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AUTOMATIC AND FACULTATIVE
YEARLY RENEWABLE TERM REINSURANCE
AGREEMENT
EFFECTIVE April 30, 2000
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
(hereinafter referred to as "PRUCO OF NJ")
000 Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxx Xxxxxx 00000-0000
And
MUNICH AMERICAN REASSURANCE COMPANY
(hereinafter referred to as "MUNICH")
00 Xxxxxxxxx Xxxxxx Xxxx, X.X.
Xxxxxxx, XX 00000-0000
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Table of Contents
1. PARTIES TO THE AGREEMENT..................................................3
2. EFFECTIVE DATE OF THE AGREEMENT...........................................3
3. SCOPE OF THE AGREEMENT....................................................3
4. DURATION OF THE AGREEMENT.................................................3
5. BASIS OF REINSURANCE......................................................3
6. AUTOMATIC REINSURANCE TERMS...............................................4
a. CONVENTIONAL UNDERWRITING............................................4
b. RESIDENCE............................................................4
c. OCCUPATION...........................................................4
d. AUTOMATIC PORTION REINSURED..........................................4
e. RETENTION............................................................4
f. AUTOMATIC ACCEPTANCE LIMIT...........................................4
g. JUMBO LIMIT..........................................................4
h. MINIMUM CESSION......................................................4
i. FACULTATIVE QUOTES...................................................4
7. AUTOMATIC REINSURANCE NOTICE PROCEDURE....................................4
8. FACULTATIVE OBLIGATORY REINSURANCE........................................5
9. FACULTATIVE REINSURANCE...................................................5
10. COMMENCEMENT OF REINSURANCE COVERAGE......................................5
a. AUTOMATIC REINSURANCE................................................5
b. FACULTATIVE OBLIGATORY REINSURANCE...................................5
c. FACULTATIVE REINSURANCE..............................................6
d. PRE-ISSUE COVERAGE...................................................6
11. REINSURANCE PREMIUM RATES.................................................6
a. LIFE REINSURANCE.....................................................6
b. RATES NOT GUARANTEED.................................................6
12. PAYMENT OF REINSURANCE PREMIUMS...........................................6
a. PREMIUM DUE..........................................................6
b. FAILURE TO PAY PREMIUMS..............................................7
c. PREMIUM ADJUSTMENT...................................................7
13. PREMIUM TAX REIMBURSEMENT.................................................7
14. DAC TAX AGREEMENT.........................................................7
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15. REPORTS...................................................................8
16. RESERVES FOR REINSURANCE..................................................8
17. CLAIMS....................................................................8
a. NOTICE...............................................................8
b. AMOUNT AND PAYMENT OF BENEFITS.......................................8
c. CLAIM SETTLEMENTS....................................................8
d. CLAIM EXPENSES.......................................................8
e. EXTRACONTRACTUAL DAMAGES.............................................9
18. MISREPRESENTATION, SUICIDE, AND MISSTATEMENT..............................9
19. POLICY CHANGES............................................................9
a. NOTICE...............................................................9
b. INCREASES............................................................9
c. REDUCTION OR TERMINATION.............................................10
d. PLAN CHANGES.........................................................10
e. DEATH BENEFIT OPTION CHANGES.........................................10
f. REDUCED PAID-UP INSURANCE............................................10
20. RECAPTURE.................................................................10
21. REINSTATEMENTS............................................................11
a. AUTOMATIC REINSTATEMENT..............................................11
b. FACULTATIVE REINSTATEMENT............................................11
c. PREMIUM ADJUSTMENT...................................................11
22. ERRORS AND OMISSIONS..................................................... 11
23. INSOLVENCY................................................................11
24. ARBITRATION.............................................................. 12
a. GENERAL..............................................................12
b. NOTICE...............................................................12
c. PROCEDURE............................................................12
d. COSTS................................................................13
25. GOOD FAITH; FINANCIAL SOLVENCY............................................13
26. MEDICAL INFORMATION BUREAU................................................14
27. GOVERNING LAW.............................................................14
28. ASSIGNMENT................................................................14
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AUTOMATIC AND FACULTATIVE YEARLY RENEWABLE TERM
REINSURANCE AGREEMENT
1. PARTIES TO THE AGREEMENT
This Agreement is solely between MUNICH and PRUCO OF NJ, a life insurance
company domiciled in the State of New Jersey. There is no third party
beneficiary to this Agreement. Reinsurance under this Agreement will not
create any right or legal relationship between MUNICH and any other
person, for example, any insured, policyowner, agent, beneficiary, or
assignee. PRUCO OF NJ agrees that it will not make MUNICH a party to any
litigation between any such third party and PRUCO OF NJ. PRUCO OF NJ will
not use or disclose MUNICH's name with regard to PRUCO OF NJ's agreements
or transactions with these third parties unless MUNICH gives prior written
approval for the use or disclosure of its name or unless PRUCO OF NJ is
compelled by law to do so.
The terms of this Agreement are binding upon the parties, their
representatives, successors, and assigns. The parties to this Agreement
are bound by ongoing and continuing obligations and liabilities until the
later of (1) when this Agreement terminates and (2) when the underlying
policies are no longer in force. This Agreement shall not be bifurcated,
partially assigned, or partially assumed.
2. EFFECTIVE DATE OF THE AGREEMENT
This Agreement will be effective as of 12:01 A.M., April 30, 2000, and
will cover policies effective on and after that date.
3. SCOPE OF THE AGREEMENT
The text of this Agreement and all Exhibits, Schedules and Amendments are
considered to be the entire agreement between the parties. There are no
other understandings or agreements between the parties regarding the
policies reinsured other than as expressed in this Agreement. The parties
may make changes or additions to this Agreement, but they will not be
considered to be in effect unless they are made by means of a written
amendment that has been signed and dated by both parties.
4. DURATION OF THE AGREEMENT
The duration of this Agreement will be unlimited. However, either party
may terminate the Agreement for new business at any time by giving the
other a 90-day prior written notice. MUNICH will continue to accept new
reinsurance during the 90-day period.
In addition, this Agreement may be terminated immediately for the
acceptance of new reinsurance by either party if one of the parties
materially breaches this Agreement or becomes insolvent.
Existing reinsurance will not be affected by the termination of this
Agreement with respect to new reinsurance. Existing reinsurance will
remain in force until the termination or expiry of the underlying policies
on which the reinsurance is based as long as PRUCO OF NJ continues to pay
reinsurance premiums as described in Section 12. However, existing
reinsurance may be terminated in accordance with the recapture provision
described in Section 20.
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5. BASIS OF REINSURANCE
Reinsurance under this Agreement will be on the Yearly Renewable Term
basis for the net amount at risk on the portion of each policy that is
reinsured as described in Schedule A.
6. AUTOMATIC REINSURANCE TERMS
MUNICH agrees to automatically accept contractual risks on the life
insurance plans shown in Schedule A, subject to the following
requirements:
a. CONVENTIONAL UNDERWRITING. Automatic reinsurance applies only to
insurance applications underwritten by PRUCO OF NJ according to
PRUCO OF NJ's conventional underwriting and issue practices. Upon
request, PRUCO OF NJ shall provide MUNICH with a copy of its current
underwriting and issue practices and guidelines.
In the event of significant changes in underwriting practices in the
industry, it may be appropriate for PRUCO OF NJ or MUNICH to request
of the other party changes in the underwriting requirements. The
party requesting the change must provide a 120-day advance written
notice to the other party before the effective date of such change.
Recognition of reinsurance premium rates related to these changes
must be determined within the 120-day period. If the underwriting
change or rate change is unacceptable to either party, this
Agreement may be unilaterally terminated for acceptance of new
business with a 90-day written termination notice to the other
party.
b. RESIDENCE. To be eligible for automatic reinsurance, each insured
must either be a resident of the United States or Canada at the time
of issue or be a resident of another country that meets PRUCO OF
NJ's special underwriting requirements pertaining to foreign
residence.
c. OCCUPATION. To be eligible for automatic reinsurance, the insured
must not be employed in an occupation as shown in the Occupation
Exclusion List in Schedule A.
d. AUTOMATIC PORTION REINSURED. For any policy reinsured under
automatic reinsurance, the portion reinsured is shown in Schedule A.
e. RETENTION. PRUCO OF NJ will retain, and not otherwise reinsure, an
amount of insurance on each life equal to its retention shown in
Schedule A.
f. AUTOMATIC ACCEPTANCE LIMIT. For any policy to be reinsured under
automatic reinsurance, the face amount shall not exceed the
Automatic Acceptance Limit as shown in Schedule A.
g. JUMBO LIMIT. For any policy to be reinsured under automatic
reinsurance, the total amount of insurance in force and applied for
in all companies shall not exceed the Jumbo Limit as shown in
Schedule A.
h. MINIMUM CESSION. The minimum amount of reinsurance per cession that
MUNICH will accept is shown in Schedule A.
i. FACULTATIVE QUOTES. The risk shall not have been submitted on a
facultative basis to MUNICH or any other reinsurer.
7. AUTOMATIC REINSURANCE NOTICE PROCEDURE
After the policy has been paid for and delivered, PRUCO OF NJ will submit
all relevant individual policy information, as defined in Schedule C, in
its next statement to MUNICH.
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8. FACULTATIVE OBLIGATORY REINSURANCE
When a policy does not qualify for automatic reinsurance because (1) the
Automatic Acceptance Limit is exceeded, (2) the Jumbo Limit is exceeded or
(3) the applicant is employed in an occupation included in the Occupation
Exclusion List in Schedule A, PRUCO OF NJ may make a request to reserve
capacity through facultative obligatory reinsurance by contacting MUNICH
by telephone. If PRUCO OF NJ reserves capacity and the policy is issued,
PRUCO OF NJ must submit a form substantially similar to the "Notification
of Reinsurance" form shown in Schedule F.
9. FACULTATIVE REINSURANCE
PRUCO OF NJ may apply for facultative reinsurance with MUNICH on a risk if
the automatic reinsurance terms are not met or if the terms are met and it
prefers to apply for facultative reinsurance. To obtain a facultative
reinsurance quote, PRUCO OF NJ must submit the following:
a. A form substantially similar to the "Application for Reinsurance"
form shown in Schedule E.
b. Copies of the original insurance application, medical examiner's
reports, financial information, and all other papers and information
obtained by PRUCO OF NJ regarding the insurability of the risk.
After receipt of PRUCO OF NJ's application, MUNICH will promptly examine
the material and notify PRUCO OF NJ either of the terms and conditions of
MUNICH's offer for facultative reinsurance or that no offer will be made.
MUNICH's offer expires 120 days after the offer is made unless the written
offer specifically states otherwise. If PRUCO OF NJ accepts MUNICH's
offer, then PRUCO OF NJ will make a dated notation of its acceptance in
its underwriting file and mail as soon as possible a formal reinsurance
cession to MUNICH using a form substantially similar to the Notification
of Reinsurance form shown in Schedule F. If PRUCO OF NJ does not accept
MUNICH's offer, then PRUCO OF NJ will notify MUNICH in writing as soon as
possible.
10. COMMENCEMENT OF REINSURANCE COVERAGE
Commencement of MUNICH's reinsurance coverage on any policy or pre-issue
risk under this Agreement is described below:
a. AUTOMATIC REINSURANCE. MUNICH's reinsurance coverage for any policy
that is ceded automatically under this Agreement will begin and end
simultaneously with PRUCO OF NJ's contractual liability for the
policy reinsured.
In addition, MUNICH will be liable for benefits paid under PRUCO OF
NJ's conditional receipt or temporary insurance agreement if all of
the conditions for automatic reinsurance coverage under Section 6 of
this Agreement are met. MUNICH's liability under PRUCO OF NJ's
conditional receipt or temporary insurance agreement is limited to
the lesser of (1) MUNICH's reinsured portion of the face amount of
the policy and (2) $200,000.
b. FACULTATIVE OBLIGATORY REINSURANCE. MUNICH's reinsurance coverage
for any policy that is ceded under the terms of facultative
obligatory reinsurance in this Agreement will begin when (1) PRUCO
OF NJ accepts MUNICH's offer by making a dated notation of its
acceptance in its underwriting file and mailing the "Notification of
Reinsurance" form to MUNICH and (2) the policy has been issued.
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In addition, MUNICH will be liable for benefits paid under PRUCO OF
NJ's conditional receipt or temporary insurance agreement if the
conditions for automatic reinsurance stated in Section 6a, b, e, h,
and i of this Agreement are met. MUNICH's liability under PRUCO OF
NJ's conditional receipt or temporary insurance agreement will be
limited to the portion of $1,000,000 that is derived as the amount
of capacity reserved by PRUCO OF NJ from MUNICH divided by the total
amount of capacity reserved by PRUCO OF NJ from all reinsurers.
c. FACULTATIVE REINSURANCE. MUNICH's reinsurance coverage for any
policy that is ceded facultatively under this Agreement shall begin
when (1) PRUCO OF NJ accepts MUNICH's offer by making a dated
notation of its acceptance in its underwriting file and mailing the
"Notification of Reinsurance" form to MUNICH and (2) the policy has
been issued.
In addition, MUNICH will be liable for benefits paid under PRUCO OF
NJ's conditional receipt or temporary insurance agreement. MUNICH's
liability under PRUCO OF NJ's conditional receipt or temporary
insurance agreement will be limited to the portion of $1,000,000
that is derived as the amount of capacity reserved by PRUCO OF NJ
from MUNICH divided by the total amount of capacity reserved by
PRUCO OF NJ from all reinsurers.
d. PRE-ISSUE COVERAGE. The pre-issue coverage for benefits paid under
PRUCO OF NJ's conditional receipt or temporary insurance agreement
will be effective once all initial medical exams and tests have been
completed. The pre-issue liability applies only once on any given
life at one time no matter how many conditional receipts or
temporary insurance agreements are in effect. After a policy has
been issued, no reinsurance benefits are payable under this
pre-issue coverage provision.
11. REINSURANCE PREMIUM RATES
a. LIFE REINSURANCE. The reinsurance premiums per $1000 are shown in
Schedule B. Reinsurance premiums for renewals are calculated using
(1) the issue ages, (2) the duration since issuance and (3) the
current underwriting classification.
b. RATES NOT GUARANTEED. The reinsurance premium rates are not
guaranteed. MUNICH reserves the right to change the rates at any
time. If MUNICH changes the rates, it will give PRUCO OF NJ a 90-day
prior written notice of the change. Any change applies only to
reinsurance premiums due after the expiration of the notice period.
MUNICH further agrees that PRUCO OF NJ's right of recapture under
Section 20 of this Agreement will be triggered if Prudential deems a
rate change unacceptable.
12. PAYMENT OF REINSURANCE PREMIUMS
a. PREMIUM DUE. For each policy reinsured under this Agreement,
reinsurance premiums are payable annually in advance. These premiums
are due on the issue date and each subsequent policy anniversary.
Within 30 days after the close of each reporting period, PRUCO OF NJ
will send MUNICH a statement of account for that period along with
payment of the full balance due. On any payment date, monies payable
between MUNICH and PRUCO OF NJ under this Agreement may be netted to
determine the payment due. This offset will apply regardless of the
insolvency of either party as described in Section 23. If the
statement of account shows a balance due PRUCO OF NJ, MUNICH will
remit that amount to PRUCO OF NJ within 30 days of receipt of the
statement of account. All financial transactions under this
Agreement will be in United States dollars. If the reinsurance
premium amounts cannot be determined on an exact basis by the dates
described below, such payments will be paid in accordance with a
mutually agreed upon
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formula which will approximate the actual payments. Adjustments will
then be made to reflect actual amounts when such information is
available.
b. FAILURE TO PAY PREMIUMS. If reinsurance premiums are 90 days past
due, for reasons other than those due to error or omission as
defined below in Section 22, the premiums will be considered in
default and MUNICH may terminate the reinsurance by providing a
30-day prior written notice, provided payment is not received within
that 30-day period. MUNICH will have no further liability as of the
termination date. PRUCO OF NJ will be liable for the prorated
reinsurance premiums to the termination date. PRUCO OF NJ agrees
that it will not force termination under the provisions of this
paragraph solely to avoid the recapture requirements or to transfer
the block of business reinsured to another reinsurer.
At the end of this 30-day period, MUNICH's liability will
automatically terminate for all reinsurance on which balances remain
due and unpaid, including reinsurance on which balances became due
and unpaid during and after the 30-day notice period.
PRUCO OF NJ may reinstate reinsurance terminated for non-payment of
balances due at any time within 60 days following the date of
termination. However, MUNICH will have no liability for claims
incurred between the termination date and the reinstatement date.
c. PREMIUM ADJUSTMENT. If PRUCO OF NJ overpays a reinsurance premium
and MUNICH accepts the overpayment, MUNICH's acceptance will not
constitute or create a reinsurance liability or increase in any
existing reinsurance liability. Instead, MUNICH will be liable to
PRUCO OF NJ for a credit in the amount of the overpayment. If a
reinsured policy terminates, MUNICH will refund the excess
reinsurance premium. This refund will be on a prorated basis without
interest from the date of termination of the policy to the date to
which a reinsurance premium has been paid.
13. PREMIUM TAX REIMBURSEMENT
See Schedule B.
14. DAC TAX AGREEMENT
PRUCO OF NJ and MUNICH, herein collectively called the "Parties", or
singularly the "Party", hereby enter into an election under Treasury
Regulations Section 1.848-2(g) (8) whereby:
a. For each taxable year under this Agreement, the party with the net
positive consideration, as defined in the regulations promulgated
under Internal Revenue Code Section 848, will capitalize specified
policy acquisition expenses with respect to this Agreement without
regard to the general deductions limitation of Section 848 (c) (1);
b. PRUCO OF NJ and MUNICH agree to exchange information pertaining to
the net consideration under this Agreement each year to insure
consistency or as otherwise required by the Internal Revenue
Service;
c. PRUCO OF NJ will submit to MUNICH by May 1 of each year its
calculation of the net consideration for the preceding calendar
year.
d. MUNICH may contest such calculation by providing an alternative
calculation to PRUCO OF NJ in writing within 30 days of MUNICH 's
receipt of PRUCO OF NJ's calculation. If MUNICH does not so notify
PRUCO OF NJ, MUNICH will report the net consideration as determined
by PRUCO OF NJ in MUNICH's tax return for the previous calendar
year;
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e. If MUNICH contests PRUCO OF NJ's calculation of the net
consideration, the parties will act in good faith to reach an
agreement as to the correct amount within 30 days of the date MUNICH
submits its alternative calculation. If PRUCO OF NJ and MUNICH do
not reach agreement on the net amount of consideration within such
30-day period, then the net amount of consideration for such year
shall be determined by an independent accounting firm acceptable to
both PRUCO OF NJ and MUNICH within 20 days after the expiration of
such 30-day period.
f. PRUCO OF NJ and MUNICH agree that this election shall first be
effective for the 2000 calendar tax year and will be effective for
all subsequent taxable years for which this Agreement remains in
effect.
MUNICH and PRUCO OF NJ represent and warrant that they are subject
to U.S. taxation under either Subchapter L of Chapter 1, or Subpart
F of Subchapter N of Chapter 1 of the Internal Revenue Code of 1986,
as amended.
15. REPORTS
The reporting period is shown in Schedule A. For each reporting period,
PRUCO OF NJ will submit reports to MUNICH with information that is
substantially similar to the information displayed in Schedule C.
In addition, the reports will include a billing and accounting summary and
a policy exhibit summary similar to the reports shown in Schedule D.
Within 15 business days after the end of each calendar year, PRUCO OF NJ
will submit a reserve credit summary similar to that shown in Schedule D.
PRUCO OF NJ will also submit this reserve credit summary within 10
business days after the end of each other calendar quarter.
16. RESERVES FOR REINSURANCE
See Schedule A.
17. CLAIMS
a. NOTICE. PRUCO OF NJ will notify MUNICH as soon as reasonably
possible after PRUCO OF NJ receives a claim for a policy reinsured
under this Agreement. After PRUCO OF NJ has received all proper
claim proofs and paid the claim, PRUCO OF NJ will send MUNICH an
itemized statement of the benefits paid by PRUCO OF NJ and all
relevant information with respect to the claim including the claim
proofs.
b. AMOUNT AND PAYMENT OF BENEFITS. As soon as MUNICH receives proper
claim notice and any required proof of the claim, MUNICH will
promptly pay the reinsurance benefits due PRUCO OF NJ. PRUCO OF NJ's
contractual liability for claims is binding on MUNICH. The maximum
benefit payable to PRUCO OF NJ under each reinsured policy is the
amount specifically reinsured with MUNICH.
c. CLAIM SETTLEMENTS. PRUCO OF NJ will use its standard claim practice
and guidelines in the adjudication of all claims on policies
reinsured under this Agreement. Until such time as PRUCO OF NJ has
systems capability to administer the right of MUNICH to opt out of
contested claims, claim settlements made by PRUCO OF NJ, including
compromises, shall be unconditionally binding on MUNICH. MUNICH will
share in any reduced amount in proportion to its share of the
liability.
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d. CLAIM EXPENSES. MUNICH will pay its share of reasonable
investigation and legal expenses connected with the litigation or
settlement of policy claims. MUNICH will also pay its share of any
interest paid by PRUCO OF NJ on any claim payment. However, claim
e. expenses do not include routine claim and administration expenses,
including PRUCO OF NJ's home office expenses. Also, expenses
incurred in connection with a dispute or contest arising out of
conflicting claims of entitlement to policy proceeds or benefits
that PRUCO OF NJ admits are payable are not a claim expense under
this Agreement.
f. EXTRACONTRACTUAL DAMAGES. In no event will MUNICH participate in
punitive or compensatory damages which are awarded against PRUCO OF
NJ as a result of an act, omission or course of conduct committed by
PRUCO OF NJ in connection with the insurance under this Agreement.
MUNICH will, however, pay its share of statutory penalties awarded
against PRUCO OF NJ in connection with the insurance reinsured under
this Agreement. The parties recognize that circumstances may arise
in which equity would require MUNICH, to the extent permitted by
law, to share proportionately in certain assessed damages. Such
circumstances are difficult to define in advance, but generally
would be those situations in which MUNICH was an active party and in
writing either directed, consented to, or ratified the act,
omission, or course of conduct of PRUCO OF NJ which ultimately
results in the assessment of punitive and/or compensatory damages.
In such situations, PRUCO OF NJ and MUNICH would share such damages
assessed in equitable proportions.
Routine expenses incurred in the normal settlement of uncontested
claims and the salary of an officer or employee of PRUCO OF NJ are
excluded from this provision. For purposes of the provision, the
following definitions will apply:
"Punitive Damages" are those damages awarded as a penalty, the
amounts of which are not governed or fixed by statute;
"Statutory Penalties" are those amounts that are awarded as a
penalty, but are fixed in amount by statute;
"Compensatory Damages" are those amounts awarded to compensate for
actual damages sustained, and are not awarded as a penalty, nor
fixed in amount by statute.
18. MISREPRESENTATION, SUICIDE, AND MISSTATEMENT
If either a misrepresentation on an application or a death of an insured
by suicide results in the return of policy premiums by PRUCO OF NJ under
the policy rather than payment of policy benefits, MUNICH will refund all
of the reinsurance premiums paid for that policy to PRUCO OF NJ. If there
is an adjustment for a misrepresentation or misstatement of age or sex, a
corresponding adjustment to the reinsurance benefit will be made.
19. POLICY CHANGES
a. NOTICE. If a reinsured policy is changed as described below, a
corresponding change will be made in the reinsurance for that
policy. PRUCO OF NJ will notify MUNICH of the change in PRUCO OF
NJ's next report as stated in Section 15.
b. INCREASES. If a request for an increase in the amount of insurance
is made for a reinsured policy and the insured meets PRUCO OF NJ's
underwriting requirements and PRUCO OF NJ approves the increase
under the policy, then the amount of reinsurance under this
Agreement will be adjusted as of the effective date of the increase.
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If a request for an increase is made for a reinsured policy and the
insured meets PRUCO OF NJ's underwriting requirements and a new
policy is issued for the higher amount, then reinsurance under the
old policy will cease as of the effective date of the change, and
reinsurance under the new policy will commence as of the policy date
of the new policy.
If a request for an increase in a reinsured policy is granted
without the insured meeting PRUCO OF NJ's underwriting requirements,
then reinsurance on the increase will not be allowed.
If a request for an increase does not meet all of the terms of
automatic reinsurance, then PRUCO OF NJ may apply for facultative
obligatory reinsurance or facultative reinsurance as stated in
Section 8 and Section 9, respectively. When this happens, it is the
intent of PRUCO OF NJ to reinsure the entire policy, i.e. the amount
before the increase and the amount of increase. If the facultative
increase is allowed, the automatic reinsurance on the amount before
the increase will be discontinued.
If a reinsured policy is increased as a result of a conversion from
term insurance and the increase is granted without the insured
meeting PRUCO OF NJ's underwriting requirements, then reinsurance
will cease as of the effective date of the change.
c. REDUCTION OR TERMINATION. If the amount of insurance on a reinsured
policy is reduced, the reinsurance will be reduced proportionately
as of the effective date of the reduction.
If a reinsured policy is terminated, the reinsurance will cease on
the date of such termination.
d. PLAN CHANGES. If a reinsured policy is changed to another plan of
insurance that is not currently reinsured under this Agreement as
defined in Schedule A, then PRUCO OF NJ will recapture in full the
coverage reinsured under this Agreement, and the reinsurance will
cease with respect to the policy as of the effective date of the
change.
If a policy that is not reinsured under this Agreement is changed to
a plan that is reinsured under this Agreement as defined in Schedule
A and the insured has met PRUCO OF NJ's underwriting requirements
for the plan change, then reinsurance will commence as of the policy
date of the new plan.
e. DEATH BENEFIT OPTION CHANGES. If the death benefit option under a
reinsured policy is changed and the face amount of insurance is
either increased or decreased, the net amount at risk reinsured
under this Agreement after the change will be the same as before the
change.
f. REDUCED PAID-UP INSURANCE. If any policy reinsured under this
Agreement is changed to Reduced Paid-Up Insurance, the net amount at
risk reinsured will be adjusted as appropriate and reinsurance will
be continued in accordance with the provisions of the underlying
policy. Reinsurance payments for the adjusted policy will be
calculated using (1) the issue age of the original policy, (2) the
duration since issuance of the original policy and (3) the
underwriting classification immediately prior to the change to
Reduced Paid-Up Insurance.
20. RECAPTURE
At any time during the term of the Agreement, PRUCO OF NJ may elect to
recapture in full the coverage reinsured under this Agreement following
the occurrence of either of the following events: (1) a "Risk Trigger
Event" as defined in Schedule A of this Agreement; or (2) a Plan Change as
described in Section 19 d. above: or (3) the Reinsurance Premium rates are
increased.
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In addition, after the twentieth policy anniversary, PRUCO OF NJ may elect
to recapture all or an appropriate portion of the coverage reinsured under
this Agreement to reflect increases in the maximum retention limits for
PRUCO OF NJ and all of its affiliates, collectively, subsequent to the
date of policy issue. These maximum retention limits as of the effective
date of this Agreement are equal to the amounts shown in the Risk
Retention Limits table shown in Schedule A. The portion of the coverage
that may be recaptured would be directly related to the increase in the
limits. To illustrate, if the maximum retention limits are increased by
100%, then the portion that may be recaptured from all reinsurers of the
policies reinsured under this Agreement would be equal to 100% of the
portion of each reinsured policy that is retained by PRUCO OF NJ.
Furthermore, the portion that may be recaptured from MUNICH would be
determined as MUNICH's prorata share of the total portion reinsured with
all reinsurers.
If PRUCO OF NJ elects to recapture the risks ceded to MUNICH under this
Agreement as stated above, it will do so by giving written notice to
MUNICH. Upon the delivery of such notice, all of the risks previously
ceded under each of the policies subject to this Agreement shall be
recaptured, effective as of the date specified in PRUCO OF NJ's notice. If
PRUCO OF NJ does not specify in the written notice the date that such
recapture is to be effective, then the recapture shall be effective
immediately upon MUNICH's receipt of the notice.
If a policy is recaptured, MUNICH will pay PRUCO OF NJ the unearned
reinsurance premium as of the date of recapture. MUNICH shall not be
liable, under this Agreement, for any claims incurred after the date of
recapture.
21. REINSTATEMENTS
a. AUTOMATIC REINSTATEMENT. If PRUCO OF NJ reinstates a policy that was
originally ceded to MUNICH as either automatic reinsurance or
facultative obligatory reinsurance using conventional underwriting
practices, MUNICH's reinsurance for the policy shall be reinstated.
b. FACULTATIVE REINSTATEMENT. If PRUCO OF NJ has been requested to
reinstate a policy that was originally ceded to MUNICH as
facultative reinsurance and the reinstatement is processed under
PRUCO OF NJ's Long Form Reinstatement Process, then PRUCO OF NJ will
re-submit the appropriate evidence for the case to MUNICH for
underwriting approval before the reinsurance can be reinstated.
c. PREMIUM ADJUSTMENT. Reinsurance premiums for the interval during
which the policy was lapsed will be paid to MUNICH on a YRT basis by
PRUCO OF NJ.
22. ERRORS AND OMISSIONS
If either MUNICH or PRUCO OF NJ fails to comply with any of the terms of
this Agreement and it is shown that the failure was unintentional or the
result of a misunderstanding or an administrative oversight on the part of
either party, this Agreement will remain in effect. If the failure to
comply changes the operation or effect of this Agreement, both parties
will be put back to the positions they would have occupied if the failure
to comply had not occurred. This section will not apply to any facultative
submission until PRUCO OF NJ has mailed the Notification of Reinsurance
form to MUNICH .
23. INSOLVENCY
For the purpose of this Agreement, PRUCO OF NJ or MUNICH shall be deemed
"insolvent" if it does one or more of the following:
11
a. A court-appointed receiver, trustee, custodian, conservator,
liquidator, government official or similar officer takes possession
of the property or assets of either PRUCO OF NJ or MUNICH; or
b. Either PRUCO OF NJ or MUNICH is placed in receivership,
rehabilitation, liquidation, conservation, bankruptcy or similar
status pursuant to the laws of any state or of the United States; or
c. Either PRUCO OF NJ or MUNICH becomes subject to an order to
rehabilitate or an order to liquidate as defined by the insurance
code of the jurisdiction of the domicile of PRUCO OF NJ or MUNICH,
as the case may be.
In the event that PRUCO OF NJ is deemed insolvent, all reinsurance claims
payable hereunder shall be payable by MUNICH on the basis of PRUCO OF NJ's
liability under the policies reinsured without diminution because of the
insolvency of PRUCO OF NJ. Such claims shall be payable by MUNICH directly
to PRUCO OF NJ, its liquidator or statutory successor. It is understood,
however, that in the event of such insolvency, the liquidator or receiver
or statutory successor of PRUCO OF NJ shall give written notice to MUNICH
of the pendency of a claim against MUNICH on a risk reinsured hereunder
within a reasonable time after such claim is filed in the insolvency
proceeding. Such notice shall indicate the policy reinsured and whether
the claim could involve a possible liability on the part of MUNICH.
Failure to give such notice shall not excuse the obligation of MUNICH
unless it is substantially prejudiced thereby. During the pendency of such
claim, MUNICH may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any
defense or defenses it may deem available to PRUCO OF NJ, its liquidator,
receiver or statutory successor. It is further understood that the expense
thus incurred by MUNICH shall be chargeable, subject to court approval,
against PRUCO OF NJ as part of the expense of liquidation to the extent of
a proportionate share of the benefit which may accrue to PRUCO OF NJ
solely as a result of the defense undertaken by MUNICH .
In the event MUNICH is deemed insolvent, MUNICH will be bound by any legal
directions imposed by its liquidator, conservator, or statutory successor.
However, and if not in conflict with such legal directions, PRUCO OF NJ
shall have the right to cancel this Agreement with respect to occurrences
taking place on or after the date MUNICH first evidences insolvency. Such
right to cancel shall be exercised by providing MUNICH (or its liquidator,
conservator, receiver or statutory successor) with a written notice of
PRUCO OF NJ's intent to recapture ceded business. If PRUCO OF NJ exercises
such right to cancel and recapture ceded business, such election shall be
in lieu of any premature recapture fee. Upon such election, PRUCO OF NJ
shall be under no obligation to MUNICH , its liquidator, receiver or
statutory successor; however, MUNICH , its liquidator, receiver or
statutory successor shall be liable for all claims incurred prior to the
date of recapture.
24. ARBITRATION
a. GENERAL. All disputes and differences under this Agreement that
cannot be amicably agreed upon by the parties shall be decided by
arbitration. The arbitrators will have the authority to interpret
this Agreement and, in doing so, will consider the customs and
practices of the life insurance and life reinsurance industry. The
arbitrators will consider this Agreement as an honorable engagement
rather than merely a legal obligation, and they are relieved of all
judicial formalities and may abstain from following the strict rules
of law. The arbitration shall take place within the United States.
b. NOTICE. To initiate arbitration, one of the parties will notify the
other, in writing, of its desire to arbitrate. The notice will state
the nature of the dispute and the desired remedies. The party to
which the notice is sent will respond to the notification in writing
within 10
12
days of receipt of the notice. At that time, the responding party
will state any additional dispute it may have regarding the subject
of arbitration.
c. PROCEDURE. Arbitration will be heard before a panel of three
disinterested arbitrators. The arbitrators will be current or former
executive officers or employees of life insurance or reinsurance
companies; however, these companies will not be either party or any
of their reinsurers or affiliates. Each party will appoint one
arbitrator. Notice of the appointment of these arbitrators will be
given by each party to the other party within 30 days of the date of
mailing of the notification initiating the arbitration. These two
arbitrators will, as soon as possible, but no longer than 45 days
after the date of the mailing of the notification initiating the
arbitration, then select the third arbitrator.
Should either party fail to appoint an arbitrator or should the two
initial arbitrators be unable to agree on the choice of a third
arbitrator, each arbitrator will nominate three candidates, two of
whom the other will decline, and the decision will be made by
drawing lots on the final selection. Once chosen, the three
arbitrators will have the authority to decide all substantive and
procedural issues by a majority vote. The arbitration hearing will
be held on the date fixed by the arbitrators at a location agreed
upon by the parties. The arbitrators will issue a written decision
from which there will be no appeal. Either party may reduce this
decision to a judgment before any court that has jurisdiction of the
subject of the arbitration.
d. COSTS. Each party will pay the fees of its own attorneys, the
arbitrator appointed by that party, and all other expenses connected
with the presentation of its own case. The two parties will share
equal cost of the third arbitrator.
25. GOOD FAITH; FINANCIAL SOLVENCY
Each party agrees that all matters with respect to this Agreement require
its utmost good faith. Each party or its representatives has the right at
any reasonable time to inspect the other's records relating to this
Agreement.
Each party represents and warrants to the other party that it is solvent
on a statutory basis in all states in which it does business or is
licensed. Each party agrees to promptly notify the other if it is
subsequently financially impaired. MUNICH has entered into this Agreement
in reliance upon PRUCO OF NJ's representations and warranties. Each party
affirms that it has and will continue to disclose all matters material to
this Agreement and each cession. Examples of such matters are a material
change in underwriting or issue practices or philosophy, or a change in
each party's ownership or control.
MUNICH represents and warrants to PRUCO OF NJ that MUNICH is a licensed or
accredited reinsurer under the applicable laws and regulations of New
Jersey and that MUNICH satisfies each of the current, applicable legal and
regulatory requirements in New Jersey necessary to fully entitle PRUCO OF
NJ to take the maximum permissible credit for the risks ceded under this
Agreement on each of its statutory financial statements. MUNICH
acknowledges that PRUCO OF NJ is entering into this Agreement in reliance
upon this and other representations and warranties of MUNICH, and MUNICH
agrees that, except as provided in the immediately following paragraph,
PRUCO OF NJ's right of recapture under Section 20 of this Agreement will
be triggered if, at any point in the future during the term of this
Agreement, this representation and warranty is no longer true and correct.
If at any point in the future during the term of this Agreement, MUNICH's
representation and warranty in the immediately preceding paragraph is no
longer true and correct, PRUCO OF NJ's right of recapture in Section 20 of
this Agreement will be triggered unless MUNICH elects to, and does,
provide, on a timely basis, additional security in the form of a trust
structure, letter of credit, or other security acceptable to PRUCO OF NJ.
To avoid PRUCO OF NJ's right of recapture
13
being triggered, any such additional security must in form and substance
satisfy all of the then current, applicable legal and regulatory
requirements in New Jersey so as to fully entitle PRUCO OF NJ to take the
maximum permissible credit for the risks ceded under this Agreement on
each of its statutory financial statements. To be considered furnished "on
a timely basis," the additional security must be in place and in effect
prior to the date legally required to enable PRUCO OF NJ to avoid any
period of time during which credit may not lawfully continue to be taken
on each of PRUCO OF NJ's statutory financial statements.
26. MEDICAL INFORMATION BUREAU
MUNICH is required to strictly adhere to the Medical Information Bureau
Rules, and PRUCO OF NJ agrees to abide by these Rules, as amended from
time to time. PRUCO OF NJ will not submit a preliminary notice,
application for reinsurance, or reinsurance cession to MUNICH unless PRUCO
OF NJ has a signed, currently required Medical Information Bureau
authorization.
27. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New Jersey
without giving effect to the principles of conflicts of laws thereof.
28. ASSIGNMENT
This Agreement is not assignable by either party except by the express
written consent of the other.
14
In witness of the above, PRUCO OF NJ and MUNICH have by their respective
officers executed and delivered this Agreement in duplicate on the dates
indicated below, with an effective date of April 30, 2000.
PRUCO LIFE INSURANCE COMPANY OF MUNICH AMERICAN REASSURANCE COMPANY
NEW JERSEY
By: By:
------------------------------ ------------------------------
Title: Title:
------------------------------ ------------------------------
Date: Date:
------------------------------ ------------------------------
By: By:
------------------------------ ------------------------------
Title: Title:
------------------------------ ------------------------------
Date: Date:
------------------------------ ------------------------------
15
SCHEDULE A
REINSURANCE COVERAGE
--------------------------------------------------------------------------------
1. PLANS REINSURED:
This Agreement covers the following plans:
o PruLife Universal (UL) - Policies issued by PRUCO OF NJ (Form Number
UL-2000 and all state variations)
o PruLife Custom Premier (VUL II) - Policies issued by PRUCO OF NJ
(Form Number VUL-2000 and all state variations)
o Target Term Rider (TTR) issued by PRUCO OF NJ (currently available
on VUL II policies)
Excluded from reinsurance under this Agreement are the Waiver of Premium
and Accidental Death Benefits included in the above reinsured policies.
Also excluded from reinsurance under this Agreement are riders that
provide additional life insurance on the lives of any dependent children
of the policyholder. Included under this Agreement is the Living Needs
Benefit rider.
2. AUTOMATIC PORTION REINSURED:
US/Canadian Residents
MUNICH will automatically reinsure an amount equal to 20% of the net
amount at risk related to the face amount of insurance.
The net amount of risk is determined as of the issue date and each
subsequent policy anniversary and is defined as the death benefit minus
the contract fund.
Non US/Canadian Residents
MUNICH will automatically reinsure an amount equal to 20% of the net
amount at risk related to the face amount of insurance.
3. AUTOMATIC RETENTION LIMIT:
PRUCO OF NJ will retain at least 10% of each policy. PRUCO OF NJ may cede
up to 70% of each policy on a first-dollar quota share basis to other
reinsurers.
4. AUTOMATIC ACCEPTANCE LIMIT:
For any policy to be reinsured under automatic reinsurance, the face
amount will not exceed the amounts in the following tables:
US/Canadian Residents - No Foreign Travel
=============================================================
Issue Age of Insured Pref. Best - Class D Class E - H
-------------------------------------------------------------
Ages: 18 - 65 $ 50,000,000 $ 35,000,000
66 - 70 $ 40,000,000 $ 25,000,000
71 - 75 $ 35,000,000 $ 15,000,000
76 - 77 $ 15,000,000 $ 10,000,000
78 - 80 $ 10,000,000 $ 5,000,000
81 - 85 $ 5,000,000 None
86 - 90 $ 1,500,000 None
=============================================================
16
US/Canadian Residents - Foreign Travel
======================================================================
Pref. Best - Class C Class D - E Greater than
Class E
----------------------------------------------------------------------
Ages: 18 - 70 $ 10,000,000 $ 7,500,000 None
----------------------------------------------------------------------
71 - 75 $ 7,500,000 $ 5,000,000 None
----------------------------------------------------------------------
00 - 00 Xxxx Xxxx Xxxx
======================================================================
Non US/Canadian Residents
======================================================================
Pref. Best - Class C Class D - E Greater than
Class E
----------------------------------------------------------------------
Ages: 18 - 70 $ 20,000,000 $ 15,000,000 None
----------------------------------------------------------------------
71 - 75 $ 15,000,000 $ 10,000,000 None
----------------------------------------------------------------------
00 - 00 Xxxx Xxxx Xxxx
======================================================================
5. JUMBO LIMIT:
For any policy to be reinsured under automatic reinsurance, the total
amount of insurance in force and applied for in all companies will not
exceed the following amounts:
US/Canadian Residents- No Foreign Travel
$50,000,000 for all ages and rating classes.
US/Canadian Residents - Foreign Travel
$35,000,000 for issue ages through age 75 and rating classes through
class E. $0 for issue ages over 75 or rating classes higher than E.
Non US/Canadian Residents
$35,000,000 for issue ages through age 75 and rating classes through
class E. $0 for issue ages over 75 or rating classes higher than E.
6. OCCUPATION EXCLUSION LIST FOR AUTOMATIC REINSURANCE
o Entertainers
o High Profile Athletes
7. REPORTING PERIOD:
The reporting period will be monthly.
8. MINIMUM CESSION:
The minimum amount per cession that can be reinsured with MUNICH is
$10,000.
17
9. RESERVES FOR REINSURANCE:
The reinsurance reserve is the one-year term reserve on the portion of
each policy reinsured. This reserve will be calculated using 1980 CSO
ultimate mortality and 4 1/2 % interest.
10. RISK TRIGGER EVENT:
A "Risk Trigger Event" means that any of the following has occurred:
(1) MUNICH does not have statutory surplus of at least $300 million;
(2) MUNICH's representation and warranty contained in Section 25 of this
Agreement (dealing with licensure/accreditation status and related
matters) is no longer true and correct, except that if MUNICH elects
to, and does, provide additional security in accordance with the
requirements of the last paragraph of Section 25 of this Agreement,
no Risk Trigger Event will be deemed to have occurred; or
(3) MUNICH no longer has in effect a Qualified Rating (as defined below)
from at least one of the Major Rating Agencies shown in the chart
below, which is at least as high as the minimum levels shown:
===============================================================
Major Rating Agency Minimum Applicable Rating:
===============================================================
Fitch IBCA, Duff & Xxxxxx A rating of "A-" or higher.
---------------------------------------------------------------
Xxxxx Investor Services, Inc. A rating of "A3" or higher.
---------------------------------------------------------------
Standard & Poors Corporation A rating of "A-" or higher.
===============================================================
"Qualified Rating" shall mean the issuance of an insurance company
long-term, financial strength rating from one or more of the Major Rating
Agencies that remains in effect, that has not been suspended or withdrawn,
and that was issued as a result of the full interactive ratings review
process (including interviews with senior management) by the Major Rating
Agency in question. (Use of the modifiers "Q" or "Pi" by S&P or any
similar indication that a rating is a "qualified" or "limited" rating by
any other of the Major Rating Agencies means that the rating does not
constitute a "Qualified Rating" for purposes of this Agreement.)
11. RISK RETENTION LIMITS:
The total amount of insurance in force and applied for on an individual
life for PRUCO OF NJ and its affiliates will not exceed the risk retention
limits in the following table.
================================================================
Issue Age of Insured Pref. Best - Class D Class E - H
----------------------------------------------------------------
Ages: 18 - 65 $ 10,000,000 $ 10,000,000
----------------------------------------------------------------
66 - 70 $ 10,000,000 $ 10,000,000
----------------------------------------------------------------
71 - 75 $ 10,000,000 $ 10,000,000
----------------------------------------------------------------
76 - 77 $ 10,000,000 $ 5,000,000
----------------------------------------------------------------
78 - 80 $ 5,000,000 $ 2,500,000
----------------------------------------------------------------
81 - 85 $ 2,500,000 $ 1,000,000
----------------------------------------------------------------
86 - 90 $ 1,000,000 None
================================================================
18
SCHEDULE B
AUTOMATIC AND FACULTATIVE REINSURANCE PREMIUMS
--------------------------------------------------------------------------------
1. STANDARD ANNUAL REINSURANCE PREMIUMS
The standard annual reinsurance premiums per $1,000 of net amount at risk
for (1) all cessions of automatic reinsurance and facultative obligatory
reinsurance and (2) all cessions of facultative reinsurance in the amount
of $10 million or less will be the product of the rates in the table
attached to this Schedule B and the following factors:
===============================================================
Face amounts $100,000 and greater AND issue age 18 and greater
---------------------------------------------------------------
Rating Class Factor
---------------------------------------------------------------
1 .330
---------------------------------------------------------------
2 .380
---------------------------------------------------------------
3 .470
---------------------------------------------------------------
4 .655
---------------------------------------------------------------
5 1.060
---------------------------------------------------------------
6 1.260
===============================================================
===============================================================
Face amount less than $100,000 OR issue age less than 18
---------------------------------------------------------------
Rating Class Factor
---------------------------------------------------------------
1 N/A
---------------------------------------------------------------
2 N/A
---------------------------------------------------------------
3 N/A
---------------------------------------------------------------
4 .705
---------------------------------------------------------------
5 N/A
---------------------------------------------------------------
6 1.473
===============================================================
The standard annual reinsurance premiums per $1,000 for cessions of
facultative obligatory reinsurance and facultative reinsurance in excess
of $10 million will be the product of the rates in the table attached to
this Schedule B and the following factors:
===============================================================
Rating Class Factor
---------------------------------------------------------------
1 .420
---------------------------------------------------------------
2 .420
---------------------------------------------------------------
3 .720
---------------------------------------------------------------
4 .720
---------------------------------------------------------------
5 1.270
---------------------------------------------------------------
6 1.500
===============================================================
19
2. SUBSTANDARD ANNUAL REINSURANCE PREMIUMS
Substandard extra premiums are available on classes 4 and 6 (Non-Smoker
and Smoker). For substandard issues, the substandard extra reinsurance
premium (plus any flat extra) is payable for 20 years. After this period,
the base reinsurance premium (plus any flat extra) is payable until the
end of the premium paying period.
The substandard extra annual reinsurance premiums per $1,000 for
substandard issues will be the product of the base reinsurance premiums
per $1,000 and the factor for the appropriate rating class.
Note that this is the total premium per $1,000, including both the base
and substandard premium.
The factors are as follows:
================================================
Rating Class Factor
------------------------------------------------
A 1.40
------------------------------------------------
B 1.65
------------------------------------------------
C 1.90
------------------------------------------------
D 2.25
------------------------------------------------
E 2.75
------------------------------------------------
F 3.25
------------------------------------------------
G 3.75
------------------------------------------------
H 4.50
================================================
3. FLAT EXTRA REINSURANCE PREMIUMS
The flat extra reinsurance premium per $1,000 will be the product of flat
extra premiums charged by PRUCO OF NJ and the factors in the following
table:
====================================================
Permanent Flat Extra Premiums (i.e., for more than 5
years duration)
----------------------------------------------------
First year .25
----------------------------------------------------
Renewal year .90
====================================================
====================================================
Temporary Flat Extra Premiums (i.e., for 5 years
duration or less)
----------------------------------------------------
All years .90
====================================================
4. AGE BASIS
Age Last Birthday.
5. PREMIUM TAXES
Premium taxes are not reimbursed.
20
