurer to be accelerated or increased.
Section 11.4. Survival of Representations and Warranties. The
representations and warranties of Reinsurer contained in this Article XI
and elsewhere in this Agreement shall survive the Closing until all of
the liabilities reinsured and assumed hereunder have been discharged or
otherwise expired.
16
Article XII
Covenants and Conditions Precedent to Closing
Section 12.1. The obligations of each of the parties hereto to
proceed with the Closing were subject to the fulfillment (unless waived
by each party in writing), prior to or at the Closing, of each of the
following conditions:
(a) No suit, action or other proceeding shall have been initiated and
be pending or be threatened by any governmental agency in which it
is sought to restrain, prohibit, invalidate, modify or condition,
or set aside, the transactions contemplated by this Agreement, and
no statute, rule or regulation having such effect shall have been
promulgated or enacted, nor shall any such suit, action or
proceeding have been initiated by any other third party not
affiliated with the parties hereto in which such third party shall
have obtained preliminary or permanent injunctive relief or which,
in the opinion of counsel to either party, has a reasonable
likelihood of success; provided, however, that each party shall
use reasonable efforts in good faith to cause such suit, action or
proceeding, or the threat thereof, to be dismissed or withdrawn,
to cause such injunction to be dissolved or vacated or to cause
such statute, rule or regulation to be repealed or rescinded.
(b) The receipt of the required approval of this Agreement from
regulatory authorities.
Section 12.2. The obligations of World Service to proceed with
the Closing were subject to the fulfillment (unless waived by Reinsurer
in writing), prior to or at the Closing, of each of the following
conditions:
(a) The representations and warranties of Reinsurer contained in
Article XII of this Agreement shall be true and correct in all
material respects at and as of the Closing, as if each such
representation and warranty had been made as of the Closing.
17
(b) Reinsurer shall have performed and complied in all material
respects with all covenants, agreements, obligations, commitments
and conditions required by this Agreement to be performed or
complied with prior to or at the Closing.
(c) Reinsurer shall have delivered to World Service a certificate
dated the Closing Date and signed by the president or a vice
president of Reinsurer certifying to the fulfillment of the
conditions specified in this Section 12.2.
(d) Reinsurer shall have delivered to World Service at the Closing
such other documents as World Service may reasonably request.
Section 12.3. The obligations of Reinsurer to proceed with the
Closing are subject to the fulfillment (unless waived by Reinsurer in
writing), prior to or at the Closing, of each of the following
conditions:
(a) The representations and warranties of World Service contained in
Article XII of this Agreement shall be true and correct in all
material respects at and as of the Closing, as if each such
representation and warranty had been made as of the Closing.
(b) World Service shall have performed and complied in all material
respects with all covenants, agreements, obligations, commitments
and conditions required by this Agreement to be performed or
complied with prior to or at the Closing.
(c) World Service shall have delivered to Reinsurer a certificate
dated the Closing Date and signed by the president or a vice
president of World Service certifying to the fulfillment of the
conditions specified in this Section 12.3.
(d) World Service shall have delivered to Reinsurer at the Closing
such other documents as Reinsurer may reasonably request.
18
Section 12.4. Documents and Records. World Service gave
Reinsurer access to records and information concerning the Policies prior
to the Closing and in connection with the transfer of the administration
of the Policies to Reinsurer. World Service agrees to deliver to
Reinsurer all of World Service's files, books, and records to the extent
not already delivered to Reinsurer, relating to the Policies ("Documents
and Records") without charge. World Service transferred, delivered,
assigned and conveyed to Reinsurer on the Closing Date all of its data
processing equipment, hardware and related implements, as well as all
related operating and processing software, within World Service's
possession or control ("data processing system"), used for the purpose of
administration and servicing of the Policies without charge. In
connection with such data processing system, World Service does hereby
assign and transfer to Reinsurer without charge all of its rights, title
and interests in any service contracts, licenses, permits or agreements
used or useful in operating or supporting the data processing system.
Section 12.5. Cooperation. The parties shall assist and
cooperate with each other by making all reasonable efforts to seek and
obtain the aforementioned approvals and any other approvals the parties
agree are necessary or advisable, and each party shall bear its own
expenses related thereto.
Article XIII
Closing
Section 13.1. Time and Location. The closing of the transactions
contemplated by this Agreement ("Closing") took place on May 31, 1996
(the "Closing Date"), subject to regulatory approval.
Section 13.2. Deliveries by World Service. At Closing World
Service delivered to Reinsurer the following:
(a) an accounting in contract level detail as to the Policies,
including a detail listing of the contracts and the payment
obligations thereunder, which are the subject of this Agreement,
and which also shall show the Transfer Value owed by World Service
to Reinsurer pursuant to the calculations provided in Schedule
4.1, and
(b) Reinsurer's share of any premiums or other receipts, if any,
received by World Service in connection with the Policies
attributable to any premiums or other amounts due or payable on or
after the Effective Date.
Article XIV
Miscellaneous Provisions
Section 14.1. Extracontractual Damages. The Reinsurer does not
agree to indemnify the Company for, and shall not be liable for, any
extracontractual damages or liability of any kind whatsoever of the
Company's.
Section 14.2. Misunderstandings and Oversights. If any failure
to pay amounts due or to perform any other act required by this agreement
is unintentional and caused by misunderstanding or oversight, the Company
19
and the Reinsurer will adjust the situation to what it would have been
had the misunderstanding or oversight not occurred.
Section 14.3. Facility of Reinsurance. The Company shall not
enter into any other reinsurance agreements, including assumption
reinsurance, that would cover the Policies, without the express written
approval of the Reinsurer, except that the Company may coinsure the
Company's Portion of the Policies without the Reinsurer's permission
provided such coinsurance does not diminish the Company's obligations and
liabilities under this Agreement.
Section 14.4. South Texas Bankers Life Insurance Company. On or
soon after the time of the execution and delivery of this Agreement, the
Company will enter into an agreement with South Texas Bankers to assume
all of South Texas Bankers insurance policies in force ("South Texas
Bankers Policies") that were the subject of the South Texas Bankers
Agreement effective June 1, 1996, with certain amendments thereto,
between the Reinsurer and South Texas Bankers similar in all material
respects to the Assumption Agreement as herein above identified between
Reinsurer and the Company, except that said South Texas Bankers Agreement
involved the South Texas Bankers Policies. If the Company assumes the
South Texas Bankers Policies as aforesaid, the Reinsurer and the Company
agree that such policies will be merged into the Policies covered by this
Agreement effective as of the Effective Date, and shall thereafter for
all purposes become a part of the Polices covered by this Agreement. In
that case, the Company agrees that it shall assume and be fully
responsible for South Texas Bankers' obligations, covenants,
representations, warranties, liabilities and indemnification agreements
and all other responsibilities contained in said South Texas Bankers
Agreement in respect to the South Texas Bankers Policies or otherwise,
except in any instance in which an explicit modification is stated herein
and in any instance in which there is a conflict between the express
terms and conditions of the South Texas Bankers Agreement and this
Agreement, in which case this Agreement shall supersede the South Texas
Bankers Agreement. In that case, and referring to Sections 3.01 and 3.02
above, the Reinsurer has already received the "Transfer Value," and South
Texas Bankers has already received the "Ceding Fee" as described in
Section 4.1 and Section 4.2 of the South Texas Bankers Agreement. If the
Company assumes the South Texas Bankers Policies as aforesaid, then the
provisions of Section 4.1 and Section 4.2 above shall apply to the South
Texas Bankers Agreement, and the consolidated version of Exhibit 4.2
shall express the adjustments accepted and agreed to by the Parties as
called for by Section 4.1 and Section 4.2 of this Agreement. Further, if
the Company assumes the South Texas Bankers Policies as aforesaid, then,
effective as of the Effective Date, the Reinsurer's Portion shall be
Ninety One and Forty-Two Hundredths percent (91.42%) and the Company's
Portion shall be Seven and Eight and Fifty-Eight Hundredths percent
(8.58%), and all accounting and settlement as provided in this Agreement
shall be adjusted accordingly, retroactively to the Effective Date.
Pending such assumption of the South Texas Bankers Policies as aforesaid,
the Coinsurance Ratio between the Company and the Reinsurer shall be as
stated in Section 2.1, but upon the consummation of the assumption of the
South Texas Bankers Policies as aforesaid the Coinsurance Ratio shall be
for all purposes, effective as of the Effective Date, 91.42/8.58.
20
Section 14.5. Policy Changes. The Company shall not make any
changes after the Effective Date of this Agreement in the provisions and
conditions of the Policies.
Section 14.6. Audit. The Company or the Reinsurer, their
respective employees or authorized representatives may audit, inspect and
examine, during regular business hours, at the home office of the Company
or the Reinsurer, provided that three working days advance notice has
been given to the other party, any and all books, records, statements,
correspondence, reports, trust accounts and their related documents or
other documents that relate to the Policies. The audited party agrees to
provide a reasonable work space for such audit, inspection or examination
and to cooperate fully and to faithfully disclose the existence of and
produce any and all necessary and reasonable materials requested by such
auditors, investigators, or examiners. The expense of the respective
party's employee(s) or authorized representative(s) engaged in such
activities shall be borne solely by such party. The auditing party
agrees to conduct such audit in a courteous, prompt, professional and
reasonable manner, and to provide immediate written disclosure to the
audited party of any discrepancy or variance (when compared to any
previously reported information) discovered by the auditing party.
Section 14.7. Integration. [The provisions of this Section 14.7
are deleted because they are incorporated in Section 14.24.]
Section 14.8. Law and Venue. This Agreement has been finally
executed in the State of Texas and is subject to and is to be interpreted
in accordance with the laws of the State of Texas. Venue for any action,
suit or other proceeding shall be exclusively in Xxxxxx County Texas.
The parties agree to waive any other venue.
Section 14.9. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same
instrument.
Section 14.10. Severability. In the event that any provision or
term of this Agreement shall be held by any court to be illegal or
unenforceable, all of the other terms and provisions shall remain in full
force and effect, except if the provision or term held to be illegal or
unenforceable is also held to be a material part of this Agreement such
that the party in whose favor the material term or provision was
stipulated herein would not have entered into this Agreement without such
term or provision, then the party in whose favor the material term or
provision was stipulated shall have the right, upon such holding, to
terminate this Agreement.
Section 14.11. Amendments. This Agreement shall be amended only
by mutual consent and written agreement executed and delivered by the
parties.
Section 14.12. Schedules and Paragraph Headings. Schedules
attached hereto are made a part of this Agreement. Paragraph headings
are provided for reference purposes only and are not made a part of this
Agreement.
Section 14.13. Financial Reports. The Company and the Reinsurer
21
each agree to furnish the other with their respective NAIC Annual and
Quarterly Statements, as required by their respective state laws within
five (5) days after such reports are due to be filed with such respective
states.
Section 14.14. Survival. The representations, warranties,
covenants and agreements respectively made by the Company and the
Reinsurer in this Agreement shall survive the termination or expiration
of this Agreement.
Section 14.15. Notices. Any notices made pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given
on the date of delivery if delivered personally (including overnight
delivery service) or by facsimile transmission to the party to whom
notice is give, or on the third day after mailing if mailed to the party
to whom notice is to be given by certified mail, return receipt
requested, and properly addressed as follows:
If to the Company:
World Service Life Insurance Company of America
Attn: Xx. Xxxx X. Xxxxxxxxxx,
Vice Chairman and General Counsel
000 Xxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
FAX: (000) 000-0000
If to the Reinsurer:
American Capitol Insurance Company
Attn: Xx. Xxxxxxx X. Guest, Chairman
00000 Xxxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
FAX: (000) 000-0000
Any party to this Agreement may change the address to which notice
is to be delivered under this Section 10.15 by delivering written
notice to that effect to the other party in accordance with this
Section 14.15. Any document delivered via facsimile transmission shall be
treated as though it is an original for all purposes.
Section 14.16. Subject to Regulatory Approval. The parties
acknowledge that the Policies are being administered by the Reinsurer
based on the transfer of the Policies and related files and data
processing system and equipment to the Reinsurer pursuant to the
Assumption Agreement which has not been fully consummated and which will
be consummated upon the consummation of this Agreement. In the meantime,
the parties agree that the Reinsurer's administration of such Policies
shall be governed in any case by the provisions of Exhibit 3.1.
Moreover, the South Texas Bankers Policies, which are not initially
included as a part of the Policies that are the subject of this Agreement
but may be subsequently added to such Policies, shall continue to be
administered by the Reinsurer, and which administration shall be governed
by the provisions of Exhibit 3.1. The parties further acknowledge that
this Agreement may be subject to certain regulatory approvals, as well as
the approval of Crown Life Insurance Company ("Crown") (an insurance
22
company that has provided certain reinsurance to the Reinsurer in respect
to the Policies as of the time when the Assumption Reinsurance Agreement
was entered), which approval the parties agree to seek diligently and in
good faith. However, in the event such approvals are not received, or if
one or more of such approvals contain conditions that modify this
Agreement materially and which are unacceptable to either party, then
this Agreement shall be subject to rescission in which case the parties
shall be restored to the positions they would have had if this
transaction had not occurred, recognizing the Reinsurer's entitlement to
compensation for administering the Policies in the interim pursuant to
Exhibit 3.1 as aforesaid.
Section 14.17. Understanding of Agreement. The Parties agree
that the drafting of this Agreement has been a joint effort and no
special weight or presumption should arise in favor of or against either
Party based on whether one Party or the other was more responsible for
the drafting of this Agreement. Each Party has consulted with its
accounting, actuarial and legal advisers in respect to the negotiations
and the drafting of this Agreement and each Party has read and
understands this Agreement.
Section 14.18. Assignment. No party may assign this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written consent of the other party, if the assignment is to an entity
other than an affiliate of Reinsurer.
Section 14.19. Broker Fees. Each party hereby represents and
warrants that it has not taken any action that would impose on any other
party hereto liability for payment of any broker, finder, or similar fee
in connection with the origin, negotiation, execution, or performance of
this Agreement, except that Reinsurer shall be solely responsible for the
payment of a finder's fee to Trent & Associates of Oklahoma City,
Oklahoma.
Section 14.20. Cooperation. The parties agree that they will
from time to time, upon the request of any other party and without
further consideration, execute, acknowledge, and deliver in proper form
any further instruments and take such other action as the other party may
reasonably require in order to carry out effectively the intent of this
Agreement.
Section 14.21. Entire Agreement. Except as otherwise stated in
this Section 14.21, this Agreement constitutes the entire understanding
of the parties pertaining to the subject matter contained in this
Agreement and supersedes all prior and contemporaneous oral and written
agreements, representations, and understandings of the parties. For the
purpose of interpretation of this Agreement, if any provision is
ambiguous, inconsistent with or in conflict with another provision of
this Agreement, or uncertain as to its meaning for any reason, reference
should be made to the Assumption Agreement as modified by the Reinsurance
Agreement for the purpose of clarification and/or resolution, which shall
have priority over any oral or other written statements or agreements
that would otherwise be available under applicable rules of evidence that
would be legitimately applied by any court or arbitration panel, as the
case may be. Furthermore, reference should be made to the South Texas
Assumption Reinsurance Agreement for purposes of Section 14.4.
23
Section 14.22. Exhibits and Schedules. All exhibits and
schedules attached to and referenced in this Agreement are hereby
incorporated by reference into this Agreement as if they were set forth
at length in the text of this Agreement.
Section 14.23. Expenses. Each party shall pay all of its own
costs, fees, and expenses incurred or to be incurred in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
Section 14.24. Severability. If any part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable law or
regulations, that provision shall not apply and shall be omitted to the
extent so contrary, prohibited, or invalid; but the remainder of this
Agreement shall not be invalidated and shall be given full force and
effect insofar as possible.
Section 14.25. Successors. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
Section 14.26. Third Party Beneficiaries. Except as to the
holders of the Policies, nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason
of this Agreement on any persons other than the parties to it and their
respective successors and permitted assigns. In addition, nothing in
this Agreement is intended to relieve or discharge the obligation or
liability of any third person to any party to this Agreement or give any
third person any right of subrogation or action against any party to this
Agreement.
Section 14.27. Waiver of Compliance. The party for whose benefit
a warranty, representation, covenant, or condition is intended may in
writing waive any inaccuracies in the warranties and representations
contained in the Agreement or waive compliance with any of the covenants
or conditions contained herein and so waive performance of any of the
obligations of the other party and any defaults under this Agreement. A
24
waiver shall not affect or impair, however, the waiving party's rights
with respect to any other warranty, representation, or covenant or any
default hereunder not specifically waived, nor shall any waiver
constitute a continuing waiver.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement as of the Effective Date.
WORLD SERVICE LIFE INSURANCE COMPANY OF AMERICA
By: /s/Xxxx X. Xxxxxxxxxx
Vice-Chairman/General Counsel
Witness: /s/
Corporate Officer
AMERICAN CAPITOL INSURANCE COMPANY
By: /s/Xxxxxxx X. Guest
Chairman
Witness:
Corporate Officer
25
Exhibit 4.1
WORLD SERVICE POLICIES - POST CLOSING ADJUSTMENT
Xxxxx XX Portion WS Portion
Calculation of Transfer Value ------ ---------- ----------
Transfer Value as of May 31, 1996
---------------------------------
Aggregate reserve for life policies 17,221,732 16,119,541 1,102,191
Policy and contract claims 93,007 87,055 5,952
Premiums received in advance 33,174 31,051 2,123
Dividend liability 100,501 94,069 6,432
Commission liability 11,571 10,830 741
Unearned investment income-policy loans 1,663 1,557 106
Remittances and items not allocated 0 0 0
----------------------------------
17,461,648 16,344,103 1,117,545
==================================
Assets to be Transferred As Of May 31, 1996
-------------------------------------------
Policy assets:
Policy loans 93,519 87,534 5,985
Life insurance premiums deferred
and uncollected 590,862 553,047 37,815
Accrued investment income-policy
loans 925 866 59
----------------------------------
Policy assets to be transferred 685,306 641,446 43,860
Cash Portion to be transferred 15,566,008 14,569,784 996,225
Adjusted Ceding Fee to be retained
by World Service 1,210,334 1,132,872 77,461
----------------------------------
17,461,648 16,344,103 1,117,545
==================================
Calculation of Ceding Fee
Based on May 31 Actuarial Appraisal
May 31, 1996 Ceding Fee before
adjustments 743,013
Plus dividend adjustment 597,321
Less proportionate share of
mortality adjustment (130,000)
-----------
Adjusted Ceding Fee 1,210,334
===========
Calculation of Reinsurance Percentage
A: Cash Portion as of May 31, 1996
(from above) 15,566,008 14,569,784
B: Cash Portion as of December 31,
1995 (already transferred)
Mortgage loans 2,008,336
Cash 13,561,933
----------
14,570,269 (14,570,269)
------------------------
Reinsurance Percentage (B/A) 93.60%
==========
Cash to be transferred to (from)
American Capitol (485)
============
Exhibit 4.1
SOUTH TEXAS BANKERS POLICIES - POST CLOSING ADJUSTMENT
Xxxxx XX Portion STB Portion
Calculation of Transfer Value ------ ---------- -----------
Transfer Value as of May 31, 1996
---------------------------------
Aggregate reserve for life policies 7,736,446 6,736,124 1,000,322
Policy and contract claims 68,007 59,214 8,793
Premiums received in advance 75,653 65,871 9,782
Dividend liability 46,083 40,124 5,959
Commission liability 10,331 8,995 1,336
Unearned investment income-policy loans 0 0 0
Remittances and items not allocated 109,527 95,365 14,162
---------------------------------
8,046,047 7,005,693 1,040,354
=================================
Assets to be Transferred As Of May 31, 1996
-------------------------------------------
Policy assets:
Policy loans 0 0 0
Life insurance premiums deferred
and uncollected 106,634 92,846 13,788
Accrued investment income-policy loans 0 0 0
---------------------------------
Policy assets to be transferred 106,634 92,846 13,788
Cash Portion to be transferred 7,821,098 6,809,830 1,011,268
Adjusted Ceding Fee to be retained
by World Service 118,315 103,017 15,298
---------------------------------
8,046,047 7,005,693 1,040,354
=================================
Calculation of Ceding Fee
Based on May 31 Actuarial Appraisal
May 31, 1996 Ceding Fee before
adjustments 188,315
Plus dividend adjustment 0
Less proportionate share of
mortality adjustment (70,000)
---------
Adjusted Ceding Fee 118,315
=========
Calculation of Reinsurance Percentage
A: Cash Portion as of May 31, 1996
(from above) 7,821,098 6,809,830
B: Cash Portion as of December 31,
1995 (already transferred)
Mortgage loans 0
Cash 6,810,029
----------
6,810,029 (6,810,029)
----------------------
Reinsurance Percentage (B/A) 87.07%
============
Cash to be transferred to (from)
American Capitol (199)
===========
Exhibit 4.1
WS/STB COMBINED - POST CLOSING ADJUSTMENT
Xxxxx XX Portion WS Portion
Calculation of Transfer Value ------ ---------- -----------
Transfer Value as of May 31, 1996
---------------------------------
Aggregate reserve for life policies 24,958,178 22,816,766 2,141,412
Policy and contract claims 161,014 147,199 13,815
Premiums received in advance 108,827 99,490 9,337
Dividend liability 146,584 134,007 12,577
Commission liability 21,902 20,023 1,879
Unearned investment income-policy loans 1,663 1,520 143
Remittances and items not allocated 109,527 100,130 9,397
----------------------------------
25,507,695 23,319,135 2,188,560
==================================
Assets to be Transferred As Of May 31, 1996
-------------------------------------------
Policy assets:
Policy loans 93,519 85,495 8,024
Life insurance premiums deferred
and uncollected 697,496 637,651 59,845
Accrued investment income-policy
loans 925 846 79
---------------------------------
Policy assets to be transferred 791,940 723,992 67,948
Cash Portion to be transferred 23,387,106 21,380,492 2,006,614
Adjusted Ceding Fee to be retained
by World Service 1,328,649 1,214,651 113,998
----------------------------------
25,507,695 23,319,135 2,188,560
==================================
Calculation of Ceding Fee
Based on May 31 Actuarial Appraisal
May 31, 1996 Ceding Fee before
adjustments 931,328
Plus dividend adjustment 597,321
Less proportionate share of
mortality adjustment (200,000)
---------
Adjusted Ceding Fee 1,328,649
=========
Calculation of Reinsurance Percentage
A: Cash Portion as of May 31, 1996
(from above) 23,387,106 21,380,492
----------
B: Cash Portion as of December 31,
1995 (already transferred)
Mortgage loans 2,008,336
Cash 19,371,962
----------
21,380,298 (21,380,298)
----------------------
Reinsurance Percentage (B/A) 91.42%
===========
Cash to be transferred to (from)
American Capitol (194)
============
EXHIBIT 3.1
POLICY ADMINISTRATION AND DATA PROCESSING
SERVICES AGREEMENT
American Capitol Insurance Company, hereinafter referred to as
Administrator, and World Service Life Insurance Company of America,
hereinafter referred to as Client, agree as follows:
During the term of this agreement ("Agreement"), Administrator will
perform for Client in respect to Client's policies the policy
administration and data processing services hereinafter designated in this
Agreement and exhibits attached hereto and made a part hereof for all
purposes. The policies that are the subject of this Agreement consist of
the policies defined as the "Policies" in the Reinsurance Agreement
("Reinsurance Agreement") to which this Agreement is attached as an
exhibit.
Client shall designate the person or persons to whom Administrator will
report. Client will keep Administrator informed of its corporate policy
or changes in policy to enable Administrator to carry out the subject
services for Client in an efficient manner. Client shall appoint one or
more of Administrator's officers as its attorney-in-fact to act for Client
in performing routine functions in the course of administering Client's
policies and performing data processing services as called for by this
Agreement. At any time during the term of this Agreement, Administrator
may enter into a consulting agreement with one or more employees of Client
to provide consulting services to Administrator regarding the
administration of the subject policies and the related marketing
operation, and Administrator shall be solely responsible for fees relating
thereto.
Administrator shall safeguard all data and information relating to
Client's business to the same extent that Administrator safeguards such
data and information relating to its own business, provided, however, if
such data or information is available to the general public, is known or
in the possession of Administrator prior to the date of this Agreement, or
is known or in the possession of Administrator prior to actual receipt by
Administrator of such information or data from client or is rightfully
obtained from third parties, Administrator shall bear no responsibility
for its disclosure, inadvertently or otherwise.
Client agrees that all systems, including data processing programs, discs,
tapes, documentations, manuals, specifications, ideas, applications,
routines, formulas, and techniques relating to the subject services
furnished, owned, licensed or developed by Administrator shall and may be
used by Administrator during the term of this Agreement and at any time
thereafter and shall be and remain the sole property of Administrator. If
Client furnished Administrator with any system related to its business,
said system shall remain the sole property of Administrator, and
Administrator may use such system or any other system to administer the
subject policies.
In the event of termination of this Agreement, Administrator may, at its
option, retain any property or data in its possession that belongs to
Client until all sums due Administrator pursuant to this Agreement are
1
paid, including such additional charges as may be determined by
Administrator and Client to be reasonable and necessary to effect an
orderly termination of the work and services then being performed by
Administrator and to assure and protect the orderly and timely
perpetuation of the Client's business as affected by such work and
services. Upon termination of this Agreement, Client shall instruct
Administrator in writing as to the disposition of all such property or
data within ninety (90) days.
Administrator shall use due care and diligence in performing the work and
services to be performed hereunder and agrees that it will correct any
errors which are caused solely by Administrator, its authorized agents,
employees, programs, or data processing equipment and machines, and its
liability for such errors shall be limited to the correction of same
within a reasonable time as full compensation for any and all damages
which may result from such error or errors and in any event, the liability
of Administrator to Client or any other party for any and all losses or
damages directly or indirectly arising out of this Agreement or the
performance hereof, shall not exceed the performance of the particular
task which gives rise to such loss or damages and such amount shall
constitute an agreed amount of liquidated damages for such losses and
damages. The parties recognize the liability that Administrator has in
respect to the subject policies in its capacity as Reinsurer under the
Reinsurance Agreement and, except as hereinabove stated, Administrator
shall not incur any additional liability by virtue of its role and
responsibilities as Administrator pursuant to this Agreement.
Client warrants that it is duly authorized to enter into this Agreement
and that Administrator has in no way caused or induced Client to breach
any contracted obligation and Client agrees to indemnify and hold harmless
Administrator from any claim or claims.
This Agreement and the exhibits attached hereto or made a part hereof
constitute the entire agreement of the parties on the subject of policy
administration and data processing services. Any modifications or
amendments must be in writing signed by both parties.
The parties hereto expressly agree that each will comply with all
applicable federal, state and local laws, the violation of which may
adversely affect the performance of this Agreement.
The charges hereinafter set forth in Exhibit C attached hereto shall be
billed as a part of the monthly accounting made by Administrator in its
capacity as Reinsurer as set forth in the Reinsurance Agreement, and shall
be allocated between the parties thereto (referred to in such Reinsurance
Agreement as the Reinsurer and Company) as set forth in such Reinsurance
Agreement.
Client agrees that in the event of default in any of the covenants or
agreements contained herein or in payment of the charges provided herein
and in exhibit or exhibits attached hereto or made a part hereof, that it
will pay all costs and expenses of enforcement or collection, including
reasonable attorney's fees, which may arise or accrue.
This Agreement may not be terminated by either party during the existence
of the Reinsurance Agreement, and shall automatically terminate when the
Reinsurance Agreement terminates, unless the parties agree otherwise in
writing.
2
This Agreement is effective as of June 1, 1996.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their successors and legal representatives, and shall not
be assigned by either party without the prior written consent of the other
party.
This Agreement shall be construed under the Laws of the State of Texas and
should any portion be invalid or unenforceable, for any reason, it shall
not affect the remainder of this Agreement which shall be valid and
binding.
IN WITNESS WHEREOF, this Agreement is an Exhibit to the above
mentioned Reinsurance Agreement. The parties, by executing and delivering
said Reinsurance Agreement, intend to adopt this Agreement as though it
had been separately executed and delivered by the parties.
3
EXHIBIT A
MANAGEMENT
The Client's responsibility shall be:
1. To provide from its Board of Directors or an Officer instructions
regarding its corporate policy, products, growth and general operations of
the Company and such other instructions as are called for herein. To
select one or more officers of the Client to whom the Administrator is to
report and from whom the Administrator is to receive instructions. To
designate and appoint not less than two officers of Administrator to act
as Client's attorney-in-fact to perform in Client's place and stead the
routine policy transactions, such as policy issuance and claims payments
and such other functions as the parties may deem appropriate.
2. To provide financial interface and receive the financial reports from
Administrator.
3. To provide marketing interface and receive the marketing reports from
Administrator.
The Administrator's responsibilities shall be:
1. To perform the subject services in keeping with corporate policy of
the Client as communicated by the Client to Administrator.
2. To provide financial information relating to the subject policies
sufficient to enable Client to complete requirements of the various state
insurance departments, file premium tax, advertising and miscellaneous
reporting forms as required by the states.
MARKETING
The Client's responsibility shall be:
To select the products, marketing systems, brochures, agents' training and
instruction, commissions and other agent compensation, and personnel to
operate the marketing efforts of the Client. The Client is solely
responsible for recruiting, training, assisting, monitoring, supervising,
terminating (if called for) and the market conduct of the Client's agents.
The Administrator's responsibility shall be: None.
UNDERWRITING/ISSUE
The Client's responsibility shall be:
To set underwriting standards and guidelines as conditions for issuance of
new policies and reinstatement of policies that are eligible for
reinstatement.
The Administrator's responsibility shall be:
To issue new polices and reinstate policies consistent with underwriting
standards and guidelines provided by Client.
CLAIMS SERVICE
The Client's responsibilities shall be:
To inform Administrator of its claims-paying policies and guidelines
respecting routine claims processing. To issue instructions to
Administrator in respect to claims that are other than routine or in
respect to which Administrator requests instructions. To inform
Administrator of all notices of claims when notice thereof is not sent
directly to Administrator.
The Administrator's responsibility shall be:
To verify and pay all claims in accordance with Client's policies,
guidelines and, when applicable, instructions.
POLICYHOLDER SERVICE
The Client's Responsibilities shall be:
To inform Administrator of its policies and guidelines respecting routine
policyholder service. To issue instructions to Administrator in respect
to policyholder service matters that are other than routine or in respect
to which Administrator requests instructions. To inform Administrator of
all communication received from policyholders when such communication is
not received directly by Administrator.
The Administrator's Responsibility shall be:
To answer and process all inquiries received, including cash surrenders,
policy loans, reinstatement requests and policy changes, in keeping with
Client's guidelines.
BILLING/COLLECTION
The Client's responsibility shall be: None, except to remit to
Administrator promptly any premiums or other payments in respect to the
subject policies received by the Client.
The Administrator's responsibilities:
To provide billing notices either through pre-authorized check or direct
bills for modal premiums when due. To provide late notices and lapse
notices in the event mode premiums are not received when due. To collect
and deposit in the Client's account all premiums received and reconcile on
a daily basis premium collections and deposits. In this regard, the
Client hereby authorizes the Administrator to establish one or more bank
accounts in the name of the Client in respect to which the Administrator's
officers are hereby authorized to sign and transact business in the same
manner that it operates banking accounts in its own name. The Client will
provide in a timely manner appropriate resolutions by its Board of
Directors and certifications by its officers to facilitate the above.
INVESTMENTS
The Client's responsibility shall be:
The Client as the Company in the Reinsurance Agreement is solely
responsible for the assets covering its share of policy liabilities as set
forth in the Reinsurance Agreement and the Client shall be solely
responsible for the investments relating to such assets, as well as its
other assets.
The Administrator's responsibility shall be:
The Administrator as the Reinsurer in the Reinsurance Agreement is solely
responsible for the assets covering its share of policy liabilities as set
forth in the Reinsurance Agreement and the Administrator shall be solely
responsible for the investments relating to such assets, as well as its
other assets.
ACTUARIAL
The Client's responsibility shall be:
To be responsible for its share of the costs of actuarial services
selected by Administrator as set forth below. Client shall be solely
responsible for any actuarial services that it may require for matters not
related to the subject policies or any actuarial services that are for the
exclusive benefit of the Client.
The Administrator's responsibility shall be:
To select a qualified actuary to perform all actuarial work, reviews and
certifications required in respect to the subject policies for the benefit
of the Client and Administrator in their roles as the Company and the
Reinsurer, respectively, in the Reinsurance Agreement. The costs thereof
shall be borne by the Company and the Reinsurer as a part of the monthly
accounting as provided in the Reinsurance Agreement, except that in any
instance in which such actuarial services are performed for the exclusive
benefit of either the Company or the Reinsurer, as the case may be, such
party shall bear the entire cost of the subject services.
ACCOUNTING, TAXES, REPORTING AND REGULATORY COMPLIANCE
The Client's responsibility shall be:
To inform Administrator of the Officer to whom Administrator is to report
and to inform Administrator of any specific format required to interface
with Company in respect to accounting procedures, taxes and tax reporting,
financial reporting and regulatory compliance. Client shall be solely
responsible for its accounting functions, taxes and tax reporting,
financial reporting and regulatory compliance.
The Administrator's responsibility shall be:
To provide sufficient policy data and information to Client to enable
client to record all accounting entries on Client's books to properly
account for all transactions implemented by Administrator in respect to
the subject policies.
COMMISSIONS
The Client's responsibility shall be:
Subject to the provisions and limitations in the Reinsurance Agreement, to
make all commission and other compensation arrangements with its agents.
The Administrator's responsibility shall be:
To prepare agent commission statements and disburse funds to agents based
on the results of the commission statements.
POLICY DIVIDENDS
The Client's responsibility shall be:
To determine and declare all dividends to be paid in respect to the
subject policies and to instruct Administrator accordingly.
The Administrator's responsibility shall be:
To pay or otherwise credit dividends to the subject policies in accordance
with Client's instructions. The Administrator shall be entitled to rely
upon and implement the dividend scales and practices of the Client that
exist as of the Effective Date of this Agreement and continuing thereafter
until changed in writing by the Client. When changed in writing by the
Client, the Administrator shall implement the change or changes in respect
thereto until a subsequent change in writing by the Client.
EXHIBIT B
DATA PROCESSING SERVICES
The Client's responsibility shall be:
To furnish data to Administrator in a timely manner where data is not
directly received by Administrator.
The Administrator's responsibilities shall be:
To provide all data processing services necessary to the normal
administration of the subject policies as called for by this Agreement.
Exhibit C
FEES
Client will be charged monthly according to the following schedule. Said
charges will be allocated between Client and Administrator in their
respective capacities as Company and Reinsurer as part of the monthly
accounting as set forth in the Reinsurance Agreement.
Maintenance
Monthly Fee Per Policy
Policy Status In Force (Beginning of Month)
Premium Paying ............................. $2.19
Fully Paid Up ............................. 1.36
Reduced Paid Up.............................. .84
Policy Issue
Fee per policy issued....................... $35.00
Inflation
On each anniversary of the Effective Date of this Agreement, the per
policy fees will increase 3% (compounded).
Direct Expenses of Client
The Client will be solely responsible for actual costs incurred in
marketing new business and for fees of attorneys, accountants, tax
advisers and other consultants or professionals, if any (unless
specifically otherwise provided for elsewhere in this Agreement). Client
will also be solely responsible for any fees incurred by Administrator to
obtain and maintain a Third Party Administrator's license (if such license
is required).
EXHIBIT 7.1
ARBITRATION AGREEMENT
This agreement ("Arbitration Agreement") is made between American
Capitol Insurance Company ("American Capitol"), a Texas domiciled life
insurance company with its principal office in Houston, Texas, and World
Service Life Insurance Company of America ("World Service"), an Alabama
domiciled life insurance company with its principal office in Winchester,
Tennessee, to be effective on June 1, 1996.
WHEREAS, American Capitol and World Service have entered into an
Agreement of Reinsurance and Assumption ("Assumption Reinsurance
Agreement"), supplemented and amended by a Reinsurance Agreement
("Reinsurance Agreement") effective June 1, 1996, (collectively referred
to as "Reinsurance") relating to certain life insurance policies, and
WHEREAS, the Parties desire to provide for an efficient and
expeditious way in which to resolve any disputes that might arise between
the Parties in respect to said Reinsurance.
NOW, THEREFORE, the Parties agree as follows:
ARTICLE I
1.1 The above recitations are true and correct.
1.2 The following words when appearing in this Arbitration Agreement with
initial capital letters shall have the meaning ascribed to them as
follows:
(a) "Party" shall mean either American Capitol or World Service.
(b) "Reinsurance" shall mean the reinsurance relationship between the
established by the Agreement of Assumption Reinsurance and the
Reinsurance Agreement identified herein, including written amendments
thereto.
(c) "Arbitrator" shall mean one of the three arbitrators selected as
herein provided. "American Capitol's Arbitrator" shall mean the
Arbitrator designated as such by American Capitol. "World Service's
Arbitrator" shall mean the Arbitrator designated as such by World
Service. "Parties' Arbitrators" shall mean American Capitol's
Arbitrator and World Service's Arbitrator. The "Third Arbitrator"
shall mean the Arbitrator selected by the Parties' Arbitrators as
herein provided. The "Arbitration Committee" shall mean the three
Arbitrators acting as a committee in their capacity as arbitrators.
An Arbitrator must be an actuary, either actively engaged in private
practice in the United States or an employee of a life insurance
company domiciled in the United States, who has had experience in the
valuation of blocks of life insurance business, who has signed one or
more annual statements filed by a United States domiciled life
insurance company with insurance regulatory departments, and who has
been a member in good standing of the Society of Actuaries for a
continuous period of not less than five (5) years.
(d) "Claimant" shall mean the Party who initiates the arbitration process
by filing a Claim. "Respondent" shall mean the other Party.
"Counter-Claimant" shall mean the Respondent in the event the
Respondent files a Counter-Claim.
(e) "Claim" shall mean the written statement given by the Claimant as
herein provided to the Respondent, describing how and to what extent
the Claimant believes that it has suffered damages as a result of the
breach of the Reinsurance by the Respondent.
(f) "Response" shall mean the written statement given by the Respondent
as herein provided to the Claimant, setting forth Respondent's
explanation and defenses explaining why Respondent believes it is not
liable to Claimant as claimed by Claimant.
(g) "Counter-Claim" shall mean the written statement given by the
Respondent as herein provided to the Claimant, describing how and to
what extent the Respondent believes that it has suffered damages as a
result of the breach of the Reinsurance by the Claimant.
(h) "Counter-Response" shall mean the written statement given by the
Claimant as herein provided to the Respondent, setting forth
Claimant's explanation and defenses explaining why Claimant believes
it is not liable to Respondent as claimed by the Respondent.
(i) "Arbitration Award" (or "Award") shall mean the conclusion or
judgment reached by the Arbitrators, or any two of them, when reduced
to writing and signed by them or any two of them and delivered to the
Parties as herein provided, which written statement shall set forth a
sum of money deemed to be the damages suffered by the prevailing
Party, plus interest if applicable in the opinion of the Arbitrators
(or any two of them), at a rate deemed by them to be fair, plus the
setting of a per diem rate of interest to be added for each day
thereafter the Award is not paid, plus a reasonable amount for
expenses, including attorney's fees, costs of accounting, actuarial
(including the cost of the Party's designated actuary) and other
professional assistance and other costs, to be added to the Award
only if the Arbitrators (or any two of them) believe that the losing
Party was guilty of misconduct which misconduct contributed to the
initiation of the arbitration process which otherwise would not have
been necessary, or which misconduct unduly protracted and/or
increased the expense of the arbitration process. "Misconduct" as
used in the immediately preceding sentence shall include conduct such
as the taking of a frivolous position or positions that prolongs or
exacerbates the arbitration process, or the refusal or unreasonable
delay in responding to written requests by the Arbitration Committee
for information.
(j) The "Commencement Date" shall have the meaning set forth in
Section 2.3.
1.3 In the event of one of the parties disagrees with the other Party in
respect to any matter claimed to be covered by the Reinsurance, the
Claimant shall give its Claim to the Respondent. The Claim shall set
forth the nature of the claim and sufficient facts relating thereto, as
well as documentation to the extent available, to provide to the
Respondent a reasonably complete description and explanation regarding the
Claim. The Claim must be given within ninety (90) days from the date on
which the Claimant first became aware of the facts that form the basis of
the Claim and that a disagreement exists in respect to same. Within
thirty (30) days from the date of receipt by the Respondent of said Claim,
Respondent shall give its Response setting forth sufficient facts relating
thereto, as well as documentation to the extent available, to provide to
the Claimant a reasonably complete description and explanation regarding
the Respondent's defense. If Respondent has knowledge at the time of
giving its Response of a Counter-Claim that Respondent desires to submit
for arbitration, whether relating to Claimant's Claim or otherwise,
Respondent must give its Counter-Claim as a part of its Response (such
Counter-Claim setting forth sufficient facts relating thereto, as well as
documentation to the extent available, to provide a reasonably complete
description and explanation regarding the Respondent's Counter-Claim, in
which case Claimant must provide a Counter-Response within thirty (30)
days from the date of receipt by the Claimant of said Counter-claim,
setting forth sufficient facts relating thereto, as well as documentation
to the extent available, to provide a reasonably complete description and
explanation regarding the Claimant"s defense to such Counter-Claim.
ARTICLE II
2.1 After the arbitration process has been initiated as aforesaid, and
within thirty (30) days from the date on which the Response was given (or
within thirty (30) days from the date on which the Counter-Response was
given, if applicable), each Party must designate in writing to the other
Party its Arbitrator. Such designation by the Claimant and the Respondent
shall have the effect of certifying by such Party that, to the best of its
knowledge after reasonable investigation and inquiry, the actuary
designated as its Arbitrator has read this Arbitration Agreement, the
Claim and Response (and Counter-claim and Counter-response, if
applicable), understands the qualifications required to serve as an
Arbitrator under this Arbitration Agreement, and has agreed that he or she
is accordingly qualified and is willing to serve and comply with the terms
of this Arbitration Agreement. To signify such agreement, each such
Arbitrator shall sign copies of this Arbitration Agreement and deliver a
signed copy to each Party and to the other Arbitrator.
2.2 From the date on which both Parties have designated their respective
Arbitrators as aforesaid, and thereafter throughout the arbitration
process, including the selection of the Third Arbitrator as hereinafter
set forth, the Arbitrators shall not engage in any ex parte communications
with the Parties or their representatives. They may, but only at their
initiative, engage in communications with the Parties or their
representatives in writing, by telephone conference or meetings, but only
in a manner that involves both Parties (or their representatives) on an
equal access opportunity who shall be privy to all elements of such
communications. The Arbitration Committee shall obtain from each Party a
designated officer to be responsible for all communications on behalf of
such Party (the "Party's Designated Officer").
2.3 The Parties' Arbitrators shall promptly select the Third
Arbitrator and together the three Arbitrators shall constitute the
Arbitration Committee. The Parties' Arbitrator shall attempt to select as
the Third Arbitrator an actuary with qualifications and experience that
they deem to be most relevant to the issues presented based on their
review of the Claim and Response (and Counter-Claim and Counter-Response,
if applicable), also keeping in mind the logistics and costs in the
calling of meetings, but in any case the selection of the Third Arbitrator
as aforesaid shall be final. The Third Arbitrator shall signify his or
her agreement to serve as the Third Arbitrator by signing copies of this
Arbitration Agreement and immediately providing a signed copy to each
Party and to the Parties' Arbitrators. The arbitration process shall be
deemed to commence on the date on which the Third Arbitrator signifies his
or her acceptance by delivering copies of this Arbitration Agreement to
the Parties signed by him or her as herein provided ("Commencement Date").
The Parties agree that they will not at any time attempt to influence the
selection of the Third Arbitrator and shall not at any time attempt to
influence the arbitration process or its outcome except in the course of
any non-ex parte communications permitted hereunder. The Parties'
Arbitrator shall diligently try to secure the Third Arbitrator within
thirty (30) days from the date on which both of the Parties' Arbitrators
agree to serve. If the Parties' Arbitrators are not able to arrange for
the services of a Third Arbitrator within thirty (30) days as aforesaid,
they shall notify the Parties to that effect so that the Parties, if they
choose, can agree upon an amended procedure to accommodate the process,
but if no such agreement is made within fifteen (15) days from the receipt
by both Parties of the aforesaid notice from the Parties' Arbitrators, the
arbitration shall be deemed to be terminated.
2.4 The signature of each Arbitrator affixed to a copy of this
Arbitration Agreement shall certify that, to the best of his knowledge and
belief, he has no conflict of interest in performing his services as an
Arbitrator and that neither he nor his employer, affiliates or his firm
("firm" shall include all partners, employees, associates and affiliates
of the firm), as the case may be, has any financial or familial
relationship with either of the other two Arbitrators or their employers
or firms, or (except for each of the Parties' Arbitrators relationship
with the Party designating such Arbitrator) either of the Parties or their
partners, employees, associates or affiliates, as the case may be, and
that neither he nor his firm has or expects to have any interest in the
outcome of the arbitration or the dispute between the Parties (except for
compensation for the their services as Arbitrators as herein provided).
2.5 The signature of each Arbitrator affixed to this Arbitration
Agreement shall signify his or her commitment to serve as an Arbitrator in
a professional and efficient manner, to complete the arbitration process,
and to make himself available to do so in a reasonably expeditious manner.
In the event either of the Parties' Arbitrators becomes unable to proceed
as an Arbitrator, due to resignation, death, incapacity or otherwise, the
Party who designated such Arbitrator shall designate a replacement
Arbitrator within thirty (30) days from the date on which said Party
becomes aware of the fact that its previously designated Arbitrator became
unable to serve as aforesaid. Failure to designate the replacement
Arbitrator within the thirty (30) days as aforesaid will constitute a
default by such Party and thereby authorize the other two Arbitrators to
proceed with the power and authority of the Arbitration Committee under
this Agreement. In the event the Third Arbitrator becomes unable to
proceed as an Arbitrator, due to resignation, death, incapacity or
otherwise, the Parties' Arbitrators shall proceed to select a replacement
Third Arbitrator within thirty (30) days from the date on which the
Parties' Arbitrators become aware of the fact that the Third Arbitrator
became unable to serve as aforesaid. If the Parties' Arbitrators are
unable to select a replacement Third Arbitrator within thirty (30) days as
aforesaid, they shall notify the Parties to that effect so that the
Parties, if they choose, can agree upon an amended procedure to
accommodate the process, but if no such agreement is made within fifteen
(15) days from the receipt by both Parties of the aforesaid notice from
the Parties' Arbitrators, the arbitration shall be deemed to be
terminated. Any subsequent inability of an Arbitrator to continue to
serve as such shall result in a replacement in the same manner as stated
above.
2.6 Each Arbitrator shall be entitled to compensation for his
services as an Arbitrator as herein provided (which shall be in accordance
with the standards in the Society of Actuaries and such actuary's
contemporaneous billing practices) and to reimbursement for reasonable
costs incurred by him as an Arbitrator. If his charges for his services
are based on an hourly rate, he shall provide notice in advance of the
amount of his hourly rate and information regarding his billing standards.
He shall maintain contemporaneous records of the time expended by him
during the arbitration process, the date on which the time was expended
and a brief description of the activity involved, which shall be provided
as support for his xxxx. Charges for costs to be reimbursed shall be
supported by commercially reasonable documentation. American Capitol's
Arbitrator shall be accountable as aforesaid only to American Capitol who
shall be solely responsible for paying such Arbitrator's bills. World
Service's Arbitrator shall be accountable as aforesaid only to World
Service who shall be solely responsible for paying such Arbitrator's
bills. The Third Arbitrator shall be accountable to both American Capitol
and World Service as aforesaid and American Capitol shall be responsible
for paying one/half of the Third Arbitrator's bills and World Service
shall be responsible for paying one/half of the Third Arbitrator's bills.
Each Arbitrator shall make advance arrangements to his satisfaction
regarding responsibility for the payments of his bills. Each Party shall
execute and deliver to any Arbitrator as requested an agreement to hold
such Arbitrator harmless from any and all liability and expense
attributable to serving as an Arbitrator hereunder, except for bad faith
and misconduct (as judged by ethical standards applicable to members of
the Society of Actuaries). Bills may be submitted monthly and shall be
payable within ten (10) days of receipt.
ARTICLE III
3.1 The Third Arbitrator shall serve as chairman of the Arbitration
Committee and as such shall be responsible for calling meetings and for
making the efforts to move the process along so as to complete it in an
expeditious and efficient manner. The Arbitrators shall take into account
the Claim and response (and the Counter-Claim and Counter-response, if
applicable) and such other information as they may deem relevant. The
Arbitration Committee may, in its discretion, invite each Party to present
its case at a hearing in the presence of the Arbitration Committee and in
the presence of the other Party, at which hearing testimony of witnesses
and other evidence may be presented. Such hearing shall follow,
informally, the format of a judicial hearing, and each Party shall be
entitled to be represented by an attorney. However, the proceedings shall
take place in the manner directed by the Arbitration Committee. The
Arbitration Committee is authorized to make such additional investigations
as they may deem to be reasonable including the employment of experts or
professionals as consultants, and shall be reimbursed for the costs of
same as an expense of the Third Arbitrator. The Arbitration Committee, if
it requests information from a Party that may involve a significant cost
to such Party to produce, may decide, and so notify such Party in writing,
that such cost will be assessed as an expense of the Third Arbitrator, so
that such Party will receive reimbursement for same. In the event an
issue arises and the Arbitrators are unable to concur unanimously upon its
resolution, and a disposition of such issue is required in order to
proceed with the arbitration, the Third Arbitrator shall reduce the matter
to writing which, when signed by any two of the Arbitrators, shall be a
conclusive resolution of the issue, and the arbitration shall proceed
accordingly. While it is recognized that the Parties' Arbitrators have
been designated by the Parties, during the arbitration process they shall
not feel obligated to act as advocates for the Party who designated them,
but instead they shall consider that their primary obligation is to assist
in determining a reasonable, just and prompt resolution of the dispute or
disputes to which agreement of at least two Arbitrators can be achieved.
The Arbitrators shall make reasonable efforts to maintain as confidential
the arbitration process, its status or progress or any indication of its
outcome, and the information disclosed to them in the course of the
arbitration. The Arbitrators shall not discuss the arbitration matters
between themselves or with anyone else unless all three Arbitrators are
present and participating.
3.2 The Arbitration Committee shall make its best efforts to
complete the arbitration process within thirty (30) days from the
Commencement Date. The conclusion of the arbitration shall be when any
two of the Arbitrators sign a written statement that adequately
encompasses all of the issues in dispute, showing a single money award as
an award of damages if appropriate (the "Arbitration Award"). It would be
desirable, but not necessary, for all three Arbitrators to sign the
Arbitration Award. The Arbitration Award signed as aforesaid in duplicate
originals shall be delivered promptly to each of the Parties, to be
received by each Party on the same date.
3.3 In the event the Arbitration Committee determines that it is unable
to resolve the dispute or disputes and obtain the signatures of two of the
Arbitrators on an Arbitration Award, the Third Arbitrator shall so notify
the Parties at that time, and in any event the Third Arbitrator must send
such notice within sixty (60) days from the Commencement Date. During the
course of the arbitration process if the likelihood that an Arbitration
Award cannot be agreed upon by the Arbitration Committee, the Third
Arbitrator, in his sole discretion, may communicate such information to
the Parties (avoiding ex parte communications) to allow the Parties an
opportunity to correct the problem that seems to be hindering the process.
However, notwithstanding anything to the contrary herein contained, if the
Arbitration Committee has not agreed upon an Arbitration Award on or
before ninety (90) days following the Commencement Date, and if the
arbitration process is not amended by the Parties prior thereto as
aforesaid, the Arbitration Committee shall be deemed to be dissolved and
the arbitration shall be deemed to be terminated; provided, however, that
either Party may extend the aforesaid ninety (90) day period by and
additional thirty (30) days by giving written notice to the other Party
and to the Arbitrators to that effect prior to the end of the aforesaid
ninety (90) day period.
3.4 If one of the Parties commits a material breach of this
Arbitration Agreement the other Party shall be entitled to a ruling from
the Arbitration Committee in support of such Party's position, including
an Arbitration Award that follows therefrom. Furthermore, if the
arbitration does not result in the an Arbitration Award as set forth in
Section 3.2 and if the primary cause for such failure is a material breach
of this Arbitration Agreement by one of the Parties (referred to in this
section as the "first Party"), and if the other Party (referred to in this
Section as the "second Party") has not committed (prior to the
aforementioned breach) a material breach, then the second Party shall be
entitled to a ruling from the Arbitration Committee in support of the
second Party's position, including an Arbitrator's award that follows
therefrom. "Primary cause" as used in the immediately preceding sentence
shall mean a material breach of this Arbitration Agreement which
materially hindered the progress of the arbitration process, or prevented
the arbitration from taking place or being completed or which improperly
influenced, or improperly attempted to influence, the outcome of the
arbitration. A "material breach" as used in this Section shall mean a
breach of this Arbitration Agreement but for which the arbitration process
would have been able to run its course on schedule and with the prospect
for successful alternative dispute resolution that could reasonably have
been expected.
ARTICLE IV
4.1 The Parties shall be bound by the Arbitration Award for all purposes,
and the such award shall not be subject to appeal to a court or subject to
modification or replacement by a court. The prevailing Party shall be
entitled to apply to any court having jurisdiction over the Parties to
have such court render judgement in favor of the prevailing Party against
the losing Party as set forth in the Arbitration Award.
4.2 The only purpose of this Arbitration Agreement is to resolve all
disputes regarding the Reinsurance and no other issues are intended to be
addressed hereby. If the arbitration process does not result in the
establishment of an Arbitration Award as aforesaid, neither Party shall be
prejudiced by the arbitration proceedings in any subsequent proceedings
regarding the Reinsurance.
4.3 This Arbitration Agreement shall be binding upon the Parties and
their successors and heirs, as the case may be, and no amendment hereto
shall be binding unless signed by the Parties.
4.4 Written communications required or permitted under this Agreement
shall be made as herein provided. Signatures reflected in facsimile
transmissions shall be as binding as original signatures. Notices
received by facsimile transmissions shall be effective on the day of
transmission. American Capitol's facsimile telephone number is (713) 953
7920 and World Service's facsimile telephone number is (000) 000-0000.
"Overnight" deliveries shall be deemed to be received on the business day
following dispatch to the addresses of the respective addressees. Regular
mail deliveries shall be deemed to be received on the third day following
posting to the addresses of the respective addressees. A copy of any
written communication sent by an Arbitrator to another Arbitrator shall be
sent to both other Arbitrators; if sent to a Party, copies shall be sent
to both Parties. A copy of any written communication sent by a Party to
an Arbitrator shall be sent to the other Party and the other Arbitrators.
IN WITNESS WHEREOF, this Arbitration Agreement is an Exhibit to the
above mentioned Reinsurance Agreement. The Parties, by executing and
delivering said Reinsurance Agreement, intend to adopt this Arbitration
Agreement as though it had been separately executed and delivered by the
Parties. Signature lines are set forth below for the use of the
Arbitrators as hereinabove set forth.
American Capitol's Arbitrator: World Service's Arbitrator:
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Printed Name Printed Name
Date:------------------------- Date:----------------------
Third Arbitrator:
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Printed Name
Date:-------------------------
