AUTOMATIC/FACULTATIVE YRT
REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
BETWEEN
NATIONAL LIFE INSURANCE COMPANY
Montpelier, Vermont
(hereinafter referred to as the "Ceding Company")
AND
REINSURER
(hereinafter referred to as the "Reinsurer")
EFFECTIVE: November 1, 2005
TABLE OF CONTENTS
ARTICLE 1 - PREAMBLE...........................................................5
1.1 PARTIES TO THIS AGREEMENT.............................................5
1.2 COMPLIANCE............................................................5
1.3 CONSTRUCTION..........................................................5
1.4 ENTIRE AGREEMENT......................................................5
1.5 SEVERABILITY..........................................................5
1.6 WAIVER................................................................5
ARTICLE 2 - AUTOMATIC REINSURANCE..............................................6
2.1 GENERAL CONDITIONS....................................................6
2.2 RETAINED AMOUNTS......................................................6
2.3 EXPENSE OF ORIGINAL POLICY............................................6
ARTICLE 3 - FACULTATIVE REINSURANCE............................................7
ARTICLE 4 - COMMENCEMENT OF LIABILITY..........................................8
4.1 AUTOMATIC REINSURANCE.................................................8
4.2 FACULTATIVE REINSURANCE...............................................8
4.3 CONDITIONAL RECEIPT OR TEMPORARY INSURANCE AGREEMENT..................8
ARTICLE 5 - PREMIUM ACCOUNTING.................................................9
5.1 PREMIUMS..............................................................9
5.2 PAYMENT OF PREMIUMS...................................................9
5.3 DELAYED PAYMENT.......................................................9
5.4 FAILURE TO PAY PREMIUMS...............................................9
5.5 PREMIUM RATE GUARANTEE................................................9
ARTICLE 6 - POLICY REDUCTIONS, TERMINATIONS AND CHANGES......................11
6.1 REDUCTIONS AND TERMINATIONS..........................................11
6.2 INCREASES............................................................11
6.3 RISK CLASSIFICATION CHANGES..........................................12
6.4 REINSTATEMENT........................................................12
6.5 NONFORFEITURE BENEFITS...............................................12
6.6 POLICY LOANS.........................................................12
ARTICLE 7 - CONVERSIONS, EXCHANGES AND REPLACEMENTS...........................13
7.1 NOTIFICATION AND PLACEMENT...........................................13
7.2 PREMIUMS.............................................................13
7.3 INCREASES IN AMOUNT..................................................13
7.4 FACULTATIVE CONSIDERATIONS...........................................13
ARTICLE 8 - POLICY RESCISSION.................................................14
ARTICLE 9 - CLAIMS............................................................15
9.1 COVERAGE.............................................................15
9.2 NOTICE...............................................................15
9.3 PROOFS...............................................................15
9.4 AMOUNT AND PAYMENT OF REINSURANCE BENEFITS...........................15
9.5 CONTESTED CLAIMS.....................................................15
9.6 CLAIM EXPENSES.......................................................16
9.7 MISREPRESENTATION OR SUICIDE.........................................16
9.8 MISSTATEMENT OF AGE OR GENDER........................................16
9.9 EXTRA-CONTRACTUAL DAMAGES............................................16
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ARTICLE 10 - RETENTION LIMIT CHANGES..........................................17
ARTICLE 11 - RECAPTURE........................................................18
11.1 RECAPTURE ELIGIBILITY REQUIREMENTS...................................18
11.2 INCREASES IN FIRST DOLLAR QUOTA SHARE RETENTION......................19
ARTICLE 12 - GENERAL PROVISIONS...............................................20
12.1 CURRENCY.............................................................20
12.2 PREMIUM TAX..........................................................20
12.3 INSPECTION OF RECORDS................................................20
12.4 FORMS, MANUAL, ISSUE RULES AND CLAIMS PRACTICES......................20
12.5 ANTI-MONEY LAUNDERING................................................20
12.6 INTEREST RATE FOR BALANCES IN DEFAULT................................20
ARTICLE 13 - DAC TAX..........................................................21
ARTICLE 14 - OFFSET...........................................................22
ARTICLE 15 - INSOLVENCY.......................................................23
15.1 INSOLVENCY OF A PARTY TO THIS AGREEMENT..............................23
15.2 INSOLVENCY OF THE CEDING COMPANY.....................................23
ARTICLE 16 - ERRORS AND OMISSIONS.............................................25
ARTICLE 17 - ARBITRATION......................................................26
17.1 GENERAL..............................................................26
17.2 NOTICE...............................................................26
17.3 PROCEDURE............................................................26
17.4 ARBITRATION COSTS....................................................26
17.5 SITE OF ARBITRATION..................................................27
17.6 ARBITRATION SETTLEMENT...............................................27
ARTICLE 18 - DURATION OF AGREEMENT............................................28
ARTICLE 19 - REPRESENTATIONS AND WARRANTIES...................................29
ARTICLE 20 - CONFIDENTIALITY..................................................30
20.1 PRIVACY .............................................................30
20.2 PROPRIETARY INFORMATION .............................................30
ARTICLE 21 - DEFINITIONS... ..................................................31
ARTICLE 22 - EXECUTION........................................................34
EXHIBIT A - RETENTION LIMITS OF THE CEDING COMPANY............................35
A.1 LIFE INSURANCE........................................................35
EXHIBIT B - BUSINESS COVERED..................................................36
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EXHIBIT C - BINDING LIMITS....................................................37
C.1 REINSURER'S SHARE....................................................37
C.2 AUTOMATIC BINDING LIMITS.............................................37
C.3 JUMBO LIMITS.........................................................37
C.5 AGE LIMITS...........................................................37
EXHIBIT D - REINSURANCE PREMIUMS..............................................38
D.1 BASE PLAN PARAMETERS.................................................38
D.2 AGE BASIS............................................................38
D.3 POLICY FEES..........................................................38
D.4 SUBSTANDARD RATINGS..................................................38
D.5 FLAT EXTRAS..........................................................38
D.7 RIDERS AND BENEFITS..................................................39
EXHIBIT D - RATE SCHEDULE 1...................................................40
EXHIBIT E - RATE SCHEDULE FOR CONVERSIONS.......................................
EXHIBIT F - SELF-ADMINISTERED REPORTING.......................................41
F.1 REPORTING REQUIREMENTS...............................................41
F.2 BUSINESS REPORTED ELECTRONICALLY.....................................41
F.3 STATEMENT SPECIFICATIONS.............................................42
F.4 POLICY EXHIBIT.......................................................43
F.5 ACCOUNTING SUMMARY...................................................44
EXHIBIT G - APPLICATION FOR FACULTATIVE REINSURANCE...........................45
EXHIBIT H - ALLOCATION RULES FOR PLACEMENT OF FACULTATIVE CASES...............46
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ARTICLE 1 - PREAMBLE
1.1 PARTIES TO THIS AGREEMENT
This is a YRT Agreement for indemnity reinsurance (the "Agreement") solely
between National Life Insurance Company of Montpelier, Vermont and Reinsurer.
The Ceding Company and the Reinsurer are collectively referred to as the
"parties".
The acceptance of risks under this Agreement will create no right or legal
relationship between the Reinsurer and the insured, owner or beneficiary of any
insurance policy or other contract of the Ceding Company.
The Agreement will be binding upon the Ceding Company and the Reinsurer and
their respective successors and assigns.
1.2 COMPLIANCE
This Agreement applies only to the issuance of insurance by the Ceding Company
in a jurisdiction in which it is properly licensed.
The Ceding Company and the Reinsurer represent that, to the best of their
knowledge, they are in compliance with all state and federal laws and
regulations applicable to the business reinsured under this Agreement. In the
event that either party is found to be in non-compliance with any such law or
regulation, the Agreement will remain in effect and the parties will seek to
remedy the non-compliance and will indemnify each other for any direct loss
suffered as a result of the non-compliance.
1.3 CONSTRUCTION
This Agreement will be construed in accordance with the laws of the state of
Missouri.
1.4 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties with respect
to the business reinsured hereunder. There are no understandings between the
parties other than as expressed in this Agreement. Any change or modification to
this Agreement will be null and void unless made by amendment to this Agreement
and signed by all parties, except as otherwise provided herein.
1.5 SEVERABILITY
If any provision of this Agreement is determined to be invalid or unenforceable,
such determination will not impair or affect the validity or the enforceability
of the remaining provisions of this Agreement.
1.6 WAIVER
Either party may choose not to enforce nor insist upon the strict adherence to
any provision or right under this Agreement. If either party so elects, it will
not be considered to be a permanent waiver of such provision nor in any way
affect the validity of this Agreement. The applicable party will still have the
right to insist upon the strict adherence to that provision or any other
provision of this Agreement in the future. Any waiver of provisions by a party
under this Agreement must be in writing and signed by a duly authorized
representative of the party.
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ARTICLE 2 - AUTOMATIC REINSURANCE
2.1 GENERAL CONDITIONS
On and after the Effective Date of this Agreement, the Ceding Company will
Automatically cede to the Reinsurer a portion of the life insurance policies,
supplementary benefits, and riders listed in Exhibit B.
The Reinsurer will Automatically accept its share of the above-referenced
policies up to the limits shown in Exhibit C, provided that:
a. the Ceding Company keeps its Quota Share Retention, as specified in
Exhibit A;
b. the Ceding Company applies the underwriting guidelines, practices,
and procedures for risk selection identified by the Ceding Company
in the questionnaire titled "Underwriting Guidelines, Practices and
Procedures" and any Material Changes consented to in writing by the
Reinsurer except in the case of variable insurance policies that are
underwritten by Beneficial Life Insurance Company in accordance with
its underwriting guidelines and practices;
c. the insured, at the time of the application, must be a permanent
resident of the United States, Canada, Puerto Rico, or Guam;
d. the total of the Ultimate Amount of reinsurance required including
contractual increases, and the amount already reinsured on that life
under this Agreement and all other agreements between the Reinsurer
and the Ceding Company, does not exceed the Automatic Binding Limits
set out in Exhibit C;
e. the amount of life insurance in force in all companies, including
any coverage to be replaced, plus the amount currently applied for
on that life in all companies, does not exceed the Jumbo Limits
stated in Exhibit C;
f. the application is on a life that is not a Professional Athlete; and
g. the application is on a life that has not been submitted
Facultatively by the Ceding Company to the Reinsurer or any other
Reinsurer within the last five (5) years, unless the reason for any
prior Facultative submission was solely for capacity that may now be
accommodated within the terms of this Agreement or if the reason for
the facultative submission no longer exists.
2.2 RETAINED AMOUNTS
The Ceding Company may not reinsure, on any basis, the amount it has retained on
the business covered under this Agreement without prior notification to and
agreement of the Reinsurer.
2.3 EXPENSE OF ORIGINAL POLICY
The Ceding Company will bear the expense of all medical examinations, inspection
fees and other charges incurred in connection with the Original Policy.
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ARTICLE 3 - FACULTATIVE REINSURANCE
The Ceding Company may submit any application on a plan or rider identified in
Exhibit B to the Reinsurer for its consideration on a Facultative basis.
The Ceding Company will apply for reinsurance on a Facultative basis by sending
to the Reinsurer an application for Facultative reinsurance, providing the
information outlined in Exhibit G. Accompanying this application will be copies
of all underwriting evidence that is available for risk assessment including,
but not limited to, copies of the application for insurance, medical examiners'
reports, attending physicians' statements, inspection reports, Ultimate Amount
applied for in all companies, Ultimate Amount to be placed in all companies and
Ultimate Amount to be in force in all companies, and any other information
bearing on the insurability of the risk. The Ceding Company also will notify the
Reinsurer of any outstanding underwriting requirements at the time of the
Facultative submission. Any subsequent information received by the Ceding
Company that is pertinent to the risk assessment will be promptly transmitted to
the Reinsurer.
After consideration of the application for Facultative reinsurance and related
information, the Reinsurer will promptly inform the Ceding Company of its
underwriting decision. The Reinsurer's offer will expire at the end of one
hundred twenty (120) days, unless otherwise specified by the Reinsurer.
If the underwriting decision is acceptable, the Ceding Company will notify the
Reinsurer in writing of its acceptance of the offer. If any risk is to be
submitted to more than one Reinsurer for consideration, the current allocation
rules for placement of Facultative cases as outlined in Exhibit H will apply.
The relevant terms and conditions of this Agreement will apply to those
Facultative offers made by the Reinsurer and accepted by the Ceding Company.
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ARTICLE 4 - COMMENCEMENT OF LIABILITY
4.1 AUTOMATIC REINSURANCE
For Automatic reinsurance, the Reinsurer's liability will commence at the same
time as the Ceding Company's liability.
4.2 FACULTATIVE REINSURANCE
For Facultative reinsurance, the Reinsurer's liability will commence at the same
time as the Ceding Company's liability, provided that the Reinsurer has made a
binding Facultative offer and that offer was accepted, during the lifetime of
the insured, in accordance with the terms of this Agreement.
4.3 CONDITIONAL RECEIPT OR TEMPORARY INSURANCE AGREEMENT
Reinsurance coverage under a Conditional Receipt or Temporary Insurance
Agreement is limited to the Reinsurer's share of amounts within the Conditional
Receipt or Temporary Insurance Agreement specified in Exhibit C. The Reinsurer
will accept liability provided that:
a. the Reinsurer has reviewed and approved the Conditional Receipt form
or Temporary Insurance Agreement; and
b. the risk is eligible for Automatic reinsurance under this Agreement;
or the Reinsurer has made a Facultative offer and the Ceding Company
would have accepted that offer based on the allocation rules for
placement of Facultative cases in Exhibit H; and
c. the Ceding Company, its agents, or representatives have followed its
normal cash-with-application procedures for such coverage.
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ARTICLE 5 - PREMIUM ACCOUNTING
5.1 PREMIUMS
Reinsurance premium rates paid by the Ceding Company for life insurance and
other benefits reinsured under this Agreement are shown in Exhibit D. The rates
will be applied to the Reinsured Net Amount at Risk.
5.2 PAYMENT OF PREMIUMS
Reinsurance premiums are payable annually and in advance. The Ceding Company
will calculate the amount of reinsurance premium due and, within thirty (30)
days after the end of the month, will send the Reinsurer a statement that
contains the information shown in Exhibit F, showing reinsurance premiums due
for that period. The Ceding Company will remit amounts due the Reinsurer
together with the statement.
5.3 DELAYED PAYMENT
If premium balances remain unpaid for more than sixty (60) days after they are
due pursuant to Article 5.2 above, the Reinsurer reserves the right to charge
interest from the end of the reporting period. Interest will be calculated using
the index specified in Article 12.6.
5.4 FAILURE TO PAY PREMIUMS
The payment of reinsurance premiums is a condition precedent to the liability of
the Reinsurer for reinsurance covered by this Agreement. In the event that
reinsurance premiums are not paid within sixty (60) days after they are due
pursuant to Article 5.2 above, the Reinsurer will have the right to terminate
the reinsurance for all policies having reinsurance premiums in arrears. If the
Reinsurer elects to exercise its right of termination, it will give the Ceding
Company ninety (90) days written notice of its intention. Such notice will be
sent by certified mail.
If all reinsurance premiums in arrears, including any that become in arrears
during the ninety (90) day notice period, are not paid before the expiration of
the notice period, the Reinsurer will be relieved of all liability under those
policies as of the last date to which premiums have been paid for each policy.
Reinsurance on policies on which reinsurance premiums subsequently fall due will
automatically terminate as of the last date to which premiums have been paid for
each policy, unless reinsurance premiums on those policies are paid on or before
their due date pursuant to Article 5.2 above.
Terminated reinsurance may be reinstated, subject to approval by the Reinsurer,
within thirty (30) days of the date of termination, and upon payment of all
reinsurance premiums in arrears including any interest accrued thereon. The
Reinsurer will have no liability for any claims incurred between the date of
termination and the date of the reinstatement of the reinsurance. The right to
terminate reinsurance will not prejudice the Reinsurer's right to collect
premiums for the period during which reinsurance was in force prior to the
expiration of the ninety (90) day notice.
The Ceding Company may not force termination under the provisions of this
Article to avoid the provisions regarding recapture in Article 11, nor to
transfer the reinsured policies to another Reinsurer.
5.5 PREMIUM RATE GUARANTEE
Although the Reinsurer anticipates that the premium rates in Exhibit D will
apply indefinitely, it guarantees only that the premium rates applicable to the
business reinsured under this Agreement will not exceed the greater of: (1) the
reinsurance premium rates specified in Exhibit D, or (2) the YRT net premiums at
the applicable statutory minimum valuation mortality table and statutory maximum
interest rate for the reinsured business. The Reinsurer does not anticipate
holding any deficiency reserves on the business reinsured under this Agreement.
If the Reinsurer raises its premium rates on any block of inforce business
reinsured under this Agreement on which the Ceding Company has not raised its
retail premiums or cost of insurance charges, the Ceding Company may recapture
that block of business as of the effective date of the increase in reinsurance
premiums. The recapture will become effective on individual policy anniversary
dates beginning no sooner than 30 days after the Ceding Company has provided
notice of its intent to recapture.
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ARTICLE 6 - POLICY REDUCTIONS, TERMINATIONS AND CHANGES
Whenever a Material Change is made in the status, plan, amount or other feature
of a policy reinsured under this Agreement, the Reinsurer will, upon receipt of
notification of the change, consider adjusted reinsurance coverage in accordance
with the provisions of this Article. The Ceding Company will notify the
Reinsurer of any Material Change within ninety (90) days after its effective
date.
6.1 REDUCTIONS AND TERMINATIONS
In the event of reduction, lapse, or termination of a policy or policies on a
life that is reinsured under this Agreement, the Ceding Company will reduce or
terminate reinsurance on that life. The Reinsurance Death Benefit on the life
with all reinsurers will be reduced, effective on the same date, by the amount
required such that the Ceding Company maintains its retention as defined in
Exhibit A. If the policies are reinsured with multiple reinsurers, the
reinsurance will be reduced by the ratio of the amount of reinsurance in each
company to the total outstanding reinsurance on the risk involved.
The reinsurance reduction will apply first to the policy or policies being
reduced and then, on a chronological basis, to other reinsured policies on the
life, beginning with the oldest policy. If there is a lapse, termination or
reduction on a policy reinsured under this Agreement where Full Retention is
held on a life, the Ceding Company will reduce the reinsurance on that life by a
corresponding amount, with the reinsurance on the oldest policy being reduced
first. If the amount of reduction exceeds the amount reinsured, the reinsurance
on the policy or policies will be terminated.
In the event of the reduction, lapse, or termination of a policy or policies
reinsured under this Agreement, the Reinsurer will refund any unearned
reinsurance premiums. The reinsured portion of any policy fee will be deemed
earned for the entire policy year if the policy was reinsured during any portion
of that policy year.
6.2 INCREASES
a. Noncontractual Increases
If the Initial Death Benefit is increased as a result of a
noncontractual change, the increase will be underwritten by the
Ceding Company in accordance with the underwriting guidelines,
practices, and procedures for risk selection identified by the
Ceding Company in the questionnaire titled "Underwriting Guidelines,
Practices and Procedures" and any Material Changes consented to in
writing by the Reinsurer.
Such increases will be considered new reinsurance under this
Agreement. The Reinsurer's approval is required if the Original
Policy was reinsured on a Facultative basis or if the new amount
will cause the Reinsured Net Amount at Risk on the life to exceed
either the Automatic Binding Limits or the Jumbo Limits shown in
Exhibit C.
The Ceding Company and the Reinsurer will share the increased amount
proportionately. If the reinsurance is Automatic, the amount of
reinsurance must not exceed the Automatic Binding Limits or Jumbo
Limits shown in Exhibit C. If the increase is Facultative, the
Ultimate Amount of reinsurance must not exceed the amount included
in the Facultative offer.
Premiums for the additional reinsurance will be based on the issue
age, mortality rating, underwriting class and duration since the
time of underwriting of the increase.
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b. Contractual and Regulatory Increases
Reinsurance of increases in amount resulting from contractual policy
provisions will be based on the issue age, mortality rating,
underwriting class and duration from issue of the Original Policy.
The Ceding Company and the Reinsurer will share the increased amount
proportionately. If the reinsurance is Automatic, the amount of
reinsurance must not exceed the Automatic Binding or Jumbo Limits
shown in Exhibit C. If the reinsurance is Facultative, the amount of
reinsurance must not exceed the Ultimate Amount included in the
Facultative offer.
Any change in the Policy Net Amount at Risk due to changes in the
policy's cash value or account value will be shared proportionately
between the Ceding Company and all reinsurers.
6.3 RISK CLASSIFICATION CHANGES
If the policyholder requests a substandard table rating reduction or removal of
a flat extra, such change will be underwritten in accordance with the
underwriting guidelines, practices, and procedures for risk selection identified
by the Ceding Company in the questionnaire titled "Underwriting Guidelines,
Practices and Procedures" and any Material Changes consented to in writing by
the Reinsurer. Risk classification changes on Facultative policies will be
subject to the Reinsurer's approval.
6.4 REINSTATEMENT
Any policy originally reinsured in accordance with the terms and conditions of
this Agreement by the Ceding Company may be automatically reinstated with the
Reinsurer as long as the policy is reinstated in accordance with the established
procedures and rules of the Ceding Company previously disclosed to the
Reinsurer. Any policy originally reinsured with the Reinsurer on a Facultative
basis which has been in a lapsed status for more than ninety (90) days must be
submitted with underwriting requirements and approved by the Reinsurer before it
is reinstated. The Ceding Company will pay the Reinsurer its share of amounts
collected or charged for the reinstatement of such policies.
6.5 NONFORFEITURE BENEFITS
a. Extended Term
If the Original Policy lapses and extended term insurance is elected
under the terms of the policy, reinsurance will continue on the same
basis as under the Original Policy until the expiry of the extended
term period.
b. Reduced Paid-Up
If the Original Policy lapses and reduced paid-up insurance is
elected under the terms of the policy, the amount reinsured and the
amount retained will be reduced proportionately in accordance with
the procedures described in Article 6.1.
6.6 POLICY LOANS
The Reinsurer does not participate in policy loans nor other forms of
indebtedness on policies reinsured under this Agreement; therefore, policy loans
do not affect the Reinsured Net Amount at Risk.
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ARTICLE 7 - CONVERSIONS, EXCHANGES AND REPLACEMENTS
7.1 NOTIFICATION AND PLACEMENT
If a policy reinsured under this Agreement is converted, exchanged or replaced,
the Ceding Company will notify the Reinsurer within ninety (90) days after the
effective date of the conversion, exchange or replacement. A policy resulting
from an internal exchange or replacement will be underwritten by the Ceding
Company in accordance with its underwriting guidelines, practices and procedures
for exchanges and replacements.
Term conversions of policies issued by the Ceding Company and its subsidiary,
Life Insurance Company of the Southwest, to products reinsured under this
Agreement shall be covered under the terms of this Agreement.
7.2 PREMIUMS
If the New Plan is reinsured by the Reinsurer, either under this Agreement or
under a different agreement, reinsurance premium rates for the resulting New
Policy will be those contained in the agreement that covers the New Plan. If the
agreement including the new rates requires policy fees, then they will also
apply to the New Policy. Reinsurance premiums for the New Policy will be based
on the original issue age, underwriting class and duration since the issuance of
the Original Policy. However, if the New Policy is issued as New Business, the
reinsurance premiums for the New Policy will be based on the issue age,
underwriting class and duration of the New Policy.
7.3 INCREASES IN AMOUNT
If the New Policy is issued with an increase in the Initial Death Benefit, then
the provisions of Article 6.2.a will apply to the increased amount.
7.4 FACULTATIVE CONSIDERATIONS
The Reinsurer's approval to exchange or replace the Original Policy will be
required if the Original Policy was reinsured on a Facultative basis.
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ARTICLE 8 - POLICY RESCISSION
If it is determined that a policy reinsured under this Agreement should be
rescinded due to misrepresentation by the policyholder or the insured, the
Reinsurer will pay its share of reasonable investigation and legal expenses
connected with the rescission action.
The Reinsurer will not reimburse the Ceding Company for routine expenses,
including but not limited to the Ceding Company's home office expenses,
compensation of salaried officers and employees, and any legal expenses other
than third party expenses incurred by the Ceding Company.
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ARTICLE 9 - CLAIMS
9.1 COVERAGE
Claims covered under this Agreement are for the plans and any additional
benefits specified in Exhibit B.
9.2 NOTICE
The Ceding Company will promptly notify the Reinsurer after it receives a claim
on a policy reinsured under this Agreement.
9.3 PROOFS
The Ceding Company will promptly provide the Reinsurer with proper claim proofs,
which are a copy of the proof of payment by the Ceding Company, a copy of the
insured's death certificate and a copy of the claimant's statement. In addition,
for contestable claims and any deaths occurring outside the United States or
Canada, the Ceding Company will send to the Reinsurer a copy of all documents in
connection with the claim. The Reinsurer may request, and the Ceding Company
will send, documents on any claim reinsured under this Agreement.
9.4 AMOUNT AND PAYMENT OF REINSURANCE BENEFITS
As soon as the Reinsurer receives proper claim notice and proper claim proofs,
the Reinsurer will promptly pay its Proportionate Share of all payable claims
eligible for coverage under this Agreement.
The maximum Reinsured Net Amount at Risk payable to the Ceding Company under
this Agreement is the risk amount specifically reinsured with the Reinsurer. The
Reinsurer will also pay its Proportionate Share of the interest on the death
proceeds through the date of settlement that the Ceding Company is required to
pay, either by law or under the terms of the policy.
Life benefit payments will be made in a single sum, regardless of the Ceding
Company's settlement options.
The Reinsurer will pay its proportionate share of the discounted death benefit
when there is a Accelerated Benefits claims made by the Ceding Company.
Upon partial acceleration of the death benefit, the reinsured amount shall be
reduced in proportion to the reduction in death benefit of the policy.
9.5 CONTESTED CLAIMS
The Ceding Company will promptly notify the Reinsurer of its intention to
contest, deny, compromise or litigate a claim involving a policy reinsured under
this Agreement. Unless it declines to be a party to such action, the Reinsurer
will pay its Proportionate Share of any settlement up to the maximum that would
have been payable under the specific policy had there been no controversy plus
its Proportionate Share of claim investigation fees paid to a third party,
except as specified below.
If the Reinsurer declines to be a party to the contest, compromise or litigation
of a claim, it will pay its full share of the amount reinsured, as if there had
been no contest, compromise or litigation. The Reinsurer will also pay its
Proportionate Share of covered expenses incurred to the date it notifies the
Ceding Company it declines to be a party.
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9.6 CLAIM EXPENSES
The Reinsurer will pay its Proportionate Share of reasonable claim investigation
and legal expenses connected with the litigation or settlement of claims payable
under this Agreement unless the Reinsurer has discharged its liability pursuant
to Article 9.5 above. If the Reinsurer has so discharged its liability, the
Reinsurer will not participate in any expenses incurred thereafter.
The Reinsurer will not reimburse the Ceding Company for routine claim and
administration expenses, including but not limited to the Ceding Company's home
office expenses, compensation of salaried officers and employees, and any legal
expenses other than third party expenses incurred by the Ceding Company. Claim
investigation expenses do not include expenses incurred by the Ceding Company as
a result of a dispute or contest arising out of conflicting claims of
entitlement to policy proceeds or benefits.
9.7 MISREPRESENTATION OR SUICIDE
If the Ceding Company returns premium to the policyowner or beneficiary as a
result of fraud or misrepresentation within the policy contestable period or
suicide of the insured, the Reinsurer will refund net reinsurance premiums
received on that policy without interest to the Ceding Company in lieu of any
other form of reinsurance benefit payable under this Agreement.
9.8 MISSTATEMENT OF AGE OR GENDER
In the event of a change in the amount of the Ceding Company's liability on a
policy due to a misstatement of age or gender, the Reinsurer's liability on its
Proportionate Share will change within the terms of this Agreement. The
Reinsured Net Amount at Risk will be adjusted from the inception of the Original
Policy, and any difference will be settled without interest.
9.9 EXTRA-CONTRACTUAL DAMAGES
In no event shall the Reinsurer be liable for any Extra-Contractual Obligations
awarded against the Ceding Company as a result of any act, omission or course of
conduct committed solely by the Ceding Company, its agents or representatives in
connection with claims under this Agreement, nor for any legal fees or expenses
incurred in the defense of such claims.
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ARTICLE 10 - RETENTION LIMIT CHANGES
If the Ceding Company changes its retention limits as shown in Exhibit A (A.1),
it will provide the Reinsurer with prompt written notice of the intended
changes.
A change to the Ceding Company's retention limits will not affect policies
reinsured under this Agreement except as specifically provided elsewhere in this
Agreement. Furthermore, unless agreed between the parties, an increase in the
Ceding Company's retention limit will not increase the Automatic Binding Limits.
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ARTICLE 11 - RECAPTURE
11.1 RECAPTURE ELIGIBILITY REQUIREMENTS
Whenever the Ceding Company increases its Maximum Retention Per Life as set
forth in Exhibit A (A.1) the Ceding Company will notify the Reinsurer of its
intent to recapture to the new retention limits. If the Ceding Company has
maintained its Maximum Retention Per Life for the plan and the insured's issue
age, sex, and mortality classification, it may apply its increased retention
limits to reduce the amount of reinsurance in force as follows:
a. the Ceding Company must give the Reinsurer ninety (90) days written
notice prior to its intended date of the commencement of recapture;
and
b. the reduction of reinsurance on affected policies will become
effective on the policy anniversary date immediately following the
notice of election to recapture; however, no reduction will be made
until a policy has been in force for at least twenty (20) years, for
policies where the corporate maximum dollar retention was held at
issue, up to the then current increased retention; and
c. if any policy reinsured on the life is recaptured, all policies
reinsured on the life that are eligible for recapture under the
provisions of this Article must be recaptured up to the Ceding
Company's new Maximum Retention Per Life in a consistent manner, and
the Ceding Company must increase its total amount of insurance on
each reinsured life. The Ceding Company may not revoke its election
to recapture for policies becoming eligible at future anniversaries;
and
d. no recapture will be made unless the Ceding Company retained its
corporate maximum dollar limit of retention for the plan, age and
mortality rating at the time the policy was issued. No recapture
will be allowed in any class of fully reinsured business nor in any
classes of risks for which the Ceding Company established special
retention limits less than the Ceding Company's Maximum Retention
Per Life for the plan, age, and mortality rating at the time the
policy was issued.
If portions of a policy reinsured under this Agreement have been reinsured with
more than one Reinsurer, the Ceding Company must allocate the reduction in
reinsurance so that the amount reinsured by each Reinsurer after the reduction
is proportionately the same as if the new Maximum Retention Per Life had been in
effect at the time of issue. Recapture is not available due to any change in the
financial condition of the Reinsurer except insolvency.
The amount of reinsurance eligible for recapture is based on the Reinsured Net
Amount at Risk as of the date of recapture. For a policy issued as a result of
conversion, the recapture terms of the reinsurance agreement covering the New
Policy will apply, and the duration for the purpose of recapture will be
measured from the issue dateof the Original Policy.
If there is a reinsured waiver of premium claim in effect when recapture takes
place, the Reinsurer will continue to pay its share of the waiver claim until it
terminates. The Reinsurer will not be liable for any other benefits, including
the basic life risk, that are eligible for recapture. All such eligible benefits
will be recaptured as if there were no waiver claim in effect.
17
After the effective date of recapture, the Reinsurer will not be liable for any
benefits on reinsured policies or portions of such reinsured policies eligible
for recapture that the Ceding Company has overlooked.
11.2 INCREASES IN FIRST DOLLAR QUOTA SHARE RETENTION
Whenever the Ceding Company increases its first dollar Quota Share Retention for
New Business as set forth in Exhibit A (A.1.b), recapture will not be allowed
under this Agreement unless by written consent of the Reinsurer.
18
ARTICLE 12 - GENERAL PROVISIONS
12.1 CURRENCY
All payments and reporting by all parties under this Agreement will be made in
United States dollars.
12.2 PREMIUM TAX
The Reinsurer will not reimburse the Ceding Company for premium taxes.
12.3 INSPECTION OF RECORDS
The Reinsurer and the Ceding Company, or their duly authorized representatives,
will have the right to inspect original papers, records and all documents
relating to the business reinsured under this Agreement. These documents will be
made available during normal office hours to a representative of either company
who will be named in advance; notification of such visits will normally be given
two (2) weeks in advance and even in urgent cases at least forty-eight (48)
hours in advance.
12.4 FORMS, MANUAL, ISSUE RULES AND CLAIMS PRACTICES
The Ceding Company affirms that its underwriting guidelines, issue rules, policy
forms and claims practices and procedures applicable to the reinsured policies
and in use as of the Effective Date of this Agreement, have been supplied to the
Reinsurer.
The Ceding Company will promptly notify the Reinsurer of any proposed Material
Changes in its underwriting guidelines, issue rules, policy forms and claims
practices and procedures. This Agreement will not extend to policies issued
pursuant to a Material Change unless the Reinsurer has consented in writing to
accept policies subject to the Material Change.
It is the Ceding Company's responsibility to ensure that its practice and
applicable forms are in compliance with current Medical Information Bureau (MIB)
guidelines.
12.5 ANTI-MONEY LAUNDERING
The Reinsurer and Ceding Company have established and maintain policies and
procedures to comply with applicable laws and regulations relating to anti-money
laundering and anti-terrorism financing activities including, without
limitation, the U.S.A. Patriot Act, the lists promulgated or maintained by the
United States Department of Treasury naming specially designated nationals or
blocked persons, and any other laws, regulations, executive orders or similar
actions that impose sanctions or prohibit or restrict transactions or relations
with designated persons, entities, organizations or governments.
12.6 INTEREST RATE FOR BALANCES IN DEFAULT
The Reinsurer reserves the right to charge interest at the prime rate plus two
percent (2%) as stated in the Wall Street Journal on the 1st business day in
January prior to the due date of the premium when:
a. renewal premiums are not paid within sixty (60) days of the due
date; or
b. premiums for New Business are not paid within one hundred twenty
(120) days of the date the policy is issued.
19
ARTICLE 13 - DAC TAX
The Ceding Company and the Reinsurer hereby agree to the following, pursuant to
Section 1.848-2(g)(8) of the Income Tax Regulation issued December 1992, under
Section 848 of the Internal Revenue Code of 1986:
a. the term "party" refers to either the Ceding Company or the
Reinsurer, as appropriate;
b. the terms used in this Article are defined by reference to
Regulation Section 1.848-2, effective December 29, 1992;
c. the party with the net positive consideration for this Agreement for
each taxable year will capitalize specified policy acquisition
expenses with respect to this Agreement without regard to the
general deductions limitation of Section 848(c)(1);
d. all parties agree to exchange information pertaining to the amount
of net consideration under this Agreement each year to ensure
consistency, or as otherwise required by the Internal Revenue
Service;
e. the Reinsurer will submit a schedule to the Ceding Company by April
1 of each year of its calculation of the net consideration for the
preceding calendar year. This schedule of calculations will be
accompanied by a statement stating that the Reinsurer will report
such net consideration in its tax return for the preceding calendar
year;
f. the Ceding Company may contest such calculation by providing an
alternative calculation to the Reinsurer by May 1 of the year
following the end of the taxable year. If the Ceding Company does
not notify the Reinsurer by May 1, the new considerations reported
in the respective tax returns will be the value as defined in Item
(e) above;
g. if the Ceding Company submits its alternative calculation, the
parties will act in good faith to reach an agreement on the correct
amount within thirty (30) days of the date the Ceding Company
submits its alternative calculation. If the Ceding Company and the
Reinsurer reach agreement on an amount of the net consideration,
each party shall report such amount in their respective tax returns
for the previous calendar year; and
h. the Ceding Company and the Reinsurer represent and warrant that they
are subject to United States taxation under either Subchapter L or
Subpart F of Part III of Subchapter N of the Internal Revenue Code
of 1986, as amended.
20
ARTICLE 14 - OFFSET
Any debts or credits, in favor of or against either the Reinsurer or the Ceding
Company with respect to this Agreement or any other reinsurance agreement
between the parties, are deemed mutual debts or credits and may be offset, and
only the balance will be allowed or paid.
The right of offset will not be affected or diminished because of the insolvency
of either party.
21
ARTICLE 15 - INSOLVENCY
15.1 INSOLVENCY OF A PARTY TO THIS AGREEMENT A party to this Agreement will be
deemed insolvent when it:
a. applies for or consents to the appointment of a receiver,
rehabilitator, conservator, liquidator or statutory successor of its
properties or assets;
b. is adjudicated as bankrupt or insolvent;
c. files or consents to the filing of a petition in bankruptcy, seeks
reorganization to avoid insolvency or makes formal application for
any bankruptcy, dissolution, liquidation or similar law or statute;
or
d. becomes the subject of an order to rehabilitate or an order to
liquidate as defined by the insurance code of the jurisdiction of
the party's domicile.
15.2 INSOLVENCY OF THE CEDING COMPANY
In the event of the insolvency of the Ceding Company, all reinsurance payments
due under this Agreement will be payable directly to the liquidator,
rehabilitator, receiver, or statutory successor of the Ceding Company, without
diminution because of the insolvency, for those claims allowed against the
Ceding Company by any court of competent jurisdiction or by the liquidator,
rehabilitator, receiver or statutory successor having authority to allow such
claims.
In the event of insolvency of the Ceding Company, the liquidator, rehabilitator,
receiver or statutory successor will give written notice to the Reinsurer of all
pending claims against the Ceding Company on any policies reinsured within a
reasonable time after such claim is filed in the insolvency proceeding. While a
claim is pending, the Reinsurer may investigate and interpose, at its own
expense, in the proceeding where the claim is adjudicated, any defense or
defenses that it may deem available to the Ceding Company or its liquidator,
rehabilitator, 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 elects to interpose a defense or defenses to any such claim, the
expense will be apportioned in accordance with the terms of this Agreement as
though such expense had been incurred by the Ceding Company.
The Reinsurer will be liable only for the amounts reinsured and will not be or
become liable for any amounts or reserves to be held by the Ceding Company on
policies reinsured under this Agreement.
This insolvency clause shall not preclude the Reinsurer from asserting any
excuse or defense to payment of this reinsurance other than the excuses or
defenses of the insolvency of the Ceding Company and the failure of the Ceding
Company's liquidator, receiver, conservator or statutory successor to pay all or
a portion of any claim.
22
15.3 INSOLVENCY OF THE CEDING COMPANY
In the event of the Reinsurer's insolvency, the Ceding Company may cancel the
Agreement for future new business and will notify the Reinsurer in writing of
its intent. The parties agree to waive the notification period for this
cancellation, and the effective date will be no earlier than the effective date
of the Reinsurer's insolvency. Upon giving written notice to the Reinsurer, the
Ceding Company may also recapture all of the inforce business reinsured by the
Reinsurer under this Agreement. In the event the Ceding Company exercises the
recapture option, the Reinsurer will refund any unearned premium.
23
ARTICLE 16 - ERRORS AND OMISSIONS
If either the Ceding Company or Reinsurer shall fail to perform an obligation
under this Agreement and such failure shall be the result of an Error on the
part of the Ceding Company or Reinsurer, such Error shall be corrected by
restoring the Ceding Company and Reinsurer to the positions they would have
occupied had no such Error occurred. If it is not possible to restore each party
to the position it would have occupied but for the Error, the parties will
endeavor in good faith to promptly resolve the situation in a manner that is
fair and reasonable, and most closely approximates the intent of the parties as
evidenced by the Agreement.
This provision shall apply only to clerical Errors relating to the
administration of reinsurance covered by this Agreement and not to the
administration of the insurance provided by the Ceding Company to its insured.
Any negligent or deliberate acts or omissions by the Ceding Company or its
agents regarding the insurance provided are the responsibility of the Ceding
Company and its liability insurer, if any, but not that of the Reinsurer.
The Ceding Company and Reinsurer mutually agree that all Errors will be
identified and corrected in an equitable manner at the earliest possible date.
24
ARTICLE 17 - ARBITRATION
17.1 GENERAL
The parties agree to act in all things with the utmost good faith. However, if
the parties cannot mutually resolve a dispute or claim, which arises out of, or
in connection with this Agreement, including formation and validity, and whether
arising during, or after the period of this Agreement, the dispute or claim will
be referred to an arbitration tribunal (a group of three arbitrators), and
settled through arbitration.
The arbitrators must have more than ten (10) years experience in the insurance
or reinsurance industry and may not be current or former directors, officers or
employees of the parties to this Agreement or their respective affiliates or
subsidiaries.
The arbitrators will base their decision on the terms and conditions of this
Agreement plus, as necessary, on the customs and practices of the insurance and
reinsurance industry rather than solely on a strict interpretation of the
applicable law. There will be no appeal from their decision, and any court
having jurisdiction of the subject matter, and the parties, may reduce the
decision to judgment.
17.2 NOTICE
To initiate arbitration, either party will notify the other party by certified
mail of its desire to arbitrate, stating the nature of the 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.
17.3 PROCEDURE
Each of the two parties will appoint one arbitrator, and these two arbitrators
will select the third arbitrator. Upon the selection of the third arbitrator,
the arbitration tribunal will be constituted, and the third arbitrator will act
as chairman of the tribunal.
If either party fails to appoint an arbitrator within sixty (60) days after the
other party has given notice of appointing an arbitrator, then the American
Arbitration Association will appoint an arbitrator for the party that has failed
to do so. The party that has failed to appoint an arbitrator will be responsible
for all expenses levied by the American Arbitration Association for such
appointment.
Should the two arbitrators be unable to agree on the choice of the third
arbitrator, then the American Arbitration Association will appoint the third
arbitrator. All expenses levied by the American Arbitration Association for such
appointment shall be borne equally by each party to this Agreement.
The tribunal may in its sole discretion make orders and directions as it
considers to be necessary for the final determination of the matters in dispute.
Such orders and directions may be necessary with regard to pleadings, discovery,
inspection of documents, examination of witnesses and any other matters relating
to the conduct of the arbitration. The tribunal will have the widest discretion
permissible under the law, and practice of the place of arbitration, when making
such orders or directions.
17.4 ARBITRATION COSTS
All costs of the arbitration will be determined by the tribunal, which may take
into account the law and practice of the place of arbitration, and in what
manner arbitration costs will be paid, and by whom.
17.5 SITE OF ARBITRATION
The site of arbitration will be St. Louis, Missouri, USA.
17.6 ARBITRATION SETTLEMENT
The award of the tribunal will be in writing and binding upon the parties.
25
ARTICLE 18 - DURATION OF AGREEMENT
This Agreement is indefinite as to its duration. The Ceding Company or the
Reinsurer may terminate this Agreement with respect to reinsurance of newly
issued policies by giving ninety (90) days written notice of termination to the
other party, sent by certified mail. The first day of the notice period is
deemed to be the date the document is postmarked.
During the notification period, the Ceding Company will continue to cede and the
Reinsurer will continue to accept policies covered under the terms of this
Agreement. Reinsurance coverage on all policies reinsured under this Agreement
will remain in force until the termination or expiry of the policies or until
the contractual termination of reinsurance under the terms of this Agreement,
whichever occurs first.
26
ARTICLE 19 - REPRESENTATIONS AND WARRANTIES
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 will promptly notify the other if it is subsequently financially impaired.
The Reinsurer has entered into this Agreement in reliance upon the Ceding
Company's representations and warranties. The Ceding Company affirms that it has
and will continue to disclose all matters material to this Agreement. Examples
of such matters are a change in underwriting or issue practices or philosophy, a
change in underwriting or claims management personnel, or a change in the Ceding
Company's ownership or control.
The Ceding Company affirms that the underwriting, administration and claims
practices it employs are consistent with the customary and usual practices of
the insurance industry as a whole. Should the Ceding Company engage in
exceptional or uncustomary practices, it will inform the Reinsurer of such
action and obtain its written consent before ceding any policies issued under
such exceptional or uncustomary practices to the Reinsurer under this Agreement.
27
ARTICLE 20 - CONFIDENTIALITY
20.1 PRIVACY
The Reinsurer agrees to treat Customer Information provided by the Ceding
Company as confidential, as prescribed under Federal and State laws and
regulations related to privacy. Customer Information includes, but is not
limited to, medical, financial, and other personal information about proposed,
current, and former policyowners, insureds, applicants, and beneficiaries of
policies issued by the Ceding Company. The Reinsurer may disclose such
information to its retrocessionaires as necessary to perform its internal
risk-management functions and to comply with retrocessionaire requirements. The
Reinsurer may also disclose such information to its external auditors as
necessary to comply with audit requirements. The Reinsurer will take reasonable
steps to assure such outside parties maintain the confidentiality of Customer
Information.
The Reinsurer will furnish to the Ceding Company a copy of The Reinsurer's
privacy policy upon request.
20.2 PROPRIETARY INFORMATION
(a) The Ceding Company and The Reinsurer acknowledge that compliance
with the terms of this agreement requires that they exchange
Proprietary Information with each other.
(b) Proprietary Information includes, but is not limited to, business
plans, trade secrets, experience studies, underwriting manuals,
guidelines and decisions, applications, policy forms, quote terms,
actuarial data and assumptions, valuations, financial condition, and
the specific terms and conditions of this agreement.
(c) Proprietary Information will not include information that:
(i) is or becomes available to the general public other than as a
result of disclosure by the party receiving the information (
hereinafter the "Recipient");
(ii) is developed independently by the Recipient;
(iii) is acquired by the Recipient from a third party that is not
known by the Recipient to be bound to keep the information
confidential; or was already within the possession of the
Recipient, and not subject to a confidentiality agreement,
prior to being furnished by the other party.
The Reinsurer and the Ceding Company shall hold all Proprietary Information
received from the other party in confidence and will not disclose such
information except to their own directors, officers, employees, affiliates, and
advisors (collectively the "Representatives") who need to know such information
in connection with the proper execution of this agreement. The Reinsurer and the
Ceding Company shall inform all Representatives of the confidentiality of the
Proprietary Information and will direct such Representatives to treat the
information accordingly.
The Reinsurer may disclose Proprietary Information to its retrocessionaires or
MIB as necessary to perform its internal risk-management functions and to comply
with retrocessionaire requirements. The Ceding Company or The Reinsurer may
disclose Proprietary Information to its external auditors as necessary to comply
with audit requirements. The parties will take reasonable steps to assure such
outside parties maintain the confidentiality of such Proprietary Information.
Either party may disclose Proprietary Information when legally compelled to do
so. In such event, the party so compelled will provide the other party with
prompt notice prior to disclosure so that the other party may seek an
appropriate remedy.
The provisions of this Article survive for two years beyond the termination of
the last in force policy reinsured under this Agreement.
28
ARTICLE 21 - DEFINITIONS
AUTOMATIC - A reinsurance agreement under which the Reinsurer is obligated to
accept or assume risks that meet certain specific criteria based on the Ceding
Company's underwriting.
AUTOMATIC BINDING LIMIT - The amount specified in Exhibit C used to calculate
the maximum Reinsurance Death Benefit that may be ceded as Automatic
reinsurance.
CONDITIONAL RECEIPT - A provision included in some life insurance policies
providing coverage from the date of the application to the date at which the
policy is either issued or declined.
EFFECTIVE DATE OF THIS AGREEMENT - The date on which this Agreement becomes
binding on the Ceding Company and the Reinsurer. Policies with an issuedate on
or after this date are eligible for reinsurance coverage under this Agreement.
ERROR - A clerical mistake or oversight made inadvertently and excludes acts of
judgment and all other forms of intentional decision.
EXTRA CONTRACTUAL OBLIGATIONS - Damages awarded by a court against an insurer
that go beyond the coverage provided by the policy, typically for bad faith in
dealing with the insured or beneficiary.
FACULTATIVE - Reinsurance under which the Ceding Company has the option
(faculty) of submitting and the Reinsurer has the option of accepting or
declining individual risks.
FULL RETENTION - The initial face amount held by the Ceding Company shall be
equal to the amount on their standard published retention schedule considering
issue age, rating and place of residence. The amount to be retained considers
all in force policies as of the date of application date on that life.
INITIAL DEATH BENEFIT - The face amount of the Original Policy on the date of
issue.
JUMBO LIMIT - The maximum amount of coverage available on an individual life for
Automatic reinsurance purposes. This amount includes all coverage in force, any
coverage to be replaced and amounts applied for in all companies. If such
insurance exceeds the limit, the Ceding Company must submit the risk to the
Reinsurer for Facultative review.
MATERIAL CHANGE - A change that is likely to impact the Reinsurer's financial
experience under this Agreement or would cause the Reinsurer to alter or revise
a risk classification or underwriting recommendation, reconsider or adjust
reinsurance pricing, or take similar actions.
MAXIMUM RETENTION PER LIFE - The maximum amount of risk that the Ceding Company
may hold on an individual insured according to their published retention
schedule.
NEW BUSINESS - Policies on which the Ceding Company (1) has obtained the same
new underwriting information it would obtain in absence of the Original Policy,
(2) pays the same commissions in the first year that it would have paid in
absence of the Original Policy and (3) the suicide and contestable period
provisions are as long as those contained in other new policies issued by the
Ceding Company.
29
NEW PLAN - The plan to which the Original Policy is converted, exchanged or
replaced unless state regulations prohibit new suicide or contestible periods on
the exchanged policy.
NEW POLICY - The policy issued resulting from a conversion, exchange or
replacement of the Original Policy.
ORIGINAL POLICY - An insurance contract issued by the Ceding Company on an
insured that is reinsured under this Agreement.
POLICY DEATH BENEFIT - The death benefit of a policy on the reinsurance premium
renewal date.
POLICY NET AMOUNT AT RISK - On the reinsurance premium renewal date, the Policy
Death Benefit less either the terminal reserve or, in the case of interest
sensitive policies, the accumulation account or cash value on the policy, such
difference taken to the nearest dollar. The terminal reserve or cash value shall
be disregarded if a policy is on either a level term plan of twenty (20) years
or less or on a decreasing term plan. The basis for determining the Policy Net
Amount at Risk may be modified with the consent of the Ceding Company and
Reinsurer without the need for a formal amendment of the Agreement. (Our methods
of calculating the NAR vary by product. Do you want to put the details in the
treaty or does the last sentence of this paragraph eliminate the need to do
that?)
PROFESSIONAL ATHLETE - A person who participates in a professional individual or
team sport and receives substantially all of their income (including
endorsements) for compensation in that sport.
PROPORTIONATE SHARE - The percentage derived by dividing the Reinsured Net
Amount at Risk by the Policy Net Amount at Risk.
QUOTA SHARE RETENTION - Specified percentage retention on every policy up to the
Full Retention on a life.
REINSURANCE DEATH BENEFIT - The Initial Death Benefit less the Retention on the
policy times the percentage of Automatic reinsurance ceded to the Reinsurer as
specified in Exhibit C. For Facultative reinsurance, the Reinsurance Death
Benefit is that amount of the Initial Death Benefit for which the Ceding Company
accepts the Reinsurer's offer to reinsure.
REINSURED NET AMOUNT AT RISK - The percentage of Automatic Reinsurance ceded to
the Reinsurer as specified in Exhibit C or the percentage ceded as modified
pursuant to the Facultative Reinsurance process times the remainder of (1) the
Policy Net Amount at Risk less (2) the Retention on the policy.
RETENTION - The amounts specified in Exhibit A that is held by the Ceding
Company and its subsidiaries at their own risk on a life without the benefit of
proportional reinsurance. In calculating the Retention, the sum retained by the
Ceding Company on the life and in force as of the date of issue of the policy
shall be taken into account.
TEMPORARY INSURANCE AGREEMENT - Legal agreement between an insurer and a
proposed insured that provides a guaranteed amount of temporary life insurance
coverage for a specific period of time, usually the underwriting period.
30
ULTIMATE AMOUNT - The projected maximum Policy Death Benefit that a policy could
achieve based on reasonable assumptions made about the operation of certain
characteristics of the policy form.
YEARLY RENEWABLE TERM (YRT) - A form of life reinsurance under which the risks,
but not the permanent plan reserves, are transferred to the Reinsurer for a
premium that varies each year with the Reinsured Net Amount at Risk and the
duration from issue.
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ARTICLE 22- EXECUTION
This Agreement is effective as of the month, day and year stated on the cover
page of this Agreement, and applies to all eligible policies with application
dates on or after such date. This Agreement has been made in duplicate and is
hereby executed by all parties.
NATIONAL LIFE INSURANCE COMPANY
By: By:
---------------------------------- ----------------------------------
(Signature) (Signature)
Title: Title: Vice President
-------------------------------
Date: Date:
-------------------------------- --------------------------------
Location: Location:
---------------------------- ----------------------------
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EXHIBIT A - RETENTION LIMITS OF THE CEDING COMPANY
A.1 LIFE INSURANCE
A. LIFE INSURANCE
Maximum Limits of Retention Per Life Under This and All Other
Agreements is $2,000,000.
B. FIRST DOLLAR QUOTA SHARE - CEDING COMPANY'S QUOTA SHARE PERCENTAGE
The Ceding Company will retain 10% of each policy up to the above
maximum dollar retention limits.
33
EXHIBIT B - BUSINESS COVERED
The business reinsured under this Agreement is defined as follows:
Policies issued on the business identified below may qualify for reinsurance if
the issue date for the policy is on or after the Effective Date of this
Agreement.
Effective November 1, 2005
INCLUDED PLANS:
NaviTrak
NLG120
VariTrak
Asset Builder
Summit Plan
Execu-Choice
BENEFITS & RIDERS:
Terminal Illness (ABR)
Chronic Illness (ABR)
Additional Insurance Option (AIO)
Exchange to New Insured Rider (ENIR)
Flex Term Rider
Automatic Insurance Rider
Accelerated Care Rider (ACR)
Automatic Protection Benefit Rider (APB)
Adds Rider
34
EXHIBIT C - BINDING LIMITS
C.1 REINSURER'S SHARE
The Reinsurer's share will be 22.22% of the total ceded amount on each policy on
a first dollar quota share basis. This amount will not exceed the Reinsurer's
share of the maximum Automatic Binding Limits specified in Exhibit C.2.
C.2 AUTOMATIC BINDING LIMITS
a. Life
Automatic Binding Limits to the Reinsurer is ten times the Ceding
Company's retention Limit 4 Table Program - $5,000,000
*The (pool) maximum Automatic Binding amounts above include the
Ceding Company's retention.
b. Professional Athletes will not be covered on an Automatic basis.
C.3 JUMBO LIMITS
The Ceding Company will not cede any risk Automatically if the total amount in
force and applied for on the life with all insurance companies, including any
amount to be replaced, exceeds the applicable amounts shown below.
a. Life: $35,000,000
(including any gradation by age and/or mortality rating, if
applicable)
C.5 AGE LIMITS
Auto Quota Share - Ages 0 - 80
4 Table Program - Ages 0-75
35
EXHIBIT D - REINSURANCE PREMIUMS
D.1 BASE PLAN PARAMETERS
Plans covered under this Agreement on either an Automatic or Facultative basis
will be reinsured on a YRT basis with the Reinsurer participating only in
mortality risks (not cash values, loans, dividends or other features specific to
permanent policies). The mortality risk shall be the net amount at risk on that
portion of the policy which is reinsured with the Reinsurer.
Reinsurance premiums will be determined according to the amount reinsured with
the Reinsurer per insured life as follows. The life reinsurance premium will be
calculated in the case of life risks, by multiplying the appropriate life
premium rate per thousand (1000), from the attached Rate Schedule labeled below,
for the age of the insured, at the beginning of the policy year, by the Policy
Net Amount at Risk reinsured for that policy year, multiplied by the applicable
pay percentage as shown below. The same procedure will apply for single premium
policies and for paid up policies.
Reinsurance premiums will be the annual premium rates as labeled below,
multiplied by the following percentages.
PAY
PERCENTAGE
----------
AGES 0-60 AGES 61-70 AGES 71+
RATE UNDERWRITING POLICY POLICY POLICY
PLANS SCHEDULE CLASS YEARS 1+ YEARS 1+ YEARS 1+
----- -------- ----- -------- -------- --------
All Plans 1 Elite Non Smoker xx xx xx
Preferred Non Smoker xx xx xx
Standard Non Smoker xx xx xx
Preferred Smoker xxx xxx xxx
Standard Smoker xxx xxx xxx
NOTE: Juvenile ages 0-19 will be treated as Standard Non-Smoker
D.2 AGE BASIS
Age Nearest Birthday
D.3 POLICY FEES
The Reinsurer will not participate in any policy fees.
D.4 SUBSTANDARD RATINGS
For policies not included in the 4 Table Program (Table Shaving), premiums will
be based on the standard rate increased by an extra 25% per table of assessed
rating and pay percentages are the same as those for standard life coverage.
D.5 FLAT EXTRAS
The total premium remitted to the Reinsurer will include the flat extra premium
minus the allowances shown below.
36
----------------------------------------------------------------------------
TYPE OF FLAT EXTRA PREMIUM FIRST YEAR RENEWAL
----------------------------------------------------------------------------
Temporary (1-5 Years) Xx% Xx%
----------------------------------------------------------------------------
Permanent (6 Years & Greater) xxx% Xx%
----------------------------------------------------------------------------
D.6 4 TABLE PROGRAM
Reinsurance premiums will be the annual premium rates as labeled below,
multiplied by the following percentages.
RATE UNDERWRITING PAY
PLANS SCHEDULE CLASS PERCENTAGE
----- -------- ----- ----------
All Plans Except 1 Non Smoker XX%
Asset Builder Smoker XXX%
D.7 RIDERS AND BENEFITS
Terminal Illness ABR
Chronic Illness ABR
Additional Insurance Option (AIO)
Exchange to New Insured Rider (ENIR)
Adds Rider
Flex Term Rider
Automatic Increase Rider
Accelerated Care Rider (ACR)
Automatic Protection Rider (APB)
The premiums for these riders are the same as the original policy to which they
are attached, point-in-scale.
D.8 TERM CONVERSIONS
Any term policy of Life Insurance Company of the Southwest or the Ceding Company
(even if not reinsured by the Reinsurer) converting to a policy covered under
this Agreement will be subject to all the terms and conditions herein.
Reinsurance premiums for the new policy will be on a point-in-scale basis.
D.9 AUTOMATIC INCREASE OPTION
Exercises of the automatic increase option on pension policies shall be treated
as new issues.
37
EXHIBIT D - RATE SCHEDULE 1
38
EXHIBIT F - SELF-ADMINISTERED REPORTING
The Ceding Company will self-administer all reinsurance reporting. The Ceding
Company will send the Reinsurer the reports listed below monthly.
F.1 REPORTING REQUIREMENTS
A. NEW BUSINESS - This report will include new issues only, the first
time the policy is reported to the Reinsurer. Automatic and
Facultative business will be identified separately.
B. FIRST YEAR, OTHER THAN NEW BUSINESS - This report will include
policies previously reported on the New Business detail and still in
their first duration, or policies involved in first year premium
adjustments.
C. RENEWAL YEAR - This report will include all policies with renewal
dates within the accounting period.
D. CHANGES AND TERMINATIONS - This report will include all policies
affected by a change during the current reporting period. Type of
change or termination activity must be clearly identified for each
policy. The Ceding Company will identify the following transactions
either by separate listing or unique transaction codes:
Terminations, Reinstatements, Changes, Conversions, and
Replacements. For Conversions and Replacements, the Ceding Company
will report the Original Policy date, as well as the current policy
date.
E. IN FORCE - A detailed report listing the data shown in section F.3
(b) of this Exhibit for each policy in force.
F. POLICY EXHIBIT - Transactions will be summarized for activity during
the current period and on a year-to-date basis, reporting the number
of policies and Reinsured Net Amount at Risk. An example is shown in
section F.4 of this Exhibit.
G. ACCOUNTING INFORMATION - Premiums and allowances will be summarized
for Life coverage, Benefits and Riders by the following categories:
Automatic and Facultative, First Year and Renewals. An example is
shown in section F.5 of this Exhibit.
F.2 BUSINESS REPORTED ELECTRONICALLY
If reporting will be done electronically, the Ceding Company will send the
Reinsurer a copy of their current file layout(s) that specifies the columns in
the order they appear in the file along with the data type (alpha, numeric) and
the exact length of each field. Also a data dictionary will be provided that
states a brief definition of each field contained in the file(s), as well as a
listing of valid values for fields where applicable and an explanatory key to
interpret plan codes, treaty pointers, underwriting and smoking class codes.
Future changes will be promptly communicated to the Reinsurer in writing.
39
F.3 STATEMENT SPECIFICATIONS
a. The following information should appear on the transaction
statements for each benefit to be reinsured and for each insured,
including all insureds on a joint policy:
Ceding Company identifier
Policy number
Policy issue date
Reinsurance effective date
Policy application date, if used to determine treaty eligibility
Transaction type code (New Business, Renewal, Conversion,
Termination, etc.)
Business Source/Issue type code (New Business, Continuation,
Re-entry, etc.)
Effective date of any policy change, reissue or termination
Name of each insured
Date of birth of each insured
Issue age of each insured
Gender of each insured
Mortality rating of each insured
Underwriting classification of each insured
Smoking class of each insured
Automatic or Facultative indicator
YRT indicator
Plan code
Treaty pointer
Original face amount of the policy
Amount ceded to the Reinsurer
Amount of premium being paid, separated for supplementary benefits
Amount of reinsurance premium allowances, if any
Policy fee, if any
Flat extra premium and number of years payable
Joint policy indicator
b. The Ceding Company will send the Reinsurer an In force report. The
following information should appear on the In force file for each
benefit to be reinsured and for each insured, including all insureds
on a joint policy:
Ceding Company identifier
Policy number
Policy issue date
Reinsurance effective date
Policy application date, if used to determine treaty eligibility
Business Source/Issue type code (New Business, Continuation,
Re-entry, etc.)
Name of each insured
Date of birth of each insured
Issue age of each insured
Gender of each insured
Underwriting classification of each insured
Smoking class of each insured
Mortality rating of each insured
Automatic or Facultative indicator
YRT indicator
Original face amount of the policy
Amount ceded to the Reinsurer
Joint policy indicator
40
F.4 POLICY EXHIBIT
The Ceding Company will send the Reinsurer summary policy exhibit information
similar to the following example:
-------------------------------------------------------------------------
NUMBER OF REINSURANCE
POLICY SUMMARY CLASSIFICATION POLICIES AMOUNT
-------------------------------------------------------------------------
In force as of last report 1,000 $800,000,000
-------------------------------------------------------------------------
New Issues 10 1,000,000
-------------------------------------------------------------------------
Reinstatements 1 100,000
-------------------------------------------------------------------------
Increases 3 500,000
-------------------------------------------------------------------------
Deduct by:
-------------------------------------------------------------------------
Death 1 300,000
-------------------------------------------------------------------------
Lapse 6 500,000
-------------------------------------------------------------------------
Decreases 2 100,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In force as of current report 1,005 800,700,000
-------------------------------------------------------------------------
41
F.5 ACCOUNTING SUMMARY
The Reinsurer requires the Ceding Company to send summary accounting information
similar to the following example with each statement:
Net Premium
Premiums Allowance Totals Total Due
-----------------------------------------------------------------------------------------------------------------
First Year Base $2,300.00 0.00 $2,300.00 Cash Value 0.00
Total
ADB 100.00 0.00 100.00 Benefits/Claims 0.00
Waiver 100.00 0.00 100.00 Policy Fee 0.00
Other 0.00 0.00 0.00 Dividend 0.00
Prem Tax 0.00
Total $2,500.00 0.00 $2,500.00 Net Premium $2,500.00 $2,500.00
Renewal Total Base $25,000.00 0.00 $25,000.00 Cash Value 0.00
ADB 1,000.00 0.00 1,000.00 Benefits/Claims 0.00
Waiver 1,500.00 0.00 1,500.00 Policy Fee 0.00
Other 0.00 0.00 0.00 Dividend 0.00
Prem Tax 0.00
Total $27,500.00 0.00 $27,500.00 Net Premium $27,500.00 $27,500.00
First Year &
Renewal Base $27,300.00 0.00 $27,300.00 Cash Value 0.00
ADB 1,100.00 0.00 1,100.00 Benefits/Claims 0.00
Waiver 1,600.00 0.00 1,600.00 Policy Fee 0.00
Other 0.00 0.00 0.00 Dividend 0.00
Prem Tax 0.00
Total $30,000.00 0.00 $30,000.00 Net Premium $30,000.00 $30,000.00
-----------------------------------------------------------------------------------------------------------------
42
EXHIBIT G - APPLICATION FOR FACULTATIVE REINSURANCE
________________________________________________________________________________
CEDING COMPANY FACSIMILE NUMBER
________________________________________________________________________________
UNDERWRITER E-MAIL TELEPHONE NUMBER
________________________________________________________________________________
BY DATE
________________________________________________________________________________
PROPOSED INSURED (LAST NAME) (FIRST) (MIDDLE) DATE OF BIRTH AGE
________________________________________________________________________________
SEX STATE OF BIRTH STATE OF RESIDENCE OCCUPATION
|_| M |_| F
________________________________________________________________________________
BASIS |_| AUTOMATIC NUMBER OF PAGES
|_| NEAREST BIRTHDAY |_| YRT |_| FACULTATIVE
|_| LAST BIRTHDAY |_| CO-INS
________________________________________________________________________________
__________________________________________________
LIFE WAIVER ADB
________________________________________________________________________________
PREVIOUS IN FORCE
________________________________________________________________________________
RETENTION
________________________________________________________________________________
CURRENT APPLICATION
________________________________________________________________________________
PROPOSED RETENTION
________________________________________________________________________________
REPLACEMENT?
________________________________________________________________________________
REINSURANCE APPLIED FOR
________________________________________________________________________________
RATING
________________________________________________________________________________
YES NO
________________________________________________________________________________
DOES APPLICATION REPRESENT EXERCISE OF A GUARANTEED
INSURABILITY OPTION OR ANY OTHER SPECIAL BENEFIT?
________________________________________________________________________________
WILL POLICY CONTAIN AN AVIATION EXCLUSION PROVISION?
________________________________________________________________________________
IS REINSURANCE BEING SUBMITTED ELSEWHERE?
IF YES, WHERE:
________________________________________________________________________________
IN EXCESS OF JUMBO?
________________________________________________________________________________
SMOKING/TOBACCO STATUS
|_| NO TOBACCO |_| NONSMOKER
|_| TOBACCO |_| SMOKER
________________________________________________________________________________
REMARKS
________________________________________________________________________________
REFER TO
________________________________________________________________________________
KEEP TOGETHER WITH
|_| JOINT LIFE |_| GROUP/BUSINESS/FAMILY
NAME DATE OF BIRTH RELATIONSHIP
________________________________________________________________________________
PLEASE INDICATE REASON SUBMITTED AND CODES YOUR COMPANY IS REPORTING TO MIB
________________________________________________________________________________
________________________________________________________________________________
REQUIREMENTS
ATTACHED OUTSTANDING
APP |_| |_|
EXAM |_| |_|
ECG |_| |_|
XRAY |_| |_|
BLOOD PROF |_| |_|
HIV |_| |_|
HOS |_| |_|
ORAL FLUID |_| |_|
APS |_| |_|
DR: _________________________________
APS |_| |_|
DR: _________________________________
APS |_| |_|
DR: _________________________________
INSP/PHI |_| |_|
BBIR |_| |_|
FINANCIAL |_| |_|
________________________________________________________________________________
43
EXHIBIT H - ALLOCATION RULES FOR PLACEMENT OF FACULTATIVE CASES
The Ceding Company will place the case with the Reinsurer having the first in
best offer.
44
00000-00-00
ADDENDUM
to the
AUTOMATIC/FACULTATIVE YRT REINSURANCE AGREEMENT EFFECTIVE NOVEMBER 1, 2005
between
NATIONAL LIFE INSURANCE COMPANY, MONTPELIER, VERMONT
(hereinafter called the "Ceding Company")
and
REINSURER
(hereinafter called the "Reinsurer")
THIS ADDENDUM IS EFFECTIVE OCTOBER 1, 2005
I. ADDITION OF SURVIVORSHIP VUL PLAN AND POLICY SPLIT OPTION RIDER,
CONTINUING COVERAGE RIDER, ESTATE PRESERVATION RIDER, ENHANCED DEATH
BENEFIT RIDER, ADDITIONAL PROTECTION BENEFIT RIDER AND AUTOMATIC INCREASE
RIDER
As of the effective date of this Addendum, the attached Exhibit B,
Business Covered is hereby added to this Agreement which now includes the
above Plan and Riders.
II. The attached Exhibit A, Retention Limits of the Ceding Company is hereby
added to this Agreement which now includes the limits for the above Plan
and Riders.
III. The attached Exhibit C, Binding Limits is hereby added to this Agreement
which now includes the limits for the above Plan and Riders.
IV. The attached Exhibit D, Reinsurance Premiums is hereby added to this
Agreement which now includes the pay percentages for the above Plan and
Riders. Rate Schedule 2 is hereby added to this Agreement.
V. All provisions of the Automatic/Facultative YRT Reinsurance Agreement not
specifically modified herein remain unchanged.
IN WITNESS WHEREOF, all parties have executed this Addendum in duplicate as
follows:
NATIONAL LIFE INSURANCE COMPANY
By:__________________________________ By:______________________________
(Signature) (Signature)
Title:_______________________________ Title: Vice President
Date:________________________________ Date:____________________________
Location:____________________________ Location:________________________
45
EXHIBIT A - RETENTION LIMITS OF THE CEDING COMPANY
A.1 LIFE INSURANCE
A. LIFE INSURANCE
Maximum Limits of Retention Per Life Under This and All Other
Agreements is $2,000,000; overall policy limit is $2,000,000.
The Estate Preservation Rider amount is included in the initial
retention calculation. However, at the time the Estate Preservation
Rider cancels in four (4) years, the Ceding Company will not
recapture up the full retention amount and will continue to reinsure
the same percent at the time of issue.
B. FIRST DOLLAR QUOTA SHARE - CEDING COMPANY'S QUOTA SHARE PERCENTAGE
The Ceding Company will retain 10% of each policy up to the above
maximum dollar retention limits.
46
EXHIBIT B - BUSINESS COVERED
The business reinsured under this Agreement is defined as follows:
Policies issued on the business identified below may qualify for reinsurance if
the application date for the policy is on or after the Effective Date of this
Agreement.
Effective October 1, 2005
-----------------------------------
Included Plans:
-----------------------------------
Survivorship VUL
-----------------------------------
Benefits & Riders:
-----------------------------------
Policy Split Option Rider
-----------------------------------
Continuing Coverage Rider
-----------------------------------
Estate Preservation Rider
-----------------------------------
Enhanced Death Benefit Rider
-----------------------------------
Additional Protection Benefit Rider
-----------------------------------
Automatic Increase Rider
-----------------------------------
47
EXHIBIT C - BINDING LIMITS
EFFECTIVE OCTOBER 1, 2005
C.1 REINSURER'S SHARE
The Reinsurer's share will be 22.22% of the total ceded amount on each policy on
a first dollar quota share basis. This amount will not exceed the Reinsurer's
share of the maximum Automatic Binding Limits specified in Exhibit C.2.
C.2 AUTOMATIC BINDING LIMITS
a. Life
For the purpose of determining the Automatic Binding Limit a $2.50
per 1000 temporary or permanent flat extra rating will be considered
one table in determining the limits as shown below.
Effective October 1, 2005:
------------------------------------------------------------------------
ISSUE AGES (POOL) MAXIMUM*
------------------------------------------------------------------------
Both insureds - ages up to 75, standard rating $15,000,000
------------------------------------------------------------------------
One or both insureds ages 76-80, both standard rating $5,000,000
4 Table Program
------------------------------------------------------------------------
One or both insureds - ages over 80 Facultative Only
One or both insureds rated.
------------------------------------------------------------------------
Effective November 1, 2005:
------------------------------------------------------------------------
ISSUE AGES (POOL) MAXIMUM*
------------------------------------------------------------------------
Both insureds - ages up to 75, standard rating $20,000,000
------------------------------------------------------------------------
One or both insureds ages 76-80, both standard rating $15,000,000
------------------------------------------------------------------------
4 Table Program $5,000,000
------------------------------------------------------------------------
One or both insureds - ages over 80 Facultative Only
One or both insureds rated.
------------------------------------------------------------------------
*The (pool) maximum Automatic Binding amounts above include the Ceding
Company's retention per insured.
b. Professional Athletes will not be covered on an Automatic basis.
C.3 JUMBO LIMITS
The Ceding Company will not cede any risk Automatically if the total amount in
force and applied for on the life with all insurance companies, including any
amount to be replaced, exceeds the applicable amounts shown below.
Effective October 1, 2005:
Life: $25,000,000
(including any gradation by age and/or mortality rating, if applicable)
Effective November 1, 2005:
Life: $35,000,000
(including any gradation by age and/or mortality rating, if applicable)
C.4 AGE LIMITS
18 - 90 with the following exceptions:
18 - 75 for the 4 Table Program (Table Shaving)
48
EXHIBIT D - REINSURANCE PREMIUMS
EFFECTIVE OCTOBER 1, 2005
D.1 BASE PLAN PARAMETERS
Plans covered under this Agreement will be reinsured on a YRT basis with the
Reinsurer participating only in mortality risks (not cash values, loans,
dividends or other features specific to permanent policies). The mortality risk
shall be the net amount at risk on that portion of the policy which is reinsured
with the Reinsurer.
Reinsurance premiums will be determined according to the amount reinsured with
the Reinsurer per insured life as follows. The life reinsurance premium will be
calculated in the case of life risks, by multiplying the appropriate life
premium rate per thousand (1000), from the Rate Schedule labeled below, for the
age of the insured, at the beginning of the policy year, by the Policy Net
Amount at Risk reinsured for that policy year, multiplied by the applicable pay
percentage as shown below. The same procedure will apply for single premium
policies and for paid up policies.
Reinsurance premiums will be the annual premium rates as labeled below,
multiplied by the following percentages.
PAY
PERCENTAGE
RATE UNDERWRITING CLASS ISSUE AGES 0-60 ISSUE AGES 61-70 ISSUE AGES 71+
PLANS SCHEDULE POLICY POLICY POLICY
YEARS 1+ YEARS 1+ YEARS 1+
Survivorship VUL 1 Preferred Non Smoker xx% Xx% Xx%
Standard Non Smoker Xx% xx% Xx%
Preferred Smoker Xxx% Xxx% Xxx%
Standard Smoker Xxx% xxx% Xxx%
Note: Juvenile ages 18-19 will be treated as Standard Non-Smoker.
JOINT LAST SURVIVOR
Apply the above pay percentages to single life rates, then Frasierize as shown
in Rate Schedule 2. There will be a $0.12 per $1,000 minimum premium in all
years.
ONE LIFE INSURABLE
When one of the lives is uninsurable, the single life rate for the uninsurable
life will be equal to $xxx per $1000 in all years, then Frasierize as shown in
Rate Schedule 2.
D.2 AGE BASIS
Age Nearest Birthday
D.3 POLICY FEES
The Reinsurer will not participate in any policy fees.
D.4 SUBSTANDARD RATINGS
For policies not included in the 4 Table Program (Table Shaving), premiums will
be based on the standard rate increased by an extra 25% per table of assessed
rating and pay percentages are the same as those for standard life coverage.
49
D.5 FLAT EXTRAS
The total premium remitted to the Reinsurer will include the flat extra premium.
The Reinsurer shall pay an expense allowance as a percentage of the flat extra
premium as shown below.
--------------------------------------------------------------------
TYPE OF FLAT EXTRA PREMIUM FIRST YEAR RENEWAL
--------------------------------------------------------------------
Temporary (1-5 Years) Xx% Xx%
--------------------------------------------------------------------
Permanent (6 Years & Greater) xxx% Xx%
--------------------------------------------------------------------
D.6 4 TABLE PROGRAM
Reinsurance premiums will be the annual premium rates as labeled below,
multiplied by the following percentages.
---------------------------------------------------------------------
PLANS RATE SCHEDULE UNDERWRITING CLASS PAY PERCENTAGE
---------------------------------------------------------------------
Survivorship VUL 1 Non Smoker Xx%
---------------------------------------------------------------------
Smoker Xxx%
---------------------------------------------------------------------
Substandard business issued as standard due to the 4 Table Program will be
administered such that this business will be identifiable to the Reinsurer.
D.7 RIDERS AND BENEFITS
Policy Split Option Rider
Estate Preservation Rider
Enhanced Death Benefit Rider
Additional Protection Benefit Rider
Automatic Increase Rider
Individual Term Rider
The premiums for the above Riders are the same as the original policy to which
they are attached, point-in-scale (where applicable).
CONTINUING COVERAGE RIDER (EXTENDED MATURITY OPTION)
The Reinsurer will participate in the $2.50 per $1,000 charged the insured for
the Continuing Coverage Rider between the attained ages of 90 and 100, with a
20% allowance.
D.8 TERM CONVERSIONS
Any term policy of Life Insurance Company of the Southwest or the Ceding Company
(even if not reinsured by the Reinsurer) converting to a policy covered under
this Agreement will be subject to all the terms and conditions herein.
Reinsurance premiums for the new policy will be on a point-in-scale basis.
D.9 AUTOMATIC INCREASE OPTION
Exercises of the automatic increase option on pension policies shall be treated
as new issues.
50
EXHIBIT D - RATE SCHEDULE 2
1. The premiums for this business shall be calculated using the Xxxxxxx
method and the single life rates included in Rate Schedule D-1. The single
life rates shall be adjusted for substandard mortality by adding 25% per
underwriting table and any flat extra charges to the appropriate single
life rate.
2. The single life rates calculated as described in Section 1 above shall be
converted to joint last survivor rates using the methodology described in
Section 3 below.
3. Method for Calculating Joint Last Survivor Premiums
Definition of Terms:
(a) Qx,n = single life rate per thousand in duration n for an insured
whose policy was issued at issue age x
(b) Qx,y,n = joint last survivor rate per thousand in duration n for two
insureds whose policies were issued at issue ages x and y
Step 1
Calculate qx,n for each insured for durations 1 to n.
qx,n = Qx,n divided by 1000.
Step 2
Calculate px,n for each insured for durations (n-1) and n.
px,n = (1-qx,1) x (1-qx,2) x...x (1-qx,n).
Step 3
Calculate px,y,n for durations (n-1) and n.
px,y,n = px,n + py,n - ((px,n) x (py,n))
Step 4
Calculate qx,y,n for duration n. Let px,y,0 = 1.
qx,y,n = 1 - px,y,n
------
px,y,n-1
Step 5
Qx,y,n = 1000 x qx,y,n.
4. The maximum joint life premium shall not exceed $500 per $1000.
51
