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REINSURANCE AGREEMENT
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
DOVER, DELAWARE
REFERRED TO AS THE "CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
ST. LOUIS, MISSOURI
REFERRED TO AS THE "REINSURER"
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TABLE OF CONTENTS
Page
ARTICLE I GENERAL PROVISIONS 2
ARTICLE II INITIAL CONSIDERATION AND REINSURANCE PREMIUMS 8
ARTICLE III COMMISSIONS AND ALLOWANCES 11
ARTICLE IV BENEFIT PAYMENTS 17
ARTICLE V RESERVE ADJUSTMENTS 20
ARTICLE VI EXPENSE AND RISK CHARGES 22
ARTICLE VII REINSURANCE GAINS AND LOSSES 24
ARTICLE VIII LOSS CARRYFORWARD 25
ARTICLE IX EXPERIENCE REFUND 27
ARTICLE X ACCOUNTING AND SETTLEMENTS 29
ARTICLE XI DURATION AND RECAPTURE 33
ARTICLE XII TERMINAL ACCOUNTING AND SETTLEMENT 35
ARTICLE XIII REPRESENTATIONS 37
ARTICLE XIV ARBITRATION 38
ARTICLE XV INSOLVENCY 40
ARTICLE XVI EXECUTION AND EFFECTIVE DATE 41
SCHEDULE A ANNUITIES AND RISKS REINSURED 42
SCHEDULE B QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS 43
SCHEDULE C MODIFIED COINSURANCE RESERVE INVESTMENT CREDIT 46
SCHEDULE D CEDING COMPANY DATA 47
EXHIBIT A ACCOUNTS RECEIVABLE AGREEMENT
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REINSURANCE AGREEMENT
This Agreement is made and entered into by and between North American Security
Life Insurance Company (hereinafter referred to as the "Ceding Company") and
ITT Xxxxxx Life Insurance Company (hereinafter referred to as the "Reinsurer").
The Ceding Company and the Reinsurer mutually agree to reinsure on the terms
and conditions stated herein. This Agreement is an indemnity reinsurance
agreement solely between the Ceding Company and the Reinsurer, and performance
of the obligations of each party under this Agreement will be rendered solely
to the other party. In no instance will anyone other than the Ceding Company
or the Reinsurer have any rights under this Agreement, and the Ceding Company
will be and remain the only party hereunder that is liable to any insured,
policyowner or beneficiary under any annuity reinsured hereunder.
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ARTICLE I
GENERAL PROVISIONS
1. Annuities and Risks Reinsured. The Reinsurer agrees to indemnify the
Ceding Company for, and the Ceding Company agrees to reinsure with the
Reinsurer, according to the terms and conditions hereof, the portion
of the risks under the annuities described in Schedule A attached
hereto.
2. Coverages and Exclusions.
A. Only the variable annuities described in Schedule A are
reinsured under this Agreement.
B. The Reinsurer will not participate in any loans on annuities
reinsured hereunder.
3. Plan of Reinsurance. This indemnity reinsurance will be on a
modified-coinsurance basis. The Ceding Company will retain, control
and own all assets held in relation to the Modified Coinsurance
Reserve.
4. Dividends to Policyowners. The Reinsurer will have no liability to
the Ceding Company for reimbursement of, and will not reimburse the
Ceding Company for, dividends to policyowners.
5. Expenses. The Reinsurer will bear no part of the expenses incurred in
connection with the annuities reinsured hereunder, except as otherwise
provided herein.
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6. Annuity Changes. The Ceding Company must provide written notification
to the Reinsurer of any change which affects the original terms or
conditions of any annuity reinsured hereunder within fifteen (15) days
after the change takes effect. The Reinsurer will provide written
notification to the Ceding Company as to the Reinsurer's acceptance or
rejection of the change within fifteen (15) days after receipt of
notice of the change. If the Reinsurer accepts any such change, the
Reinsurer will share in any increase or decrease in the Ceding
Company's liability that results from such change in the same
proportion as the portion of the annuities reinsured hereunder. If
the Reinsurer rejects any such change, the Reinsurer's liability under
this Agreement will be determined as if no such change had occurred.
7. No Extracontractual Damages. The Reinsurer does not indemnify the
Ceding Company for, and will not be liable for, any extracontractual
damages or extracontractual liability of any kind whatsoever resulting
from fraud, oppression, bad faith, strict liability, or negligent,
reckless or intentional wrongs on the part of the Ceding Company or
its directors, officers, employees and agents. The following types of
damages are examples of damages that would be excluded from this
Agreement for the conduct described above: actual damages, damages for
emotional distress, and punitive or exemplary damages.
8. Annuity Administration. The Ceding Company will administer the
annuities reinsured hereunder and will perform all accounting for such
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annuities; provided, however, that the Reinsurer reserves the right to
participate in claims administration.
9. Inspection. At any reasonable time, the Reinsurer may inspect, during
normal business hours, at the principal office of the Ceding Company,
the original papers and any and all other books or documents relating
to or affecting reinsurance under this Agreement. The Reinsurer will
not use any information obtained through any inspection pursuant to
this Paragraph for any purpose not relating to reinsurance hereunder.
10. Taxes. The allowance for any premium taxes paid in connection with
the annuities reinsured hereunder is included in the Commissions and
Allowances as described in Article III. The Reinsurer will not
reimburse the Ceding Company for any other taxes paid by the Ceding
Company in connection with the annuities reinsured hereunder.
11. Proxy Tax Reimbursement. Pursuant to IRC Section 848, insurance
companies are required to capitalize and amortize specified policy
acquisition expenses. The amount capitalized is determined by proxy
based on a percentage of "reinsurance premiums" as defined in the IRS
regulations relating to IRC Section 848. At the Reinsurer's request,
the Ceding Company will reimburse the Reinsurer for any positive
timing cost to the Reinsurer which results from the application of IRC
Section 848 to the annuities reinsured hereunder and which the
Reinsurer considers material. At the Ceding Company's request, the
Reinsurer will reimburse the Ceding Company for the absolute value of
any negative
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timing cost to the Ceding Company which results from the application
of IRC Section 848 to the annuities reinsured hereunder and which the
Ceding Company considers material.
12. Election to Determine Specified Policy Acquisition Expenses. The
Ceding Company and the Reinsurer agree that the party with net
positive consideration under this Agreement will capitalize specified
policy acquisition expenses with respect to annuities reinsured under
this Agreement without regard to the general deductions limitation of
Section 848(c)(1) of the Internal Revenue Code of 1986, as amended.
The Ceding Company and the Reinsurer will exchange information
pertaining to the amount of net consideration under this Agreement
each year to ensure consistency. The Ceding Company will submit a
schedule to the Reinsurer by May 1 of each year showing its
calculation of the net consideration for the preceding taxable year.
The Reinsurer may contest the calculation in writing within thirty
(30) days of receipt of the Ceding Company's schedule. Any
differences will be resolved between the parties so that consistent
amounts are reported on the respective tax returns for the preceding
taxable year. This election to capitalize specified policy
acquisition expenses without regard to the general deductions
limitation is effective for all taxable years during which this
Agreement remains in effect.
13. Condition. The reinsurance hereunder is subject to the same
limitations and conditions as the annuities issued by the Ceding
Company which are reinsured hereunder, except as otherwise provided in
this Agreement.
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14. Misunderstandings and Oversights. If any failure to pay amounts due
or to perform any other act required by this Agreement is
unintentional and caused by misunderstanding or oversight, the Ceding
Company and the Reinsurer will adjust the situation to what it would
have been had the misunderstanding or oversight not occurred.
15. Adjustments. If the Ceding Company's liability under any of the
annuities reinsured hereunder is changed because of a misstatement of
age, sex or any other material fact, the Reinsurer will share in the
change proportionately to the amount reinsured hereunder, and will
make any and all proportional adjustments with the Ceding Company.
16. Reinstatements. If an annuity reinsured hereunder is surrendered or
annuitized, and is subsequently reinstated while this Agreement is in
force, the reinsurance for such annuity will be reinstated
automatically. The Ceding Company will pay the Reinsurer the
Reinsurer's proportionate share of all amounts received by the Ceding
Company in connection with the reinstatement of the annuity plus any
amounts previously refunded to the Ceding Company by the Reinsurer in
connection with the lapse of the annuity.
17. Assignment. The Ceding Company may not assign any of its rights,
duties or obligations under this Agreement without prior written
consent of the Reinsurer.
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18. Amendments. This Agreement may be amended only by written agreement
of the parties.
19. Entire Agreement. The terms expressed herein constitute the entire
agreement between the parties with respect to the annuities reinsured
hereunder. There are no understandings between the parties with
respect to the annuities reinsured hereunder other than as expressed
in this Agreement.
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ARTICLE II
INITIAL CONSIDERATION AND REINSURANCE PREMIUMS
1. Initial Consideration. The Ceding Company will pay the Reinsurer an
Initial Consideration equal to 100 percent of the Modified Coinsurance
Reserve, as defined in Article V, Paragraph 3, calculated as of the
Effective Date of this Agreement. Simultaneously with the payment of
the Initial Consideration, the Ceding Company will withhold on behalf
of the Reinsurer 3.2 percent of the Initial Consideration, calculated
as of the Effective Date of this Agreement, in accordance with
Paragraph 3 below, but not to exceed $15 million.
2. Reinsurance Premiums. The Ceding Company will pay the Reinsurer
Reinsurance Premiums on all annuities in effect under this Agreement
in an amount equal to that portion of the gross premiums collected by
the Ceding Company during the current Accounting Period which
corresponds to the portion of the annuities reinsured hereunder. The
Reinsurance Premiums paid to the Reinsurer by the Ceding Company will
be remitted to the Reinsurer at the end of the Accounting Period
during which the gross premiums were collected by the Ceding Company
and the Reinsurer will treat any such Reinsurance Premiums as paid
premium for annual statement purposes, regardless of the mode of
collection by the Ceding Company on the annuities reinsured hereunder.
3. Funds Withheld. The Ceding Company and the Reinsurer have entered
into the "Accounts Receivable Agreement" attached to this Agreement as
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Exhibit A. Pursuant to the terms of the Accounts Receivable
Agreement, the Ceding Company will withhold on behalf of the Reinsurer
the amount described in Paragraph 1 above. The amount withheld by the
Ceding Company will be credited to the Reinsurer and will be
considered as an amount held on behalf of the Reinsurer. The
Reinsurer will consider such amount as a receivable and the Ceding
Company will consider such amount as a payable. Such amount withheld
will be subject to repayment in accordance with the terms of the
Accounts Receivable Agreement. The Funds Withheld at the end of each
Accounting Period will be equal to (i) minus (ii), where:
(i) equals the Funds Withheld at the end of the preceding
Accounting Period; and
(ii) equals any payment by the Ceding Company to the
Reinsurer of any amount withheld, as described in
item (i) above, during the Accounting Period in
accordance with the Accounts Receivable Agreement.
With respect, however, to the Accounting Period during which the
Effective Date of this Agreement occurs, the reference in (i) above to
"the end of the preceding Accounting Period" means 3.2 percent of the
Initial Consideration, but not to exceed $15 million, determined in
accordance with Paragraph 1 above.
In no event will the Funds Withheld at the end of any Accounting
Period exceed 50 percent of the Ceding Company's total statutory
capital and surplus as of the end of the preceding calendar year.
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4. Interest Expense Charge. The Ceding Company will pay the Reinsurer an
Interest Expense Charge at the end of each Accounting Period equal to
[(i) x (ii)] + [(iii) x (iv)], where:
(i) equals any amounts withheld in accordance with item
(i) of Paragraph 3 above, which have not been paid by
the Ceding Company to the Reinsurer at the end of the
preceding Accounting Period and for which payment is
not due to the Reinsurer as described in the Accounts
Receivable Agreement;
(ii) equals the Interest Expense Rate as described in
Paragraph 5 below;
(iii) equals any amounts withheld in accordance with item
(i) of Paragraph 3 above, which have not been paid by
the Ceding Company to the Reinsurer at the end of the
preceding Accounting Period and for which payment is
due to the Reinsurer as described in the Accounts
Receivable Agreement; and
(iv) equals the Loss Carryforward Rate described in
Article VIII, Paragraph 2.
5. Interest Expense Rate. For the Accounting Periods beginning January
1, 1994 through December 31, 1998, the Interest Expense Rate at the
end of each Accounting Period will be equal to 1.7715 percent. For
Accounting Periods beginning January 1, 1999 and thereafter, the
Interest Expense Rate at the end of each Accounting Period will be
equal to the Loss Carryforward Rate as described in Article VIII,
Paragraph 2.
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ARTICLE III
COMMISSIONS AND ALLOWANCES
1. Ceding Commission. Simultaneously with the payment of the Initial
Consideration, the Reinsurer will pay a Ceding Commission to the
Ceding Company of 2.2 percent of the Initial Consideration as
described in Article II, Paragraph 1, but not to exceed $10 million.
2. Unamortized Ceding Commission. The Unamortized Ceding Commission at
the end of each Accounting Period equals (i) minus (ii), where:
(i) equals the Unamortized Ceding Commission at the end
of the preceding Accounting Period; and
(ii) equals the Unamortized Ceding Commission Adjustment
determined in accordance with Paragraph 3 below.
With respect, however, to the Accounting Period during which the
Effective Date of this Agreement occurs, the reference in (i) to the
"end of the preceding Accounting Period" refers to the Effective Date
of this Agreement immediately after the Ceding Commission, as
described in Paragraph 1, has been paid. The Unamortized Ceding
Commission may never be less than zero. In the Accounting Period
during which (i) minus (ii) as described above, first becomes zero or
negative, then, for that and all subsequent Accounting Periods, the
Unamortized Ceding Commission will be set equal to zero.
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3. Unamortized Ceding Commission Adjustment. The Unamortized Ceding
Commission Adjustment at the end of each Accounting Period equals (i)
minus (ii) minus (iii) minus (iv) minus (v), where:
(i) equals the Reinsurance Gain or Reinsurance Loss
determined in accordance with Article VII;
(ii) equals the Loss Carryforward at the end of the
preceding Accounting Period with accrued interest
thereon, determined in accordance with Article VIII,
Paragraph 1, item (i);
(iii) equals the Interest Expense Charge determined in
accordance with Article II, Paragraph 4;
(iv) equals the Interest on the Unamortized Ceding
Commission determined in accordance with Paragraph 9
below; and
(v) equals the Expense and Risk Charge determined in
accordance with Article VI, Paragraph 2.
However, in no event will the Unamortized Ceding Commission Adjustment
be less than zero or exceed the lesser of:
(1) the Unamortized Ceding Commission at the end of the
preceding Accounting Period determined in accordance
with Paragraph 2 above, or
(2) the Maximum Unamortized Ceding Commission Adjustment
as described in Paragraph 4 below.
Notwithstanding anything to the contrary in this Agreement, if the
Unamortized Ceding Commission at the end of any Accounting Period is
still positive, but has been reduced during any Accounting Period by
an amount less than the Maximum Unamortized Ceding Commission
Adjustment
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described in Paragraph 4 below, then such shortfall can be recovered
from future positive Unamortized Ceding Commission Adjustments.
4. Maximum Unamortized Ceding Commission Adjustment. The Maximum
Unamortized Ceding Commission Adjustment for each Accounting Period is
as follows:
For Accounting Maximum Unamortized
Periods Ending During Ceding Commission Adjustment
--------------------- ----------------------------
1994 through 1998 $ 500,000
1999 and thereafter $2,000,000
However, if in any Accounting Period (a) the Termination Rate as
described in Paragraph 5 below, is greater than 0.30, and/or (b) the
Investment Credit Accumulation Rate as described in Paragraph 6 below,
is less than zero, then the Reinsurer may elect to define the Maximum
Withheld Ceding Commission Adjustment as any amount up to $10 million
for the first Accounting Period in the current calendar year and for
all Accounting Periods thereafter.
5. Termination Rate. The Termination Rate in any Accounting Period
equals 1 - [(i) divided by (ii)], where:
(i) equals the total number of annuities reinsured
hereunder and described in Schedule A, as of the date
the current Accounting Period ends; and
(ii) equals the total number of annuities reinsured
hereunder and described in Schedule A, as of the date
one year prior to the date the current Accounting
Period ends.
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6. Investment Credit Accumulation Rate. The Investment Credit
Accumulation Rate in any Accounting Period equals (i) / [.5 x {(ii) +
(iii)}], where:
(i) equals the Modified Coinsurance Reserve Investment
Credit as described in Schedule C, for the current
Accounting Period;
(ii) equals the portion of the account value for the
annuities reinsured hereunder which corresponds to
the portion of the annuities reinsured hereunder at
the beginning of the current Accounting Period; and
(iii) equals the portion of the account value for the
annuities reinsured hereunder which corresponds to
the portion of the annuities reinsured hereunder at
the end of the current Accounting Period.
7. Allowances for Commissions and Expenses. The Reinsurer will pay the
Ceding Company Allowances for Commissions and Expenses for each
Accounting Period, subsequent to the initial Accounting Period, equal
to (i) plus (ii) plus (iii) plus (iv), where:
(i) equals (a) times (b), where:
(a) equals $7.50 times the quota share percentage
of the annuities reinsured hereunder as
described in Schedule A; and
(b) equals the number of annuities reinsured
hereunder and described in Schedule A, and
inforce at the end of the current Accounting
Period;
(ii) equals .0125 percent times that portion of the
account value of the annuities reinsured hereunder
which corresponds to
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the portion of the annuities reinsured hereunder as
of the end of the current Accounting Period;
(iii) equals the Trailer Commission, as defined below,
times that portion of the account value of the
Venture Variable Annuity 3 annuities reinsured
hereunder which corresponds to the portion of the
Venture Variable Annuity 3 annuities reinsured
hereunder and described in Schedule A, as of the end
of the current Accounting Period; and
(iv) equals .25 percent times that portion of the account
value, attributable to purchase payments received by
the Ceding Company thirteen months or more prior to
their trailer commission payment dates, of the
Venture Vision annuities reinsured hereunder which
corresponds to the portion of the Venture Vision
annuities reinsured hereunder and described in
Schedule A, as of the end of the current Accounting
Period.
The Trailer Commission for Venture Variable Annuity 3 annuities for
each Accounting Period is defined below:
For Accounting
Periods Ending During Trailer Commission
--------------------- ------------------
1994 .04%
1995 .05%
1996 .055%
1997 and thereafter .0625%
8. Allowances for Death Benefit Guarantee. The Reinsurer will pay the
Ceding Company Allowances for Death Benefit Guarantee for each
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Accounting Period, subsequent to the initial Accounting Period, as an
allowance for costs of the minimum death benefit guarantee on the
annuities reinsured hereunder, equal to the sum of:
(i) .0375 percent times that portion of the account value
of the Venture Vision annuities reinsured hereunder
which corresponds to the portion of the Venture
Vision annuities reinsured hereunder and described in
Schedule A, as of the end of the current Accounting
Period, plus
(ii) .0125 percent times that portion of the account value
of the Venture Variable Annuity 3 annuities reinsured
hereunder which corresponds to the portion of the
Venture Variable Annuity 3 annuities reinsured
hereunder and described in Schedule A, as of the end
of the current Accounting Period.
9. Interest on the Unamortized Ceding Commission. The Ceding Company
will pay the Reinsurer Interest on the Unamortized Ceding Commission
at the end of each Accounting Period, subsequent to the initial
Accounting Period, equal to the Unamortized Ceding Commission at the
end of the preceding Accounting Period determined in accordance with
Paragraph 2 above, times the Interest Expense Rate described in
Article II, Paragraph 5.
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ARTICLE IV
BENEFIT PAYMENTS
1. Benefit Payments. Benefit Payments, as referred to in this Agreement,
means the Reinsurer's quota share of (i) Claims as described in
Xxxxxxxxx 0 xxxxx, (xx) Cash Surrender Values as described in
Paragraph 3 below, and (iii) Annuity Benefits as described in
Paragraph 7 below.
2. Claims. The Reinsurer will pay the Ceding Company Claims. The term
"Claims," whenever used for purposes of this Agreement, means that
portion of death benefits paid by the Ceding Company on annuities
reinsured hereunder which is equal to the Reinsurer's quota share of
the account value of those annuities.
3. Cash Surrender Values. The Reinsurer will pay the Ceding Company that
portion of the Cash Surrender Values paid by the Ceding Company on
annuities reinsured hereunder which corresponds to the portion of the
annuities reinsured hereunder.
4. Notice. The Ceding Company will notify the Reinsurer promptly after
receipt of any information regarding Claims on annuities reinsured
hereunder. The reinsurance claim and copies of notification, claim
papers, and proofs will be furnished the Reinsurer upon request.
5. Liability and Payment. The Reinsurer will accept the decision of the
Ceding Company with respect to payment of Claims on annuities
reinsured
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hereunder. The Reinsurer will pay its proportionate share of Claims
in a lump sum to the Ceding Company without regard to the form of
settlement by the Ceding Company.
6. Contested Claims. The Ceding Company will advise the Reinsurer of its
intention to contest, compromise or litigate Claims involving
annuities reinsured hereunder. The Reinsurer will pay its share of
the expenses of such contests, in addition to its share of Claims, or
it may choose not to participate. If the Reinsurer chooses not to
participate, it will discharge its liability by payment to the Ceding
Company of the full amount of its liability on the annuity reinsured.
7. Annuity Benefits.
A. The Reinsurer will be liable, on a coinsurance basis, for its
portion of annuity payments made on any annuity reinsured
hereunder if the annuity payments are based on the fixed
settlement options at terms guaranteed in the annuity at the
time of issue of the annuity.
B. The Reinsurer will be liable, on a modified coinsurance basis,
for its portion of annuity payments made on any annuity
reinsured hereunder if the annuity payments are based on
variable settlement options at terms guaranteed in the annuity
at the time of issue of the annuity.
C. The Reinsurer will not be liable for the reinsurance of any
annuity annuitizing at terms more favorable than those
guaranteed at the time of issue of such annuity. In the event
that the
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Ceding Company allows annuitization at terms more favorable
than those guaranteed in the annuity at the time of issue of
such annuity, such annuity will be considered surrendered and
the Reinsurer will pay the Ceding Company that portion of the
annuity account value applied to the annuitization which
corresponds to the portion of the annuities reinsured
hereunder. No further obligation or liability will exist for
the Reinsurer for such annuitized annuities.
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ARTICLE V
RESERVE ADJUSTMENTS
1. Initial Reserve Adjustment. Simultaneously with the payment of the
Initial Consideration described in Article II, Paragraph 1, by the
Ceding Company to the Reinsurer, the Reinsurer will pay the Ceding
Company an Initial Reserve Adjustment in an amount that is equal to
the Modified Coinsurance Reserve determined in accordance with
Paragraph 3 below, on the Effective Date of this Agreement.
2. Modified Coinsurance Reserve Adjustment.
A. The Modified Coinsurance Reserve Adjustment will be computed
each Accounting Period equal to (i) minus (ii) minus (iii),
where:
(i) equals the Modified Coinsurance Reserve at the end of
the current Accounting Period on the annuities
reinsured hereunder;
(ii) equals the Modified Coinsurance Reserve at the end of
the preceding Accounting Period on the annuities
reinsured hereunder; and
(iii) equals the Modified Coinsurance Reserve Investment
Credit described in Schedule C.
With respect, however, to the Accounting Period during which
the Effective Date of this Agreement occurs, the reference in
(ii) above to "the end of the preceding Accounting Period"
refers to the Effective Date of this Agreement immediately
after the Initial Reserve Adjustment, as described in
Paragraph 1 above, has
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occurred. In the Accounting Period in which termination of
this Agreement occurs, the reference in (i) above to "the end
of the current Accounting Period" refers to the terminal
accounting date as described in Article XII, Paragraph 2.
B. For any Accounting Period in which the amount computed in A.
above is positive, the Reinsurer will pay the Ceding Company
such amount. For any Accounting Period in which the amount
computed in A. above is negative, the Ceding Company will pay
the Reinsurer the absolute value of such amount.
3. Modified Coinsurance Reserve. The term "Modified Coinsurance
Reserve," as used in this Agreement, means the statutory reserve held
by the Ceding Company with respect to the annuities reinsured
hereunder.
4. Reserve Strengthening. Any increase in reserves resulting from a
reserve strengthening with respect to the annuities reinsured
hereunder will be paid by the Ceding Company to the Reinsurer at the
end of the Accounting Period during which the reserve strengthening
occurs.
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ARTICLE VI
EXPENSE AND RISK CHARGES
1. Initial Expense and Risk Charge. The Initial Expense and Risk Charge
for the initial Accounting Period, payable to the Reinsurer by the
Ceding Company will be 1 percent times the Ceding Commission
determined in accordance with Article III, Paragraph 1.
2. Expense and Risk Charge. The Expense and Risk Charge for each
Accounting Period subsequent to the initial Accounting Period, payable
to the Reinsurer by the Ceding Company, will be equal to the sum of
(i) and (ii), where:
(i) equals the Expense and Risk Charge Rate, as defined
below, times the Loss Carryforward for the preceding
Accounting Period, with accrued interest thereon,
determined in accordance with Article VIII, Paragraph
1, item (i); and
(ii) equals the Expense and Risk Charge Rate, as defined
below, times the Expense and Risk Charge Base, as
defined below.
The Expense and Risk Charge Rate for each Accounting Period is defined
as follows:
For Accounting Expense and
Periods Ending During Risk Charge Rate
--------------------- ----------------
1994 through 1998 .4125%
1999 and thereafter .4142%
The Expense and Risk Charge Base for each Accounting Period is defined
as follows:
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For Accounting
Periods Ending During Expense and Risk Charge Base
--------------------- ----------------------------
1994 through 1998 greater of either (a) the Unamortized Ceding
Commission at the end of the preceding Accounting
Period determined in accordance with Article III,
Paragraph 2, minus the Maximum Unamortized Ceding
Commission Adjustment determined in accordance
with Article III, Paragraph 4, or (b) quantity
(iii) as defined below, but never less than zero
1999 and thereafter (iii) below, but never less than zero, where:
(iii) equals (a) plus (b) minus (c) minus (d) minus (e),
where:
(a) equals the Unamortized Ceding Commission at
the end of the preceding Accounting Period
determined in accordance with Article III,
Paragraph 2;
(b) equals the absolute value of any Reinsurance
Loss determined in accordance with Article
VII;
(c) equals any Reinsurance Gain determined in
accordance with Article VII;
(d) equals the Interest Expense Charge determined
in accordance with Article II, Paragraph 4;
and
(e) equals the Interest on the Unamortized Ceding
Commission determined in accordance with
Article III, Paragraph 9.
In no event will the Expense and Risk Charge payable be less than
$20,000 for any Accounting Period after December 31, 1998.
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ARTICLE VII
REINSURANCE GAINS AND LOSSES
Formula. A Reinsurance Gain or Reinsurance Loss will be calculated for each
Accounting Period and will be equal to the excess of (i) over (ii), where:
(i) equals the Reinsurance Premiums determined in accordance with
Article II, Paragraph 2; and
(ii) equals the sum of:
(a) Benefit Payments, as described in Article IV, plus
(b) the Modified Coinsurance Reserve Adjustment,
determined in accordance with Article V, Paragraph 2,
plus
(c) Allowances for Commissions and Expenses determined in
accordance with Article III, Paragraph 7, plus
(d) Allowances for Death Benefit Guarantee determined in
accordance with Article III, Paragraph 8.
A Reinsurance Gain results if the excess of (i) over (ii) is positive. A
Reinsurance Loss results if the excess of (i) over (ii) is negative.
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ARTICLE VIII
LOSS CARRYFORWARD
1. Formula. The Loss Carryforward at the end of each Accounting Period
will be equal to (i) minus (ii) plus (iii) plus (iv) plus (v) plus
(vi), where:
(i) equals the Loss Carryforward at the end of the
preceding Accounting Period (except that, for the
initial Accounting Period, the preceding Accounting
Period Loss Carryforward will be zero) accumulated to
the end of the current Accounting Period at an
interest rate equal to the Loss Carryforward Rate
described in Paragraph 2 below;
(ii) equals any Reinsurance Gain determined in accordance
with Article VII;
(iii) equals the absolute value of any Reinsurance Loss
determined in accordance with Article VII;
(iv) equals the Interest Expense Charge determined in
accordance with Article II, Paragraph 4;
(v) equals the Interest on the Unamortized Ceding
Commission determined in accordance with Article III,
Paragraph 9; and
(vi) equals the Expense and Risk Charge determined in
accordance with Article VI, Paragraph 2.
If the above calculation yields a negative amount, then the Loss
Carryforward will be set equal to zero.
- 25 -
28
2. Loss Carryforward Rate. The Loss Carryforward Rate at the end of each
Accounting Period will be equal to 43.75 basis points plus (i) divided
by (ii), where:
(i) equals the ninety day (90) transfer pricing rate as
determined by ITT Financial Corporations's Treasury
Department for ITT Financial Corporation debt as of
the date the current Accounting Period begins; and
(ii) equals four.
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29
ARTICLE IX
EXPERIENCE REFUND
1. General. An Experience Refund will be paid by the Reinsurer to the
Ceding Company at the end of each Accounting Period with respect to
the reinsurance hereunder, if the operation of the Experience Refund
formula detailed in Paragraph 2 below produces a positive amount for
that Accounting Period. If the operation of the Experience Refund
formula produces a negative amount for that Accounting Period, then
the Experience Refund will be zero and the Loss Carryforward
provisions of Article VIII will apply. No Experience Refund will be
paid by the Reinsurer to the Ceding Company after the earliest of: (a)
the Unamortized Ceding Commission as described in Article III,
Paragraph 2, becomes zero, or (b) the Ceding Company withholds amounts
in accordance with Article II, Paragraph 3, item (i) for which payment
is due to the Reinsurer as described in the Accounts Receivable
Agreement.
2. Formula. The Experience Refund at the end of each Accounting Period
will be equal to (i) minus (ii), where:
(i) equals the Reinsurance Gain or Reinsurance Loss
determined in accordance with Article VII; and
(ii) equals the sum of:
(a) the Loss Carryforward for the preceding
Accounting Period, with accrued interest
thereon, determined in accordance with
Article VIII, item (i), plus
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30
(b) the Interest Expense Charge determined in
accordance with Article II, Paragraph 4, plus
(c) the Interest on the Unamortized Ceding
Commission determined in accordance with
Article III, Xxxxxxxxx 0, xxxx
(x) the Expense and Risk Charge determined in
accordance with Article VI, Paragraph 2, plus
(c) the Unamortized Ceding Commission Adjustment
determined in accordance with Article III,
Paragraph 3.
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31
ARTICLE X
ACCOUNTING AND SETTLEMENTS
1. Quarterly Accounting Period. Each Accounting Period under this
Agreement will be a calendar quarter, except that: (a) the initial
Accounting Period runs from the Effective Date of this Agreement
through the last day of the calendar quarter during which the
Effective Date of this Agreement falls, and (b) the final Accounting
Period runs from the end of the preceding Accounting Period until the
terminal accounting date of this Agreement as described in Article
XII, Paragraph 2. However, the Reinsurer reserves the right to adjust
all accounting and settlements to a calendar year-to-date basis.
2. Quarterly Accounting Reports. Quarterly accounting reports in the
form of Schedule B will be submitted to the Reinsurer by the Ceding
Company for each Accounting Period not later than fifteen (15) days
after the end of each Accounting Period. Such reports will include
information on the amount of Initial Consideration, Reinsurance
Premiums, Ceding Commission, Allowances for Commissions and Expenses,
Allowances for Death Benefit Guarantee, Benefit Payments, Reinsurance
Gains and Losses, Experience Refund, Loss Carryforward, Funds
Withheld, Interest Expense Charge, Unamortized Ceding Commission,
Unamortized Ceding Commission Adjustment, Interest on the Unamortized
Ceding Commission, Expense and Risk Charges and Modified Coinsurance
Reserve.
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32
3. Initial Quarterly Settlement.
A. Within fifteen (15) days after the initial Accounting Period,
the Ceding Company will pay the Reinsurer the sum of: (i) the
Initial Consideration determined in accordance with Article
II, Paragraph 1, plus (ii) the Initial Expense and Risk Charge
determined in accordance with Article VI, Paragraph 1.
B. Simultaneously, the Reinsurer will pay the Ceding Company the
sum of: (i) the Initial Reserve Adjustment determined in
accordance with Article V, Paragraph 1, plus (ii) the Ceding
Commission determined in accordance with Article III,
Paragraph 1.
4. Quarterly Settlements.
A. Within fifteen (15) days after the end of each Accounting
Period, the Ceding Company will pay the Reinsurer the sum of:
(i) the Reinsurance Premiums determined in accordance with
Article II, Paragraph 2, plus (ii) any Modified Coinsurance
Reserve Adjustment payable to the Reinsurer determined in
accordance with Article V, Paragraph 2, plus (iii) any Funds
Withheld payable to the Reinsurer during the current
Accounting Period in accordance with the terms of the Accounts
Receivable Agreement determined in accordance with Article II,
Paragraph 3, item (ii).
B. Simultaneously, the Reinsurer will pay the Ceding Company the
sum of: (i) the amount of Benefit Payments paid during the
Accounting Period as described in Article IV, plus (ii)
Allowances for Commissions and Expenses determined in
accordance with Article III, Paragraph 7, plus (iii)
Allowances for Death Benefit
- 30 -
33
Guarantee determined in accordance with Article III, Paragraph
8, plus (iv) any Modified Coinsurance Reserve Adjustment
payable to the Ceding Company determined in accordance with
Article V, Paragraph 2, plus (v) any Experience Refund
determined in accordance with Article IX.
5. Amounts Due Quarterly. Except as otherwise specifically provided in
this Agreement, all amounts due to be paid to either the Ceding
Company or the Reinsurer under this Agreement will be determined on a
net basis as of the last day of each Accounting Period and will be due
as of such date and payable within fifteen (15) days after the end of
the Accounting Period.
6. Annual Accounting Reports. The Ceding Company will provide the
Reinsurer with annual accounting reports within thirty (30) days after
the end of the calendar year for which such reports are prepared.
These reports will contain sufficient information about the annuities
reinsured hereunder to enable the Reinsurer to prepare its annual
financial reports and to verify the information reported in Schedule
B, and will include Exhibit 8 by reserve basis, Page 7, Page 23 and
Schedule S of the Annual Statement.
7. Estimations. If the amounts, as described in Paragraphs 3 and 4
above, cannot be determined by the dates described in Paragraph 5
above, on an exact basis, such payments will be paid in accordance
with a mutually agreed upon formula which will approximate the actual
payments.
- 31 -
34
Adjustments will then be made to reflect actual amounts when they
become available.
8. Delayed Payments. For purposes of Paragraph 5 above, if there is a
delayed settlement of a payment due, there will be an interest
penalty, at the Interest Expense Rate described in Article II,
Paragraph 5, for the period that the amount is overdue. For purposes
of this Paragraph, a payment will be considered overdue thirty (30)
days after the date such payment is due.
9. Offset of Payments. All monies due either the Ceding Company or the
Reinsurer under this Agreement or any other agreements will be offset
against each other, dollar for dollar, regardless of any insolvency of
either party.
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35
ARTICLE XI
DURATION AND RECAPTURE
1. Duration. Except as otherwise provided herein, this Agreement is
unlimited in duration.
2. Reinsurer's Liability. The liability of the Reinsurer with respect to
any annuity reinsured hereunder will begin simultaneously with that of
the Ceding Company, but not prior to the Effective Date of this
Agreement. The Reinsurer's liability with respect to any annuity
reinsured hereunder will terminate on the earliest of: (i) the date
such annuity is recaptured; (ii) the date the Ceding Company's
liability on such annuity is terminated; or (iii) the date this
Agreement is terminated. Termination of the Reinsurer's liability is
subject to payments in respect of such liability in accordance with
the provisions of Article XII of this Agreement. In no event should
the interpretation of this Paragraph imply a unilateral right of the
Reinsurer to terminate this Agreement.
3. Termination for Nonpayment of Reinsurance Premiums or Other Amounts
Due. If the Ceding Company fails to pay the Reinsurance Premiums or
any other amounts due to the Reinsurer pursuant to this Agreement,
within sixty (60) days after the end of any Accounting Period, the
Reinsurer may terminate this Agreement, subject to thirty (30) days
prior written notice to the Ceding Company.
- 33 -
36
4. Recapture. Annuities reinsured hereunder will be eligible for
recapture, at the option of the Ceding Company, on any January 1,
following the fifth anniversary of the Effective Date of this
Agreement, subject to ninety (90) days prior written notice, or on any
other date which is mutually agreed to in writing. If the Ceding
Company opts to recapture, then the Ceding Company must recapture all
of the annuities reinsured hereunder. In no event may the Ceding
Company recapture anything other than 100 percent of all annuities
reinsured hereunder.
5. Internal Replacements. Should the Ceding Company, its affiliates,
successors or assigns, initiate a program of Internal Replacement that
would include any of the annuities reinsured hereunder, the Ceding
Company will immediately notify the Reinsurer. The Reinsurer may
elect to treat such annuities as recaptured rather than surrendered,
and such recapture will apply to all annuities reinsured hereunder.
For purposes of this Agreement, the term "Internal Replacement" means
any instance in which a policy or any portion of the cash value of an
annuity is exchanged for another policy or annuity, not covered under
this Agreement, which is written by the Ceding Company, its
affiliates, successors or assigns.
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37
ARTICLE XII
TERMINAL ACCOUNTING AND SETTLEMENT
1. Terminal Accounting. In the event that this Agreement is terminated
in accordance with Article XX, Xxxxxxxxx 0, or all reinsurance under
this Agreement is recaptured in accordance with Article XX, Xxxxxxxxx
0, a Terminal Accounting and Settlement will take place.
2. Date. The terminal accounting date will be the earliest of: (1) the
effective date of recapture pursuant to any notice of recapture given
under this Agreement, (2) the effective date of termination pursuant
to any notice of termination given under this Agreement, or (3) any
other date mutually agreed to in writing.
3. Settlement. The Terminal Accounting and Settlement will consist of:
(a) The quarterly settlement as provided in Article X,
Paragraph 4, computed as of the terminal accounting
date; and
(b) payment by the Ceding Company to the Reinsurer of a
Terminal Reserve equal to the Modified Coinsurance
Reserve on the annuities reinsured hereunder as of
the terminal accounting date;
(c) payment by the Reinsurer to the Ceding Company of a
Terminal Reserve Adjustment equal to the Modified
Coinsurance Reserve on the annuities reinsured
hereunder as of the terminal accounting date;
- 35 -
38
(d) payment by the Ceding Company to the Reinsurer of a
Terminal Ceding Commission Adjustment equal to any
Unamortized Ceding Commission as described in Article
III, Paragraph 2, as of the terminal accounting date;
(e) payment by the Ceding Company to the Reinsurer of any
Funds Withheld determined in accordance with Article
II, Paragraph 3, as of the terminal accounting date;
and
(f) payment by the Ceding Company to the Reinsurer of any
Loss Carryforward as described in Article VIII,
calculated as of the terminal accounting date.
If the calculation of the Terminal Accounting and Settlement produces
an amount owing to the Ceding Company, such amount will be paid by the
Reinsurer to the Ceding Company. If the calculation of the Terminal
Accounting and Settlement produces an amount owing to the Reinsurer,
such amount will be paid by the Ceding Company to the Reinsurer.
4. Supplementary Accounting and Settlement. In the event that,
subsequent to the Terminal Accounting and Settlement as provided
above, a change is made with respect to any amounts due, a
supplementary accounting will take place pursuant to Paragraph 3
above. Any amount owed to the Ceding Company or to the Reinsurer by
reason of such supplementary accounting will be paid promptly upon the
completion thereof.
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39
ARTICLE XIII
REPRESENTATIONS
Representations. The Ceding Company acknowledges that, at the Reinsurer's
request, it has provided the Reinsurer with the Ceding Company Data described
in Schedule D prior to the execution of this Agreement by the Reinsurer. The
Ceding Company represents that all factual information contained in the Ceding
Company Data is complete and accurate as of the date the document containing
the information was prepared. The Ceding Company further represents that any
assumptions made in preparing the Ceding Company Data were based upon informed
judgment and are consistent with sound actuarial principles. The Ceding
Company further represents that it is not aware of any omissions, errors,
changes or discrepancies which would materially affect the Ceding Company Data.
The Reinsurer has relied on such data and the foregoing representations in
entering into this Agreement.
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40
ARTICLE XIV
ARBITRATION
1. General. All disputes and differences between the Ceding Company and
the Reinsurer on which an agreement cannot be reached will be decided
by arbitration. The arbitrators will construe this Agreement from the
standpoint of practical business and equitable principles and the
customs and practices of the insurance and reinsurance business,
rather than from the standpoint of strict law. The parties intend
that the arbitrators will make their decision with a view to effecting
the intent of this Agreement.
2. Method. Three arbitrators will decide any differences. They must be
impartial and present or former officers of life insurance companies
other than the parties to this Agreement or any company owned by, or
affiliated with, either party. One of the arbitrators will be
appointed by the Reinsurer, another by the Ceding Company, and the two
arbitrators thus selected will select a third arbitrator before
arbitration begins. Should one of the parties decline to select an
arbitrator within thirty (30) days after the date of a written request
to do so, or should the two arbitrators selected by the parties not be
able to agree upon the choice of a third, the appointment(s) will be
left to the President of the American Arbitration Association or its
successor. The arbitrators will decide by a majority of votes and
their decision will be final and binding upon the parties. The costs
of arbitration, including the fees of the arbitrators, will be shared
equally by the parties unless the
- 38 -
41
arbitrators decide otherwise. Any counsel fees incurred by a party in
the conduct of arbitration will be paid by the party incurring the
fees.
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42
ARTICLE XV
INSOLVENCY
Insolvency. In the event of the Ceding Company's insolvency, any payments due
the Ceding Company from the Reinsurer pursuant to the terms of this Agreement
will be made directly to the Ceding Company or its liquidator, receiver or
statutory successor. The reinsurance will be payable by the Reinsurer on the
basis of the liability of the Ceding Company under the annuities reinsured
without diminution because of the insolvency of the Ceding Company. The
liquidator, receiver or statutory successor of the Ceding Company will give the
Reinsurer written notice of the pendency of a claim against the Ceding Company
on any annuity reinsured within a reasonable time after such claim is filed in
the insolvency proceeding. During the pendency of any such claim, the
Reinsurer may investigate such claim and interpose in the Ceding Company's name
(or in the name of the Ceding Company's liquidator, receiver or statutory
successor), in the proceeding where such claim is to be adjudicated, any
defense or defenses which the Reinsurer may deem available to the Ceding
Company or its liquidator, receiver or statutory successor. The expense thus
incurred by the Reinsurer will be chargeable, subject to court approval,
against the Ceding Company as a part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Ceding
Company solely as a result of the defense undertaken by the Reinsurer.
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43
ARTICLE XVI
EXECUTION AND EFFECTIVE DATE
In witness of the above, this Agreement is executed in duplicate on the dates
indicated below with an Effective Date of December 31, 1993.
NORTH AMERICAN SECURITY LIFE
ATTEST: INSURANCE COMPANY ("Ceding Company")
By: Xxxxxxx Xxxxxxxx By: Xxxx X. Xxxxxx
------------------------ ------------------------
Title: President Title: V.P. & Actuary
------------------------ ------------------------
Date: 12/30/93 Date: 12/30/93
------------------------ ------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: Xxxxxx X. Xxxxxxxx By: Xxxxx X. Xxxxxxx
------------------------ ------------------------
Title: Exec. V.P. & Chief Actuary Title: Exec. V.P.
------------------------ ------------------------
Date: 12/29/93 Date: 12/29/93
------------------------ ------------------------
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44
SCHEDULE A
ANNUITIES AND RISKS REINSURED
Annuities and Risks Reinsured. The amount of reinsurance under this Agreement
will be a quota share of the Ceding Company's net liability on those variable
annuities issued by the Ceding Company and described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
---- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 95% VEN 10
"Net liability," as used in this Agreement, means the Ceding Company's
liability on annuities reinsured hereunder.
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45
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period: ______________
Calendar Year: _________________
Date Report Completed: __________
1. Initial Consideration (Article II, Paragraph 1)*
a. Amount of Initial Consideration paid
to Reinsurer ________
b. Amount of Initial Consideration withheld by
Ceding Company ________
Initial Consideration = a + b ________
2. Reinsurance Premiums (Article II, Paragraph 2) ________
3. Benefit Payments (Article IV)
a. Death Benefits ________
b. Cash Surrender Values ________
c. Annuity Benefits ________
Benefit Payments = a + b + c ________
4. Initial Reserve Adjustment (Article V, Paragraph 1)* ________
5. Modified Coinsurance Reserve Adjustment (Article V, Paragraph 2)
a. Modified Coinsurance Reserve end of
preceding Accounting Period ________
b. Modified Coinsurance Reserve end of
current Accounting Period ________
c. Equals b - a ________
d. Modified Coinsurance Reserve Investment
Credit (Schedule C) ________
Modified Coinsurance Reserve Adjustment = c - d ________
6. Reinsurance Gain = 0 - 0 - 0 - 00 - 00
(Xx negative, see Article VII) ________
7. Reinsurance Loss = 0 - 0 - 0 - 00 - 00
(Xx positive, see Article VII) ________
8. Loss Carryforward [Article VIII, Paragraph 1, item (i)] ________
9. Initial Expense and Risk Charge (Article VI, Paragraph 1)* ________
10. Expense and Risk Charge (Article VI, Paragraph 2) ________
11. Ceding Commission (Article III, Paragraph 1)* ________
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46
12. Unamortized Ceding Commission (Article III, Paragraph 2) ________
13. Unamortized Ceding Commission Adjustment
(Article III, Paragraph 3) ________
14. Allowances for Commissions and Expenses
(Article III, Paragraph 7) ________
15. Allowances for Death Benefit Guarantee
(Article III, Paragraph 8) ________
16. Experience Refund = 6 + 0 - 0 - 00 - 00 - 00 - 00
(Xx negative, see Article IX) ________
17. Funds Withheld payment [Article II, Paragraph 3, item (ii)] ________
18. Funds Withheld = 0x - 00 (Xxxxxxx XX, Xxxxxxxxx 3) ________
19. Interest Expense Charge (Article II, Paragraph 4) ________
20. Interest on the Unamortized Ceding Commission
(Article III, Paragraph 9) ________
21. Cash Settlement =
1a + 2 - 3 - 4 - 5 + 9 - 11 - 14 - 15 - 16 + 17 ========
*Initial Accounting Period, only.
Supplemental Information
Venture
Total Variable Venture
Number Annuity 3 Vision Total
of Account Account Account Loss
Annuities Value Value Value Carryforward
--------- --------- ------- ------- ------------
Beginning of Period
--------- --------- ------- ------- ------------
+ Additions
--------- --------- ------- ------- ------------
- Terminations
--------- --------- ------- ------- ------------
End of Period
========= ========= ======= ======= ============
Venture Venture
Variable Vision
Annuity 3 Number
Number of of
Annuities Annuities
--------- ---------
Beginning of Period
--------- ---------
+ Additions
--------- ---------
- Terminations
--------- ---------
End of Period
========= =========
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47
Termination Rate (Article III, Paragraph 5)
a. Total number of annuities reinsured hereunder
as of date current Accounting Period ends _________
b. Total number of annuities reinsured hereunder
as of the date one year prior to the date the
current Accounting Period ends _________
c. Termination Rate 1 - (a / b) =========
Investment Credit Accumulation Rate (Article III, Paragraph 6)
a. Modified Coinsurance Reserve Investment Credit _________
b. Account value at beginning of current
Accounting Period _________
c. Account value at end of current Accounting Period _________
d. Investment Credit Accumulation Rate
a / [.5 x (b + c)] =========
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48
SCHEDULE C
MODIFIED COINSURANCE RESERVE INVESTMENT CREDIT
Modified Coinsurance Reserve Investment Credit. The Modified Coinsurance
Reserve Investment Credit is equal to the portion of the sum of all accrued
investment income and capital gains and losses, realized and unrealized, on the
Ceding Company's Separate Account for the current Accounting Period which
corresponds to the portion of the annuities reinsured hereunder. The Modified
Coinsurance Reserve Investment Credit will not be adjusted for income taxes or
changes in any provision for taxes, investment management fees, or charges for
mortality or expense risks.
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49
SCHEDULE D
CEDING COMPANY DATA
o Package from Xxxx Xxxxxx of the Ceding Company to Xxxx Xxxxxxxx of the
Reinsurer containing:
o 1993 Reinsurance Proposal
o Section 1 of 1994 Ceding Company Business Plan
o Ceding Company Annuity Sales Summary as of September 30, 1993
o Ceding Company 1992 IRIS Ratios and Company Response
o North American Life Insurance Company/Ceding Company Guarantee
Agreement
o VENTURE VARIABLE ANNUITY 3 Product Kit
o VENTURE VISION Product Kit
o Ceding Company March 1993 Quarterly Statement
o Ceding Company June 0000 Xxxxxxxxx Xxxxxxxxx
o Ceding Company 1992 NAIC Annual Statement
o Ceding Company 1992 NAIC Separate Account Statement
o Package from Xxxx Xxxxxx of the Ceding Company to Xxxx Xxxxxxxx of the
Reinsurer containing:
o Supplement No. 1 to the 1993 Reinsurance Proposal Dated
November 12, 1993
o Policy Forms for VENTURE VISION and VENTURE VARIABLE ANNUITY 3
o Projected Runoff of the Existing Closed Block of VENTURE
VARIABLE ANNUITY 3
o Pricing Runs using Chalke PTS for VENTURE VISION and VENTURE
VARIABLE ANNUITY 3
o Telephone conversations with Xxxx Xxxxxx of the Ceding Company on
December 27, 1993 regarding:
o Expense allowances: Except for the trail commissions and the
allowance for the minimum death benefit guarantee, direct
variable expenses are approximately 45% - 50% of total pricing
expenses. Death Benefit guarantee costs 5 basis points
annually for VENTURE VARIABLE ANNUITY 3; 15 basis points
annually for VENTURE VISION
o Revised projection of 1993 VENTURE VISION premiums: $110
million
o December 23, 1993 Account Values are $606 million for VENTURE
VARIABLE ANNUITY 3 and $107 million for VENTURE VISION
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50
AMENDMENT ONE
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
"REINSURER"
51
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. ARTICLE II, INITIAL CONSIDERATION AND REINSURANCE PREMIUMS, Paragraphs
2, 3 and 4, are replaced in their entirety by the following:
2. Reinsurance Premiums. At the end of each Accounting Period,
the Ceding Company will pay the Reinsurer Reinsurance Premiums
on all annuities in effect under this Agreement in an amount
equal to that portion of the gross premiums collected by the
Ceding Company during the Accounting Period which corresponds
to the portion of the annuities reinsured hereunder. The
Reinsurer will treat any such Reinsurance Premiums as paid
premium for annual statement purposes, regardless of the mode
of collection by the Ceding Company on the annuities reinsured
hereunder.
The Ceding Company will withhold on behalf of the Reinsurer,
in accordance with Paragraph 3 below, an amount equal to (i)
times (ii), but not to exceed $6 million for the current
calendar year, where:
(i) equals the Funds Withheld Rate, as described
in Schedule E, Paragraph 1; and
(ii) equals Reinsurance Premiums, determined in
accordance with this Paragraph 2.
3. Funds Withheld. The Ceding Company and the Reinsurer have
entered into the "Accounts Receivable Agreement" attached to
this Agreement as Exhibit A. Pursuant to the terms of the
Accounts Receivable Agreement, the Ceding Company will
withhold on behalf
- 1 -
52
of the Reinsurer the amounts described in Paragraphs 1 and 2
above. The amount withheld by the Ceding Company will be
credited to the Reinsurer and will be considered as an amount
held on behalf of the Reinsurer. The Reinsurer will consider
such amount as a receivable and the Ceding Company will
consider such amount as a payable. Such amount withheld will
be subject to repayment in accordance with the terms of the
Accounts Receivable Agreement. The Funds Withheld at the end
of each Accounting Period will be equal to (i) plus (ii) minus
(iii), where:
(i) equals the Funds Withheld at the end of the
preceding Accounting Period;
(ii) equals the Funds Withheld Rate, as described
in Schedule E, Paragraph 1, times the
Reinsurance Premiums, determined in
accordance with Paragraph 2 above, but not to
exceed $6 million for the current calendar
year; and
(iii) equals any payment by the Ceding Company to
the Reinsurer of any amount withheld, as
described in items (i) and (ii) above, during
the Accounting Period in accordance with the
Accounts Receivable Agreement.
With respect, however, to the Accounting Period during which
the Effective Date of this Agreement occurs, the reference in
(i) above to "the Funds Withheld at the end of the preceding
Accounting Period" means 3.2 percent of the Initial
Consideration, determined in accordance with Paragraph 1
above, but not to exceed $15 million.
- 2 -
53
In no event will the Funds Withheld at the end of any
Accounting Period exceed 50 percent of the Ceding Company's
total statutory capital and surplus as of the end of the
preceding calendar year.
4. Interest Expense Charge. The Ceding Company will pay the
Reinsurer an Interest Expense Charge at the end of each
Accounting Period equal to [(i) x (ii)] + [(iii) x (iv)] +
[(v) x (vi)] + [(vii) x (viii)] + [(ix) x (x)] + [(xi) x
(xii)], where:
(i) equals any amounts withheld in accordance
with Paragraph 1 above, as of the end of
the preceding Accounting Period and for
which payment is not yet due to the
Reinsurer, as described in the Accounts
Receivable Agreement;
(ii) equals the Interest Expense Rate, as
described in Paragraph 5 below;
(iii) equals, for the Accounting Periods
beginning April 1, 1994 and thereafter, any
amounts withheld, in accordance with
Paragraph 2 above, during the first
Accounting Period in the 1994 calendar year
and for which payment is not yet due to the
Reinsurer, as described in the Accounts
Receivable Agreement;
(iv) equals,
o for the Accounting Periods beginning
April 1, 1994 through December 31,
1994, 43.75 basis points, plus [(a)
/ (b)] x (c), where:
(a) equals the funds transfer
pricing rate as determined by
ITT Financial Corporation's
- 3 -
54
Treasury Department for ITT
Financial Corporation debt
for the number of days
remaining in the current
calendar year measured from
the quarterly settlement
date, as described in Article
X, for the first Accounting
Period in the 1994 calendar
year;
(b) equals the number of days
remaining in the current
calendar year measured from
the quarterly settlement
date, as described in Article
X, for the first Accounting
Period in the 1994 calendar
year; and
(c) equals,
o for the Accounting Period
beginning April 1, 1994, the
number of days remaining in
the Accounting Period
measured from the quarterly
settlement date, as described
in Article X, for the first
Accounting Period in the 1994
calendar year; and
o for the Accounting Periods
beginning July 1, 1994 and
October 1, 1994, the number
of days in the current
Accounting Period;
- 4 -
55
o for the Accounting Periods beginning
January 1, 1995 and thereafter, the
Loss Carryforward Rate, described in
Article VIII, Paragraph 2;
(v) equals, for the Accounting Periods
beginning July 1, 1994 and thereafter, any
amounts withheld, in accordance with
Paragraph 2 above, during the second
Accounting Period in the 1994 calendar year
and for which payment is not yet due to the
Reinsurer, as described in the Accounts
Receivable Agreement;
(vi) equals,
o for the Accounting Periods beginning
July 1, 1994 and October 1, 1994,
43.75 basis points, plus [(a) / (b)]
x (c), where:
(a) equals the funds transfer
pricing rate as determined by
ITT Financial Corporation's
Treasury Department for ITT
Financial Corporation debt
for the number of days
remaining in the current
calendar year measured from
the quarterly settlement
date, as described in Article
X, for the second Accounting
Period in the 1994 calendar
year;
(b) equals the number of days
remaining in the current
calendar year measured from
the quarterly settlement
date, as described in
- 5 -
56
Article X, for the second Accounting
Period in the 1994 calendar year; and
(c) equals,
o for the Accounting Period
beginning July 1, 1994, the
number of days remaining in
the Accounting Period
measured from the quarterly
settlement date, as described
in Article X, for the second
Accounting Period in the 1994
calendar year; and
o for the Accounting Periods
beginning October 1, 1994,
the number of days in the
current Accounting Period;
(vii) equals, for the Accounting Periods
beginning October 1, 1994 and thereafter,
any amounts withheld, in accordance with
Paragraph 2 above, during the third
Accounting Period in the 1994 calendar year
and for which payment is not yet due to the
Reinsurer, as described in the Accounts
Receivable Agreement;
(viii) equals,
o for the Accounting Periods beginning
October 1, 1994, 43.75 basis points,
plus [(a) / (b)] x (c), where:
(a) equals the funds transfer
pricing rate as determined by
ITT Financial Corporation's
- 6 -
57
Treasury Department for ITT
Financial Corporation debt for
the number of days remaining in
the current calendar year
measured from the quarterly
settlement date, as described in
Article X, for the third
Accounting Period in the 1994
calendar year;
(b) equals the number of days
remaining in the current
calendar year measured from the
quarterly settlement date, as
described in Article X, for the
third Accounting Period in the
1994 calendar year; and
(c) equals the number of days
remaining in the Accounting
Period measured from the
quarterly settlement date, as
described in Article X, for the
third Accounting Period in the
1994 calendar year; and
o for the Accounting Periods beginning
January 1, 1995 and thereafter, the
Loss Carryforward Rate, as described
in Article VIII, Paragraph 2;
(ix) equals, for the Accounting Periods
beginning January 1, 1995 and thereafter,
any amounts withheld, in accordance with
Paragraph 2 above, during the fourth
Accounting Period in the 1994 calendar year
and for which payment is not yet due to the
Reinsurer, as described in the Accounts
Receivable Agreement;
- 7 -
58
(x) equals,
o for the Accounting Period beginning
January 1, 1995, [(a) / (b)] x (c),
where:
(a) equals the Loss Carryforward
Rate, as described in Article
VIII, Paragraph 2;
(b) equals the number of days in
the current Accounting Period;
and
(c) equals the number of days
remaining in the Accounting
Period measured from the
quarterly settlement date, as
described in Article X, for the
fourth Accounting Period in the
1994 calendar year; and
o for the Accounting Periods beginning
April 1, 1995 and thereafter, the
Loss Carryforward Rate, as described
in Article VIII, Paragraph 2;
(xi) equals any amounts withheld in accordance
with items (i) and (ii) of Paragraph 3
above, which have not been paid by the
Ceding Company to the Reinsurer at the end
of the preceding Accounting Period and for
which payment is due to the Reinsurer, as
described in the Accounts Receivable
Agreement; and
(xii) equals the Loss Carryforward Rate, as
described in Article VIII, Paragraph 2.
II. ARTICLE III, COMMISSIONS AND ALLOWANCES, Paragraphs 1, 2, 3, 4, 6, 7
and 9, are replaced in their entirety by the following:
- 8 -
59
1. Ceding Commission. Simultaneously with the payment of the
Initial Consideration, the Reinsurer will pay a Ceding
Commission to the Ceding Company of 2.2 percent of the Initial
Consideration, as described in Article II, Paragraph 1, but
not to exceed $10 million. For Accounting Periods beginning
January 1, 1994 and thereafter, the Reinsurer will pay a
Ceding Commission to the Ceding Company equal to the Ceding
Commission Rate, as described in Schedule E, Paragraph 2,
times the Reinsurance Premiums, determined in accordance with
Article II, Paragraph 2, but not to exceed $4 million for the
current calendar year.
2. Unamortized Ceding Commission. The Unamortized Ceding
Commission at the end of each Accounting Period equals (i)
plus (ii) minus (iii), where:
(i) equals the Unamortized Ceding Commission at
the end of the preceding Accounting Period;
(ii) equals the Ceding Commission Rate, as
described in Schedule E, Paragraph 2, times
the Reinsurance Premiums, determined in
accordance with Article II, Paragraph 2,
but not to exceed $4 million for the
current calendar year; and
(iii) equals the Unamortized Ceding Commission
Adjustment, determined in accordance with
Paragraph 3 below.
With respect, however, to the Accounting Period during which
the Effective Date of this Agreement occurs, the reference in
(i) to the "end of the preceding Accounting Period" refers to
the Effective Date of this Agreement immediately after the
Ceding
- 9 -
60
Commission, as described in Paragraph 1 above, has been paid.
The Unamortized Ceding Commission may never be less than zero.
In the Accounting Period during which (i) plus (ii) minus
(iii) as described above, first becomes zero or negative,
then, for that and all subsequent Accounting Periods, the
Unamortized Ceding Commission will be set equal to zero.
3. Unamortized Ceding Commission Adjustment. The Unamortized
Ceding Commission Adjustment at the end of each Accounting
Period equals (i) minus (ii) minus (iii) minus (iv) minus (v),
where:
(i) equals the Reinsurance Gain or Reinsurance
Loss, determined in accordance with Article
VII;
(ii) equals the Loss Carryforward, determined in
accordance with Article VIII, Paragraph 1,
item (i), at the end of the preceding
Accounting Period with accrued interest
thereon;
(iii) equals the Interest Expense Charge,
determined in accordance with Article II,
Paragraph 4;
(iv) equals the Interest on the Unamortized
Ceding Commission, determined in accordance
with Paragraph 9 below; and
(v) equals the Expense and Risk Charge,
determined in accordance with Article VI,
Paragraph 2.
However, in no event will the Unamortized Ceding Commission
Adjustment be less than zero or exceed the lesser of:
(1) the sum of (A) plus (B), where:
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61
(A) equals the Unamortized Ceding
Commission, determined in accordance
with Paragraph 2 above, at the end
of the preceding Accounting Period;
and
(B) equals the Ceding Commission Rate,
as described in Article III,
Paragraph 1, times the Reinsurance
Premiums, determined in accordance
with Article II, Paragraph 2, but
not to exceed $4 million for the
current calendar year, or
(2) the Maximum Unamortized Ceding Commission
Adjustment, as described in Paragraph 4
below.
Notwithstanding anything to the contrary in this Agreement, if
the Unamortized Ceding Commission at the end of any Accounting
Period is still positive, but has been reduced during any
Accounting Period by an amount less than the Maximum
Unamortized Ceding Commission Adjustment, as described in
Paragraph 4 below, then such shortfall can be recovered from
future positive Unamortized Ceding Commission Adjustments.
4. Maximum Unamortized Ceding Commission Adjustment. The Maximum
Unamortized Ceding Commission Adjustment for each Accounting
Period is as follows:
- 11 -
62
Maximum Maximum
Unamortized Unamortized
Ceding Ceding
Commission Commission
For Adjustment Adjustment Maximum
Account- (For Amounts (For Amounts Unamortized
ing Paid During Paid During Ceding
Periods Initial 1994 Commission
Ending Accounting Calendar Adjustment
During Period) Year) (Total)
------ ----------- ----------- ----------
1994 $500,000 $ 0 $500,000
1995 through
1998 $500,000 $200,000 $700,000
1999 $ 0 $200,000 $200,000
2000 and there-
after $ 0 $ 0 $ 0
However, if in any Accounting Period (a) the Termination Rate,
as described in Paragraph 5 below, is greater than 0.30,
and/or (b) the Investment Credit Accumulation Rate, as
described in Paragraph 6 below, is less than zero, then the
Reinsurer may elect to define the Maximum Withheld Ceding
Commission Adjustment as any amount up to $14 million for the
first Accounting Period in the current calendar year and for
all Accounting Periods thereafter.
6. Investment Credit Accumulation Rate. For Accounting Periods
beginning January 1, 1995 and thereafter, the Investment
CreditAccumulation Rate in any Accounting Period equals (i) /
[.5 x {(ii) + (iii)}], where:
(i) equals the Modified Coinsurance Reserve
Investment Credit, as described in Schedule
C, for the current Accounting Period and the
three Accounting Periods immediately
preceding the current Accounting Period;
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63
(ii) equals the portion of the account value for
the annuities reinsured hereunder which
corresponds to the portion of the annuities
reinsured hereunder as of the date one year
prior to the date the current Accounting
Period ends; and
(iii) equals the portion of the account value for
the annuities reinsured hereunder which
corresponds to the portion of the annuities
reinsured hereunder as of the date the
current Accounting Period ends.
7. Allowances for Commissions and Expenses. The Reinsurer will
pay the Ceding Company Allowances for Commissions and Expenses
for each Accounting Period, equal to (i) plus (ii) plus (iii)
plus (iv) plus (v) plus (vi), where:
(i) equals (a) times (b), where:
(a) equals $7.50 times the quota share
percentage of the annuities
reinsured hereunder, as described in
Schedule A; and
(b) equals the number of annuities
reinsured hereunder and described in
Schedule A, and inforce at the end
of the current Accounting Period;
(ii) equals .0125 percent times that portion of
the account value of the annuities reinsured
hereunder which corresponds to the portion of
the annuities reinsured hereunder as of the
end of the current Accounting Period;
- 13 -
64
(iii) equals the Trailer Commission, as defined
below, times that portion of the account
value of the Venture Variable Annuity 3
annuities reinsured hereunder which
corresponds to the portion of the Venture
Variable Annuity 3 annuities reinsured
hereunder and described in Schedule A, as of
the end of the current Accounting Period;
(iv) equals (a) times (b), where:
(a) equals the Reinsurance Premiums,
determined in accordance with
Article II, Paragraph 2, with
respect to the Venture Variable
Annuity 3 annuities reinsured
hereunder which corresponds to the
portion of the Venture Variable
Annuity 3 annuities reinsured
hereunder and described in Schedule
A; and
(b) equals,
o for the Accounting Periods
beginning January 1, 1994
through October 1, 1994, 5.33
percent, and
o for the Accounting Periods
beginning January 1, 1995 and
thereafter, 7 percent;
(v) equals .25 percent times that portion of the
account value, attributable to purchase
payments received by the Ceding Company
thirteen (13) months or more prior to their
trailer commission payment dates, of the
Venture Vision annuities reinsured hereunder
which
- 14 -
65
corresponds to the portion of the Venture
Vision annuities reinsured hereunder and
described in Schedule A, as of the end of the
current Accounting Period; and
(vi) equals (a) times (b), where:
(a) equals the portion of Reinsurance
Premiums, determined in accordance
with Article II, Paragraph 2,
received by the Ceding Company
thirteen (13) months or more after
the issue date of each Venture
Vision annuity reinsured hereunder
which corresponds to the portion of
the Venture Vision annuities
reinsured hereunder and described in
Schedule A; and
(b) equals,
o for the Accounting Periods
beginning January 1, 1994
through October 1, 1994, 1.83
percent, and
o for the Accounting Periods
beginning January 1, 1995 and
thereafter, 3.5 percent.
The Trailer Commission for Venture Variable Annuity 3
annuities for each Accounting Period is defined below:
- 15 -
66
For Accounting
Periods Ending During Trailer Commission
--------------------- ---------------------------
1994 .04%
1995 .05%
1996 .055%
1997 and thereafter .0625%
9. Interest on the Unamortized Ceding Commission. The Ceding
Company will pay the Reinsurer Interest on the Unamortized
Ceding Commission at the end of each Accounting Period,
subsequent to the initial Accounting Period, equal to [(i) x
(ii)] + [(iii) x (iv)] + [(v) x (vi)] + [(vii) x (viii)] +
[(ix) x (x)], where:
(i) equals the portion of the Unamortized
Ceding Commission, determined in accordance
with Paragraph 2 above, paid by the
Reinsurer to the Ceding Company as Ceding
Commission during the initial Accounting
Period in accordance with Paragraph 1
above, calculated as of the end of the
preceding Accounting Period;
(ii) equals the Interest Expense Rate, as
described in Article II, Paragraph 5;
(iii) equals, for the Accounting Periods
beginning April 1, 1994 and thereafter, the
portion of the Unamortized Ceding
Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to
the Ceding Company as Ceding Commission, in
accordance with Paragraph 1 above,
- 16 -
67
for the first Accounting Period in the 1994
calendar year;
(iv) equals,
o for the Accounting Periods beginning
April 1, 1994 through December 31,
1994, 43.75 basis points, plus [(a)
/ (b)] x (c), where:
(a) equals the funds transfer
pricing rate as determined by
ITT Financial Corporation's
Treasury Department for ITT
Financial Corporation debt for
the number of days remaining
in the current calendar year
measured from the quarterly
settlement date, as described
in Article X, for the first
Accounting Period in the 1994
calendar year;
(b) equals the number of days
remaining in the current
calendar year measured from
the quarterly settlement date,
as described in Article X, for
the first Accounting Period in
the 1994 calendar year; and
(c) equals,
o for the Accounting
Period beginning April
1, 1994, the number of
days remaining in the
Accounting Period
measured from the
quarterly settlement
date, as described in
- 17 -
68
Article X, for the first
Accounting Period in the
1994 calendar year; and
o for the Accounting
Periods beginning July
1, 1994 and October 1,
1994, the number of days
in the current
Accounting Period; and
o for the Accounting Periods beginning
January 1, 1995 and thereafter, the
Loss Carryforward Rate, as described
in Article VIII, Paragraph 2;
(v) equals, for the Accounting Periods
beginning July 1, 1994 and thereafter, the
portion of the Unamortized Ceding
Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to
the Ceding Company as Ceding Commission, in
accordance with Paragraph 1 above, for the
second Accounting Period in the 1994
calendar year; and
(vi) equals,
o for the Accounting Periods beginning
July 1, 1994 and October 1, 1994,
43.75 basis points, plus [(a) / (b)]
x (c), where:
(a) equals the funds transfer
pricing rate as determined by
ITT Financial Corporation's
Treasury Department for ITT
Financial Corporation debt for
the number of days
- 18 -
69
remaining in the current
calendar year measured from the
quarterly settlement date, as
described in Article X, for the
second Accounting Period in the
1994 calendar year;
(b) equals the number of days
remaining in the current
calendar year measured from the
quarterly settlement date, as
described in Article X, for the
second Accounting Period in the
1994 calendar year; and
(c) equals,
o for the Accounting Period
beginning July 1, 1994, the
number of days remaining in the
Accounting Period measured from
the quarterly settlement date,
as described in Article X, for
the second Accounting Period in
the 1994 calendar year; and
o for the Accounting Period
beginning October 1, 1994, the
number of days in the current
Accounting Period;
(vii) equals, for the Accounting Periods
beginning October 1, 1994 and thereafter,
the portion of the Unamortized Ceding
Commission, determined in accordance with
Paragraph 2 above, paid by the
- 19 -
70
Reinsurer to the Ceding Company as Ceding
Commission, in accordance with Paragraph 1
above, for the third Accounting Period in
the 1994 calendar year;
(viii) equals,
o for the Accounting Period beginning
October 1, 1994, 43.75 basis points,
plus [(a) / (b)] x (c), where:
(a) equals the funds transfer
pricing rate as determined by
ITT Financial Corporation's
Treasury Department for ITT
Financial Corporation debt for
the number of days remaining in
the current calendar year
measured from the quarterly
settlement date, as described in
Article X, for the third
Accounting Period in the 1994
calendar year;
(b) equals the number of days
remaining in the current
calendar year measured from the
quarterly settlement date, as
described in Article X, for the
third Accounting Period in the
1994 calendar year;
(c) equals the number of days
remaining in the Accounting
Period measured from the
quarterly settlement date, as
described in
- 20 -
71
Article X, for the third
Accounting Period in the 1994
calendar year; and
o for the Accounting Periods beginning
January 1, 1995 and thereafter, the
Loss Carryforward Rate, as described
in Article VIII, Paragraph 2;
(ix) equals, for the Accounting Periods
beginning January 1, 1995 and thereafter,
the portion of the Unamortized Ceding
Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to
the Ceding Company as Ceding Commission, in
accordance with Paragraph 1 above, for the
fourth Accounting Period in the 1994
calendar year; and
(x) equals,
o for the Accounting Period beginning
January 1, 1995, [(a) / (b)] x (c),
where:
(a) equals the Loss Carryforward
Rate, as described in Article
VIII, Paragraph 2;
(b) equals the number of days in
the current Accounting
Period; and
(c) equals the number of days
remaining in the Accounting
Period measured from the
quarterly settlement date, as
described in Article X, for
the fourth Accounting Period
in the 1994 calendar year;
and
- 21 -
72
o for the Accounting Periods beginning
April 1, 1995 and thereafter, the
Loss Carryforward Rate, as described
in Article VIII, Paragraph 2.
III. ARTICLE XI, DURATION AND RECAPTURE, Paragraph 5, is replaced in its
entirety by the following:
5. Internal Replacements. Should the Ceding Company, its
affiliates, successors or assigns, initiate a program of
Internal Replacement that would include any of the annuities
reinsured hereunder, the Ceding Company will immediately
notify the Reinsurer. The Reinsurer may elect to treat such
annuities as recaptured rather than surrendered, and such
recapture will apply to all annuities reinsured hereunder.
For purposes of this Agreement, the term "Internal
Replacement" means any instance in which an annuity or any
portion of the cash value of an annuity is exchanged for
another policy or annuity, not covered under this Agreement,
which is written by the Ceding Company, its affiliates,
successors or assigns. Internal Replacements initiated by
policyholders and allowed by the Ceding Company will not be
considered Internal Replacements for purposes of this
Paragraph unless the total cash value rolled over by such
Internal Replacements in any four consecutive Accounting
Periods exceeds 10 percent of the account values as of the
date one year prior to the date the current Accounting Period
ends.
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73
IV. ARTICLE VI, EXPENSE AND RISK CHARGES, Paragraph 2, is replaced in its
entirety by the following:
2. Expense and Risk Charge. The Expense and Risk Charge for each
Accounting Period subsequent to the initial Accounting Period,
payable to the Reinsurer by the Ceding Company, will be equal
to the sum of (i) and (ii), where:
(i) equals the Expense and Risk Charge Rate, as
defined below, times the Loss Carryforward,
determined in accordance with Article VIII,
Paragraph 1, item (i), at the end of the
preceding Accounting Period, with accrued
interest thereon; and
(ii) equals the Expense and Risk Charge Rate, as
defined below, times the Expense and Risk
Charge Base, as defined below.
The Expense and Risk Charge Rate for each Accounting Period is
defined as follows:
For Accounting Expense and
Periods Ending During Risk Charge Rate
--------------------- ----------------
1994 through 1999 .4125%
2000 and thereafter .4142%
The Expense and Risk Charge Base for each Accounting Period is
defined as follows:
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74
For Accounting
Periods Ending During Expense and Risk Charge Base
--------------------- ----------------------------
1994 through 1999 greater of either (a) the
Unamortized Ceding
Commission, determined in
accordance with Article III,
Paragraph 2, at the end of
the preceding Accounting
Period, plus the Ceding
Commission Rate, as described
in Article III, Paragraph 1,
times the Reinsurance
Premiums, determined in
accordance with Article II,
Paragraph 2, but not to
exceed $4 million for the
current calendar year, minus
the Maximum Unamortized
Ceding Commission Adjustment,
determined in accordance with
Article III, Paragraph 4, or
(b) quantity (iii) as defined
below, but never less than
zero
2000 and thereafter (iii) below, but never less
than zero, where:
(iii) equals (a) plus (b) plus (c) minus (d)
minus (e) minus (f), where:
(a) equals the Unamortized Ceding
Commission, determined in accordance
with Article III, Paragraph 2, at
the end of the preceding Accounting
Period;
(b) equals the Ceding Commission Rate,
as described in Article III,
Paragraph 1, times the Reinsurance
Premiums, determined in accordance
with Article II, Paragraph 2, but
not to exceed $4 million for the
current calendar year;
(c) equals the absolute value of any
Reinsurance Loss, determined in
accordance with Article VII;
- 24 -
75
(d) equals any Reinsurance Gain,
determined in accordance with Article
VII;
(e) equals the Interest Expense Charge,
determined in accordance with Article
II, Paragraph 4; and
(f) equals the Interest on the
Unamortized Ceding Commission,
determined in accordance with
Article III, Paragraph 9.
In no event will the Expense and Risk Charge payable be less
than $20,000 for any Accounting Period after December 31, 1999.
V. ARTICLE X, ACCOUNTING AND SETTLEMENTS, Paragraph 4, is replaced in its
entirety by the following:
4. Quarterly Settlements.
A. Within fifteen (15) days after the end of each
Accounting Period, the Ceding Company will pay the
Reinsurer the sum of: (i) the Reinsurance Premiums
paid by the Ceding Company to the Reinsurer during the
current Accounting Period, determined in accordance
with Article II, Paragraph 2, plus (ii) any Modified
Coinsurance Reserve Adjustment payable to the
Reinsurer, determined in accordance with Article V,
Paragraph 2, plus (iii) any Funds Withheld payable to
the Reinsurer during the current Accounting Period in
accordance with the terms of the Accounts Receivable
Agreement, determined in accordance with Article II,
Paragraph 3, item (ii).
- 25 -
76
B. Simultaneously, the Reinsurer will pay the Ceding
Company the sum of: (i) the amount of Benefit
Payments, as described in Article IV, plus (ii)
Allowances for Commissions and Expenses, determined in
accordance with Article III, Paragraph 7, plus (iii)
Allowances for Death Benefit Guarantee, determined in
accordance with Article III, Paragraph 8, plus (iv)
any Modified Coinsurance Reserve Adjustment payable to
the Ceding Company, determined in accordance with
Article V, Paragraph 2, plus (v) any Experience
Refund, determined in accordance with Article IX.
VI. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety
by the following:
Annuities and Risks Reinsured. The amount of reinsurance
under this Agreement will be a quota share of the Ceding
Company's net liability on those variable annuities issued by
the Ceding Company and described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
---- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1994 95% VEN 10
"Net liability," as used in this Agreement, means the Ceding
Company's liability on annuities reinsured hereunder.
VII. SCHEDULE B, QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS, is replaced
in its entirety by Exhibit A.
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77
VIII. The following SCHEDULE E, RATES, is added to this Agreement:
SCHEDULE E
RATES
1. Funds Withheld Rate. The Funds Withheld Rate for each
Accounting Period is defined as follows:
For Accounting Funds
Period Ending During Withheld Rate
-------------------- -------------
1993 0%
1994 2.5%
1995 and thereafter 0%
2. Ceding Commission Rate. The Ceding Commission Rate for each
Accounting Period, subsequent to the initial Accounting
Period, is defined as follows:
For Accounting Ceding
Periods Ending During Commission Rate
--------------------- ---------------
1994 1.67%
1995 and thereafter 0%
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78
In witness of the above, this Amendment One is executed in duplicate on the
dates indicated below, with an Effective Date of January 1, 1994.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Ceding Company")
By: Xxxxx X. Xxxxxxxxx By: Xxxx X. Xxxxxx
------------------------- ------------------------
Title: V.P., Secretary
& General Counsel Title: V.P. & Actuary
------------------------- -------------------------
Date: 6/28/94 Date: 6/28/94
------------------------- -------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: Xxxxxxx X. Xxxxxxxxx By: Xxxxx X. Xxxxxxx
------------------------- -------------------------
Title: V.P. & Deputy Chief Actuary Title: Executive V.P.
------------------------- -------------------------
Date: 6/29/94 Date: 6/29/94
------------------------- ------------------------
- 28 -
79
EXHIBIT A
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period: ______________
Calendar Year: _________________
Date Report Completed: __________
1. Initial Consideration (Article II, Paragraph 1)*
a. Initial Consideration ________
b. Amount of Initial Consideration withheld by
Ceding Company ________
Portion of Initial Consideration paid in cash
= a - b ________
2. Reinsurance Premiums (Article II, Paragraph 2)
a. Reinsurance Premiums
A. Venture Variable Annuity 3 Reinsurance
Premiums
--------
B. Venture Vision Reinsurance Premiums -
first policy year
--------
C. Venture Vision Reinsurance Premiums -
renewal
--------
Total Reinsurance Premiums = A + B + C
---------
b. Amount of Reinsurance Premiums withheld by
Ceding Company
---------
Portion of Reinsurance Premiums paid in cash
= a - b ________
--------
3. Benefit Payments (Article IV)
a. Death Benefits --------
b. Cash Surrender Values --------
c. Annuity Benefits --------
Benefit Payments = a + b + c
--------
4. Initial Reserve Adjustment (Article V, Paragraph 1)*
--------
5. Modified Coinsurance Reserve Adjustment (Article V, Paragraph 2)
a. Modified Coinsurance Reserve end of
preceding Accounting Period --------
b. Modified Coinsurance Reserve end of
current Accounting Period --------
c. Equals b - a --------
d. Modified Coinsurance Reserve Investment
Credit (Schedule C) --------
Modified Coinsurance Reserve Adjustment = c - d
--------
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80
6. Reinsurance Gain = 0x - 0 - 0 - 00 - 00
(Xx negative, see Article VII) ________
81
EXHIBIT A continued
7. Reinsurance Loss = 0x - 0 - 0 - 00 - 00
(Xx positive, see Article VII) ________
8. Loss Carryforward [Article VIII, Paragraph 1, item (i)] ________
9. Initial Expense and Risk Charge (Article VI, Paragraph 1)* ________
10. Expense and Risk Charge (Article VI, Paragraph 2) ________
11. Ceding Commission (Article III, Paragraph 1) ________
12. Unamortized Ceding Commission (Article III, Paragraph 2) ________
13. Unamortized Ceding Commission Adjustment
(Article III, Paragraph 3) ________
14. Allowances for Commissions and Expenses
(Article III, Paragraph 7) ________
15. Allowances for Death Benefit Guarantee
(Article III, Paragraph 8) ________
16. Experience Refund = 6 + 0 - 0 - 00 - 00 - 00 - 00
(Xx negative, see Article IX) ________
17. Funds Withheld payment [Article II, Paragraph 3, item (ii)] ________
18. Funds Withheld = Prior 18 + 1b + 2b - 17
(Article II, Paragraph 3) ________
19. Interest Expense Charge (Article II, Paragraph 4) ________
20. Interest on the Unamortized Ceding Commission
(Article III, Paragraph 9) ________
21. Cash Settlement =
1 + 2 - 3 - 4 - 5 + 9 - 11 - 14 - 15 - 16 + 17 ========
*Initial Accounting Period, only.
Supplemental Information
Venture
Total Variable Venture
Number Annuity 3 Vision Total
of Account Account Account Loss
Annuities Value Value Value Carryforward
--------- --------- ------- ------- ------------
Beginning of Period
--------- --------- ------- ------- ------------
82
+ Additions
--------- --------- ------- ------- ------------
- Terminations
--------- --------- ------- ------- ------------
End of Period
========= ========= ======= ======= ============
83
EXHIBIT A continued
Venture Venture
Variable Vision
Annuity 3 Number
Number of of
Annuities Annuities
--------- ---------
Beginning of Period
--------- ---------
+ Additions
--------- ---------
- Terminations
--------- ---------
End of Period
========= =========
Termination Rate (Article III, Paragraph 5)
a. Total number of annuities reinsured hereunder as of
date current Accounting Period ends ________
b. Total number of annuities reinsured hereunder as of
the date one year prior to the date the current
Accounting Period ends ________
c. Termination Rate 1 - (a / b) ========
Investment Credit Accumulation Rate (Article III, Paragraph 6)
a. Modified Coinsurance Reserve Investment Credit
Current Accounting Period ________
First most recent Accounting Period ________
Second most recent Accounting Period ________
Third most recent Accounting Period ________ ________
b. Account value as of date one year prior to date
current Accounting Period ends ________
c. Account value as of date current Accounting Period ends ________
d. Investment Credit Accumulation Rate
a / [.5 x (b + c)] ========
Allowances for Commissions and Expenses (Article III, Paragraph 7)
a. $7.50 x quota share reinsured hereunder x number of annuities
reinsured hereunder and inforce at end of current Accounting
Period _________
b. .0125 x portion of account value of annuities reinsured
84
hereunder at end of current Accounting Period _________
85
EXHIBIT A continued
c. Trailer Commission x portion of account value of Venture
Variable Annuity 3 annuities reinsured hereunder and inforce
at end of current Accounting Period _________
d. ___% x Reinsurance Premiums with respect to Venture Variable
Annuity 3 annuities reinsured hereunder _________
e. .25% x portion of account value, attributable to purchase
payments received by Ceding Company thirteen months or more
prior to their trailer commission dates, of Venture Vision
annuities reinsured hereunder and inforce at end of current
Accounting Period _________
f. ___% x renewal Reinsurance Premiums with respect to Venture
Vision annuities reinsured hereunder _________
g. Allowances for Commissions and Expenses =
a + b + c + d + e + f =========
86
AMENDMENT TWO
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
"REINSURER"
87
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety by
the following:
Annuities and Risks Reinsured. The amount of reinsurance under this
agreement will be a quota share of the Ceding Company's net liability
on those variable annuities issued by the Ceding Company and described
below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
---- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1994 95% VEN 10
Venture Vision 1994 95% VISION.001
"Net liability," as used in this Agreement, means the Ceding Company's
liability on annuities reinsured hereunder.
II. The following is added to SCHEDULE D, CEDING COMPANY DATA:
- Letter dated September 14, 1994 from Xxxxx Seller of the Ceding
Company to Xxxxxxx Xxxxxxxxx of the Reinsurer containing the Venture
Vision 25 policy form and a chart showing a comparison of Vision 25
and Vision 5
-1-
88
In witness of the above, this Amendment Two is executed in duplicate on the date
indicated below, with an Effective Date of January 1, 1994.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Ceding Company")
By: Xxxxx X. Xxxxxxxxx By: Xxxx X. Xxxxxx
----------------------------- --------------------------------
Title: V.P., Secretary
& General Counsel Title: V.P. & Actuary
----------------------------- --------------------------------
Date: 10/10/94 Date: 10/10/94
----------------------------- --------------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: Xxxxxxx X. Xxxxxxxxx By: Xxxxx X. Xxxxxxx
----------------------------- --------------------------------
Title: V.P. & Deputy Chief Actuary Title: Executive V.P.
----------------------------- --------------------------------
Date: 10/5/94 Date: 10/5/94
----------------------------- --------------------------------
-2-
89
AMENDMENT THREE
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
"REINSURER"
90
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. ARTICLE II, INITIAL CONSIDERATION AND REINSURANCE PREMIUMS, Paragraphs 1, 3
and 4, are replaced in their entirety by the following:
1. Initial Consideration. On the Effective Date of this Agreement, the
Ceding Company will pay the Reinsurer an Initial Consideration equal
to 100 percent of the Modified Coinsurance Reserve, as defined in
Article V, Paragraph 3, calculated as of the Effective Date of this
Agreement with respect to the annuities assumed as of such date and
described in Schedule A. Simultaneously with the payment of the
Initial Consideration, the Ceding Company will withhold on behalf of
the Reinsurer 3.2 percent of the Initial Consideration, calculated as
of the Effective Date of this Agreement, in accordance with Paragraph
3 below, but not to exceed $15 million. On December 31, 1994, the
Ceding Company will pay the Reinsurer a Supplemental Consideration
equal to 100 percent of the Modified Coinsurance Reserve, as defined
in Article V, Paragraph 3, calculated as of December 31, 1994 with
respect to the annuities assumed as of December 31, 1994 and described
in Schedule A.
3. Funds Withheld. The Ceding Company and the Reinsurer have entered into
the "Accounts Receivable Agreement" attached to this Agreement as
Exhibit A. Pursuant to the terms of the Accounts Receivable Agreement,
the Ceding Company will withhold on behalf of the Reinsurer the
amounts described in Paragraphs 1 and 2
-1-
91
above. The amount withheld by the Ceding Company will be credited to
the Reinsurer and will be considered as an amount held on behalf of
the Reinsurer. The Reinsurer will consider such amount as a receivable
and the Ceding Company will consider such amount as a payable. Such
amount withheld will be subject to repayment in accordance with the
terms of the Accounts Receivable Agreement. The Funds Withheld at the
end of each Accounting Period will be equal to (i) plus (ii) minus
(iii), where:
(i) equals the Funds Withheld at the end of the preceding
Accounting Period;
(ii) for the Accounting Period ending March 31, 1994 through
September 30, 1994 only, equals the Funds Withheld Rate, as
described in Schedule E, Paragraph 1, times the Reinsurance
Premiums, determined in accordance with Paragraph 2 above,
but not to exceed $6 million for the current calendar year;
and
(iii)equals any payment by the Ceding Company to the Reinsurer
of any amount withheld, as described in items (i) and (ii)
above, during the Accounting Period in accordance with the
Accounts Receivable Agreement.
With respect, however, to the Accounting Period during which the Effective
Date of this Agreement occurs, the reference in (i) above to "the Funds
Withheld at the end of the preceding Accounting Period" means 3.2 percent
of the Initial Consideration, determined in accordance with Paragraph 1
above, but not to exceed $15 million.
-2-
92
In no event will the Funds Withheld at the end of any Accounting Period
exceed 50 percent of the Ceding Company's total statutory capital and
surplus as of the end of the preceding calendar year.
4. Interest Expense Charge. The Ceding Company will pay the Reinsurer an
Interest Expense Charge at the end of each Accounting Period equal to [(i)
x (ii)] + [(iii) x (iv)] + [(v) x (vi)] + [(vii) x (viii)] + [(ix) x (x)],
where:
(i) equals any amounts withheld in accordance with Paragraph 1 above, as
of the end of the preceding Accounting Period and for which payment is
not yet due to the Reinsurer, as described in the Accounts Receivable
Agreement;
(ii) equals the Interest Expense Rate, as described in Paragraph 5 below;
(iii)equals, for the Accounting Periods beginning April 1, 1994 and
thereafter, any amounts withheld, in accordance with Paragraph 2
above, during the first Accounting Period in the 1994 calendar year
and for which payment is not yet due to the Reinsurer, as described in
the Accounts Receivable Agreement;
(iv) equals,
- for the Accounting Periods beginning April 1, 1994 through
December 31, 1994, 43.75 basis points, plus [(a) / (b)] x (c),
where:
(a) equals the funds transfer pricing rate as determined by ITT
Financial Corporation's
-3-
93
Treasury Department for ITT Financial Corporation debt for
the number of days remaining in the current calendar year
measured from the quarterly settlement date, as described in
Article X, for the first Accounting Period in the 1994
calendar year;
(b) equals the number of days remaining in the current calendar
year measured from the quarterly settlement date, as
described in Article X, for the first Accounting Period in
the 1994 calendar year; and
(c) equals,
- for the Accounting Period beginning April 1, 1994, the
number of days remaining in the Accounting Period
measured from the quarterly settlement date, as
described in Article X, for the first Accounting Period
in the 1994 calendar year; and
- for the Accounting Periods beginning July 1, 1994 and
October 1, 1994, the number of days in the current
Accounting Period;
-4-
94
- for the Accounting Periods beginning January 1, 1995
and thereafter, the Loss Carryforward Rate, described
in Article VIII, Paragraph 2;
(v) equals, for the Accounting Periods beginning July 1, 1994
and thereafter, any amounts withheld, in accordance with
Paragraph 2 above, during the second Accounting Period in
the 1994 calendar year and for which payment is not yet due
to the Reinsurer, as described in the Accounts Receivable
Agreement;
(vi) equals,
- for the Accounting Periods beginning July 1, 1994 and
October 1, 1994, 43.75 basis points, plus [(a) / (b)] x
(c), where:
(a) equals the funds transfer pricing rate as
determined by ITT Financial Corporation's Treasury
Department for ITT Financial Corporation debt for
the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in Article X, for
the second Accounting Period in the 1994 calendar
year;
(b) equals the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in
-5-
95
Article X, for the second Accounting Period in the 1994
calendar year; and
(c) equals,
- for the Accounting Period beginning July 1, 1994,
the number of days remaining in the Accounting
Period measured from the quarterly settlement
date, as described in Article X, for the second
Accounting Period in the 1994 calendar year; and
- for the Accounting Periods beginning October 1,
1994, the number of days in the current Accounting
Period; (vii) equals, for the Accounting Periods
beginning October 1, 1994 and thereafter, any
amounts withheld, in accordance with Paragraph 2
above, during the third Accounting Period in the
1994 calendar year and for which payment is not
yet due to the Reinsurer, as described in the
Accounts Receivable Agreement;
(viii) equals,
- for the Accounting Periods beginning October 1,
1994, 43.75 basis points, plus [(a) / (b)] x (c),
where:
(a) equals the funds transfer pricing rate as
determined by ITT Financial Corporation's
-6-
96
Treasury Department for ITT Financial Corporation
debt for the number of days remaining in the
current calendar year measured from the quarterly
settlement date, as described in Article X, for
the third Accounting Period in the 1994 calendar
year;
(b) equals the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in Article X, for
the third Accounting Period in the 1994 calendar
year; and
(c) equals the number of days remaining in the
Accounting Period measured from the quarterly
settlement date, as described in Article X, for
the third Accounting Period in the 1994 calendar
year; and
- for the Accounting Periods beginning January 1, 1995
and thereafter, the Loss Carryforward Rate, as
described in Article VIII, Paragraph 2;
(ix) equals any amounts withheld in accordance with items (i) and
(ii) of Paragraph 3 above, which have not been paid by the
Ceding Company to the Reinsurer at the end of the preceding
Accounting Period and for which payment is due to the
Reinsurer, as described in the Accounts Receivable
Agreement; and
-7-
97
(x) equals the Loss Carryforward Rate, as described in Article
VIII, Paragraph 2.
II. ARTICLE III, COMMISSIONS AND ALLOWANCES, Paragraphs 1, 2, 4, 5 and 6, are
replaced in their entirety by the following:
1. Ceding Commission. Simultaneously with the payment of the Initial
Consideration, the Reinsurer will pay a Ceding Commission to the
Ceding Company equal to 2.2 percent times the Initial Consideration,
determined in accordance with Article II, Paragraph 1, but not to
exceed $10 million. Simultaneously with the payment of the
Supplemental Consideration, the Reinsurer will pay a Ceding Commission
to the Ceding Company equal to 3.58 percent times the Supplemental
Consideration, determined in accordance with Article II, Paragraph 1,
but not to exceed $5.2 million. For Accounting Periods beginning
January 1, 1994 and thereafter, the Reinsurer will pay a Ceding
Commission to the Ceding Company equal to the Ceding Commission Rate,
as described in Schedule E, Paragraph 2, times the Reinsurance
Premiums, determined in accordance with Article II, Paragraph 2, but
not to exceed $4 million for the current calendar year.
2. Unamortized Ceding Commission. The Unamortized Ceding Commission at
the end of each Accounting Period equals (i) plus (ii) plus (iii)
minus (iv), where:
(i) equals the Unamortized Ceding Commission at the end of the
preceding Accounting Period;
-8-
98
(ii) equals the Ceding Commission Rate, as described in Schedule
E, Paragraph 2, times the Reinsurance Premiums, determined
in accordance with Article II, Paragraph 2, but not to
exceed $4 million for the current calendar year;
(iii) for the Accounting Period ending December 31, 1994 only,
equals 3.58 percent times the Supplemental Consideration,
determined in accordance with Article II, Paragraph 1, but
not to exceed $5.2 million; and
(iv) equals the Unamortized Ceding Commission Adjustment,
determined in accordance with Paragraph 3 below.
With respect, however, to the Accounting Period during which the
Effective Date of this Agreement occurs, the reference in (i) to the
"end of the preceding Accounting Period" refers to the Effective Date
of this Agreement immediately after the Ceding Commission, as
described in Paragraph 1 above, has been paid. The Unamortized Ceding
Commission may never be less than zero. In the Accounting Period
during which (i) plus (ii) plus (iii) minus (iv) as described above,
first becomes zero or negative, then, for that and all subsequent
Accounting Periods, the Unamortized Ceding Commission will be set
equal to zero.
4. Maximum Unamortized Ceding Commission Adjustment. The Maximum
Unamortized Ceding Commission Adjustment for each Accounting Period is
as follows:
Maximum Unamortized
Ceding Commission Maximum Unamortized
Adjustment Ceding Commission
For Accounting (For Amounts Paid Adjustment (For
-9-
99
Periods Ending During Initial Amounts Paid During
During Accounting Period) 1994 Calendar Year)
-------------- -------------------- -------------------
1994 $500,000 $0
1995 through $500,000 5 percent of the
1998 cumulative Ceding
Commission paid by the
Reinsurer to the Ceding
Company during the 1994
calendar year in
accordance with Article
III, Paragraph 1
1999 $ 0 5 percent of the
cumulative Ceding
Commission paid by the
Reinsurer to the Ceding
Company during the 1994
calendar year in
accordance with Article
III, Paragraph 1
2000 and thereafter $ 0 $0
However, if in any Accounting Period (a) the Termination Rate,
as described in Paragraph 5 below, is greater than 0.30,
and/or (b) the Investment Credit Accumulation Rate, as
described in Paragraph 6 below, is less than zero, then the
Reinsurer may elect to define the Maximum Withheld Ceding
Commission Adjustment as any amount up to $14 million for the
first Accounting Period in the current calendar year and for
all Accounting Periods thereafter.
5. Termination Rate. For Accounting Periods beginning January
1, 1995 and thereafter, the Termination Rate in any
Accounting Period equals 1 - [(i) / (ii)], where:
(i) equals the total number of annuities reinsured
hereunder and described in Schedule A, as of the date
the current Accounting Period ends; and
(ii) equals the total number of annuities reinsured
hereunder and described in Schedule A, as of the date
-10-
100
one year prior to the date the current Accounting
Period ends.
6. Investment Credit Accumulation Rate. For Accounting Periods beginning
January 1, 1996 and thereafter, the Investment Credit
Accumulation Rate in any Accounting Period equals
(i) / [.5 x {(ii) + (iii)}], where:
(i) equals the Modified Coinsurance Reserve Investment
Credit, as described in Schedule C, for the current
Accounting Period and the three Accounting Periods
immediately preceding the current Accounting Period;
(ii) equals the portion of the account value for the
annuities reinsured hereunder which corresponds to the
portion of the annuities reinsured hereunder as of the
date one year prior to the date the current Accounting
Period ends; and
(iii) equals the portion of the account value for the
annuities reinsured hereunder which corresponds to the
portion of the annuities reinsured hereunder as of the
date the current Accounting Period ends.
III. ARTICLE VI, EXPENSE AND RISK CHARGES, Paragraph 2, is replaced in its
entirety by the following:
2. Expense and Risk Charge. The Expense and Risk Charge for each
Accounting Period subsequent to the initial Accounting Period, payable
to the Reinsurer by the Ceding Company, will be equal to (i) plus (ii)
plus (iii), where:
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101
(i) equals the Expense and Risk Charge Rate, as defined below, times
the Loss Carryforward, determined in accordance with Article
VIII, Paragraph 1, item (i), at the end of the preceding
Accounting Period, with accrued interest thereon;
(ii) equals the Expense and Risk Charge Rate, as defined below, times
the Expense and Risk Charge Base, as defined below; and
(iii)for the Accounting Period ending December 31, 1994 only, equals
1.0 percent times 3.2 percent of the Supplemental Consideration,
determined in accordance with Article II, Paragraph 1, but not to
exceed 1.65 percent times $5.2 million.
The Expense and Risk Charge Rate for each Accounting Period is defined as
follows:
For Accounting Expense and
Periods Ending During Risk Charge Rate
--------------------- ----------------
1994 through 1999 .4125%
2000 and thereafter .4142%
The Expense and Risk Charge Base for each Accounting Period is defined as
follows:
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102
For Accounting Expense and
Periods Ending During Risk Charge Base
--------------------- ----------------
1994 through 1999 greater of either (a) the Unamortized Ceding Commission,
determined in accordance with Article III,
Paragraph 2, at the end of the preceding Accounting
Period, plus the Ceding Commission Rate, as
described in Article III, Paragraph 1, times the
Reinsurance Premiums, determined in accordance with
Article II, Paragraph 2, but not to exceed $4
million for the current calendar year, minus the
Maximum Unamortized Ceding Commission Adjustment,
determined in accordance with Article III,
Paragraph 4, or (b) quantity (iv) as defined below,
but never less than zero
2000 and thereafter (iv) below, but never less than zero, where:
(iv) equals (a) plus (b) plus (c) minus (d) minus (e) minus (f), where:
(a) equals the Unamortized Ceding Commission, determined in
accordance with Article III, Paragraph 2, at the end of the
preceding Accounting Period;
(b) equals the Ceding Commission Rate, as described in Article III,
Paragraph 1, times the Reinsurance Premiums, determined in
accordance with Article II, Paragraph 2, but not to exceed $4
million for the current calendar year;
(c) equals the absolute value of any Reinsurance Loss, determined in
accordance with Article VII;
-13-
103
(d) equals any Reinsurance Gain, determined in accordance with
Article VII;
(e) equals the Interest Expense Charge, determined in accordance with
Article II, Paragraph 4; and
(f) equals the Interest on the Unamortized Ceding Commission,
determined in accordance with Article III, Paragraph 9.
In no event will the Expense and Risk Charge payable be less than $20,000
for any Accounting Period after December 31, 1999.
IV. ARTICLE VII, REINSURANCE GAINS AND LOSSES, is replaced in its entirety by
the following:
Formula. A Reinsurance Gain or Reinsurance Loss will be calculated for each
Accounting Period and will be equal to the excess of (i) over (ii), where:
(i) equals the sum of:
(a) Reinsurance Premiums, determined in accordance with Article II,
Paragraph 2, plus
(b) any Supplemental Consideration payable during the current
Accounting Period, determined in accordance with Article II,
Paragraph 1; and
(ii) equals the sum of:
(a) Benefit Payments, as described in Article IV, plus
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104
(b) the Modified Coinsurance Reserve Adjustment, determined in
accordance with Article V, Paragraph 2, plus
(c) Allowances for Commissions and Expenses, determined in accordance
with Article III, Paragraph 7, plus
(d) Allowances for Death Benefit Guarantee, determined in accordance
with Article III, Paragraph 8.
A Reinsurance Gain results if the excess of (i) over (ii) is positive. A
Reinsurance Loss results if the excess of (i) over (ii) is negative.
V. ARTICLE X, ACCOUNTING AND SETTLEMENTS, Paragraphs 2 and 4, are replaced in
their entirety by the following:
2. Quarterly Accounting Reports. Quarterly accounting reports in the form
of Schedule B will be submitted to the Reinsurer by the Ceding Company
for each Accounting Period not later than fifteen (15) days after the
end of each Accounting Period. Such reports will include information
on the amount of Initial Consideration, Supplemental Consideration,
Reinsurance Premiums, Ceding Commission, Allowances for Commissions
and Expenses, Allowances for Death Benefit Guarantee, Benefit
Payments, Reinsurance Gains and Losses, Experience Refund, Loss
Carryforward, Funds Withheld, Interest Expense Charge, Unamortized
Ceding Commission, Unamortized Ceding Commission Adjustment, Interest
on the
-15-
105
Unamortized Ceding Commission, Expense and Risk Charges and Modified
Coinsurance Reserve.
4. Quarterly Settlements.
A. Within fifteen (15) days after the end of each Accounting Period,
the Ceding Company will pay the Reinsurer the sum of: (i) the
Reinsurance Premiums paid by the Ceding Company to the Reinsurer
during the current Accounting Period, determined in accordance
with Article II, Paragraph 2, plus (ii) any Modified Coinsurance
Reserve Adjustment payable to the Reinsurer, determined in
accordance with Article V, Paragraph 2, plus (iii) any Funds
Withheld payable to the Reinsurer during the current Accounting
Period in accordance with the terms of the Accounts Receivable
Agreement, determined in accordance with Article II, Paragraph 3,
item (iv), plus (iv) any Supplemental Consideration payable
during the current Accounting Period, determined in accordance
with Article II, Paragraph 1.
B. Simultaneously, the Reinsurer will pay the Ceding Company the sum
of: (i) the amount of Benefit Payments, as described in Article
IV, plus (ii) Allowances for Commissions and Expenses, determined
in accordance with Article III, Paragraph 7, plus (iii)
Allowances for Death Benefit Guarantee, determined in accordance
with Article III, Paragraph 8, plus (iv) any Modified Coinsurance
Reserve Adjustment payable to the Ceding Company, determined in
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106
accordance with Article V, Paragraph 2, plus (v) any Experience
Refund, determined in accordance with Article IX.
VI. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety by
the following:
Annuities and Risks Reinsured. Beginning on the Effective Date of this
Agreement, the Reinsurer reinsures a quota share of the Ceding
Company's net liability on those variable annuities issued by the
Ceding Company and described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
---- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1994 95% VEN 10
Venture Vision 1994 95% VISION.001
Beginning on December 31, 1994, under this Agreement the Reinsurer also
reinsures an additional 31 percent quota share of the Ceding Company's net
liability on those variable annuities issued by the Ceding Company and
described below:
Contract and
Plan Issue Years Certificate Numbers
---- ----------- -------------------
Venture Variable
Annuity 3 1987 - 1993 203-VA
"Net liability," as used in this Agreement, means the Ceding Company's
liability on annuities reinsured hereunder.
VII. SCHEDULE B, QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS, is replaced in
its entirety by Exhibit A.
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107
VIII The following is added to SCHEDULE D, CEDING COMPANY DATA:
- Quarterly settlement reports received under this Agreement since
inception
- The Modified Coinsurance Reserve equals the statutory reserve with
respect to the annuities reinsured hereunder, excluding mortality
reserves
In witness of the above, this Amendment Three is executed in duplicate on the
dates indicated below, with an Effective Date of December 31, 1994.
NORTH AMERICAN SECURITY LIFE
ATTEST: INSURANCE COMPANY ("Ceding Company")
By: Xxxxx X. Xxxxxxxxx By: Xxxx X. Xxxxxx
-------------------------------- -----------------------------------
Title: V.P., Secretary
& General Counsel Title: V.P. & Actuary
------------------------------ --------------------------------
Date: 12/30/94 Date: 12/30/94
------------------------------ --------------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: Xxxxxxx X. Xxxxxxxxx By: Xxxxx X. Xxxxxxx
-------------------------------- -----------------------------------
Title: V.P. & Deputy Chief Actuary Title: Executive V.P.
------------------------------ --------------------------------
Date: 12/28/94 Date: 12/28/94
------------------------------ --------------------------------
-18-
108
EXHIBIT A
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period:
-------------
Calendar Year:
-----------------
Date Report Completed:
---------
1. Initial Consideration (Article II, Paragraph 1)*
a. Initial Consideration
--------
b. Amount of Initial Consideration withheld by
Ceding Company
--------
Portion of Initial Consideration paid in cash
= a - b
---------
2. Supplemental Consideration (Article II, Paragraph 1)
---------
3. Reinsurance Premiums (Article II, Paragraph 2)
a. Reinsurance Premiums
A. Venture Variable Annuity 3 Reinsurance
Premiums
--------
B. Venture Vision Reinsurance Premiums -
first policy year
--------
C. Venture Vision Reinsurance Premiums -
renewal
--------
Total Reinsurance Premiums = A + B + C
---------
b. Amount of Reinsurance Premiums withheld by
Ceding Company
--------
Portion of Reinsurance Premiums paid in cash
= a - b
---------
4. Benefit Payments (Article IV)
a. Death Benefits
--------
b. Cash Surrender Values
--------
c. Annuity Benefits
--------
Benefit Payments = a + b + c
---------
5. Initial Reserve Adjustment (Article V, Paragraph 1)*
---------
6. Modified Coinsurance Reserve Adjustment (Article V, Paragraph 2)
a. Modified Coinsurance Reserve end of
preceding Accounting Period
--------
b. Modified Coinsurance Reserve end of
current Accounting Period
--------
c. Equals b - a
--------
d. Modified Coinsurance Reserve Investment
--------
109
Credit (Schedule C)
--------
Modified Coinsurance Reserve Adjustment = c - d
---------
110
EXHIBIT A continued
7. Reinsurance Gain = 0x - 0x - 0 - 0 - 00 - 00
(Xx negative, see Article VII)
---------
8. Reinsurance Loss = 0x - 0x - 0 - 0 - 00 - 00
(Xx positive, see Article VII)
---------
9. Loss Carryforward [Article VIII, Paragraph 1, item (i)]
---------
10. Initial Expense and Risk Charge (Article VI, Paragraph 1)*
---------
11. Expense and Risk Charge (Article VI, Paragraph 2)
---------
12. Ceding Commission (Article III, Paragraph 1)
---------
13. Unamortized Ceding Commission (Article III, Paragraph 2)
---------
14. Unamortized Ceding Commission Adjustment
(Article III, Paragraph 3)
---------
15. Allowances for Commissions and Expenses
(Article III, Paragraph 7)
---------
16. Allowances for Death Benefit Guarantee
(Article III, Paragraph 8)
---------
17. Experience Refund = 7 + 0 - 0 - 00 - 00 - 00 - 00
(Xx negative, see Article IX)
---------
18. Funds Withheld payment [Article II, Paragraph 3, item (ii)]
---------
19. Funds Withheld = Prior 19 + 1b + 2b - 18
(Article II, Paragraph 3)
---------
20. Interest Expense Charge (Article II, Paragraph 4)
---------
21. Interest on the Unamortized Ceding Commission
(Article III, Paragraph 9)
---------
22. Cash Settlement =
1 + 2 + 3 - 4 - 5 - 6 + 10 - 12 - 15 - 16 - 17 + 18
---------
*Initial Accounting Period, only.
111
EXHIBIT A continued
Supplemental Information
Venture
Total Variable Venture
Number Annuity 3 Vision Total
of Account Account Account Loss
Annuities Value Value Value Carryforward
--------- ----- ----- ----- ------------
Beginning of Period
--------- ----- ----- ----- ------------
+ Additions
--------- ----- ----- ----- ------------
- Terminations
--------- ----- ----- ----- ------------
End of Period
--------- ----- ----- ----- ------------
Venture Venture
Variable Vision
Annuity 3 Number
Number of of
Annuities Annuities
--------- ---------
Beginning of Period
--------- ---------
+ Additions
--------- ---------
- Terminations
--------- ---------
End of Period
--------- ---------
Termination Rate (Article III, Paragraph 5)
a. Total number of annuities reinsured hereunder as of
date current Accounting Period ends
---------
b. Total number of annuities reinsured hereunder as of
the date one year prior to the date the current
Accounting Period ends
---------
c. Termination Rate 1 - (a / b)
---------
Investment Credit Accumulation Rate (Article III, Paragraph 6)
a. Modified Coinsurance Reserve Investment Credit
Current Accounting Period
---------
First most recent Accounting Period
---------
Second most recent Accounting Period
---------
Third most recent Accounting Period
---------
b. Account value as of date one year prior to date
current Accounting Period ends
---------
c. Account value as of date current Accounting Period ends
112
---------
d. Investment Credit Accumulation Rate
a / [.5 x (b + c)]
---------
113
EXHIBIT A continued
Allowances for Commissions and Expenses (Article III, Paragraph 7)
a. $7.50 x quota share reinsured hereunder x number of annuities
reinsured hereunder and inforce at end of current Accounting
Period
---------
b. .0125 x portion of account value of annuities reinsured
hereunder at end of current Accounting Period
---------
c. Trailer Commission x portion of account value of Venture
Variable Annuity 3 annuities reinsured hereunder and inforce
at end of current Accounting Period
---------
d. ___% x Reinsurance Premiums with respect to Venture Variable
Annuity 3 annuities reinsured hereunder
---------
e. .25% x portion of account value, attributable to purchase payments
received by Ceding Company thirteen months or more prior to their trailer
commission dates, of Venture Vision annuities reinsured hereunder and
inforce at end of current Accounting Period
---------
f. ___% x renewal Reinsurance Premiums with respect to Venture
Vision annuities reinsured hereunder
---------
g. Allowances for Commissions and Expenses =
a + b + c + d + e + f
---------
114
AMENDMENT FOUR
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
"REINSURER"
115
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. ARTICLE III, COMMISSIONS AND ALLOWANCES, Paragraphs 1, 2 and 4, are
replaced in their entirety by the following:
1. Ceding Commission. Simultaneously with the payment of the
Initial Consideration, the Reinsurer will pay a Ceding
Commission to the Ceding Company equal to 2.2 percent times
the Initial Consideration, determined in accordance with
Article II, Paragraph 1, but not to exceed $10 million.
Simultaneously with the payment of the Supplemental
Consideration, the Reinsurer will pay a Ceding Commission to
the Ceding Company equal to 3.58 percent times the
Supplemental Consideration, determined in accordance with
Article II, Paragraph 1, but not to exceed $5.2 million. For
Accounting Periods beginning January 1, 1994 and thereafter,
the Reinsurer will pay a Ceding Commission to the Ceding
Company equal to the Ceding Commission Rate, as described in
Schedule E, Paragraph 2, times the Reinsurance Premiums,
determined in accordance with Article II, Paragraph 2, but not
to exceed $1 million for the 1995 calendar year.
2. Unamortized Ceding Commission. The Unamortized Ceding
Commission at the end of each Accounting Period equals (i)
plus (ii) plus (iii) minus (iv), where:
(i) equals the Unamortized Ceding Commission at
the end of the preceding Accounting Period;
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116
(ii) equals the Ceding Commission Rate, as
described in Schedule E, Paragraph 2, times
the Reinsurance Premiums, determined in
accordance with Article II, Paragraph 2, but
not to exceed $1 million for the 1995
calendar year;
(iii) for the Accounting Period ending December 31,
1994 only, equals 3.58 percent times the
Supplemental Consideration, determined in
accordance with Article II, Paragraph 1, but
not to exceed $5.2 million; and
(iv) equals the Unamortized Ceding Commission
Adjustment, determined in accordance with
Paragraph 3 below.
With respect, however, to the Accounting Period during which
the Effective Date of this Agreement occurs, the reference in
(i) to the "end of the preceding Accounting Period" refers to
the Effective Date of this Agreement immediately after the
Ceding Commission, as described in Paragraph 1 above, has been
paid. The Unamortized Ceding Commission may never be less
than zero. In the Accounting Period during which (i) plus
(ii) plus (iii) minus (iv) as described above, first becomes
zero or negative, then, for that and all subsequent Accounting
Periods, the Unamortized Ceding Commission will be set equal
to zero.
4. Maximum Unamortized Ceding Commission Adjustment. The Maximum
Unamortized Ceding Commission Adjustment for each Accounting
Period is as follows:
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117
Maximum Unamortized
Ceding Commission Maximum Unamortized
Adjustment Ceding Commission
For Accounting (For Amounts Paid Adjustment (For Amounts
Periods Ending During Initial Paid After Initial
During Accounting Period) Accounting Period)
-------------- --------------------------- ---------------------------------
1994 $500,000 $0
1995 $500,000 5 percent of the cumalative Ceding Commission paid by
the Reinsurer to the Ceding Company during the 1994
calendar year in accordance with Article III,
Paragraph 1
1996 through 1998 $500,000 5 percent of the cuma- lative Ceding Commission paid
by the Reinsurer to the Ceding Company during the
1994 and 1995 calendar years in accordance with
Article III, Paragraph 1
1999 $ 0 5 percent of the cuma- lative Ceding Commission paid
by the Reinsurer to the Ceding Company during the
1994 and 1995 calendar years in accordance with
Article III, Paragraph 1
2000 $ 0 5 percent of the cuma- lative Ceding Commission
paid by the Reinsurer to the Ceding Company during
the 1995 calendar year in accordance with Article
III, Paragraph 1
2001 and thereafter $ 0 $0
However, if in any Accounting Period (a) the Termination Rate,
as described in Paragraph 5 below, is greater than 0.30,
and/or (b) the Investment Credit Accumulation Rate, as
described in Paragraph 6 below, is less than zero, then the
Reinsurer may elect to define
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118
the Maximum Withheld Ceding Commission Adjustment as any
amount up to $14 million for the first Accounting Period in
the current calendar year and for all Accounting Periods
thereafter.
II. Effective January 1, 1995, ARTICLE III, COMMISSIONS AND ALLOWANCES,
Paragraph 9, is replaced in its entirety by the following:
9. Interest on the Unamortized Ceding Commission. The Ceding
Company will pay the Reinsurer Interest on the Unamortized
Ceding Commission at the end of each Accounting Period,
subsequent to the initial Accounting Period, equal to [(i) x
(ii)] + [(iii) x (iv)] + [(v) x (vi)] + [(vii) x (viii)] +
[(ix) x (x)], where:
(i) equals the portion of the Unamortized
Ceding Commission, determined in accordance
with Paragraph 2 above, paid by the
Reinsurer to the Ceding Company as Ceding
Commission during the initial Accounting
Period in accordance with Paragraph 1
above, calculated as of the end of the
preceding Accounting Period;
(ii) equals the Interest Expense Rate, as
described in Article II, Paragraph 5;
(iii) equals the portion of the Unamortized
Ceding Commission, determined in accordance
with Paragraph 2 above, paid by the
Reinsurer to the Ceding Company as Ceding
Commission, in accordance with Paragraph 1
above, for the 1994 calendar year:
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119
(iv) equals the Loss Carryforward Rate, as
described in Article VIII, Paragraph 2;
(v) equals, for the Accounting Periods
beginning July 1, 1995 and thereafter, the
portion of the Unamortized Ceding
Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to
the Ceding Company as Ceding Commission, in
accordance with Paragraph 1 above, for the
first and second Accounting Period in the
1995 calendar year; and
(vi) equals,
o for the Accounting Period beginning
July 1, 1995, [(a) / (b)] x (c),
where:
(a) equals the Loss Carryforward
Rate, as described in Article
VIII, Paragraph 2;
(b) equals the number of days in
the current Accounting Period;
and
(c) equals the number of days
remaining in the current
Accounting Period measured from
the quarterly settlement date,
as described in Article X, for
the second Accounting Period in
the 1995 calendar year; and
o for the Accounting Periods beginning
October 1, 1995 and thereafter,
equals the Loss Carryforward Rate,
as described in Article VIII,
Paragraph 2;
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120
(vii) equals, for the Accounting Periods
beginning October 1, 1995 and thereafter,
the portion of the Unamortized Ceding
Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to
the Ceding Company as Ceding Commission, in
accordance with Paragraph 1 above, for the
third Accounting Period in the 1995
calendar year;
(viii) equals,
o for the Accounting Period beginning
October 1, 1995, [(a) / (b)] x (c),
where:
(a) equals the Loss Carryforward
Rate, as described in Article
VIII, Paragraph 2;
(b) equals the number of days in
the current Accounting Period;
and
(c) equals the number of days
remaining in the current
Accounting Period measured from
the quarterly settlement date,
as described in Article X, for
the third Accounting Period in
the 1995 calendar year; and
o for the Accounting Periods beginning
January 1, 1996 and thereafter, the
Loss Carryforward Rate, as described
in Article VIII, Paragraph 2;
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121
(ix) equals, for the Accounting Periods
beginning January 1, 1996 and thereafter,
the portion of the Unamortized Ceding
Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to
the Ceding Company as Ceding Commission, in
accordance with Paragraph 1 above, for the
fourth Accounting Period in the 1995
calendar year; and
(x) equals,
o for the Accounting Period beginning
January 1, 1996, [(a) / (b)] x (c),
where:
(a) equals the Loss Carryforward
Rate, as described in Article
VIII, Paragraph 2;
(b) equals the number of days in
the current Accounting Period;
and
(c) equals the number of days
remaining in the current
Accounting Period measured from
the quarterly settlement date,
as described in Article X, for
the fourth Accounting Period in
the 1995 calendar year; and
o for the Accounting Periods beginning
April 1, 1996 and thereafter, the
Loss Carryforward Rate, as described
in Article VIII, Paragraph 2.
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122
III. ARTICLE VI, EXPENSE AND RISK CHARGES, Paragraph 2, is replaced in its
entirety by the following:
2. Expense and Risk Charge. The Expense and Risk Charge for each
Accounting Period subsequent to the initial Accounting Period,
payable to the Reinsurer by the Ceding Company, will be equal
to (i) plus (ii) plus (iii), where:
(i) equals the Expense and Risk Charge Rate, as
defined below, times the Loss Carryforward,
determined in accordance with Article VIII,
Paragraph 1, item (i), at the end of the
preceding Accounting Period, with accrued
interest thereon;
(ii) equals the Expense and Risk Charge Rate, as
defined below, times the Expense and Risk
Charge Base, as defined below; and
(iii) for the Accounting Period ending December
31, 1994 only, equals 1.0 percent times 3.2
percent of the Supplemental Consideration,
determined in accordance with Article II,
Paragraph 1, but not to exceed 1.65 percent
times $5.2 million.
The Expense and Risk Charge Rate for each Accounting Period is
defined as follows:
For Accounting Expense and
Periods Ending During Risk Charge Rate
--------------------- ----------------
1994 through 2000 .4125%
2001 and thereafter .4142%
The Expense and Risk Charge Base for each Accounting Period is
defined as follows:
- 8 -
123
For Accounting
Periods Ending During Expense and Risk Charge Base
--------------------- ----------------------------
1994 through 2000 greater of either (a) the
Unamortized Ceding
Commission, determined in
accordance with Article III,
Paragraph 2, at the end of
the preceding Accounting
Period, plus the Ceding
Commission Rate, as described
in Article III, Paragraph 1,
times the Reinsurance
Premiums, determined in
accordance with Article II,
Paragraph 2, but not to
exceed $1 million for the
1995 calendar year, minus the
Maximum Unamortized Ceding
Commission Adjustment,
determined in accordance with
Article III, Paragraph 4, or
(b) quantity (iv) as defined
below, but never less than
zero
2001 and thereafter (iv) below, but never less
than zero, where:
(iv) equals (a) plus (b) plus (c) minus (d)
minus (e) minus (f), where:
(a) equals the Unamortized Ceding
Commission, determined in accordance
with Article III, Paragraph 2, at
the end of the preceding Accounting
Period;
(b) equals the Ceding Commission Rate,
as described in Article III,
Paragraph 1, times the Reinsurance
Premiums, determined in accordance
with Article II, Paragraph 2, but
not to exceed $1 million for the
1995 calendar year;
(c) equals the absolute value of any
Reinsurance Loss, determined in
accordance with Article VII;
- 9 -
124
(d) equals any Reinsurance Gain,
determined in accordance with Article
VII;
(e) equals the Interest Expense Charge,
determined in accordance with Article
II, Paragraph 4; and
(f) equals the Interest on the
Unamortized Ceding Commission,
determined in accordance with
Article III, Paragraph 9.
In no event will the Expense and Risk Charge payable be less
than $20,000 for any Accounting Period after December 31, 2000.
IV. Effective July 1, 1995, ARTICLE VIII, LOSS CARRYFORWARD, Paragraph 2,
is replaced in its entirety by the following:
2. Loss Carryforward Rate. The Loss Carryforward Rate at the end
of each Accounting Period will be equal to 51.25 basis points,
plus the quantity (i) divided by (ii), where:
(i) equals the H.15 annualized rate for three
month Commercial Paper as published by the
Federal Reserve as of the date the current
Accounting Period begins; and
(ii) equals four.
V. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety
by the following:
Annuities and Risks Reinsured. Beginning on the Effective
Date of this Agreement, the Reinsurer reinsures a quota share
of the
- 10 -
125
Ceding Company's net liability on those variable annuities
issued by the Ceding Company and described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
---- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1995 95% VEN 10
Venture Vision 1994 - 1995 95% VISION.001
Beginning on December 31, 1994, under this Agreement the
Reinsurer also reinsures an additional 31 percent quota share
of the Ceding Company's net liability on those variable
annuities issued by the Ceding Company and described below:
Contract and
Plan Issue Years Certificate Numbers
---- ----------- -------------------
Venture Variable
Annuity 3 1987 - 1993 203-VA
"Net liability," as used in this Agreement, means the Ceding
Company's liability on annuities reinsured hereunder.
VI. The following is added to SCHEDULE D, CEDING COMPANY DATA:
o Quarterly settlement reports received under this Agreement
since inception
VII. SCHEDULE E, RATES, Paragraph 2, is replaced in its entirety by the
following:
2. Ceding Commission Rate. The Ceding Commission Rate for each
Accounting Period, subsequent to the initial Accounting
Period, is defined as follows:
For Accounting Ceding
Periods Ending During Commission Rate
--------------------- ---------------
- 11 -
126
1994 and 1995 1.67%
1996 and thereafter 0%
- 12 -
127
In witness of the above, this Amendment Four is executed in duplicate on the
dates indicated below, with an Effective Date of January 1, 1995.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Ceding Company")
By: Xxxxx X. Xxxxxxxxx By: Xxxx X. Xxxxxx
--------------------------- ---------------------------
Title: V.P., Secretary
& General Counsel Title: V.P. & Actuary
--------------------------- ---------------------------
Date: 6/29/95 Date: 6/29/95
--------------------------- ---------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: Xxxxxxx X. Xxxxxxxxx By: Xxxxx X. Xxxxxxx
--------------------------- ---------------------------
Title: V.P. & Deputy Chief Actuary Title: Executive V.P.
--------------------------- ---------------------------
Date: 6/29/95 Date: 6/29/95
--------------------------- ---------------------------
- 13 -
128
AMENDMENT FIVE
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
"REINSURER"
129
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. ARTICLE II, INITIAL CONSIDERATION AND REINSURANCE PREMIUMS, Paragraph
2, is replaced in its entirety by the following:
2. Reinsurance Premiums. At the end of each Accounting Period,
the Ceding Company will pay the Reinsurer Reinsurance Premiums
on all annuities in effect under this Agreement in an amount
equal to the sum of: (i) that portion of the gross premiums
collected by the Ceding Company during the Accounting Period
which corresponds to the portion of the annuities reinsured
hereunder, plus (ii) beginning May 1, 1995 and thereafter,
that portion of the statutory reserves on the quota share
reinsured hereunder which are associated with the portion of
the account values transferred from fixed accounts to variable
accounts with respect to the annuities reinsured hereunder.
The Reinsurer will treat any such Reinsurance Premiums as paid
premium for annual statement purposes, regardless of the mode
of collection by the Ceding Company on the annuities reinsured
hereunder.
The Ceding Company will withhold on behalf of the Reinsurer,
in accordance with Paragraph 3 below, an amount equal to (i)
times (ii), but not to exceed $6 million for the current
calendar year, where:
(i) equals the Funds Withheld Rate, as described
in Schedule E, Paragraph 1; and
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130
(ii) equals Reinsurance Premiums, determined in
accordance with this Paragraph 2.
II. ARTICLE III, COMMISSIONS AND ALLOWANCES, Paragraphs 2 and 7, are
replaced in their entirety by the following:
2. Unamortized Ceding Commission. The Unamortized Ceding
Commission at the end of each Accounting Period equals (i)
plus (ii) plus (iii) minus (iv), where:
(i) equals the Unamortized Ceding Commission at
the end of the preceding Accounting Period;
(ii) equals the Ceding Commission Rate, as
described in Schedule E, Paragraph 2, times
the Reinsurance Premiums, determined in
accordance with Article II, Paragraph 2, but
not to exceed $1 million for the 1995
calendar year;
(iii) for the Accounting Period ending December 31,
1994 only, equals 3.58 percent times the
Supplemental Consideration, determined in
accordance with Article II, Paragraph 1, but
not to exceed $5.2 million; and
(iv) equals the Unamortized Ceding Commission
Adjustment, determined in accordance with
Paragraph 3 below.
With respect, however, to the Accounting Period during which
the Effective Date of this Agreement occurs, the reference in
(i) to the "end of the preceding Accounting Period" refers to
the Effective Date of this Agreement immediately after the
Ceding Commission, as described in Paragraph 1 above, has been
paid. The
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131
Unamortized Ceding Commission may never be less than zero. In
the Accounting Period during which (i) plus (ii) plus (iii)
minus (iv) as described above, first becomes zero or negative,
then, for that and all subsequent Accounting Periods, the
Unamortized Ceding Commission will be set equal to zero.
Notwithstanding the above, any portion of the Unamortized
Ceding Commission which corresponds to the portion of the
annuities recaptured pursuant to the second sentence of
Paragraph 4, Article XI, will be paid by the Ceding Company to
the Reinsurer, in accordance with Article XII, Paragraph 3(d),
in an amount equal to [(v) / (vi)] x (vii), where:
(v) equals the portion of the account value, with
respect to the portion of the annuities
reinsured hereunder transferred from variable
accounts to fixed accounts and treated as
recaptured, in accordance with Article XI,
Paragraph 4;
(vi) equals the portion of the account value, at
the end of the preceding Accounting Period
with respect to the portion of the annuities
reinsured hereunder; and
(vii) equals the Unamortized Ceding Commission,
determined in accordance with item (i) above,
at the end of the preceding Accounting
Period.
7. Allowances for Commissions and Expenses. The Reinsurer will
pay the Ceding Company Allowances for Commissions and Expenses
for
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132
each Accounting Period, equal to (i) plus (ii) plus (iii)
plus (iv) plus (v) plus (vi), where:
(i) equals (a) times (b) times (c), where:
(a) equals $7.50 times the quota share
percentage of the annuities
reinsured hereunder, as described in
Schedule A;
(b) equals the number of annuities
reinsured hereunder and described in
Schedule A, and inforce at the end
of the current Accounting Period;
and
(c) equals the total account value
invested in variable accounts with
respect to the annuities reinsured
hereunder, divided by the total
account value invested in fixed and
variable accounts with respect to
the annuities reinsured hereunder;
and
(ii) equals .0125 percent times that portion of
the account value of the annuities reinsured
hereunder which corresponds to the portion of
the annuities reinsured hereunder as of the
end of the current Accounting Period;
(iii) equals the Trailer Commission, as defined
below, times that portion of the account
value of the Venture Variable Annuity 3
annuities reinsured hereunder which
corresponds to the portion of the Venture
Variable Annuity 3 annuities reinsured
hereunder and described
-4-
133
in Schedule A, as of the end of the current
Accounting Period;
(iv) equals (a) times (b), where:
(a) equals the Reinsurance Premiums,
determined in accordance with
Article II, Paragraph 2, with
respect to the Venture Variable
Annuity 3 annuities reinsured
hereunder which corresponds to the
portion of the Venture Variable
Annuity 3 annuities reinsured
hereunder and described in Schedule
A; and
(b) equals,
o for the Accounting Periods
beginning January 1, 1994
through October 1, 1994, 5.33
percent, and
o for the Accounting Periods
beginning January 1, 1995 and
thereafter, 7 percent;
(v) equals .25 percent times that portion of the
account value, attributable to purchase
payments received by the Ceding Company
thirteen (13) months or more prior to their
trailer commission payment dates, of the
Venture Vision annuities reinsured hereunder
which corresponds to the portion of the
Venture Vision annuities reinsured hereunder
and described in Schedule A, as of the end of
the current Accounting Period; and
(vi) equals (a) times (b), where:
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134
(a) equals the portion of Reinsurance
Premiums, determined in accordance
with Article II, Paragraph 2,
received by the Ceding Company
thirteen (13) months or more after
the issue date of each Venture
Vision annuity reinsured hereunder
which corresponds to the portion of
the Venture Vision annuities
reinsured hereunder and described in
Schedule A; and
(b) equals,
o for the Accounting Periods
beginning January 1, 1994
through October 1, 1994, 1.83
percent, and
o for the Accounting Periods
beginning January 1, 1995
and thereafter, 3.5 percent.
The Trailer Commission for Venture Variable Annuity 3
annuities for each Accounting Period is defined below:
For Accounting
Periods Ending During Trailer Commission
--------------------- ------------------
1994 .04%
1995 .05%
1996 .055%
1997 and thereafter .0625%
III. The following Paragraph 10 is added to ARTICLE X, ACCOUNTING AND
SETTLEMENTS:
-6-
135
10. Partial Recapture. If a portion of the annuities reinsured
hereunder is recaptured, as described in Article XX, Xxxxxxxxx
0, then the quarterly settlements described above will
thereafter be made with respect to the portion of the policies
not recaptured. Adjustments in the amounts due from either
the Ceding Company or the Reinsurer will be made accordingly.
IV. ARTICLE XI, DURATION AND RECAPTURE, Paragraphs 4 and 5, are replaced
in their entirety by the following:
4. Recapture. Annuities reinsured hereunder will be eligible for
recapture, at the option of the Ceding Company, on any January
1, following the fifth anniversary of the Effective Date of
this Agreement, subject to ninety (90) days prior written
notice, or on any other date which is mutually agreed to in
writing. However, in the event that any portion of the
account values related to any annuity reinsured hereunder is
transferred from variable accounts to fixed accounts, then the
corresponding portion of such annuity will be treated as
recaptured. Except for the fixed account transfers described
above, if the Ceding Company opts to recapture, then the
Ceding Company must recapture all of the annuities reinsured
hereunder. In no event may the Ceding Company recapture
anything other than 100 percent of all annuities reinsured
hereunder.
5. Internal Replacements. Should the Ceding Company, its
affiliates, successors or assigns, initiate a program of
Internal Replacement that would include any of the annuities
reinsured hereunder, the
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136
Ceding Company will immediately notify the Reinsurer. The
Reinsurer may elect to treat such annuities as recaptured
rather than surrendered and such recapture will apply to all
annuities reinsured hereunder, except that the transfer of any
portion of the annuities reinsured hereunder from variable
accounts to fixed accounts will be treated as a partial
recapture, as described in Article XI, Paragraph 4. For
purposes of this Agreement, the term "Internal Replacement"
means any instance in which an annuity or any portion of the
cash value of an annuity is exchanged for another policy or
annuity, not covered under this Agreement, which is written by
the Ceding Company, its affiliates, successors or assigns.
V. ARTICLE XII, TERMINAL ACCOUNTING AND SETTLEMENT, Paragraphs 1 and 3,
are replaced in their entirety by the following:
1. Terminal Accounting. In the event that all or a portion of
the reinsurance under this Agreement is terminated in
accordance with Article XX, Xxxxxxxxx 0, or recaptured in
accordance with Article XX, Xxxxxxxxx 0, a Terminal Accounting
and Settlement will take place.
3. Settlement. The Terminal Accounting and Settlement will
consist of:
(a) the quarterly settlement as provided in Article X,
Paragraph 4, computed as of the terminal accounting
date; and
-8-
137
(b) payment by the Ceding Company to the Reinsurer of an
amount equal to the Modified Coinsurance Reserve on
the annuities reinsured hereunder as of the terminal
accounting date; and
(c) payment by the Reinsurer to the Ceding Company of a
Terminal Reserve Adjustment equal to the Modified
Coinsurance Reserve on the annuities reinsured
hereunder as of the terminal accounting date;
(d) payment by the Ceding Company to the Reinsurer of a
Terminal Ceding Commission Adjustment equal to any
Unamortized Ceding Commission, as described in
Article III, Paragraph 2, as of the terminal
accounting date;
(e) payment by the Ceding Company to the Reinsurer of any
Funds Withheld, determined in accordance with Article
II, Paragraph 3, as of the terminal accounting date;
and
(f) payment by the Ceding Company to the Reinsurer of any
Loss Carryforward, as described in Article VIII,
calculated as of the terminal accounting date.
If only a portion of the annuities is recaptured, as described
in Article XX, Xxxxxxxxx 0, then the Terminal Accounting and
Settlement described above, will be made with respect to only
the portion of such annuities recaptured, excluding item (e)
above. If the calculation of the Terminal Accounting and
Settlement produces an
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amount owing to the Ceding Company, such amount will be paid
by the Reinsurer to the Ceding Company. If the calculation of
the Terminal Accounting and Settlement produces an amount
owing to the Reinsurer, such amount will be paid by the Ceding
Company to the Reinsurer.
VI. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety
by the following:
Annuities and Risks Reinsured. Beginning on the Effective
Date of this Agreement, the Reinsurer reinsures a quota share
of the Ceding Company's net liability with respect to a
portion of the account values invested in variable accounts
under those variable annuities issued by the Ceding Company
and described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
---- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1995 95% VEN 10
Venture Vision 1994 - 1995 95% VISION.001
Beginning on December 31, 1994, under this Agreement the
Reinsurer also reinsures an additional 31 percent quota share
of the Ceding Company's net liability with respect to a
portion of the account values invested in variable accounts
under those variable annuities issued by the Ceding Company
and described below:
Contract and
Plan Issue Years Certificate Numbers
---- ----------- -------------------
Venture Variable
Annuity 3 1987 - 1993 203-VA
"Net liability," as used in this Agreement, means the Ceding
Company's liability on annuities reinsured hereunder, net of
other reinsurance.
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VIII. Effective January 1, 1995, SCHEDULE B, QUARTERLY REPORT OF ACTIVITY
AND SETTLEMENTS, is replaced in its entirety by Exhibit A.
IX. The following information is added to SCHEDULE D, CEDING COMPANY DATA:
o Quarterly accounting settlement reports for this Agreement
received by the Reinsurer since inception
o Telephone conversation of September 5, 1995 between Xxxxx
Xxxxxx of the Ceding Company and Xxxxx Xxxxxxx of the
Reinsurer, which included the representation that the fixed
account portion of the annuities reinsured hereunder are ceded
to other reinsurers.
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In witness of the above, this Amendment Five is executed in duplicate on the
dates indicated below with an Effective Date of May 1, 1995.
NORTH AMERICAN SECURITY LIFE
ATTEST: INSURANCE COMPANY ("Ceding Company")
By: Xxxxxxx Xxxxxx By: Xxxx X. Xxxxxx
------------------------ ------------------------
Title: V.P., Treasurer & CFO Title: V.P. & Chief Actuary
------------------------ ------------------------
Date: 9/28/95 Date: 9/28/95
------------------------ ------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: Xxxx X. Xxxxxxxx By: Xxxxx Xxxxxxx
------------------------ ------------------------
Title: Vice President Title: Exec. V.P.
------------------------ ------------------------
Date: 9/27/95 Date: 9/27/95
------------------------ ------------------------
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EXHIBIT A
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period: ______________
Calendar Year: _________________
Date Report Completed: __________
1. Initial Consideration (Article II, Paragraph 1)*
a. Initial Consideration --------
b. Amount of Initial Consideration withheld by
Ceding Company --------
Portion of Initial Consideration paid in cash
= a - b --------
2. Supplemental Consideration (Article II, Paragraph 1)
--------
3. Reinsurance Premiums (Article II, Paragraph 2)
a. Reinsurance Premiums
A. Venture Variable Annuity 3 Reinsurance
gross premiums --------
B. Venture Vision Reinsurance Premiums -
first policy year gross premiums --------
C. Venture Vision Reinsurance Premiums -
renewal gross premiums --------
D. Statutory reserves transferred from fixed
accounts to variable accounts [item (ii)] --------
Total Reinsurance Premiums = A + B + C + D ---------
b. Amount of Reinsurance Premiums withheld by
Ceding Company --------
Portion of Reinsurance Premiums paid in cash
= a - b ---------
4. Benefit Payments (Article IV)
a. Death Benefits --------
b. Cash Surrender Values --------
c. Annuity Benefits --------
Benefit Payments = a + b + c
--------
5. Initial Reserve Adjustment (Article V, Paragraph 1)*
--------
6. Modified Coinsurance Reserve Adjustment (Article V, Paragraph 2)
a. Modified Coinsurance Reserve end of
preceding Accounting Period --------
b. Modified Coinsurance Reserve end of
current Accounting Period --------
c. Equals b - a --------
d. Modified Coinsurance Reserve Investment
Credit (Schedule C) --------
142
Modified Coinsurance Reserve Adjustment = c - d ________
143
EXHIBIT A CONTINUED
7. Reinsurance Gain = 0x - 0x - 0 - 0 - 00 - 00
(Xx negative, see Article VII) ________
8. Reinsurance Loss = 0x - 0x - 0 - 0 - 00 - 00
(Xx positive, see Article VII) ________
9. Loss Carryforward [Article VIII, Paragraph 1, item (i)] ________
10. Initial Expense and Risk Charge (Article VI, Paragraph 1)* ________
11. Expense and Risk Charge (Article VI, Paragraph 2) ________
12. Ceding Commission (Article III, Paragraph 1) ________
13. Unamortized Ceding Commission (Article III, Paragraph 2) ________
14. Unamortized Ceding Commission Adjustment
(Article III, Paragraph 3) ________
15. Allowances for Commissions and Expenses
(Article III, Paragraph 7) ________
16. Allowances for Death Benefit Guarantee
(Article III, Paragraph 8) ________
17. Experience Refund = 7 + 0 - 0 - 00 - 00 - 00 - 00
(Xx negative, see Article IX) ________
18. Funds Withheld payment [Article II, Paragraph 3, item (ii)] ________
19. Funds Withheld = Prior 19 + 1b + 2b - 18
(Article II, Paragraph 3) ________
20. Interest Expense Charge (Article II, Paragraph 4) ________
21. Interest on the Unamortized Ceding Commission
(Article III, Paragraph 9) ________
22. Cash Settlement =
1 + 2 + 3 - 4 - 5 - 6 + 10 - 12 - 15 - 16 - 17 + 18 ========
*Initial Accounting Period, only.
Terminal Accounting and Settlement (Partial recapture)
(Article XII, Paragraph 3)
A. Modified Coinsurance Reserve (Article V, Paragraph 3) ________
B. Terminal Reserve Adjustment (Article V, Paragraph 3) ________
144
EXHIBIT A CONTINUED
C. Terminal Ceding Commission (Article III, Paragraph 2)
a. Account value at end of preceding Accounting
Period with respect to portion of annuities
reinsured hereunder transferred from variable
accounts to fixed accounts --------
b. Account value at end of preceding Accounting
Period with respect to portion of annuities
reinsured hereunder --------
c. Unamortized Ceding Commission at end of
preceding Accounting Period --------
Terminal Ceding Commission = (a / b) x c --------
D. Portion of Loss Carryforward with respect to portion
of annuities reinsured hereunder transferred from
variable accounts to fixed accounts (Article VIII)
--------
Cash Settlement = A - B + C + D ========
Supplemental Information
Venture
Total Variable Venture
Number Annuity 3 Vision Total
of Account Account Account Loss
Annuities Value Value Value Carryforward
--------- --------- ------- ------- ------------
Beginning of Period --------- --------- ------- ------- ------------
+ Additions --------- --------- ------- ------- ------------
- Terminations --------- --------- ------- ------- ------------
End of Period ========= ========= ======= ======= ============
Venture Venture
Variable Vision
Annuity 3 Number
Number of of
Annuities Annuities
--------- ---------
Beginning of Period --------- ---------
+ Additions --------- ---------
- Terminations --------- ---------
End of Period ========= =========
Termination Rate (Article III, Paragraph 5)
a. Total number of annuities reinsured hereunder as of
date current Accounting Period ends ________
b. Total number of annuities reinsured hereunder as of
the date one year prior to the date the current
Accounting Period ends ________
145
c. Termination Rate 1 - (a / b) ========
146
EXHIBIT A CONTINUED
Investment Credit Accumulation Rate (Article III, Paragraph 6)
-----------------------------------
a. Modified Coinsurance Reserve Investment Credit
Current Accounting Period --------
First most recent Accounting Period --------
Second most recent Accounting Period --------
Third most recent Accounting Period
-------- --------
b. Account value as of date one year prior to date
current Accounting Period ends --------
c. Account value as of date current Accounting Period ends
--------
d. Investment Credit Accumulation Rate
a / [.5 x (b + c)] ========
Allowances for Commissions and Expenses (Article III, Paragraph 7)
---------------------------------------
a. $7.50 x quota share reinsured hereunder x number of annuities
reinsured hereunder and inforce at end of current Accounting
Period ---------
b. Total account value invested in variable accounts on
annuities reinsured hereunder / total account value
invested in fixed and variable accounts on annuities
reinsured hereunder ---------
c. .0125 x portion of account value of annuities reinsured
hereunder at end of current Accounting Period ---------
d. Trailer Commission x portion of account value of Venture
Variable Annuity 3 annuities reinsured hereunder and inforce
at end of current Accounting Period ---------
e. ___% x Reinsurance Premiums with respect to Venture Variable
Annuity 3 annuities reinsured hereunder ---------
f. .25% x portion of account value, attributable to purchase
payments received by Ceding Company thirteen months or more
prior to their trailer commission dates, of Venture Vision
annuities reinsured hereunder and inforce at end of current
Accounting Period ---------
g. ___% x renewal Reinsurance Premiums with respect to Venture
Vision annuities reinsured hereunder ---------
h. Allowances for Commissions and Expenses =
[a x b] + c + d + e + f + g =========
147
EXHIBIT A
ACCOUNTS RECEIVABLE AGREEMENT
THIS AGREEMENT, effective as of December 31, 1993, is made and entered into by
and between North American Security Life Insurance Company, a corporation
organized and existing under the laws of the State of Delaware (hereinafter
referred to as the "Borrower") and ITT Xxxxxx Life Insurance Company, a
corporation organized and existing under the laws of the state of Missouri
(hereinafter referred to as the "Lender").
WITNESSETH
WHEREAS the Borrower and the Lender have entered into Reinsurance Agreement
Number 1293-104 with an effective date of December 31, 1993 (hereinafter
referred to as the "Reinsurance Agreement"), a copy of which is attached to
this Agreement and incorporated herein by reference; and
WHEREAS the Borrower desires to withhold on behalf of the Lender a specified
percentage of the Initial Consideration, but not to exceed $15 million, as
described in Article II, Paragraph 1, of the Reinsurance Agreement, such amount
withheld to be paid by the Borrower to the Lender at a later date.
NOW THEREFORE, in consideration of the mutual promises and covenants contained
herein, the Borrower and the Lender agree as follows:
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ARTICLE I
PROVISIONS RELATING TO THE ACCOUNTS RECEIVABLE
1. Accounts Receivable. The term "Accounts Receivable," as used in this
Agreement, means the Funds Withheld, determined in accordance with
Article II, Paragraph 3 of the Reinsurance Agreement, and represents
funds withheld by the Borrower from the Lender in accordance with the
terms of Article II, Paragraphs 1, 2 and 4 of the Reinsurance
Agreement. The Funds Withheld under the Reinsurance Agreement are
considered to be amounts held on behalf of the Lender. The Lender
will record such amounts as a receivable and the Borrower will record
such amounts as a payable. The Accounts Receivable will be subject to
the Repayment provisions specified in Paragraphs 2 and 3 below.
2. Scheduled Repayment. The Borrower will repay a portion of the
Accounts Receivable at the end of each calendar year in an amount
equal to the Scheduled Repayment Amount. The Scheduled Repayment
Amount will be equal to the Repayment Schedule Percentage, as defined
below, times the Accounts Receivable, as described in Paragraph 1
above, as of the Effective Date of this Agreement. The Repayment
Schedule Percentage at the end of each calendar year is defined below:
Calendar Year Repayment Schedule Percentage
------------- -----------------------------
1994 20%
1995 20%
1996 20%
1997 20%
1998 20%
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3. Non-Scheduled Repayment. The Accounts Receivable, as described in
Paragraph 1 above, will be paid by the Borrower to the Lender within
fifteen (15) days after the earlier of:
(a) the date the Lender elects to receive payment from
the Borrower of any portion of the Accounts
Receivable as described in Paragraph 4 below; or
(b) the terminal accounting date, as described in Article
XII, Paragraph 2 of the Reinsurance Agreement, as
part of the Terminal Accounting and Settlement as
described in Article XII, Paragraph 3, item (e) of
the Reinsurance Agreement.
4. Events of Default and Remedies Therefor. Any one or more of the
following in any calendar year will constitute an Event of Default as
used in this Agreement:
(a) the insurance claims paying ability rating assigned
to the Borrower by Standard and Poor's Corporation
falls below A;
(b) default for a period in excess of sixty (60) days
with respect to the repayment of the portion of the
Accounts Receivable payable by the Borrower to the
Lender at the end of the calendar year, as described
in Paragraph 2 above;
(c) any material representation, warranty or other
statement made by the Borrower herein or in any
statement or certificate furnished in connection
with, or pursuant to, the transactions contemplated
hereunder, or in compliance
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with the terms hereof, proves untrue in any material
respect as of the date of the issuance of making
thereof;
(d) violation of any of the Borrower Covenants contained
in Article II, Paragraph 3;
(e) the Borrower files for bankruptcy or admits in
writing its inability to pay its debts as they mature
or makes an assignment for the benefit of creditors;
(f) the Borrower applies for or consents to the
appointment of a trustee, custodian, receiver or
liquidator for the Borrower or for the major part of
the property of the Borrower;
(g) bankruptcy, reorganization, insolvency or other
proceedings for relief under any bankruptcy,
reorganization, insolvency or similar law or laws for
the relief of debtors, are instituted against the
Borrower and are consented to or are not dismissed
within sixty (60) days after such institution; and/or
(h) the non-observance or non-performance of any other
provision of this Agreement which is not remedied
within thirty (30) days after written notice thereof
to the Borrower by the Lender;
When any Event of Default described above occurs, then the Lender may
elect to receive payment from the Borrower of any portion of the
Accounts Receivable, as described in Paragraph 1 above, as of the end
of the calendar year.
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ARTICLE II
MISCELLANEOUS PROVISIONS
1. Duration of Agreement. This Agreement will remain in effect while the
Reinsurance Agreement is in effect.
2. Borrower's Representation and Warranties. The Borrower represents and
warrants as follows:
(a) Corporate Existence and Power. The Borrower is a
corporation duly incorporated, validly existing and
in good standing under the laws of Delaware, and has
all corporate powers and all material governmental
licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
(b) Corporate and Governmental Authorization. The
execution, delivery and performance of this Agreement
by the Borrower and the transactions contemplated
hereby are within the Borrower's corporate power,
have been duly authorized by all necessary corporate
actions, require no action by or in respect of, or
filing with, any governmental body, agency or
official and do not contravene, or constitute a
default under, any provision of applicable law or
regulation or of the Certificate of Incorporation of
the Borrower or of any agreement, judgment,
injunction, order, decree or other instrument binding
upon the Borrower.
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(c) Binding Effect. This Agreement and the Reinsurance
Agreement constitute valid and binding obligations of
the Borrower, and are enforceable against the
Borrower in accordance with their terms, except as:
(1) the enforceability thereof may be affected by
bankruptcy, reorganization, insolvency or similar
laws affecting the enforcement of creditor's rights
generally and (2) rights of acceleration and the
availability of equitable remedies may be limited by
equitable principles of general applicability.
(d) Litigation. There is no action, suit or proceeding
pending, or to the knowledge of the Borrower
threatened, against or affecting the Borrower before
any court or arbitrator or any governmental body,
agency or official which could reasonably be expected
to have a material adverse effect on the business of
the Borrower, or which in any manner questions the
validity of this Agreement or the Reinsurance
Agreement.
3. Borrower Covenants. The Borrower agrees that so long as this
Agreement is in effect:
(a) the Borrower will do all things necessary to preserve
and keep in full force and effect its corporate
existence, rights and franchises granted by law or
otherwise; provided, however, that nothing in this
Paragraph will prevent the abandonment or termination
of the existence and franchises of any subsidiary or
any rights of the Borrower if such
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153
abandonment or termination is in the best interest of
the Borrower and not disadvantageous in any material
respect to the Lender;
(b) the Borrower will duly pay and discharge all taxes,
assessments and other governmental charges upon or
against the Borrower or its properties, as well as
all other liabilities of the Borrower, before the
same become delinquent and before penalties accrue
thereon, unless and to the extent that the same are
being contested in good faith and by appropriate
proceedings;
(c) the Borrower will maintain a minimum of $25 million
of statutory capital and surplus as reflected in its
Annual Statement filed with the Delaware Insurance
Department;
(d) the Borrower will maintain a minimum risk-based
capital ratio of 225 percent of the NAIC authorized
control level, as defined for 1993, as of December 31
of each calendar year; and
(e) the Borrower will maintain sufficient statutory
capital and surplus such that the ratio of total debt
to total statutory capital and surplus, plus
transfers to separate accounts (as described on Page
3, Line 13A of the 1993 Annual Statement, adjusted
for the final business day's activities of the
reporting period), does not exceed 75 percent at the
end of any calendar year; provided that this covenant
may be waived or modified if the Borrower and the
Lender mutually agree to
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154
do so, and provided, further, that if such ratio does
exceed 75 percent at the end of any calendar year,
the Borrower may repay a portion of the Accounts
Receivable, as described in Article I, Paragraph 1,
in order to reduce the ratio below 75 percent.
4. Amendments and Waivers. This Agreement may be amended only by written
agreement of the parties. Any provision of this Agreement may be
waived only by the written agreement of the parties.
5. Arbitration. The Lender and the Borrower agree to arbitrate all
disputes hereunder. Any arbitration under this Agreement will be
conducted in accordance with Article XIV of the Reinsurance Agreement.
6. Assignment. Neither party may assign any of its rights, duties or
obligations under this Agreement without the prior written consent of
the other party.
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In witness of the above, this Accounts Receivable Agreement is executed in
duplicate on the dates indicated below.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Ceding Company")
By: Xxxxxxx X. Xxxxxxxx By: Xxxx X. Xxxxxx
---------------------------- ----------------------------
Title: President Title: V.P. & Chief Actuary
---------------------------- ----------------------------
Date: 12/30/93 Date: 12/30/93
---------------------------- ----------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: By: Xxxxx X. Xxxxxxx
---------------------------- ----------------------------
Title: Secretary Title: Exec. V.P.
---------------------------- ----------------------------
Date: 12/29/93 Date: 12/29/93
---------------------------- ----------------------------
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AMENDMENT ONE
ATTACHED TO AND MADE A PART OF THE
ACCOUNTS RECEIVABLE AGREEMENT
EFFECTIVE DECEMBER 31, 0000
XXXXXXX
XXXXX XXXXXXXX SECURITY LIFE INSURANCE COMPANY
("BORROWER")
AND
ITT XXXXXX LIFE INSURANCE COMPANY
("LENDER")
The Borrower and the Lender agree to amend this Accounts Receivable Agreement
as follows:
ARTICLE I, PROVISIONS RELATING TO THE ACCOUNTS RECEIVABLE, Paragraph 2, is
replaced in its entirety by the following:
2. Scheduled Repayment. The Borrower will repay a portion of the
Accounts Receivable at the end of each calendar year in an amount
equal to the Scheduled Repayment Amount as defined below:
Calendar Year Scheduled Repayment Amount
------------- --------------------------
1994 $3,000,000
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157
Calendar Year Scheduled Repayment Amount
------------- --------------------------
1995 through 1998 $3,000,000, plus 20 percent times the lesser of (a) 2.5 percent
times the total Reinsurance Premiums, determined in accordance with
Article II, Paragraph 2, of the Reinsurance Agreement, for the
calendar year 1994, or (b) $6,000,000
1999 20 percent times the lesser of (a) 2.5 percent times the total
Reinsurance Premiums, determined in accordance with Article II,
Paragraph 2, of the Reinsurance Agreement, for the calendar year
1994, or (b) $6,000,000
In witness of the above, this Amendment One is executed in duplicate on the
dates indicated below, with an Effective Date of January 1, 1994.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Borrower")
By: Xxxxx X. Xxxxxxxxx By: Xxxx X. Xxxxxx
---------------------------- ----------------------------
Title: V.P., Secretary
----------------------------
& General Counsel
----------------------------
Title: V.P. & Actuary
----------------------------
Date: 6/28/94 Date: 6/28/94
---------------------------- ----------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: Xxxxxxx X. Xxxxxxxxx By: Xxxxx X. Xxxxxxx
---------------------------- ----------------------------
Title: V.P. & Deputy Chief Actuary Title: Executive V.P.
---------------------------- ----------------------------
Date: 6/29/94 Date: 6/29/94
---------------------------- ----------------------------
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AMENDMENT TWO
ATTACHED TO AND MADE A PART OF THE
ACCOUNTS RECEIVABLE AGREEMENT
EFFECTIVE DECEMBER 31, 0000
XXXXXXX
XXXXX XXXXXXXX SECURITY LIFE INSURANCE COMPANY
("BORROWER")
AND
ITT XXXXXX LIFE INSURANCE COMPANY
("LENDER")
The Borrower and the Lender agree to amend this Accounts Receivable Agreement
as follows:
ARTICLE I, PROVISIONS RELATING TO THE ACCOUNTS RECEIVABLE, Paragraph 2, is
replaced in its entirety by the following:
2. Scheduled Repayment. The Borrower will repay a portion of the
Accounts Receivable at the end of each calendar year in an amount
equal to the Scheduled Repayment Amount as defined below:
Calendar Year Scheduled Repayment Amount
------------- --------------------------
1994 $6,064,196
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Calendar Year Scheduled Repayment Amount
------------- --------------------------
1995 through 1998 $3,000,000
In witness of the above, this Amendment Two is executed in duplicate on the
dates indicated below, with an Effective Date of December 31, 1994.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Borrower")
By: Xxxxx X. Xxxxxxxxx By: Xxxx X. Xxxxxx
---------------------------- ----------------------------
Title: V.P., Secretary
----------------------------
& General Counsel
----------------------------
Title: V.P. & Actuary
----------------------------
Date: 12/30/94 Date: 12/30/94
---------------------------- ----------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: Xxxxxxx X. Xxxxxxxxx By: Xxxxx X. Xxxxxxx
---------------------------- ----------------------------
Title: V.P. & Deputy Chief Actuary Title: Executive V.P.
---------------------------- ----------------------------
Date: 12/22/94 Date: 12/22/94
---------------------------- ----------------------------
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