RETROCESSION AGREEMENT
(the "Agreement")
between
SCOTTISH RE LIFE (BERMUDA) LIMITED
Bermuda
(the "Reinsurer")
and
SECURITY LIFE OF DENVER INSURANCE COMPANY
(the "Retrocessionaire")
This Agreement is effective December 31, 2004
TABLE OF CONTENTS
ARTICLE I SCOPE OF REINSURANCE................................................1
ARTICLE II LIABILITY..........................................................3
ARTICLE III PREMIUMS..........................................................3
ARTICLE IV RESERVES...........................................................4
ARTICLE V REDUCTIONS, TERMINATION AND OTHER RETROCESSIONAL COVERAGE...........4
ARTICLE VI CLAIMS.............................................................4
ARTICLE VII RECAPTURE.........................................................6
ARTICLE VIII GENERAL PROVISIONS...............................................6
ARTICLE IX TERMINAL ACCOUNTING AND SETTLEMENT.................................9
ARTICLE X CONFIDENTIALITY....................................................10
ARTICLE XI INSOLVENCY........................................................11
ARTICLE XII ARBITRATION......................................................11
ARTICLE XIII DAC TAX.........................................................13
ARTICLE XIV DURATION.........................................................14
ARTICLE XV EXECUTION.........................................................15
Schedule A Covered Individuals
Schedule B Reinsurance Premiums, Reporting and Settlement Procedures
THIS RETROCESSION AGREEMENT (this "Agreement"), is made and entered into as of
December 31, 2004 (the "Effective Date") by and between Security Life of Denver
Insurance Company, a Colorado-domiciled life insurance company (the
"Retrocessionaire") and Scottish Re Life (Bermuda) Limited, a Bermuda-domiciled
life insurance company (the "Reinsurer").
WHEREAS, the Retrocessionaire, Security Life of Denver International Limited, a
Bermuda insurance company ("SLDI" and, together with the Retrocessionaire, the
"Sellers"), and Scottish Re Group Limited (the "Purchaser"), the indirect parent
corporation of the Reinsurer, Scottish Re (U.S.), Inc. and the Reinsurer, have
entered into an Asset Purchase Agreement, dated as of October 17, 2004 (the
"Asset Purchase Agreement"), pursuant to which the Sellers have agreed to sell,
and the Purchaser has agreed to purchase, the individual life reinsurance
business and certain assets of Sellers; and
WHEREAS, as contemplated by the Asset Purchase Agreement, the Reinsurer and SLDI
have entered into a Coinsurance Agreement, a Coinsurance/Modified Coinsurance
Agreement, and a Coinsurance Funds Withheld Agreement, each dated December 31,
2004 (the "Reinsurance Agreements"), for the reinsurance on a 100% indemnity
reinsurance basis of the Insurance Contracts described therein (collectively,
the "Covered Insurance Contracts"); and
WHEREAS, as further contemplated by the Asset Purchase Agreement, the Reinsurer
wishes to retrocede to the Retrocessionaire, and the Retrocessionaire wishes to
reinsure, on a yearly renewable term basis, a portion of the mortality risks
with respect to the individuals identified on Schedule A attached hereto, as
finalized in accordance with Section 1.2(b) (the "Covered Individuals") under
the Covered Insurance Contracts;
NOW, THEREFORE, in consideration of the mutual and several promises and
undertakings herein contained, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the Retrocessionaire
and the Reinsurer agree as follows:
ARTICLE I
SCOPE OF REINSURANCE
1.1. Policies Reinsured. As of the Effective Date, the Retrocessionaire hereby
indemnifies the Reinsurer, according to the terms and conditions of this
Agreement, for the Excess Mortality Risks (as defined below).
1.2. Coverage and Exclusions.
(a) Only "Excess Mortality Risk" (as defined in the following sentence)
with respect to any Covered Individual is reinsured under this Agreement.
"Excess Mortality Risk" means death benefits payable by the Reinsurer with
respect to any Covered Individual which (i) are ceded to the Reinsurer by
SLDI under a Covered Insurance Contract and (ii) together with other risks
retained by the Reinsurer with respect to such Covered Individual prior to
the Effective Date under other reinsurance agreements would cause the
amount of the Reinsurer's retained risk with respect to such Covered
Individual to exceed $2,000,000 (the "Reinsurer Net Retention"). In
calculating whether any risk with respect to any Covered Individual
constitutes an Excess Mortality Risk, the parties
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shall take into consideration retrocessions of risk to third parties (by
either the Reinsurer or SLDI), which shall be taken into account for this
purpose without regard to actual collection. For example, a policy
insuring the life of a Covered Individual that pays a death benefit of
$5,000,000 will only be deemed to have Excess Mortality Risk of $1,000,000
if $2,000,000 of the risk under that policy has already been retroceded
(by either the Reinsurer or SLDI) to a third party.
(b) The parties agree that no later than June 30, 2005, they will, using
the complete data shown on the Sage System at that time, mutually identify
in good faith the individuals that would have been included on Schedule A
if all data with respect to cessions to and retrocessions by SLDI through
the Effective Date had been input into the Sage System as of the Effective
Date. An individual will be included on Schedule A only if (i) there is
Excess Mortality Risk with respect to such individual and (ii) there is no
capacity for additional risk in the retrocession market with respect to
such individual. Any dispute as to whether there is no capacity in the
retrocession market with respect to a particular individual will be
resolved by determining whether, at the time in question, the capacity in
the retrocession market for additional risk with respect to such
individual is comparable as a practical matter to the capacity in the
retrocession market for additional risk on the individuals identified on
Schedule A as of the Effective Date. The Reinsurer shall provide to the
Retrocessionaire reasonable documentation demonstrating the absence of
such retrocessional capacity with respect to any individual the Reinsurer
believes should be included on the revised Schedule A. Any individuals
included on the revised Schedule A pursuant to this Section 1.2(b) will
thereafter be deemed Covered Individuals for all purposes of this
Agreement, and any individuals not included on the revised Schedule A
pursuant to this Section 1.2(b) will thereafter not be deemed Covered
Individuals without regard to whether they were included on Schedule A on
the Effective Date. For the avoidance of doubt, it is acknowledged and
understood that if an individual for whom there would be Excess Mortality
Risk had such individual been determined to be a Covered Individual dies
after the Closing Date, and prior to the time of such individual's death
the parties have not made a final determination as to whether such
individual is a Covered Individual pursuant to the first sentence of this
clause (b), such individual will be deemed to be a Covered Individual
includable on Schedule A.
1.3. Plan of Reinsurance. Reinsurance under this Agreement shall be on a
yearly-renewable term basis.
1.4. No Third Party Beneficiary. This Agreement is an indemnity reinsurance
agreement solely between the Retrocessionaire and the Reinsurer, and the
performance of the obligations of each party under this Agreement shall be
rendered solely to the other party. In no instance shall anyone other than
the Retrocessionaire or the Reinsurer have any rights under this
Agreement.
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ARTICLE II
LIABILITY
2.1. Liability. The liability of the Retrocessionaire for the Excess Mortality
Risks reinsured hereunder shall commence simultaneously with that of the
Reinsurer, but in no event prior to the Effective Date of this Agreement.
The reinsurance under this Agreement with respect to any Covered
Individual shall remain in force without reduction as long as the
liability of the Reinsurer with respect to such Covered Individual under
the Covered Insurance Contracts remains in force without reduction, unless
the reinsurance provided herein is terminated, reduced or recaptured as
provided herein. The Retrocessionaire's liability on any business
reinsured hereunder shall terminate simultaneously with that of the
Reinsurer.
ARTICLE III
PREMIUMS
3.1. Premiums. Reinsurance premiums for coverage under this Agreement are shown
in Schedule B. The Retrocessionaire shall be entitled to change such
premiums no more frequently than annually by providing written notice of
such change to the Reinsurer not later than sixty (60) calendar days prior
to the end of any calendar year, with the specified changes to be
effective as of January 1 of the following year. Any increase in such
premiums shall not be in a percentage greater than the percentage increase
in the market rates for similar retrocessions (taking into account the
nature of the underlying risks, the level of the risk being retroceded,
and any other factors appropriate to ensure reasonable comparability)
since the time that the then-effective premiums became effective (a
"Permitted Increase"). Any dispute as to whether any increase in premiums
constitutes a Permitted Increase shall be referred to a mutually agreeable
actuarial consulting firm, but the increases shall be effective and shall
be paid by the Reinsurer unless and until such actuarial consulting firm
determines that the increase did not constitute a Permitted Increase, in
which case the parties shall make appropriate retroactive adjustments to
reflect an increase deemed by the actuarial consulting firm to be a
Permitted Increase and shall apply that Permitted Increase thereafter.
3.2. Payment of Premiums. Reinsurance premiums are payable in accordance with
the settlement procedures specified in Schedule B.
3.3. Delayed Payment. All amounts due and payable by the Reinsurer to the
Retrocessionaire under this Agreement shall be paid in accordance with the
settlement procedures specified in Schedule B. Net reinsurance premiums or
net death benefits which remain unpaid for more than thirty (30) days from
the remit date set forth in Schedule B will incur interest from the end of
the reporting period. Interest will be calculated using the 13-week
Treasury Xxxx rate reported in the "Money Rates" section of the Wall
Street Journal for the last business day of the month of that reporting
period
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3.4. Failure to Pay Premiums. The payment of reinsurance premiums is a
condition precedent to the liability of the Retrocessionaire for
reinsurance covered under this Agreement. In the event that reinsurance
premiums are not paid within forty-five (45) days of the remit date, the
Retrocessionaire will have the right to terminate the reinsurance
hereunder. If the Retrocessionaire elects to exercise its right of
termination, it will give the Reinsurer thirty (30) days notice of its
intention to terminate said reinsurance. Such notice will be sent by
certified mail. If all reinsurance premiums in arrears, including any
which may become in arrears during the thirty (30) day period and any
interest thereon, are not paid before the expiration of said period, the
Retrocessionaire will be relieved of all liability under this Agreement as
of the last date on which premiums have been paid. This Agreement may be
reinstated within sixty (60) days of the date of the termination, and upon
payment of all reinsurance premiums in arrears including any interest
accrued thereon.
ARTICLE IV
RESERVES
4.1. Reserve Credit. The parties intend that the Reinsurer will receive any
required statutory reserve credit in Bermuda for the insurance risks ceded
to the Retrocessionaire. The Retrocessionaire agrees that it will take
commercially reasonable steps to provide the Reinsurer with the basis upon
which to take such credit (if any), including, if necessary, establishing
a trust account for this purpose.
ARTICLE V
REDUCTIONS, TERMINATION AND OTHER RETROCESSIONAL COVERAGE
5.1. Reductions and Terminations. In the event of the reduction or termination
of the amount of the risk covered by the Covered Insurance Contracts with
respect to any Covered Individual, the Reinsurer will reduce or terminate
the reinsurance on that life, effective on the same date. The
Retrocessionaire will refund any unearned reinsurance premiums with
respect to such reduction or termination.
5.2. Other Retrocessional Coverage. On and after the Effective Date, the
Reinsurer agrees to use commercially reasonable efforts to obtain
retrocessional coverage on the Excess Mortality Risk to be effective as of
the Effective Date, or as soon as reasonably possible thereafter, from
third party reinsurers at rates and terms that are, within the reasonable
discretion of the Reinsurer, commercially reasonable.
ARTICLE VI
CLAIMS
6.1. Claims. Claims covered under this Agreement include only death benefits
payable with respect to Excess Mortality Risks. The Retrocessionaire will
accept the decision of the
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Reinsurer on payment of a claim with respect to any Covered Individual
under a Covered Insurance Contract; provided that the Reinsurer shall
adjudicate such claim in good faith.
6.2. Notice. The Reinsurer will provide the Retrocessionaire with a summary of
claims received with respect to the Covered Individuals under the Covered
Insurance Contracts no less frequently than on a quarterly basis.
6.3. Proofs of Loss. Upon request, the Reinsurer will promptly provide to the
Retrocessionaire the proper claim proofs, including a copy of the proof of
payment by the Reinsurer and a copy of the insured's death certificate.
For contested claims, the Reinsurer will also send to the
Retrocessionaire, upon request, a copy of all underwriting papers and
investigation reports.
6.4. Liability. The Reinsurer's contractual liability for claims on policies
reinsured under this Agreement is binding on the Retrocessionaire;
provided, however, for contested claims, the Reinsurer will consult with
the Retrocessionaire.
The total reinsurance recoverable by the Reinsurer from all
retrocessionaires will not exceed the Reinsurer's total liability with
respect to the Covered Individuals. The maximum reinsurance death benefit
payable to the Reinsurer under this Agreement with respect to any Covered
Individual is the Excess Mortality Risk specifically reinsured with the
Retrocessionaire. The Retrocessionaire will also pay its proportionate
share of interest payable by the Reinsurer with respect to death benefits.
6.5. Settlement. The Retrocessionaire will pay the reinsured death benefits in
a single sum in accordance with the settlement procedures set forth in
Schedule B.
6.6. Misrepresentation or Suicide. If the Reinsurer is obligated to return
premiums as a result of misrepresentation or suicide of any Covered
Individual under a Covered Insurance Contract, the Retrocessionaire will
refund to the Reinsurer all reinsurance premiums received with respect to
such Covered Individual in lieu of any other form of reinsurance benefit
payable under this Agreement.
6.7. Misstatement. In the event of an increase in the amount of the Reinsurer's
liability with respect to any Covered Individual under a Covered Insurance
Contract due to a misstatement of age or sex, the Retrocessionaire's
liability will increase automatically. Reinsurance premiums will be
adjusted from the inception of the policy, and any difference will be
settled without interest.
6.8. Reinsurance Conditions. The reinsurance provided hereunder is subject to
the same limitations and conditions as the terms and limitations in the
Covered Insurance Contracts except as otherwise provided herein.
6.9. Extra-Contractual Damages. The Retrocessionaire will not participate in
Punitive or Compensatory Damages or Statutory Penalties that are awarded
or imposed with respect to any Covered Individual under a Covered
Insurance Contract.
For purposes of this Article the following definitions will apply:
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"Compensatory Damages" are those amounts awarded to compensate for the actual
damages sustained, and are not awarded as a penalty, nor fixed in amount by
statute;
"Punitive Damages" are those damages awarded as a penalty, the amount of which
is neither governed nor fixed by statute;
"Statutory Penalties" are those amounts awarded as a penalty, but are fixed in
amount by statute.
ARTICLE VII
RECAPTURE
7.1. Recapture. Upon sixty (60) days advance written notice to the
Retrocessionaire, the Reinsurer may recapture liabilities ceded under this
Agreement. If the Reinsurer increases the Reinsurer Net Retention, the
Excess Mortality Risks reinsured under this Agreement will be
correspondingly reduced. The Reinsurer will effectuate the recapture
required by the preceding sentence prior to recapturing any risk ceded to
any other retrocessionaire with respect to the Covered Individuals.
ARTICLE VIII
GENERAL PROVISIONS
8.1. Currency. All payments under this Agreement will be made in United States
currency. All amounts expressed in this Agreement and in any reports
produced by either the Reinsurer or the Retrocessionaire will be expressed
in United States currency.
8.2. Any debits or credits incurred on and after the Effective Date in favor of
or against either the Reinsurer or Retrocessionaire with respect to this
Agreement or any other reinsurance agreements or trust agreements that
constitute Related Agreements (as such term is defined in the Asset
Purchase Agreement) or otherwise are deemed mutual debits or credits, as
the case may be, and shall be set off and recouped, and only the net
balance shall be allowed or paid. This Section 8.2 shall apply
notwithstanding the existence of any insolvency, rehabilitation,
conservatorship or comparable proceeding by or against the Reinsurer or
the Retrocessionaire.
8.3. Premium Tax. The Retrocessionaire will not reimburse the Reinsurer for
premium taxes.
8.4. Consent to Jurisdiction. Each party hereto irrevocably and unconditionally
submits to the exclusive jurisdiction of any State or Federal Court
sitting in Delaware, over any suit, action or proceeding arising out of or
relating to this Agreement. Each party hereto agrees that service of any
process, summons, notice or document by U.S. registered mail addressed to
such party shall be effective service of process for any action, suit or
proceeding brought against such party in such court. Each party hereto
irrevocably and unconditionally waives any objection to the laying of
venue of any such suit, action or proceeding brought in any such court and
any claim that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum. Each party hereto agrees
that final judgment in any such action, suit or proceeding brought in
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any such court shall be conclusive and binding upon such party and may be
enforced in any other courts to whose jurisdiction such party may be
subject, by suit upon such judgment.
8.5. Errors and Oversights. Inadvertent delays, errors or omissions made in
connection with this Agreement or any transaction hereunder shall not
relieve either party from any liability which would have attached had such
delay, error or omission not occurred, provided always that such error or
omission is rectified as soon as possible after discovery, and provided,
further, that the party making such error or omission or responsible for
such delay shall be responsible for any additional liability which
attaches as a result. If (a) the failure of either party to comply with
any provision of this Agreement is unintentional or the result of a
misunderstanding or oversight and (b) such failure to comply is promptly
rectified, both parties shall be restored as closely as possible to the
positions they would have occupied if no error or oversight had occurred.
8.6. Inspection of Records. Upon reasonable notice, the Reinsurer or the
Retrocessionaire (or their respective duly authorized representatives)
may, at the expense of the requesting party, inspect the original papers
and any and all other books or documents relating to or affecting
reinsurance under this Agreement during normal business hours at the home
office of the other.
8.7. Amendments; Entire Agreement. This Agreement may not be amended or
modified in any respect whatsoever except by instrument in writing signed
by the parties hereto. This Agreement, the Asset Purchase Agreement, the
other Related Agreements (as such term is defined in the Asset Purchase
Agreement and that certain confidentiality agreement dated May 4, 2004 by
and between ING America Insurance Holdings, Inc. and Scottish Re Group
Limited and other documents delivered pursuant hereto, constitute the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersede all prior agreements understanding
negotiations, discussions, whether oral or written, of the parties and
there are no general or specific warranties, representations or other
agreements by or among the parties in connection with the entering into of
this Agreement or the subject matter hereof except as specifically set
forth or contemplated herein.
8.8. Assignment. This Agreement may not be assigned by either party without the
written consent of the other. This Agreement is binding on the parties and
their respective successors and permitted assignees.
8.9. Notices. Any notice, request or other communication to be given by any
party hereunder shall be in writing and shall be delivered personally,
sent by registered or certified, postage prepaid, or by overnight courier
with written confirmation of delivery. Any such notice shall be deemed
given when so delivered personally, or if mailed, on the date shown on the
receipt therefor, or if sent by overnight courier, on the date shown on
the written confirmation of delivery. Such notices shall be given to the
following address:
if to the Retrocessionaire:
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Security Life of Denver Insurance Company
Attention: President
c/o ING North America Insurance Corporation
0000 Xxxxxx Xxxxx Xxxx XX
Xxxxxxx, XX 00000
with a copy to:
B. Xxxxx Xxxxxx
Corporate General Counsel
ING North America Insurance Corporation
0000 Xxxxxx Xxxxx Xxxx
XX Xxxxxxx, XX 00000
and
Xxxxx X. Xxxxxx, Esq.
Xxxxxxxxxx Xxxxxx & Xxxxxxx LLP
0000 Xxxxxxxxxxxx Xxx., XX
Xxxxxxxxxx, XX 00000-0000
if to the Reinsurer:
Scottish Re Life (Bermuda) Limited
Crown House, Third Xxxxx
0 Xxx-xx-Xxxxx Xxxx
Xxxxxxxx, XX 00
XXXXXXX
Xxxxxxxxx: General Counsel
with a copy to:
Scottish Re (U.S.), Inc.
00000 Xxxxxxxxxx Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: General Counsel
and a copy to:
LeBoeuf, Lamb, Xxxxxx & XxxXxx, L.L.P.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
Either party hereto may change the names or addresses where notice is to be
given by providing notice to the other party of such change in accordance with
this Section 8.9.
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8.10. Governing Law and Construction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable
to contracts entered into therein, without reference to principles of
choice of law or conflicts of laws. This Agreement is a freely negotiated
contract between the Reinsurer and the Retrocessionaire and will not be
construed against either party because such party drafted this Agreement.
8.11. Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of
this Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction, so long
as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any party. If any
provision of this Agreement is so broad as to be unenforceable, that
provision shall be interpreted to be only so broad as is enforceable.
8.12. Captions and Schedules. The captions of this Agreement are for convenience
of reference only and shall not define or limit any of the terms or
provisions hereof. The schedules attached hereto are a part of this
Agreement.
8.13. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of
copies hereof each signed by less than all, but together signed by all of
the parties hereto. Each counterpart may be delivered by facsimile
transmission, which transmission shall be deemed delivery of an originally
executed document.
ARTICLE IX
TERMINAL ACCOUNTING AND SETTLEMENT
9.1. Terminal Accounting. In the event that all of the reinsurance under this
Agreement is terminated, a terminal accounting and settlement shall take
place.
9.2. Date of Termination. The effective date of termination shall be the end of
the accounting period in which termination is effective. The terminal
accounting date shall be the effective date of termination or such other
date as shall be mutually agreed to in writing.
9.3. Settlement. The terminal accounting and settlement shall consist of the
settlements as provided in Schedule B, computed as of the terminal
accounting date.
If the calculation of the terminal accounting and settlement produces an
amount due the Reinsurer, such amount shall be paid by the
Retrocessionaire to the Reinsurer.
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If the calculation of the terminal accounting and settlement produces an
amount due the Retrocessionaire, such amount shall be paid by the
Reinsurer to the Retrocessionaire.
9.4. Supplementary Accounting and Settlement. In the event that, subsequent to
the terminal accounting and settlement as above provided, a change is made
with respect to any amount taken into account pursuant to Schedule B, a
supplementary accounting shall take place. Any amount owed to the
Reinsurer or from the Reinsurer by reason of such supplementary accounting
shall be paid promptly upon the completion thereof.
ARTICLE X
CONFIDENTIALITY
The parties agree that, other than as contemplated by this Agreement and
to the extent permitted or required to implement the transactions
contemplated by this Agreement, the parties will keep confidential and
will not use or disclose the other party's Confidential Information and
the terms and conditions of this Agreement, including, without limitation,
the exhibits and schedules hereto, except as otherwise required by
Applicable Law or any order or ruling of any state insurance regulatory
authority, the Securities and Exchange Commission or any other
Governmental Authority. The confidentiality obligations contained in this
Agreement or in any other agreement between the parties hereto, as they
relate to the reinsurance hereunder, shall not apply to the federal tax
structure or federal tax treatment of this Agreement and each party hereto
may disclose to any and all persons, without limitation of any kind, the
federal tax structure and federal tax treatment of this Agreement;
provided, that such disclosure may not be made until the earliest of (x)
the date of the public announcement of discussions relating to this
Agreement, (y) the date of the public announcement of this Agreement, or
(z) the date of the execution of this Agreement. The preceding sentence is
intended to cause this Agreement to be treated as not having been offered
under conditions of confidentiality for purposes of Section 1.6011-4(b)(3)
(or any successor provision) of the Treasury Regulations promulgated under
Section 6011 of the Internal Revenue Code of 1986, as amended, and shall
be construed in a manner consistent with such purpose. Subject to the
provision with respect to disclosure in the first sentence of this
subsection (b), each party hereto acknowledges that it has no proprietary
or exclusive rights to the federal tax structure of this Agreement or any
federal tax matter or federal tax idea related to this Agreement.
For purposes of this Article X, "Confidential Information" shall mean all
documents and information concerning one party, any of its Affiliates, the
Excess Mortality Risks, the Covered Individuals or the Covered Insurance
Contracts, including any information relating to any person insured
directly or indirectly under the Covered Insurance Contracts, furnished to
the other party or such other party's Affiliates or representatives in
connection with this Agreement or the transactions contemplated hereby,
except that Confidential Information shall not include information which:
(a) at the time of disclosure or thereafter is generally available to and
known by the public other than by way of a wrongful disclosure by a party
hereto or by any representative of a party hereto; (b) was available on a
nonconfidential basis from a source other than the parties hereto or
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their representatives, provided that such source is not and was not bound
by a confidentiality agreement with a party hereto; or (c) was
independently developed without violating any obligations under this
Agreement and without the use of any Confidential Information.
ARTICLE XI
INSOLVENCY
11.1. Insolvency of the Reinsurer. In the event of the insolvency of the
Reinsurer, all reinsurance made, ceded, renewed or otherwise becoming
effective under this Agreement shall be payable by the Retrocessionaire
directly to the Reinsurer or to its statutory liquidator, receiver or
statutory successor on the basis of the liability of the Reinsurer with
respect to the Covered Individuals under the Covered Insurance Contracts
without diminution because of the insolvency of the Reinsurer. It is
understood, however, that in the event of the insolvency of the Reinsurer,
the liquidator, receiver or statutory successor of the Reinsurer shall
give written notice of the pendency of a claim against the Reinsurer with
respect to a Covered Individual under a Covered Insurance Contract within
a reasonable period of time after such claim is filed in the insolvency
proceedings and that during the pendency of such claim the
Retrocessionaire may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any
defense or defenses which it may deem available to the Reinsurer or its
liquidator, receiver or statutory successor. It is further understood that
the expense thus incurred by the Retrocessionaire shall be chargeable,
subject to court approval, against the Reinsurer as part of the expense of
liquidation to the extent of a proportionate share of the benefit which
may accrue to the Reinsurer solely as a result of the defense undertaken
by the Retrocessionaire.
11.2. Insolvency of the Retrocessionaire. In the event of the insolvency of the
Retrocessionaire, the Reinsurer may, upon giving thirty (30) days written
notice to the Retrocessionaire, its liquidator, receiver or statutory
successor, recapture all of the business reinsured under this Agreement.
ARTICLE XII
ARBITRATION
12.1. Arbitration.
(a) After the Closing Date, any dispute between the parties with
respect to the calculation of amounts that are to be calculated, reported, or
that may be audited pursuant to this Agreement (other than disputes relating to:
(i) the SLDI Closing Statement and the assets to be transferred to the
Reinsurer, the SLDI Reserve Trust Account and the SLDI Security Trust Account
pursuant to Article II of the Asset Purchase Agreement, which shall be resolved
in accordance with the Asset Purchase Agreement; (ii) calculations relating to
DAC tax, which shall be resolved in accordance with Article XIII hereof, or
(iii) matters relating to whether a
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Triggering Event (as defined in each Reinsurance Agreement) has occurred), shall
be decided through negotiation and, if necessary, arbitration as set forth in
Section 12.2.
(b) The parties intend this Section 12.1 to be enforceable in
accordance with the Federal Arbitration Act (9 U.S.C., Section 1) including any
amendments to that Act which are subsequently adopted. In the event that either
party refuses to submit to arbitration as required by Section 7.01(a), the other
party may request the court specified in Section 8.4 to compel arbitration in
accordance with the Federal Arbitration Act.
12.2. Arbitration Procedure.
(a) The Reinsurer and Retrocessionaire intend that any dispute between
them arising under this Agreement (excluding those disputes identified in
Section 12.1(a)) be resolved without resort to any litigation. Accordingly, the
Reinsurer and Retrocessionaire agree that they will negotiate diligently and in
good faith to agree on a mutually satisfactory resolution of any such dispute;
provided, however, that if any such dispute cannot be so resolved by them within
sixty (60) calendar days (or such longer period as the parties may agree) after
commencing such negotiations, the Reinsurer and Retrocessionaire agree that they
will submit such dispute to arbitration in the manner specified in, and such
arbitration proceeding will be conducted in accordance with, the Commercial
Arbitration Rules of the American Arbitration Association.
(b) The arbitration hearing will be before a panel of three
disinterested arbitrators, each of whom must be a present or former officer of a
life insurance or life reinsurance company familiar with the life reinsurance
business, or other professionals with experience in life insurance or
reinsurance, provided that such professionals shall not have performed services
for either party within the previous five (5) years, and provided further that
no arbitrator shall be a former employee of the Reinsurer or any of its
Affiliates. The Reinsurer and Retrocessionaire will each appoint one arbitrator
by written notification to the other party within thirty (30) calendar days
after the date of the mailing of the notification initiating the arbitration.
These two arbitrators will then select the third arbitrator within sixty (60)
calendar days after the date of the mailing of the notification initiating
arbitration.
(c) If either the Reinsurer or Retrocessionaire fails to appoint an
arbitrator, or should the two arbitrators be unable to agree upon the choice of
a third arbitrator, the president of the American Arbitration Association will
appoint the necessary arbitrators within thirty (30) calendar days after the
request to do so.
(d) The arbitrators shall base their decision on the terms and
conditions of this Agreement. However, if the terms and conditions of this
Agreement do not explicitly dispose of an issue in dispute between the parties,
the arbitrators may base their decision on the customs and practices of the life
insurance and life reinsurance industry together with an interpretation of the
law. The vote or approval of a majority of the arbitrators will decide any
question considered by the arbitrators. The place of arbitration will be
determined by the arbitrators. Each decision (including without limitation each
award) of the arbitrators will be final and binding on all parties and will be
nonappealable, except that (at the request of either the Reinsurer or
Retrocessionaire) any award of the arbitrators may be confirmed (or, if
appropriate, vacated) by a judgment entered by the court specified in Section
8.4. No such award or judgment will bear
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interest except as provided in Section 3.3. In no event may the arbitrators
award punitive or exemplary damages. Each party will be responsible for paying
(a) all fees and expenses charged by its respective counsel, accountants,
actuaries, and other representatives in conjunction with such arbitration and
(b) one-half of the fees and expenses charged by each arbitrator.
ARTICLE XIII
DAC TAX
13.1. Election.
(a) All uncapitalized terms used herein shall have the meanings set
forth in the regulations under Section 848 of the Code.
(b) Each of the Reinsurer and the Retrocessionaire acknowledges that
it is subject to taxation under Subchapter L of the Code and hereby makes the
election contemplated by Section 1.848-2(g)(8) of the Treasury Regulations with
respect to this Agreement. Each of the Reinsurer and the Retrocessionaire (i)
agrees that such election is effective for the taxable year of each party that
includes the Effective Date and for all subsequent years during which this
Agreement remains in effect and (ii) warrants that it will take no action to
revoke the election.
(c) Pursuant to Section 1.848-2(g)(8) of the Treasury Regulations,
each of the Reinsurer and the Retrocessionaire hereby agrees (i) to attach a
schedule to its federal income tax return for its first taxable year ending on
or after the Effective Date that identifies this Agreement as a reinsurance
agreement for which the joint election under Section 1.848-2(g)(8) has been
made, (ii) that the party with net positive consideration for this Agreement for
each taxable year will capitalize its specified policy acquisition expenses with
respect to this Agreement without regard to the general deductions limitation of
Section 848(c)(1) of the Code, and (iii) to exchange information pertaining to
the amount of net consideration under this Agreement each year to ensure
consistency or as otherwise required by the Internal Revenue Service. The
Retrocessionaire shall prepare and execute duplicate copies of the schedule
described in the preceding sentence as soon as practicable after the Effective
Date and submit them to the Reinsurer for execution. The Reinsurer shall execute
the copies and return one of them to the Retrocessionaire within thirty (30)
calendar days of the receipt of such copies.
(d) The Reinsurer shall submit a schedule to the Retrocessionaire by
May 1 of each year of its calculation of the net consideration under this
Agreement for the preceding taxable year. This schedule of calculations shall be
accompanied by a statement signed by an authorized representative of the
Reinsurer stating that the Reinsurer shall report such net consideration in its
federal income tax return for the preceding taxable year.
(e) The Retrocessionaire may contest such calculation by providing an
alternative calculation to the Reinsurer in writing within thirty (30) calendar
days after the date on which the Retrocessionaire receives the Reinsurer's
calculation. If the Retrocessionaire does not so notify the Reinsurer, the
Retrocessionaire shall report the net consideration under this Agreement as
determined by the Reinsurer in the Retrocessionaire's federal income tax return
for the preceding taxable year.
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(f) If Retrocessionaire contests the Reinsurer's calculation of the
net consideration under this Agreement, the parties shall act in good faith to
reach an agreement as to the correct amount of net consideration within thirty
(30) calendar days after the date on which the Retrocessionaire submits its
alternative calculation. If Retrocessionaire and the Reinsurer reach an
agreement as to the amount of net consideration under this Agreement, each party
shall report such amount in its federal income tax return for the preceding
taxable year.
If, during such period, Retrocessionaire and the Reinsurer are unable
to reach an agreement, they shall promptly thereafter cause Deloitte & Touche
USA LLP (the "Independent Accountants") to promptly review (which review shall
commence no later than five (5) calendar days after the selection of the
Independent Accountants) this Agreement and the calculations of Retrocessionaire
and the Reinsurer for the purpose of calculating the net consideration under
this Agreement. In making such calculation, the Independent Accountants shall
consider only those items or amounts in the Reinsurer's calculation as to which
the Retrocessionaire has disagreed.
The Independent Accountants shall deliver to Retrocessionaire and the
Reinsurer, as promptly as practicable (but no later than thirty (30) calendar
days after the commencement of their review), a report setting forth such
calculation, which calculation shall result in a net consideration between the
amount thereof shown in the Reinsurer's calculation delivered pursuant to
Section 13.1(d) and the amount thereof shown in Retrocessionaire's calculation
delivered pursuant to Section 13.1(e). Such report shall be final and binding
upon Retrocessionaire and the Reinsurer. The fees, costs and expenses of the
Independent Accountants shall be borne (i) by the Reinsurer if the difference
between the net consideration as calculated by the Independent Accountants and
the Reinsurer's calculation delivered pursuant to Section 13.1(d) is greater
than the difference between the net consideration as calculated by the
Independent Accountants and Retrocessionaire's calculation delivered pursuant to
Section 13.1(e), (ii) by the Retrocessionaire if the first such difference is
less than the second such difference, and (iii) otherwise equally by
Retrocessionaire and the Reinsurer.
ARTICLE XIV
DURATION
14.1. Duration. Except as otherwise provided herein, this Agreement shall be
unlimited in duration. The obligations of the Retrocessionaire under this
Agreement shall terminate at such time as there is no Excess Mortality
Risk on a Covered Individual (taking into account the then current
Reinsurer Net Retention), and all amount due the parties hereunder have
been settled.
14.2. Survival. Notwithstanding the other provision of this Article, the terms
and conditions of Articles VI, VIII, X and XII shall remain in full force
and effect after the termination of this Agreement.
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ARTICLE XV
EXECUTION
IN WITNESS OF THE ABOVE, this Agreement is signed in duplicate on the
dates indicated to be effective as of December 31, 2004.
SCOTTISH RE LIFE (BERMUDA) LIMITED
By: /s/ Xxxxxxxxx Xxxxxx
--------------------------------------
Title: CFO
------------------------------------
Date: December 31, 2004
-------------------------------------
SECURITY LIFE OF DENVER INSURANCE COMPANY
By: /s/ Xxxx Xxxxxx
--------------------------------------
Title: Xxxx Xxxxxx, President
------------------------------------
Date: December 31, 2004
-------------------------------------
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