VARIABLE ANNUITY GMDB REINSURANCE AGREEMENT
Between
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Hereinafter called the "CEDING COMPANY")
Worcester, Massachusetts
and
ROYAL BANK OF CANADA INSURANCE COMPANY LTD.
(Hereinafter called the "REINSURER")
Barbados, West Indies
TABLE OF CONTENTS
ARTICLE PAGE
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Access to Records X 13
Arbitration XIV 16
Automatic Provisions IV 8
Currency XII 14
Definitions I 3
Effective Date, Term, and Termination III 6
Experience Refund VII 10
Insolvency XIII 15
Litigation IX 12
Miscellaneous XVII 18
Notices XVIII 19
Offset XV 17
Parties to the Agreement II 5
Premium Accounting V 8
Reinsurance Claim Settlement VI 9
Representations XVI 17
Reserves VIII 10
Unintentional Errors, Misunderstandings, or Omissions XI 14
SCHEDULES
A Description of Guaranteed Minimum Death Benefits (GMDBs)
B Investment Funds Subject to this Reinsurance Agreement
C-1 Limits and Rules of CEDING COMPANY
C-2 Limits and Rules of the REINSURER
D REINSURANCE PREMIUM RATES by Treaty Year
E MORTALITY RATE by Attained Age and Sex of INSURED LIFE
F ANNUAL MORTALITY IMPROVEMENT FACTOR
G REINSURER Quota Share of Risk
H CEDING COMPANY Reporting Format and Data Requirements
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ARTICLE I - DEFINITIONS
A. DURATION OF AGREEMENT:
EFFECTIVE DATE means December 1, 2002.
ANNUAL VALUATION DATE means November 30.
BUSINESS DAY means any day that securities are traded on the New York Stock
Exchange.
MONTHLY VALUATION DATE means the last BUSINESS DAY of each month.
REINSURANCE TERM means 10 years measured from the EFFECTIVE DATE.
TERMINATION DATE means November 30, 2012.
ANNUAL VALUATION PERIOD means the period from December 1 until November 30.
B. CONTRACT DEFINITIONS:
VARIABLE ANNUITY CONTRACT means a written annuity contract issued by the CEDING
COMPANY to a contract owner in accordance with which the CEDING COMPANY agrees
to provide specified benefits in accordance with specified terms and conditions.
INSURED LIFE means the oldest owner or annuitant, as specified in the VARIABLE
ANNUITY CONTRACT, upon whose death a claim may be due under this Agreement.
GMDB TYPE means one of the Guaranteed Minimum Death Benefits specified in the
VARIABLE ANNUITY CONTRACT and described in Schedule A.
ACCOUNT VALUE means for each VARIABLE ANNUITY CONTRACT, the sum of the invested
assets in the investment funds described in Schedule B.
GMDB AMOUNT means the CEDING COMPANY's minimum required payment, pursuant to a
VARIABLE ANNUITY CONTRACT, on the death of the INSURED LIFE.
EXCLUDED CONTRACT means any VARIABLE ANNUITY CONTRACT that has (a) a GMDB
provision that is suspended due to change in owner or annuitant, (b) a GMDB
AMOUNT that is contractually set to the ACCOUNT VALUE, or (c) a spousal
continuation in conjunction with a death of an INSURED LIFE. Any EXCLUDED
CONTRACT shall be treated as such only on and after the date as of which it
satisfies any of the conditions identified as (a), (b), or (c) above.
ACTIVE CONTRACT means a VARIABLE ANNUITY CONTRACT, other than an EXCLUDED
CONTRACT, that remains in effect and has not terminated due to death, lapse,
surrender or some other valid contingency and has not been annuitized.
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NET AMOUNT AT RISK means, for each ACTIVE CONTRACT, the excess, if any, of the
GMDB AMOUNT over the ACCOUNT VALUE.
C. REINSURED AMOUNT DEFINITIONS:
REINSURED NET AMOUNT AT RISK means the NET AMOUNT AT RISK multiplied by the
REINSURER's quota share of risk in accordance with Schedule G.
D. REINSURANCE PREMIUM DEFINITIONS:
REINSURANCE PREMIUM RATE means the numerical value provided in Schedule D.
MORTALITY RATE means a numerical value, provided in Schedule E, based on the
attained age and sex of the INSURED LIFE.
ANNUAL MORTALITY IMPROVEMENT FACTOR means a numerical value, provided in
Schedule F, for each ANNUAL VALUATION PERIOD.
MORTALITY IMPROVEMENT FACTOR means the product of all ANNUAL MORTALITY
IMPROVEMENT FACTORS from the inception of this Agreement at each ANNUAL
VALUATION DATE.
TERMINATION RATE means the percentage of ACTIVE CONTRACTS based on the number of
ACTIVE CONTRACTS at the beginning of each ANNUAL VALUATION PERIOD that terminate
for any reason, except death or admission into a nursing home that qualifies for
waiver of surrender charges under the terms of the VARIABLE ANNUITY CONTRACTS,
during each ANNUAL VALUATION PERIOD.
MONTHLY REINSURANCE PREMIUM means the sum, for each ACTIVE CONTRACT covered by
this Agreement, of the REINSURANCE PREMIUM RATE times the MORTALITY RATE times
the MORTALITY IMPROVEMENT FACTOR at the most recent ANNUAL VALUATION DATE times
the REINSURED NET AMOUNT AT RISK as of the MONTHLY VALUATION DATE.
REINSURANCE PREMIUM DUE DATE means the MONTHLY VALUATION DATE.
REMITTANCE DATE means the last BUSINESS DAY of the calendar month following the
REINSURANCE PREMIUM DUE DATE.
E. REINSURANCE CLAIM DEFINITIONS:
GMDB CLAIM means the REINSURED NET AMOUNT AT RISK on the date that CEDING
COMPANY receives due proof of death.
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ANNUAL GMDB CLAIMS means the sum of all GMDB CLAIMS calculated on each ANNUAL
VALUATION DATE.
AGGREGATE GMDB CLAIMS means the sum of all GMDB CLAIMS calculated on the
TERMINATION DATE.
F. REINSURANCE CLAIM LIMIT DEFINITIONS:
MONTHLY CLAIM LIMIT means the sum, for each ACTIVE CONTRACT, of the MORTALITY
RATE times the REINSURED NET AMOUNT AT RISK, as calculated on each MONTHLY
VALUATION DATE.
ANNUAL CLAIM LIMIT means the sum of the most recent twelve MONTHLY CLAIM LIMITS,
as calculated on each ANNUAL VALUATION DATE.
G. REINSURANCE EXPERIENCE REFUND DEFINITIONS:
REINSURANCE PREMIUM BASE RATE means the REINSURANCE PREMIUM RATE for the first
year of this Agreement.
MONTHLY REINSURANCE BASE PREMIUMS means the sum, for each ACTIVE CONTRACT, of
the REINSURANCE PREMIUM BASE RATE times the MORTALITY RATE times the MORTALITY
IMPROVEMENT FACTOR at the most recent ANNUAL VALUATION DATE times the REINSURED
NET AMOUNT AT RISK as of the MONTHLY VALUATION DATE.
AGGREGATE REINSURANCE BASE PREMIUMS means the sum of all MONTHLY REINSURANCE
BASE PREMIUMS, as calculated on the TERMINATION DATE.
AGGREGATE REINSURANCE EXCESS PREMIUMS means the sum of all MONTHLY REINSURANCE
PREMIUMS less AGGREGATE REINSURANCE BASE PREMIUMS, as calculated on the
TERMINATION DATE.
ARTICLE II - PARTIES TO THE AGREEMENT
This Agreement shall be binding upon and shall inure solely to the benefit of
the CEDING COMPANY and the REINSURER. This Agreement shall not and is not
intended to create any legal relationship or confer any rights and obligations
between the REINSURER and any third party, including without limitation,
annuitants, contract owners, certificate owners, beneficiaries, applicants or
assignees under any ACTIVE CONTRACT.
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ARTICLE III - EFFECTIVE DATE, TERM AND TERMINATION
A. The Agreement covers VARIABLE ANNUITY CONTRACTS issued by the CEDING COMPANY
that:
(i) are among the GMDB TYPES identified in Schedule A;
(ii) have accounts invested in the investment funds described in Schedule B;
(iii) are ACTIVE CONTRACTS on the EFFECTIVE DATE;
(iv) are in compliance with all of the other terms and provisions of this
Agreement
B. Subject to paragraphs C, D and F below, this Agreement will terminate on the
TERMINATION DATE.
C. The CEDING COMPANY shall have the option of terminating this Agreement with
ninety (90) days written notice to the REINSURER, after the occurrence of any
of the following:
1. The REINSURER's A.M. Best Claim Paying Rating is reduced to a "B" or
lower. The REINSURER must report any adverse change in A.M. Best Rating
to the CEDING COMPANY within fifteen (15) days of the change;
2. An order appointing a receiver, conservator or trustee for management
of the REINSURER is entered or a proceeding is commenced for
rehabilitation, liquidation, supervision or conservation of the
REINSURER;
D. The REINSURER shall have the option of terminating this Agreement with ninety
(90) days written notice to the CEDING COMPANY after the occurrence of any of
the following:
1. The CEDING COMPANY fails to provide timely submissions of data in
accordance with Schedule H. The REINSURER must provide the CEDING
COMPANY with Notice of Termination. If, during the ninety (90) days
following this notification, the REINSURER receives all data
submissions in arrears, this Agreement will remain in effect and the
notice of termination shall be deemed withdrawn. If the CEDING COMPANY
fails to provide the submission of data in accordance with Schedule H
as of the close of the last day of this ninety (90) day notice period,
the REINSURER's liability for all risks reinsured associated with the
withheld data under this Agreement will terminate.
2. The CEDING COMPANY fails to pay premium on or before the REMITTANCE
DATE. In the event that the premiums are not paid by the REMITTANCE
DATE, the REINSURER shall have the right to terminate this agreement by
giving ninety (90) days written notice of termination to the CEDING
COMPANY. If all premiums in default and interest owed in accordance
with Article III, paragraph F are received by the REINSURER within the
ninety (90) day time period, this Agreement will remain
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in effect and the notice of termination shall be deemed withdrawn. If
premiums remain in default as of the close of the last day of this
ninety (90) day notice period, the REINSURER's liability for all risks
reinsured associated with the defaulted premiums under this Agreement
will terminate.
E. Except as otherwise provided herein, upon termination of this Agreement, the
REINSURER shall have no reinsurance liability with respect to any VARIABLE
ANNUITY CONTRACTS. Not withstanding termination of reinsurance as provided
herein, the CEDING COMPANY shall continue to be liable to the REINSURER for
all unpaid reinsurance premiums earned by the REINSURER under this Agreement
and the REINSURER shall continue to be liable to the CEDING COMPANY for all
unpaid GMDB CLAIMS owed to the CEDING COMPANY under this Agreement. Such
amounts owed by either party are subject to a daily interest charge from the
REMITTANCE DATE until the date paid. The daily interest rate is equal to
1/365 times the sum of (a) the 3-month LIBOR rate as of the most recent
MONTHLY VALUATION DATE, as published in the Wall Street Journal, and (b)
1.00%.
F. The CEDING COMPANY may recapture all ACTIVE CONTRACTS under this Agreement
prior to the TERMINATION DATE if (a) the AGGREGATE GMDB CLAIMS do not exceed
the AGGREGATE REINSURANCE BASE PREMIUMS times 0.92, measured on the most
recent ANNUAL VALUATION DATE; and (b) the sum of the NET AMOUNT AT RISK for
all ACTIVE CONTRACTS is less than $750 million on the most recent ANNUAL
VALUATION DATE; and (c) the most recent ANNUAL VALUATION DATE is after
December 1, 2005. Such recapture is effective on the third MONTHLY VALUATION
DATE following written notification from the CEDING COMPANY to the REINSURER.
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ARTICLE IV - AUTOMATIC PROVISIONS
A. Subject to Article III, on the EFFECTIVE DATE of this Agreement, the CEDING
COMPANY shall cede and the REINSURER shall accept the ACTIVE CONTRACTS that
are covered under this Agreement.
B. This Agreement covers only the liability for GMDB CLAIMS payable and
determined in accordance with the strict terms stated in the VARIABLE ANNUITY
CONTRACT forms or benefit rider forms that were inforce prior to the
EFFECTIVE DATE.
C. This Agreement covers only the liability for GMDB CLAIMS paid under VARIABLE
ANNUITY CONTRACTs invested in Variable and Fixed investment funds described
on Schedule B. If the CEDING COMPANY intends to cede to the REINSURER a
liability with respect to a new or revised investment fund it must provide
written notice to the REINSURER of such intention together with a copy of the
new or revised investment fund, and a revised Schedule B, within thirty (30)
days of the fund's initial availability. The CEDING COMPANY may add new or
revise investment funds without REINSURER approval. The effective date of
reinsurance hereunder shall be the date REINSURER receives notice of the new
or revised fund, or such other earlier date as designated by REINSURER.
D. This Agreement covers only the liability for GMDB CLAIMS where the date of
death of the INSURED LIFE is on or after the EFFECTIVE DATE and before or on
the TERMINATION DATE. Notwithstanding anything else in this Agreement, the
REINSURER'S liability shall not begin prior to the date of death.
ARTICLE V - PREMIUM ACCOUNTING
A. If reinsurance premiums are not paid by the REMITTANCE DATE, interest in
accordance with Article III, paragraph E will be assessed from the REMITTANCE
DATE. The payment of interest, however, shall not prohibit the REINSURER from
exercising its right to terminate the treaty for non-payment of reinsurance
premiums in accordance with Article III, paragraph D.2.
B. On or before the REMITTANCE DATE, the CEDING COMPANY shall forward to the
REINSURER its statement of account and data requirements as set forth in
Schedule H together with its remittance for the MONTHLY REINSURANCE PREMIUM
as shown therein as well as any premium adjustments from the prior period.
C. If the amounts due cannot be determined by the REMITTANCE DATE, the CEDING
COMPANY shall have ninety (90) days to determine the appropriate premium and
remit with interest in accordance with Article III, paragraph E.
D. If a VARIABLE ANNUITY CONTRACT ceases to be an ACTIVE CONTRACT prior to the
MONTHLY VALUATION DATE, the MONTHLY REINSURANCE PREMIUM is adjusted to
include premium from the prior MONTHLY VALUATION DATE to the 15th of the
month, using the REINSURED NET AMOUNT AT RISK on the prior MONTHLY VALUATION
DATE.
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ARTICLE VI - REINSURANCE CLAIM SETTLEMENT
A. The REINSURER shall not be responsible for any obligation of the CEDING
COMPANY to any party under any VARIABLE ANNUITY CONTRACTS issued by the
CEDING COMPANY under any VARIABLE ANNUITY CONTRACT. Reinsurance hereunder is
subject to the same terms and limitations stated in the VARIABLE ANNUITY
CONTRACTS, except as specifically stated otherwise in this Agreement. The
REINSURER only indemnifies the CEDING COMPANY for its liability for those
claims made and payable in accordance with such VARIABLE ANNUITY CONTRACTS.
B. On or before the REMITTANCE DATE, the CEDING COMPANY shall forward to the
REINSURER its statement of account and data requirements as set forth in
Schedule H, together with its request for reimbursement for GMDB CLAIMS as
shown therein. If requested by the REINSURER, the CEDING COMPANY shall
promptly provide the REINSURER with proof of claim, proof of claim payment
and any other claim documentation identified by the REINSURER, in accordance
with Schedule H.
C. For any calendar year, the REINSURER shall not be responsible for
reimbursement for any ANNUAL GMDB CLAIMS in excess of the ANNUAL CLAIM LIMIT.
If ANNUAL GMDB CLAIMS for any calendar year exceed the ANNUAL CLAIM LIMIT,
the request for reimbursement for GMDB CLAIMS shall be reduced so that the
sum of all such requests for reimbursement in that calendar year does not
exceed the ANNUAL CLAIM LIMIT.
D. If GMDB CLAIMS are not paid by the REMITTANCE DATE, interest calculated in
accordance with Article III, paragraph E will be assessed from the REMITTANCE
DATE and will continue until the GMDB CLAIMS are paid in full.
E. A final statement of accounts prepared by the CEDING COMPANY is due sixty
(60) days after the end of the REINSURANCE TERM is reached by all contracts
covered by this Agreement. On or before this date, the CEDING COMPANY shall
forward to the REINSURER its final statement of account as set forth in
Schedule H. Based on the statement of account, any amounts owed by either
party must be paid within thirty (30) days of receiving the statement of
accounts. If amounts owed are not paid within thirty (30) days of receiving
the statement of account, the amounts owed are subject to an interest charge
in accordance with Article III, paragraph E, assessed beginning thirty (30)
days after receiving the statement of account.
F. The CEDING COMPANY shall have six (6) months after the end of the REINSURANCE
TERM is reached by all contracts covered by this Agreement to submit to
REINSURER an amended final statement of account. Any amounts owed by either
the CEDING COMPANY or the REINSURER, based on the amended final statement of
account, must be paid within thirty (30) days of receipt of the amended final
statement. If the amount owed is not paid within thirty (30) days of
receiving the statement of account, the amount owed is subject to an interest
charge in accordance with Article III, Paragraph E.
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ARTICLE VII - EXPERIENCE REFUND
A. If on the TERMINATION DATE or the date of recapture in accordance with
Article III, paragraph F, the AGGREGATE REINSURANCE BASE PREMIUMS exceed the
AGGREGATE GMDB CLAIMS, an experience refund equal to 85% of the AGGREGATE
REINSURANCE EXCESS PREMIUMS is payable to the CEDING COMPANY by the
REINSURER. Such experience refund, if payable, shall be included in the final
statement of account and amended final statement of account, as described in
Article VI, paragraphs E and F. If the AGGREGATE REINSURANCE BASE PREMIUMS do
not exceed the AGGREGATE GMDB CLAIMS, no experience refund is payable.
B. No reserve established or held by the REINSURER shall be subject to any right
of commutation, either during the duration of this Agreement or upon
expiration or termination of this Agreement, regardless of any insolvency of
either party. The reserve established and held by the REINSURER is not an
amount held on behalf of the CEDING COMPANY or a liability owed to the
REINSURER. Rather, it represents the amounts held by the REINSURER with
respect to the REINSURER'S current and anticipated performance of its own
obligations under this Agreement.
ARTICLE VIII - RESERVES
A. The reserve held by the REINSURER for reinsurance of the variable annuity
death benefit will be determined in accordance with the current applicable
NAIC Actuarial Guidelines as of the EFFECTIVE DATE, as applied by the CEDING
COMPANY for VARIABLE ANNUITY CONTRACTS covered by this Agreement, with
reasonable adjustments for the non-proportional aspects of this Agreement.
B. It is the intention of both the REINSURER and the CEDING COMPANY that the
CEDING COMPANY qualifies for reinsurance credit in the states of
Massachusetts and Delaware for reinsurance ceded hereunder. As a
non-authorized reinsurer in Massachusetts and Delaware, REINSURER will comply
with Massachusetts and Delaware Insurance Law relating to reinsurance credit
for non-authorized reinsurers, as promulgated in Massachusetts' and
Delaware's statutes on the effective date of this Agreement.
C. Provision for statutory reserves is satisfied by the REINSURER if either:
1. the funds (including any additional amounts legally required) are in a
trust that complies with CEDING COMPANY's applicable regulations,
subject to withdrawal solely by, and under the exclusive control of the
CEDING COMPANY, held in a qualified United States financial
institution, as defined below, are at least as great as the statutory
reserves as of the ANNUAL VALUATION DATE;
2. cash or marketable securities are transferred to the CEDING COMPANY in
an amount at least as great as the statutory reserves as of the ANNUAL
VALUATION DATE, with the actual investment earnings on the proceeds
owned by the REINSURER.
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3. clean, irrevocable, unconditional letters of credit, in an amount at
least as great as the statutory reserves as of the ANNUAL VALUATION
DATE, issued or confirmed by a qualified United States financial
institution, meeting applicable standards of issuer acceptability as of
the dates of their issuance. The REINSURER and the CEDING COMPANY agree
that the letter of credit may be drawn on by the CEDING COMPANY at any
time and will be utilized and applied by the CEDING COMPANY, including,
without limitation, any liquidator, rehabilitator, receiver or
conservator of the CEDING COMPANY, without diminution because of the
insolvency on the part of the CEDING COMPANY or the REINSURER, only for
the following purposes:
(i) to reimburse the CEDING COMPANY for the REINSURER'S share of
unearned reinsurance premiums for VARIABLE ANNUITY CONTRACTS
reinsured under this Agreement on account of cancellations of
such policies;
(ii) to reimburse the CEDING COMPANY for the REINSURER'S share of
the NET AMOUNT AT RISK paid pursuant to the provisions of the
VARIABLE ANNUITY CONTRACTS reinsured under this Agreement;
(iii) to fund an account with the CEDING COMPANY in an amount at
least equal to the deduction, for reinsurance ceded, from the
CEDING COMPANY'S liabilities for VARIABLE ANNUITY CONTRACTS
ceded under this Agreement. Such account shall include, but
not be limited to, amounts for policy reserves, reserves for
claims and losses incurred (including losses incurred but not
reported), loss adjustment expenses; and
(iv) to pay any other amounts the CEDING COMPANY claims are due
under this Agreement.
In the event that the CEDING COMPANY draws on the letter of credit in
an amount in excess of the actual amounts required for items (i), (ii)
and/or (iv) above, or in the case of a draw pursuant to (iii) above,
these amounts will be deposited in a Trust and any amounts withdrawn
from the Trust will be used for items (i), (ii) and/or (iv) above.
Also, any amounts that are subsequently determined not to be due, shall
be returned to the REINSURER. In addition, in the event that the CEDING
COMPANY draws on the letter of credit pursuant to item (iii) above, the
CEDING COMPANY shall pay the REINSURER interest on the amounts held
pursuant to item (iii) above at an interest rate in accordance with
Article III, paragraph E, or the rate permitted by an arbitration
panel, whichever is greater.
4. a combination of (1), (2) and (3), such that the sum is at least as
great as the statutory reserves.
D. A qualified United States financial institution means an institution that
meets either subdivision (1) or (2):
1. Is organized, or in the case of a United States office of a foreign
banking organization, is licensed, under the laws of the United States
or any state in the United States, is regulated, supervised, and
examined by federal or state authorities
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having regulatory authority over banks and trust companies, and has
been determined by the commissioner of Massachusetts to meet such
standards of financial condition and standing as are considered
necessary and appropriate to regulate the quality of financial
institutions whose letters of credit will be acceptable to the
commissioners of Massachusetts and Delaware.
2. For those institutions that are eligible to act as a fiduciary of a
trust, is organized, or in the case of a United States branch or agency
office of a foreign banking organization, is licensed, under the laws
of the United States or any state in the United States, has been
granted authority to operate with fiduciary powers, and is regulated,
supervised, and examined by federal or state authorities having
regulatory authority over banks and trust companies.
ARTICLE IX - LITIGATION
In the event of any action brought against the CEDING COMPANY under any VARIABLE
ANNUITY CONTRACT that is subject to the terms and conditions of this Agreement,
the CEDING COMPANY shall provide a copy of such action and written notice of
such action to the REINSURER, within thirty (30) business days of the CEDING
COMPANY receiving services of the action at its home office.
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ARTICLE X - ACCESS TO RECORDS
A. The CEDING COMPANY and the REINSURER, or their duly authorized
representative, shall have access at any reasonable time during regular
business hours, to all records of the other, including the right to photocopy
and retain copies of such documents, which reasonably pertain to this
Agreement. Records shall be maintained in accordance with prudent standards
of insurance company record keeping and must be retained for a period of at
least three (3) years after the final settlement date. Within one hundred and
twenty (120) days following the end of each calendar year, the CEDING COMPANY
and the REINSURER will provide each other with copies of their respective
audited financial statements.
B. The CEDING COMPANY and the REINSURER may come into the possession or
knowledge of Confidential Information of the other in fulfilling obligations
under this Agreement. Each party agrees to hold such Confidential Information
in confidence and to take all reasonable steps to ensure that such
Confidential Information is not disclosed in any form by any means by each of
them or by any of its employees to third parties of any kind, other than
attorneys, accountants, reinsurance intermediaries, consultants or
retrocessionaires having an interest in such information, except by advance
written authorization by an officer of the authorizing party; provided,
however, that either party will be deemed to have satisfied its obligations
as to the Confidential Information by protecting its confidentiality in the
same manner that such party protects its own proprietary or Confidential
Information of like kind which shall be at least a reasonable manner.
"Confidential Information" means any information which (1) is not generally
available to or known by the public, or (2) has not been lawfully obtained or
developed by either party independently and not in violation of this
Agreement or from any source other than the other party, provided that such
source is not bound by a duty of confidentiality to such other party, and
which consists of:
1. Information or knowledge about each party's products, processes,
services, finances, customers, research, computer programs, marketing
and business plans, claims management practices; and
2. Any medical or other personal, individually identifiable information
about people or business entities with whom the parties do business,
including customers, prospective customers, vendors, suppliers,
individuals covered by insurance plan, and each party's producers and
employees.
3. Records provided pursuant to Paragraph A, above.
C. If either the CEDING COMPANY or the REINSURER discloses Confidential
Information to interested parties such as, but not limited to, attorneys,
accountants, reinsurance intermediaries, consultants or retrocessionaires
having an interest in such information, such interested parties shall also be
bound by this Article's provisions on disclosing Confidential Information.
The CEDING COMPANY or the REINSURER must inform the interested party of the
provisions of this Article and agree to ensure that the interested parties
honor the provisions.
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ARTICLE XI - UNINTENTIONAL ERRORS, MISUNDERSTANDINGS OR OMISSIONS
It is expressly understood and agreed that if failure to comply with any terms
of this Agreement is hereby shown to be the result of an unintentional error,
misunderstanding or omission, on the part of either the CEDING COMPANY or the
REINSURER, both the CEDING COMPANY and the REINSURER, will be restored to the
position they would have occupied, had no such error, misunderstanding or
omission occurred, subject always to the correction of the error,
misunderstanding or omission.
ARTICLE XII - CURRENCY
All retentions and limits hereunder, and all monetary data elements as described
in Schedule H, are expressed in United States dollars and all premium and claim
payments shall be made in United States dollars.
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ARTICLE XIII - INSOLVENCY
A. In the event of insolvency of the CEDING COMPANY, all reinsurance under this
Agreement will be payable directly by the REINSURER to the CEDING COMPANY or
to its liquidator, receiver, conservator or statutory successor on the basis
of the REINSURER's liability to the CEDING COMPANY without diminution because
of the insolvency of the CEDING COMPANY or because the liquidator, receiver,
conservator or statutory successor of the CEDING COMPANY has failed to pay
all or a portion of any claim.
B. In the event of insolvency of the CEDING COMPANY, the liquidator, receiver,
or statutory successor will, within reasonable time after the claim is filed
in the insolvency proceeding, give written notice to the REINSURER of all
pending claims against the CEDING COMPANY on any contracts reinsured. While a
claim is pending, the REINSURER may investigate and interpose, at its own
expense, in the proceedings where the claim is adjudicated, any defense or
defenses that it may deem available to the CEDING COMPANY or its liquidator,
receiver, or statutory successor. The expense incurred by the REINSURER will
be chargeable, subject to court approval against the CEDING COMPANY as part
of the expense of liquidation to the extent of a proportionate share of the
benefit that may accrue to the CEDING COMPANY solely as a result of the
defense undertaken by the REINSURER. Where two or more REINSURERs are
participating in the same claim and a majority in interest elect to interpose
a defense or defenses to any such claim, the expense will be apportioned in
accordance with the terms of the reinsurance agreement as though such expense
had been incurred by the CEDING COMPANY.
C. In the event of insolvency of the REINSURER, the CEDING COMPANY may recapture
immediately all ceded benefits upon written notice to the REINSURER, its
liquidator, receiver or statutory successor. In the event of such a
recapture, a terminal accounting and settlement shall take place and
settlement shall be made on a net basis between the parties.
D. The provisions of this Article shall neither change the relationship or
status of the parties or enlarge the obligations established under this
Agreement between the CEDING COMPANY and the REINSURER, except as
specifically provided, nor create any additional obligations or establish
further rights against either the CEDING COMPANY or the REINSURER in favor of
other persons not parties to this Agreement.
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ARTICLE XIV - ARBITRATION
A. It is the intention of the CEDING COMPANY and the REINSURER that the customs
and practices of the insurance and reinsurance industry will be given full
effect in the operation and interpretation of this Agreement. The parties
agree to act in all things with the highest good faith. If the REINSURER or
the CEDING COMPANY cannot mutually resolve a dispute that arises out of or
relates to this Agreement, the dispute will be decided through arbitration.
To initiate arbitration, either the REINSURER or the CEDING COMPANY will
notify the other party in writing of its desire to arbitrate, stating the
nature of its dispute and the remedy sought. The party to which the notice is
sent will respond to the notification in writing within ten (10) days of its
receipt.
B. Each party shall select an arbitrator within thirty (30) days after the
written request for arbitration. If either party refuses or neglects to
appoint an arbitrator within thirty (30) days after the written request for
arbitration, the other party may appoint the second arbitrator. The two
arbitrators shall select an umpire within thirty (30) days after the
appointment of the second arbitrator. If the two arbitrators fail to agree on
the selection of the umpire within thirty (30) days after the appointment of
the second arbitrator, either party may submit a request to the American
Arbitration Association to select an umpire, subject to the requirements for
such arbitrator set forth below.
C. The arbitrators and the umpire shall be present or former disinterested
executive officers of life insurance or reinsurance companies other than the
contracting companies or affiliates thereof. The umpire shall preside at all
hearings and meetings of the panel and shall announce the decision of the
panel. The majority vote of the arbitrators and the umpire shall be the
decision of the panel. The decision shall be in writing signed by the
majority in favor thereof.
D. The arbitration panel shall have power to fix all procedural rules for the
holding of the arbitration including discretionary power to make orders as to
matters which it may consider proper in the circumstances of the case
including pleadings, discovery, inspection of documents, examination of
witnesses and any other matter whatsoever relating to the conduct of the
arbitration and may receive and act upon such evidence whether oral or
written strictly admissible or not as it shall in its discretion think fit.
The arbitration panel shall interpret this Agreement as an honorable
engagement rather than merely as a legal obligation and shall make its
decision considering the custom and practice of the applicable insurance and
reinsurance business. The arbitration panel is released from judicial
formalities and shall not be bound by strict rules of procedure and evidence.
Judgment upon the award may be entered in any court having jurisdiction. The
panel is empowered to grant interim relief.
E. The decision of the arbitration panel shall be final and binding on both
parties. The arbitration panel may, at its discretion, award costs and
expenses, as it deems appropriate, including, but not limited to, attorneys'
fees and interest. Judgment may be entered upon the final decision of the
arbitration panel in any court of competent jurisdiction.
16
F. All meetings and hearings before the arbitration panel shall take place in
Worcester, Massachusetts unless some other place is mutually agreed upon by
both parties or ordered by the panel.
G. In the absence of a decision to the contrary by the arbitration panel, each
party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the expense of the umpire and of the
arbitration.
ARTICLE XV - OFFSET
Either party shall have, and may exercise at any time the right to offset any
balance or amounts whether on account of premiums, or on account of claims or
otherwise, due from one party to the other under the terms of this Agreement.
ARTICLE XVI - REPRESENTATIONS
The CEDING COMPANY acknowledges that, at the REINSURER'S request, it has
provided the REINSURER with the Ceding Company Data prior to the execution of
this Agreement by the REINSURER. The CEDING COMPANY represents that all factual
information contained in the Ceding Company Data is complete and accurate, in
all material respects, as of the date the document containing the information
was prepared. The CEDING COMPANY further represents that any assumptions made in
preparing the Ceding Company Data were based upon informed judgment and are
consistent with sound actuarial principles, in all material respects. The CEDING
COMPANY further represents that it is not aware of any omissions, errors,
changes or discrepancies which would materially affect the Ceding Company Data.
The REINSURER has relied on such data and the foregoing representations in
entering into this Agreement. Schedule G has excluded all VARIABLE ANNUITY
CONTRACTS with the attained age of the insured life being greater than 74 and
the net amount of risk being greater than $1 million dollars on the EFFECTIVE
DATE.
17
ARTICLE XVII - MISCELLANEOUS
A. This Agreement will be binding to the parties and their respective successors
and permitted assignees. This Agreement may not be assigned by either party
without the written consent of the other.
B. This Agreement means the text hereof and all Exhibits, Schedules and
Amendments effected in accordance herewith. The Agreement constitutes the
entire statement of agreement between the parties with regard to the subject
matter hereof. There are no other understandings or agreements between the
parties regarding the contracts reinsured other than as expressed in this
Agreement. Any changes or additions to this Agreement must be effected by
means of a written amendment that has been signed by both parties.
C. Notwithstanding the termination of this Agreement as provided herein, its
provisions will continue to apply hereunder to the end that all obligations
and liabilities incurred by each party hereunder will be fully performed and
discharged.
D. Severability. In the event that any provision or term of this Agreement shall
be held by any court to be invalid, illegal or unenforceable, all of the
other terms and provisions shall remain in full force and effect to the
extent that their continuance is practicable and consistent with original
intent of the parties, and the parties will attempt in good faith to
renegotiate this Agreement to carry out its original intent. All of the
provisions of this Agreement shall, to the extent necessary to carry out the
purposes of this Agreement or to ascertain and enforce the parties' rights
hereunder, survive its termination.
E. The REINSURER will pay the CEDING COMPANY a Federal Excise Tax allowance on
each MONTHLY VALUATION DATE equal to the amount of any Federal Excise Tax
paid by the CEDING COMPANY during the prior month, with the prior approval of
the REINSURER, in connection with the annuities reinsured hereunder. The
CEDING COMPANY will be responsible for the timely payment of Federal Excise
Tax and for the filing of all required tax, information returns or filings
with the Internal Revenue Service with respect to this Agreement.
18
ARTICLE XVIII - NOTICES
A. All notices required to be given hereunder shall be in writing and shall be
deemed delivered if personally delivered, sent via facsimile with evidence of
successful transmission, sent via reputable overnight carrier, or dispatched
by certified or registered mail, return receipt requested, postage prepaid,
addressed to the parties as follows:
Chief Financial Officer
First Allmerica Financial Life Insurance Company
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Phone: (000) 000-0000 Fax: (000) 000-0000
Xxxxxx X. Xxxxx
Managing Director
Royal Bank of Canada Insurance Company Ltd.
X.X. Xxx 0000
Xxxxxxxx Xx. 0, Xxxxxxxx Xxxx
Xxxxxxxxx Rock, St. Xxxxxxx
Barbados, West Indies
Phone: (000 ) 000-0000 Fax: (000) 000-0000
B. Notice shall be deemed given on the date it is received in accordance with
the foregoing. Any party may change the address to which to send notices by
notifying the other party of such change of address in writing in accordance
with the foregoing.
In witness whereof, the parties hereto have caused this Agreement to be signed
in duplicate on the dates indicated to be effective as of the date specified
above.
Royal Bank of Canada Insurance Company Ltd. First Allmerica Financial Life
Insurance Company
By By
---------------------------------- -------------------------------
Date Date
-------------------------------- -----------------------------
By By
---------------------------------- --------------------------------
Date Date
-------------------------------- -----------------------------
19
SCHEDULE A
Description of Guaranteed Minimum Death Benefits (GMDBs)
The Guaranteed Minimum Death Benefits are completely described in the VARIABLE
ANNUITY CONTRACTS, riders, or prospectuses.
I. Dollar for Dollar Reduction for withdrawals:
Maximum of (AV, premium, 7yr ratchet)
Maximum of (AV, premium, 5yr ratchet)
II. Proportionate or Blended Reduction for Withdrawals:
Maximum of (AV, premium)
Maximum of (AV, premium, 5yr ratchet)
Maximum of (AV, 5% premium rollup,1 yr ratchet)
Maximum of (AV, premium,1 yr ratchet)
Maximum of (AV, 7% premium rollup)
Maximum of (AV, 7% premium rollup,1 yr ratchet)
Maximum of (AV, premium, 15% Breakthrough ratchet)
Maximum of (AV, premium, 10% Breakthrough ratchet)
Maximum of (AV, 5% premium rollup,15% Breakthrough ratchet)
Maximum of (AV, 5% premium rollup,10% Breakthrough ratchet)
20
SCHEDULE B
Investment Funds Subject to this Reinsurance Agreement
All Investment Funds available to VARIABLE ANNUITY CONTRACT owners on the
EFFECTIVE DATE are subject to this Agreement. If applicable, new Investment
Funds, eligible for reinsurance hereunder since the EFFECTIVE DATE, are listed
below.
None
21
SCHEDULE C-1
Limits and Rules of the CEDING COMPANY
1) CEDING COMPANY will determine the Guaranteed Minimum Death Benefit for each
contract within fourteen (14) working days of receipt of due proof of death and
all required claim forms.
22
SCHEDULE C-2
Limits and Rules of the REINSURER
1) REINSURER's liability cannot be increased as a result of CEDING COMPANY's
actions with respect to contested claims.
2) The REINSURER will not be liable for extra contractual damages (whether they
constitute Compensatory damages, Statutory penalties, Exemplary or Punitive
damages) which are awarded against the CEDING COMPANY.
3) A contract where a spousal continuation occurs after the EFFECTIVE DATE will
be subject to this Agreement; however, the REINSURER will not pay more than one
GMDB CLAIM per VARIABLE ANNUITY CONTRACT.
23
SCHEDULE D
REINSURANCE PREMIUM RATE by Treaty Year
The premium rates for reinsurance, subject to the terms and conditions of this
Agreement, are guaranteed while the reinsurance coverage is in effect.
TREATY YEAR BEGINNING IN REINSURANCE PREMIUM RATE
------------------------ ------------------------
2002 66.0%
2003 67.3%
2004 68.7%
2005 70.0%
2006 71.4%
2007 72.9%
2008 74.3%
2009 75.8%
2010 77.3%
2011 78.9%
24
SCHEDULE E
MORTALITY RATE by INSURED LIFE ATTAINED AGE and SEX
94 MGDB MONTHLY REINSURANCE PREMIUM RATES
(Rates per $1 of NAR, based on oldest owner's age last birthday)
AGE MALE FEMALE
--- ---- ------
0 0.00005 0.00004
1 0.00005 0.00004
2 0.00004 0.00003
3 0.00003 0.00002
4 0.00002 0.00002
5 0.00002 0.00002
6 0.00002 0.00002
7 0.00002 0.00001
8 0.00002 0.00001
9 0.00002 0.00001
10 0.00002 0.00001
11 0.00002 0.00001
12 0.00002 0.00002
13 0.00003 0.00002
14 0.00003 0.00002
15 0.00004 0.00002
16 0.00004 0.00002
17 0.00004 0.00003
18 0.00005 0.00003
19 0.00005 0.00003
20 0.00005 0.00003
21 0.00005 0.00003
22 0.00006 0.00003
23 0.00006 0.00003
24 0.00006 0.00003
25 0.00007 0.00003
26 0.00007 0.00003
27 0.00007 0.00003
28 0.00008 0.00003
29 0.00008 0.00003
30 0.00008 0.00004
31 0.00008 0.00004
32 0.00008 0.00004
33 0.00008 0.00004
34 0.00008 0.00005
35 0.00008 0.00005
36 0.00009 0.00005
37 0.00009 0.00006
38 0.00010 0.00006
39 0.00010 0.00007
40 0.00011 0.00007
41 0.00012 0.00008
42 0.00013 0.00008
43 0.00014 0.00009
44 0.00015 0.00009
45 0.00016 0.00010
46 0.00018 0.00011
47 0.00020 0.00011
48 0.00022 0.00012
49 0.00024 0.00013
50 0.00027 0.00015
51 0.00030 0.00016
52 0.00033 0.00018
53 0.00037 0.00020
54 0.00041 0.00022
55 0.00046 0.00024
56 0.00052 0.00027
57 0.00059 0.00031
58 0.00066 0.00036
59 0.00074 0.00041
60 0.00084 0.00047
61 0.00094 0.00054
62 0.00107 0.00062
63 0.00120 0.00070
64 0.00135 0.00080
65 0.00152 0.00090
66 0.00169 0.00101
67 0.00187 0.00111
68 0.00205 0.00121
69 0.00224 0.00130
70 0.00245 0.00141
71 0.00268 0.00155
72 0.00294 0.00172
73 0.00321 0.00191
74 0.00351 0.00212
75 0.00384 0.00236
76 0.00423 0.00264
77 0.00469 0.00296
78 0.00522 0.00330
79 0.00580 0.00368
80 0.00643 0.00410
81 0.00709 0.00458
82 0.00777 0.00512
83 0.00846 0.00570
84 0.00919 0.00633
85 0.00998 0.00704
86 0.01088 0.00783
87 0.01192 0.00874
88 0.01308 0.00975
89 0.01435 0.01085
90 0.01571 0.01203
91 0.01715 0.01329
92 0.01866 0.01462
93 0.02029 0.01602
94 0.02201 0.01750
95 0.02377 0.01906
96 0.02549 0.02069
97 0.02715 0.02241
98 0.02875 0.02421
99 0.03031 0.02610
100 0.03188 0.02805
101 0.03350 0.03003
102 0.03521 0.03209
103 0.03711 0.03429
104 0.03909 0.03659
105 0.04099 0.03880
106 0.04263 0.04075
107 0.04387 0.04232
108 0.04473 0.04358
109 0.04530 0.04458
110 0.04564 0.04530
111 0.04580 0.04571
112 0.04583 0.04583
113 0.04583 0.04583
114 0.04583 0.04583
115 0.08333 0.08333
25
SCHEDULE F
ANNUAL MORTALITY IMPROVEMENT FACTOR
If in any treaty year, the voluntary terminations on the reinsured contracts are
less than 5%, the subsequent year's annual mortality improvement factor is
defined to be MIN .95 / (1-V), 1, where V represents the actual voluntary
termination rate in the previous treaty year. The new reinsurance premium rates
are equal to the rates otherwise in effect as described above times the product
of the current and all previous years' annual mortality improvement factors.
Voluntary terminations include all terminations with the exception of death and
nursing home surrenders that qualify for waiving the CDSC.
26
SCHEDULE G
REINSURER Quota Share of Risk
For each VARIABLE ANNUITY CONTRACT, REINSURED NET AMOUNT AT RISK will be based
on the share of risk from the table below.
VARIABLE ANNUITY CONTRACTS SHARE OF RISK
-------------------------- -------------
CB10006745 0.0%
CB10010371 0.0%
CB10014103 0.0%
GN00126341 0.0%
GN00131909 0.0%
PN00451756 0.0%
SB10004198 0.0%
VN00414175 0.0%
All other 33.0%
27
SCHEDULE H
Reporting Format and Data Requirements
MONTHLY REPORTING DATA REQUIREMENTS (PREPARED BY THE CEDING COMPANY)
ACTIVE CONTRACTS ONLY:
INSURED LIFE SSN (available no later than June 1, 2003)
Contract Identifier
INSURED LIFE Indicator
Joint Life Indicator
INSURED LIFE Issue Age
INSURED LIFE Sex
Issue Date
Initial Purchase Payment
Total Purchase Payment
Cumulative Withdrawals
Account value by subaccount
GMDB Type
GMDB Amount
NET AMOUNT AT RISK
Qualified Status
Termination Indicator (reported in first monthly report following termination)
ADDITIONAL MONTHLY CLAIM REPORTING DATA REQUIREMENTS (PREPARED BY THE CEDING
COMPANY)
This includes Monthly Reporting Data Requirements as of the Date of Notification
(the date that death related paperwork is submitted in full), plus the
following:
Date of Death
Date of Notification
Death Benefit Paid
Death Benefit Proceeds in Excess of Account Value
QUARTERLY REPORTING REQUIREMENTS (PREPARED BY THE REINSURER)
A.M. Best Ratings
MONTHLY STATEMENT OF ACCOUNT (PREPARED BY THE CEDING COMPANY)
(prepared for each GMDB TYPE and in aggregate)
1. Calculated value of ANNUAL CLAIM LIMIT and ANNUAL GMDB CLAIMS
2. Calculated value of MONTHLY REINSURANCE BASE PREMIUMS
3. Calculated value of REINSURED NET AMOUNT AT RISK and MONTHLY
REINSURANCE PREMIUM
28
