Exhibit No. 10.2
REINSURANCE AGREEMENT
Between
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
of
Minneapolis, Minnesota
and
AMERICAN LIFE AND ANNUITY COMPANY, INC.
of
Knoxville, Tennessee
TABLE OF CONTENTS
Page
----
A. REINSURANCE COVERAGE 3
B. PLACING INSURANCE IN EFFECT 3
C. PAYMENTS BY REINSURED 3
D. PAYMENTS BY REINSURER 4
E. TERMS OF REINSURANCE 4
F. RECAPTURE PROVISION 5
G. UNUSUAL EXPENSES AND ADJUSTMENTS 5
H. ERRORS 6
I. REDUCTIONS 6
J. AUDIT OF RECORDS AND PROCEDURES 6
K. ARBITRATOR 6
L. INSOLVENCY 6
M. OFFSET 7
N. PARTIES TO AGREEMENT 7
O. EFFECTIVE DATE 7
P. DURATION OF AGREEMENT 7
Q. JURISDICTION AND SERVICE OF SUIT 8
R. MISCELLANEOUS 8
S. EXECUTION 9
SCHEDULE I
POLICIES SUBJECT TO REINSURANCE 10
SCHEDULE II
AMOUNT OF REINSURANCE 11
SCHEDULE III
ANNUITY COINSURANCE MONTHLY REPORT 12
SCHEDULE IV
ANNUAL REPORT 14
SCHEDULE V
ALLOWANCES 15
SCHEDULE VI
FUND WITHHELD INTEREST RATE 16
SCHEDULE VII
ARBITRATION SCHEDULE 17
SCHEDULE VIII
INTEREST RATE CREDITING STRATEGY 19
SCHEDULE IX
SECTION 1.848-2(g)(8) 20
REINSURANCE AGREEMENT
Between
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
of
Minneapolis, Minnesota
referred to as the "REINSURED"
and
AMERICAN LIFE AND ANNUITY COMPANY, INC.
of
Knoxville, Tennessee,
referred to as the "REINSURER".
Effective Date: December 1, 1996
A. REINSURANCE COVERAGE
--------------------
1. The REINSURED shall cede, and the REINSURER shall accept, reinsurance
of the policies described in Schedule I. Reinsurance shall be accepted
on a funds withheld basis.
2. The reinsurance shall cover a Quota Share of the policies as specified
in Schedule II.
3. The liability of the REINSURER shall begin simultaneously with that of
the REINSURED but in no event prior to the effective date of this
Agreement. Reinsurance with respect to any policy shall not be in force
and binding unless the insurance issued by the REINSURED is in force
and unless the issuance and delivery of such insurance constituted the
doing of business in a state of the United States of American, the
District of Columbia, or a country in which the issuing insurer was
properly licensed.
4. Reinsurance under this Agreement shall be funds withheld on the portion
of the policy which is reinsured with the REINSURER and shall follow
the forms of the REINSURED.
5. The reinsurance under this Agreement with respect to any policy shall
be maintained in force without reduction so long as the liability of
the REINSURED under such policy reinsured hereunder remains in force
without reduction, unless reinsurance is terminated or reduced as
provided herein.
B. PLACING REINSURANCE IN EFFECT
-----------------------------
Reinsurance with respect to policies issued after the effective date of this
Agreement shall become effective simultaneously with the liability of the
REINSURED, provided however, that the REINSURED shall give notification of such
reinsurance to the REINSURER simultaneously with the monthly reconciliation
prescribed in Section E, paragraph 2.
C. PAYMENTS BY REINSURED
---------------------
1. Premiums
--------
The REINSURED shall pay the REINSURER as reinsurance premiums the
premiums the REINSURED receives on and after the effective date of this
Agreement with respect to the portion of all policies reinsured
hereunder.
2. REINSURER'S Funds Withheld Account
----------------------------------
(a) The REINSURED shall maintain a funds withheld account for the
benefit of the REINSURER during the term of this Agreement.
The balance on the effective date of this Agreement shall be
zero.
(b) Adjustments to the REINSURER'S Funds Withheld Account shall be
made monthly.
(c) The monthly adjustment shall be computed by deducting (i) the
total amount of the statutory reserves on the last day of the
preceding month on the portions of the policies reinsured
hereunder from (ii) the total amount of the statutory reserves
on the last day of the current month on the portions of the
policies reinsured hereunder and then in force under this
Agreement. For any accounting period in which "(ii)" exceeds
"(i)", the REINSURED shall add such excess to the REINSURER'S
Funds Withheld Account. For any accounting in which "(i)"
exceeds "(ii)" the REINSURED shall subtract such excess from
the REINSURER'S Funds Withheld Account.
(d) Notwithstanding the above, in no event shall the amount in the
REINSURER'S Funds Withheld Account be less than zero.
3. Gross Investment Income
-----------------------
The REINSURED shall retain the gross investment income derived from the
assets held by the REINSURED in the REINSURER'S Funds Withheld Account
but shall monthly pay the REINSURER gross investment income which shall
be equal to the monthly equivalent of the interest rate, as calculated
in Schedule VI, earned on the REINSURER'S Funds Withheld Account times
the average of the REINSURER'S Funds Withheld Account balance on the
last day of the preceding month and the last day of the current month.
With respect, however, to the accounting period during which the
effective date of this Agreement occurs, the reference above, to "the
last day of the preceding month" shall refer to the effective date of
this Agreement. With respect, however, to the accounting period during
which the termination of this Agreement occurs, the reference above, to
"the last day of the current month" shall refer to the day immediately
prior to the terminal accounting date.
D. PAYMENTS BY REINSURER
------------------------
1. Benefits
--------
The REINSURER shall pay the REINSURED:
(a) the gross amount of all death and annuity benefits
paid by the REINSURED (i.e., without deduction for
reserves) with respect to the portion of the policies
reinsured hereunder; and
(b) the net cash surrender values paid by the REINSURED
with respect to the portion of the policies reinsured
hereunder.
2. Policy Expense Allowances.
--------------------------
The REINSURER shall pay the REINSURED the full amount of Allowances and
Expense Reimbursements as defined in Schedule V.
3. State Premium Taxes.
--------------------
The REINSURER shall reimburse the REINSURED for any state premium taxes
that the REINSURED may be required to pay with respect to that part of
the premiums paid to the REINSURER as reinsurance premiums.
4. Guaranty Fund Assessments.
--------------------------
The REINSURER shall reimburse the REINSURED for any state guaranty fund
assessments that the REINSURED may be required to pay with respect to
that part of the assessments paid to the REINSURER as reinsurance
assessments.
E. TERMS OF REINSURANCE
-----------------------
1. Amounts Due REINSURED or REINSURER.
-----------------------------------
Except as otherwise specifically provided herein, all amounts due to be
paid to either the REINSURER or the REINSURED shall be determined on a
net basis as of the last day of the calendar month to which such amount
is attributable. In determining the amounts due, consideration shall be
given to any change in the REINSURER'S Funds Withheld Account occurring
during the month. An increase in the REINSURER's Funds Withheld Account
will reduce any amount otherwise due to the REINSURER by the REINSURED,
while a decrease in the REINSURER'S Funds Withheld Account will reduce
any amounts otherwise due to the REINSURED by the REINSURER. All
amounts shall be due and accrued as of such date. The payment of such
amounts shall be submitted in accordance with the provisions of Section
E, paragraph 2.
2. Payment Dates.
--------------
(a) The REINSURED shall submit monthly, not later than twenty (20)
days after the end of each calendar month, a Periodic Report
substantially in accord with Schedule III. Any amounts
indicated in the Periodic Report as due the REINSURER shall
accompany such report.
(b) Any amounts indicated in the Periodic Report as due the
REINSURED shall be paid by the REINSURER within ten (10) days
after the receipt of the Periodic Report.
(c) Not later than twenty (20) days after the end of each calendar
year, the REINSURED shall submit to the REINSURER an Annual
Report substantially in accord with Schedule IV.
(d) Interest as specified in Schedule VI shall be paid on amounts
not paid when due.
(e) If the REINSURED ever becomes aware that its monthly reports
for an Accounting Period as required in this section did not
accurately reflect the actual experience of the Policies
during the Accounting Period, it shall promptly submit a
revised summary to the REINSURER. Any amount shown by the
revised summary as owed by either the REINSURED or the
REINSURER to the other shall be paid promptly.
(f) The REINSURER may change Schedules III and IV in order to
obtain the data it reasonably needs to properly administer
this Agreement or to prepare its financial statements.
3. DAC Election
------------
The parties elect to have this Agreement treated in accordance with
Section 1.848-2(g)(8) of the Income Tax Regulations issued under
Section 848 of the Internal Revenue Code of 1986. Specific details of
this election are set forth in Schedule IX.
4. Expense.
--------
The REINSURED shall bear all expenses incurred in connection with the
policies reinsured hereunder, except as otherwise provided herein.
5. Credit Interest Rate.
---------------------
The REINSURER agrees to accept the decisions, of the REINSURED with
respect to crediting interest rates. The interest rate crediting
strategy is shown in Schedule VIII.
F. RECAPTURE PROVISION
----------------------
Within the first 36 months after the effective date of this Agreement and upon
90 days written notice to the REINSURED, the REINSURER shall have the right to
terminate reinsurance under this Agreement on an "all or none" basis, with
respect to policies that have not yet attained the third anniversary of having
been reinsured hereunder. For each policy so terminated, the REINSURER shall pay
to the REINSURED 101% of the Statutory reserves on the terminated policy.
G. UNUSUAL EXPENSES AND ADJUSTMENTS
-----------------------------------
2. Any unusual expenses incurred by the REINSURED in defending or
investigating a claim for policy liability or rescinding a policy
reinsured hereunder, but net of unusual expenses receivable under other
reinsurance agreements with respect to the portion of the policies
reinsured hereunder, shall be participated in by the REINSURER in the
same proportion as its reinsurance bears to the total insurance under
such policy.
3. For purposes of this Agreement (but not as a limitation on the
REINSURER'S liability under paragraph 1), it is agreed that penalties,
attorney's fees, and interest imposed automatically by statute against
the REINSURED and arising solely out of a judgment rendered against the
REINSURED in a suit for policy benefits reinsured hereunder shall be
considered unusual expenses.
4. In no event, however, shall the following categories of expenses or
liabilities be considered for purposes of this Agreement as "unusual
expenses".
(a) routine investigative or administrative expenses;
(b) expenses incurred in connection with a dispute or
contest arising out of conflicting claims of
entitlement to policy proceeds or benefits which the
REINSURED admits are payable;
(c) Expenses, fees, settlements, or judgments arising out
of or in connection with claims against the REINSURED
for punitive or exemplary damages; and
(d) expenses, fees, settlements, or judgments arising out
of or in connection with claims made against the
REINSURED and based on alleged or actual bad faith,
failure to exercise good faith, or tortious conduct.
H. ERRORS
---------
If either the REINSURED or the REINSURER shall fail to perform an obligation
under this Agreement and such failure shall be the result of an error on the
part of the REINSURED or the REINSURER, such error shall be corrected by
restoring both the REINSURED and the REINSURER to the positions they would have
occupied had no such error occurred; and "error" is a clerical mistake made
inadvertently and excludes errors of judgment and all other forms of error.
I. REDUCTIONS
-------------
If a portion of the insurance issued by the REINSURED on a policy reinsured
hereunder is terminated, reinsurance on that policy hereunder shall be reduced.
J. AUDIT OF RECORDS AND PROCEDURES
----------------------------------
The REINSURER and the REINSURED each shall have the right to audit, at the
office of the other, all records and procedures relating to reinsurance under
this Agreement.
K. ARBITRATION
--------------
1. If the REINSURED and the REINSURER cannot mutually resolve a dispute
regarding the interpretation or operation of this Agreement, the
dispute shall be decided through arbitration as set forth in Schedule
VII. 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 insurance and reinsurance industry rather than solely
on an interpretation of applicable law. The arbitrator's decision shall
take into account the right to offset mutual debts and credits as
provided in this Agreement. There shall be no appeal from the
arbitrator's decision. Any court having jurisdiction over the subject
matter and over the parties may reduce the arbitrator's decision to
judgment.
2. The parties intend this section 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
paragraph 1, the other party may request a United States Federal
District Court to compel arbitration in accordance with the Federal
Arbitration Act. Both parties consent to the jurisdiction of such court
to enforce this section and to confirm and enforce the performance of
any award of the arbitrators.
L. INSOLVENCY
-------------
1. In the event of the insolvency of the REINSURED and the appointment of
a conservator, liquidator or statutory successor of the REINSURED,
reinsurance shall be payable immediately upon demand to such
conservator, liquidator or statutory successor, with reasonable
provision for verification before payment, on the basis of claims
allowed against the REINSURED by and court of competent jurisdiction or
by the conservator, liquidator or statutory successor of the REINSURED
without diminution because of the insolvency of the REINSURED or
because such conservator, liquidator or statutory successor has failed
to pay all or a portion of any claims.
2. In the event of the insolvency of the REINSURED, the conservator,
liquidator, or statutory successor of the REINSURED shall give the
REINSURER written notice of the pendency of a claim on a Policy 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 name of the proceeding
where such claim is to be adjudicated, any defense which the REINSURER
may deem available to the REINSURED or its conservator, liquidator or
statutory successor.
3. The expense thus incurred by the REINSURER shall be chargeable, subject
to court approval, against the REINSURED as part of the expense of
liquidation to the extent or a proportionate share of the benefit which
may accrue to the REINSURED solely as a result of the defense
undertaken by the REINSURER. Where two or more reinsurers are
participating in the same claim and a majority in interest elect to
interpose a defense or defenses to any such claim, the expense shall be
apportioned in accordance with the terms of the reinsurance agreement
as though such expense had been incurred by the REINSURED.
M. OFFSET
---------
Any debts or credits, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or were incurred, in favor of or against either
the REINSURED or the REINSURER with respect to this Agreement or any other
agreement or any other claim of one party against the other are deemed to be
mutual debts and credits and shall be set off and only the balance shall be
allowed or paid.
N. PARTIES TO AGREEMENT
-----------------------
This is an Agreement for indemnity reinsurance solely between the REINSURED and
the REINSURER. The acceptance of reinsurance hereunder shall not create any
right or legal relation whatever between the REINSURER and the insured, or the
beneficiary under any policy reinsured hereunder, and the REINSURED shall be and
remain solely liable to such insured or beneficiary under any such policy.
O. EFFECTIVE DATE
-----------------
The effective date of this Agreement is December 1, 1996.
P. DURATION OF AGREEMENT
------------------------
1. Except as otherwise provided herein, this Agreement shall be unlimited
in duration.
2. This Agreement may be terminated at any time by either the REINSURER or
the REINSURED upon ninety (90) day's written notice with respect to
reinsurance not yet placed in force. THE REINSURER shall continue to
accept reinsurance during the ninety (90) day notice period, and shall
remain liable on all reinsurance placed in effect under this Agreement
until the termination or expiry of the insurance reinsured.
3. Upon ninety (90) days' written notice to the REINSURER, the REINSURED
shall have the right to terminate reinsurance under this Agreement with
respect to those policies which have attained the fifteenth or any
subsequent anniversary or having been reinsured hereunder. Any such
termination shall apply to all policies which attain the same or any
subsequent anniversary within the twelve (12) month period following
the effective date of such notice of termination. Termination with
respect to each affected policy shall be effective as of the
anniversary of such policy having been reinsured hereunder. The
REINSURER shall pay to the REINSURED a surrender benefit equal to the
surrender value of each policy for which reinsurance is terminated.
4. If the REINSURED fails to pay reinsurance premiums when due, the
REINSURER may terminate this Agreement with respect to all reinsurance
hereunder. To effect such termination, the REINSURER shall give the
REINSURED written notice of termination. The REINSURED may avoid
termination by paying all delinquent reinsurance premiums, plus all
additional reinsurance premiums that may have become due, within (30)
days following its receipt of notice of termination. Termination shall
be effective as of the last date to which reinsurance premiums had been
paid.
5. The termination of this Agreement or of the reinsurance in effect under
this Agreement shall not extend to or affect any of the rights or
obligations of the REINSURED and the REINSURER applicable to any period
prior to the effective date of such termination. In the event that,
subsequent to the termination of this Agreement, an adjustment is made
necessary with respect to any accounting hereunder, a supplementary
accounting shall take place. Any amount owed to either party by reason
of such supplementary accounting shall be paid promptly upon the
completion thereof.
Q. JURISDICTION
---------------
1. If the REINSURED fails to perform any of its obligations under this
Agreement, the REINSURER may request the REINSURED to submit to the
jurisdiction of a court of competent jurisdiction within any state of
the United States. The REINSURED will comply with all reasonable
requirements necessary to give such court jurisdiction over it and will
abide by the final decision of such court or of any appellate court in
the event of an appeal.
2. The REINSURED hereby designates the Commissioner of Insurance of the
REINSURER'S state of domicile as its true and lawful attorney within
such state upon whom any lawful process in any action, suit or
proceeding instituted by or on behalf of the REINSURED may be served.
3. This section is not intended to conflict with or override the
obligation of the parties to arbitrate disputes hereunder.
Consequently, it shall only apply as necessary to enforce the terms of
the Arbitration article or enforce a written decision of the
arbitrators.
R. MISCELLANEOUS
----------------
1. This Agreement represents the entire arrangement between the REINSURED
and the REINSURER and supersedes, with respect to its subject matter,
any prior or oral written agreements between the parties.
2. No modification of any provision of this Agreement shall be effective
unless set forth in a written amendment to this Agreement shall be
effective unless set forth in a written amendment to this Agreement
which is executed by both parties.
3. A waiver shall constitute a waiver only with respect to the particular
circumstances for which it is given and not a waiver of any future.
S. EXECUTION
------------
IN WITNESS WHEREOF the said
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
of
Minneapolis, Minnestoa
and the said
AMERICAN LIFE AND ANNUITY COMPANY, INC.
of
Knoxville, Tennessee
have by their respective officers executed this Agreement in duplicate on the
dates shown below.
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
Signed at Minneapolis, Minnesota
By: /s/Xxxx Xxxxxxxx By: /s/Xxxxxxx X. Xxxxxx
-------------------------------- -------------------------------------
(TITLE) Vice President (TITLE) Assistant, Vice President
Date December 17, 1996 Date December 17, 1996
------------------------------ ----------------------------------------
AMERICAN LIFE AND ANNUITY COMPANY, INC.
Signed at Knoxville, Tennessee
By s/s Xxxxxx X. Xxxxxx By s/s Xxxxxxx Xxxxx, III
--------------------------------- --------------------------------------
(TITLE) Chairman (TITLE) President
Date 12-20-96 Date 12-20-96
------------------------------ -----------------------------------
SCHEDULE I
POLICIES SUBJECT TO REINSURANCE
All "Ultima" Flexible Premium Deferred Annuity contracts issued by Allianz Life
Insurance Company of North America and its affiliates.
SCHEDULE II
AMOUNT OF REINSURANCE
The amount of reinsurance under this Agreement shall be 15% of the liability of
the REINSURED on all policies in the forms listed in Schedule I, not to exceed
the State of Tennessee's statutory limit.
SCHEDULE III
ANNUITY COINSURANCE MONTHLY REPORT
TO
AMERICAN LIFE AND ANNUITY COMPANY, INC.
FROM
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AMOUNTS DUE AMERICAN LIFE AND ANNUITY COMPANY, INC.
---------------------------------------------------
First Year Premiums - 3 year surrender charge plans (gross first year) $ ___________________________
premium received during the month, multiplied by the quota share
percentage)
First Year Premiums - 5, -7 and 9 year surrender charge plans (gross $ ___________________________
first year premiums received during the month, multiplied by the
quota share percentage)
Renewal Premiums (gross premiums received during the month, $ ___________________________
multiplied by the quota share percentage)
Commission charge backs on early deaths or withdrawals. $ ___________________________
Gross Investment Income $ ___________________________
Sum of amounts due to American Life and Annuity Company, Inc. $ ___________________________
AMOUNTS DUE ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
-----------------------------------------------------------
First Year allowances (4.625% of first year premium for the 3-year
surrender charge plans, multiplied by the quota share percentage) $ ___________________________
First Year allowances (7.125% of first year premium for the 5-, 7 - $ ___________________________
and 9 year surrender charge plans, multiplied by the quota share
percentage)
First Year allowances (0.225% for the first $25 million of premium
collected on all policies covered by this agreement.) $ ___________________________
Trails (0.02125% of account values at the end of the month on all $ ___________________________
policies in force at least one year, multiplied by the quota share
percentage.)
Renewal allowances (2.0% of renewal premium, multiplied by the $ ___________________________
quota share percentage.)
SCHEDULE IV
ANNUAL REPORT
The Annual Report shall provide the following information:
(a) Exhibit B from the NAIC-prescribed annual statement.
(b) a breakdown of the reserves by withdrawal characteristic of the
annuity contract.
(c) "Analysis of Increase in Reserves" from the NAIC-prescribed annual
statement.
(d) "Exhibit of Annuities" from the NAIC-prescribed annual statement.
(e) an actuarial certification of the reported statutory reserves.
(f) tax reserves and required interest.
Surrender values paid during the month, multiplied by the quota share $ ___________________________
percentage.
Annuity payments paid during the month, multiplied by the quota share $ ___________________________
percentage.
Death benefits paid during the month, multiplied by the quota share $ ___________________________
percentage.
State premium taxes paid on reinsured policies, multiplied by the quota $ ___________________________
share percentage.
Guaranty Fund Assessments paid on reinsured policies, multiplied by $ ___________________________
the quota share percentage.
Sum of amounts due to Allianz Life Insurance Company of North America. $ ___________________________
MONTHLY SETTLEMENT
------------------
Gross amount due (sum of amounts due to American Life and Annuity $ ___________________________
Company, Inc. minus sum of amounts due to Allianz Life Insuranace
Company of North America).
REINSURER'S Funds Withheld Account (Last day of current month) $ ___________________________
REINSURER'S Funds Withheld Account (Last day of preceding) $ ___________________________
Change in REINSURER'S Funds Withheld Account (REINSURER'S $ ___________________________
Fund Withheld Account last day of current month minus REINSURER'S
Fund Withheld Account last day of preceding month).
Net amount due (Gross amount due minus the Change in REINSURER'S $ ___________________________
Funds Withheld Account).
Note: If the net amount due is negative, then that amount is due from American
Life and Annuity Company, Inc. to Allianz Life Insurance Company of North
America.
ADDITIONAL ITEMS NEEDED BY AMERICAN LIFE AND ANNUITY COMPANY, INC.
------------------------------------------------------------------
FOR FINANCIAL REPORTING
-----------------------
Surrender charges realized during the month, multiplied by the quota $ ___________________________
share percentage.
Surrender charges waived on death during the month, multiplied by the $ ___________________________
quota share percentage.
A monthly listing of reserves, account values, and interest credit.
SCHEDULE V
ALLOWANCES
----------
ULTIMA - 3 YEAR ULTIMA - 5, 7 and 9 YEAR
SURRENDER CHARGE SURRENDER CHARGE
------------------------------------------------------------------------------------------------------------------
Year Allowances Monthly Annual Allowances Monthly
Trails Trail Trails
------------------------------------------------------------------------------------------------------------------
1 4.625% 0.0% 7.125% 0.0%
2+ 2.0 0.02125 2.0 0.02125
4+ 1.0
An additional first year allowance of 0.225% for the first $25,000,000 of
premium collect and 0.125% for the next $25,000,000 of premium collected under
this agreement.
NOTES: (1) If the "free look" provision is exercised, the
______ REINSURED will refund the entire allowance to the
REINSURER.
(2) In the event of a surrender or death in the first
policy year, the REINSURED shall refund to the
REINSURER all commissions charge back to the agent or
setting institution.
(3) The allowance percentages are applied to the
reinsured portion of any new premiums received.
(4) The monthly trails apply to the reinsured portion of
the account values at the end of each month following
the 1st anniversary.
(5) The annual trail applies to the reinsured portion of
the account value at the end of the anniversary
month. This trail is for the three year surrender
charge product only.
SCHEDULE VI
FUNDS WITHHELD INTEREST RATE
----------------------------
The Funds Withheld interest shall be calculated using a layer approach. A layer
shall be defined as (a) less (b) where (a) is the Funds Withheld Reserve less
the reinsured portion of policy loans at the end of a calendar month; and (b) is
the Funds Withheld less the Reinsured Portion of policy loans at the beginning
of the month.
The monthly determined layers shall be further divided into sublayers where 20%,
60% and 20% of each layer will receive then current market interest rates based
on a 2 year, 5 year and 8 year average duration investments, respectively. The
interest rates established for each 2 year, 5 year and 8 year duration sublayer
will be fixed for periods of 2 years, 6 years and 12 years respectively. At the
end of these years, each sublayer will be rolled over into new sublayers created
that month and to be subject to the current rates applicable to that newly
created sublayer for the corresponding duration and period of time.
The monthly interest rates shall be established based on month-end market
interest rates obtained from publicly available information and as documented by
the investment operation of Allianz of America, Inc. for A/AA quality bonds with
average durations of 2 years, 5 years and 8 years, as applicable. The monthly
interest rates shall be further adjusted such that on a weighed average basis,
the rates equal the corresponding month-end rate for a custom index developed by
Xxxxxx Brothers for Allianz of America, Inc. That index shall be composed of 30%
government bonds, 30% AA rated corporate bonds and 40% A rated corporate bonds,
all of which mature within 3.5 to 15 years. Further, the portfolio of bonds
making up the Xxxxxx Brothers index will be established to maintain a modified
duration of approximately 5 years. Finally, 50 basis points will be added to the
monthly interest rates.
SCHEDULE VII
ARBITRATION SCHEDULE
To initiate arbitration, either the REINSURED or the REINSURER shall notify the
other party in writing of its desire to arbitrate, stating the nature of its
dispute and the remedy sought. The party to which the notice is sent shall
respond to the notification in writing within ten (10) days of its receipt.
The arbitration hearing shall be before a panel of three arbitrators, each of
whom must be a present or former officer of a life insurance company. An
arbitrator may not be a present or former officer, attorney or consultant of the
REINSURED or the REINSURER or either's affiliates.
The REINSURED and the REINSURER shall each name five (5) candidates to serve as
an arbitrator. The REINSURED and the REINSURER shall each choose one candidate
from the other party's list, and these two candidates shall serve as the first
two arbitrators. If one or more candidates so chosen shall decline to serve as
an arbitrator, the party which named such candidate shall add an additional
candidate to its list, and the other party shall again choose one candidate from
the list. This process shall continue until two arbitrators have been chosen and
accepted. The REINSURED and the REINSURER shall present their initial lists of
five (5) candidates by written notification to the other party within
twenty-five (25) days of the date of the mailing of the notification initiating
the arbitration. Any subsequent additions to the list which are required shall
be presented within ten (10) days of the date the naming party receives notice
that a candidate that has been chosen declines to serve.
The two arbitrators shall then select the third arbitrator from the eight (8)
candidates remaining on the lists of the REINSURED and the REINSURER within
fourteen (14) days of the acceptance of their positions as arbitrators. If the
two arbitrators cannot agree on the choice of a third, then this choice shall be
referred back to the REINSURED and REINSURER. The REINSURED and the REINSURER
shall take turns striking the name of one of the remaining candidates from the
initial eight (8) candidates until only one candidate remains. If the candidate
so chosen shall decline to serve as the third arbitrator, the candidate whose
name was stricken last shall be nominated as the third arbitrator. This process
shall continue until a candidate has been chosen and has accepted. This
candidate shall serve as the third arbitrator. The first turn at striking the
name of a candidate shall belong to the party that is responding to the other
party's initiation of the arbitration. Once chosen, the arbitrators are
empowered to decide all substantial and procedural issues by a majority of
votes.
It is agreed that each of the three arbitrators should be impartial regarding
the dispute and should resolve the dispute on the basis described in the
"ARBITRATION" section. Therefore, at no time will either the REINSURED or the
REINSURER contact or otherwise communicate with any person who is to be or has
been designated as a candidate to serve as an arbitrator concerning the dispute,
except upon the basis of jointly drafted communications (which may include
independently prepared statements) provided by both the REINSURED and the
REINSURER to inform those candidates actually chosen as arbitrators of the
nature and facts of the dispute. Likewise, any written or oral arguments
provided to the arbitrators concerning the dispute shall be coordinated with the
other party and shall be provided simultaneously to the other party or shall
take place in the presence of the other party. Further, at no time shall any
arbitrator be informed that the arbitrator has been named or chosen by one party
or the other.
The arbitration hearing shall be held on the date fixed by the arbitrators. In
no event shall this date be later than six (6) months after the appointment of
the third arbitrator. The arbitration hearing shall be held in the city where
the home office of the party responding to the arbitration is located. As soon
as possible, the arbitrators shall establish prearbitration procedures as
warranted by the facts and issues of the particular case at least ten (10) days
prior to the arbitration hearing, particular case. At least ten (10) days prior
to the arbitration hearing, each party shall provide the other party and the
arbitrators with a detailed statement of the facts and arguments it will present
at the arbitration hearing. The arbitrators may consider any relevant evidence;
they shall give the evidence such weight as they deem it entitled to after
consideration of any objections raised concerning it. The party initiating the
arbitration shall have the burden of proving its case by a preponderance of the
evidence. Each party may examine any witnesses who testify at the arbitration
hearing. Within twenty (20) days following the end of the arbitration hearing,
the arbitrators shall issue a written decision which shall set forth their
decision and the factual basis for their decision. In their written decision the
arbitrators shall demonstrate that they have offset mutual debts and credits as
provided in this Agreement. In no event, however, may the arbitrators award
punitive or exemplary damages. In their decision, the arbitrators shall also
apportion the costs of arbitration, which shall include, but not be limited to,
their own fees and expenses.
SCHEDULE VIII
INTEREST RATE CREDITING STRATEGY
--------------------------------
THE REINSURER and the REINSURED expect to follow a constrained market crediting
strategy. Credited rates move in the direction of market rates, but with a lag.
The lag is greater when rates are increasing. The formula used to model this
strategy may be described as follows:
MBt = Nominal yield expected in the market at time t , as defined by the
funds withheld interest rate in Schedule VI.
SPRDt = Target spread at time t.
CNt = Credited rate on new business issued at time t,
SCt = Surrender charge at time t,
* If MBt >| MBt-1, then
CRt = CRt-1 + 1/4 (MBt - MBt-1) - SPRDt - SPRDt-1); with the additional
restriction that CRt >= CNt - 1/3 SCt - 2%
* If MBt <= MBt-1, then
CRt = CRt-1 -1/2(MBt-1 - MBt) - (SPRDt - SPRDt-1)
In words, the formula recognizes 25% of the change in rates when rates are
increasing and 50% of any decline in rates, but the formula does not allow
credited rates (allowing for the effect of surrender charges) to get too far
from market rates.
SCHEDULE IX
SECTION 1.848-2(G)(8) ELECTION
------------------------------
The REINSURED and the REINSURER agrees to the following pursuant to Section
1.848-2(g)(8) of the Income Tax Regulations issued under Section 848 of the
Internal Revenue Code of 1986 (hereinafter "Section 1.848-2(g)(8)").
1. As used below, the term "party" will refer to the REINSURED or
the REINSURER as appropriate.
2. As used below, the phrases "net positive consideration".
Capitalize specified policy acquisition expenses", "general
deductions limitation", and "net consideration" shall have the
meaning used in Section 1.848-2(g)(8).
3. The party with net positive consideration for this Agreement
for any taxable year beginning with the taxable year
prescribed in paragraph 5 below will capitalize specified
policy acquisition expenses with respect to this Agreement
without regard to the general deductions limitation.
4. The parties agree to exchange information pertaining to the
amount of net consideration under this Agreement to ensure
consistency. This will be accomplished as follows:
(a) The REINSURED shall submit to the REINSURER by the
fifteenth day of May in each year its calculation of
the net consideration for the preceding calendar
year. Such calculation will be accompanied by a
statement signed by an officer of the REINSURED
stating that the REINSURED will report such net
consideration in its tax return for the preceding
year.
(b) The REINSURER may contest such calculation by
providing an alternative calculation to the REINSURED
in writing within thirty (30) days of the REINSURER'S
receipt of the REINSURED'S calculation. If the
REINSURER does not so notify the REINSURED, the
REINSURER will report the net consideration
determined by the REINSURED in the REINSURER'S tax
return for the previous calendar year.
(c) If the REINSURER contests the REINSURED'S calculation
of the net consideration, the parties will act in
good faith to reach an agreement as to the current
amount within thirty (30) days of the date the
REINSURER submits its alternative calculation. If the
REINSURED and the REINSURER reach agreement on an
amount of net consideration, each party shall report
such amount in their respective tax returns for the
preceding calendar year.
5. The election shall be effective for 1996 and all subsequent
taxable years for which the Reinsurance Agreement remains in
effect.
ADDENDUM NO. 1
to the
REINSURANCE AGREEMENT
Effective: January 31, 1997
(hereinafter referred to as the "Agreement")
between
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
of Minnesota
and
AMERICAN LIFE & ANNUITY COMPANY, INC.
of Tennessee
IT IS HEREBY AGREED, effective on January 15, 1997, that SCHEDULE V, attached to
the Agreement, shall be replaced by the SCHEDULE V attached to this Addendum.
The provisions of this Agreement shall remain otherwise unchanged.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates shown below:
AMERICAN LIFE AND ANNUITY COMPANY, INC.
By /s/ Xxxxxxx Xxxxx, III
--------------------------------------------
Title President
------------------------------------------
Witness /s/ Xxxxx Xxxxx
-----------------------------------------
Date 2/6/97
-------------------------------------------
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
By /s/ Xxxx X. Xxxxxxxx
--------------------------------------------
Title VP
------------------------------------------
Witness
----------------------------------------
Date 1/27/97
-------------------------------------------
SCHEDULE V
ALLOWANCES
----------
ULTIMA - 3 YEAR ULTIMA - 5, 7 and 9 YEAR
SURRENDER CHARGE SURRENDER CHARGE
Year Allowances Monthly Annual Allowances Monthly
Trails Trail Trails
1 4.625% 0.0% 7.125% 0.0%
2+ 2.0 0.02125 2.0 0.02125
4+ 1.0
An additional first year allowance of 0.225% for the first $25,000,000 of
premium collect and 0.125% for the next $25,000,000 of premium collected under
this agreement.
NOTES: (1) If the "free look" provision is exercised, the
REINSURED will refund the entire allowance to the
REINSURER.
(2) In the event of a surrender or death in the first
policy year, the REINSURED shall refund to the
REINSURER all commissions charge back to the agent or
setting institution.
(3) The allowance percentages are applied to the
reinsured portion of any new premiums received.
(4) The monthly trails apply to the reinsured portion of
the account values at the end of each month following
the 1st anniversary.
(5) The annual trail applies to the reinsured portion of
the account value at the end of the anniversary
month. This trail is for the three year surrender
charge product only.
SCHEDULE V
ALLOWANCES
----------
ULTIMA - 3 YEAR ULTIMA - 5, 7 and 9 YEAR
SURRENDER CHARGE SURRENDER CHARGE
Year Allowances Monthly Annual Allowances Monthly
Trails Trail Trails
1 4.625% 0.0%
2+ 2.0% 0.02541% 7.125% 0.0%
4+ 1.0% 2.0% 0.02541%
An additional first year allowance of 0.225% for the first $25,000,000 of
premium collect and 0.125% for the next $25,000,000 of premium collected under
this agreement.
NOTES: (1) If the "free look provision" is exercised, the
______ REINSURED will refund the
entire allowance to the REINSURER.
(2) In the event of a surrender or death in the first
policy year, the REINSURED shall refund to the
REINSURER all commissions charge back to the agent or
selling institution.
(3) The allowance percentages are applied to the
reinsured portion of any new premiums received.
(4) The monthly trails apply to the reinsured portion of
the account value at the end of each month following
the anniversary.
(5) The annual trail applies to the reinsured portion of
the account value at the end of the anniversary
month. This trail is for the three year surrender
charge product only.
ADDENDUM NO. 2
to the
REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
of Minnesota
and
AMERICAN LIFE & ANNUITY COMPANY, INC.
of Tennessee
IT IS HEREBY AGREED, effective on December 1, 1996, that SCHEDULE III and
SCHEDULE V, attached to the Agreement, shall be replaced by the SCHEDULE III and
SCHEDULE V attached to this Addendum.
The provisions of this Agreement shall remain otherwise unchanged.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates shown below:
AMERICAN LIFE AND ANNUITY COMPANY, INC.
By /s/ Xxxxxxx Xxxxx, III
-----------------------------------------
Title President
---------------------------------------
Witness
------------------------------------
Date 6/1/98
---------------------------------------
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
By /s/ Xxxx X. Xxxxxxxx
-----------------------------------------
Title VP
--------------------------------------
Witness
------------------------------------
Date 5/27/98
----------------------------------------
SCHEDULE III
ANNUITY COINSURANCE MONTHLY REPORT
TO
AMERICAN LIFE AND ANNUITY COMPANY, INC.
FROM
ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
AMOUNTS DUE AMERICAN LIFE AND ANNUITY COMPANY, INC.
---------------------------------------------------
First Year Premiums - 3 year surrender charge plans (gross firs year $ ____________
premium received during the month, multiplied by the quota share
percentage).
First Year Premiums - 5, 7 and 9 year surrender charge plans (gross first $ ___________
year premium received during the month, multiplied by the quota share
percentage).
First Year Premiums - ULTIMA II (gross first year premiums received $ ___________
during the month, multiplied by the quota share percentage).
First Year Premiums - ULTIMA III (gross first year premiums received $ ___________
during the month, multiplied by the quota share percentage).
First Year Premiums - ULTIMA V (gross first year premiums received $ ___________
during the month, multiplied by the quota share percentage).
Renewal Premiums - 3 year surrender charge plans (gross premiums $ ___________
received during the month, multiplied by the quota share percentage).
Renewal Premiums - 5, 7 and 9 year surrender charge plans (gross $ ___________
premiums received during the month, multiplied by the quota share
percentage).
Renewal Premiums - ULTIMA II (gross premiums received during the $ ___________
month, multiplied by the quota share percentage).
Renewal Premiums - ULTIMA III (gross premiums received during the $ ___________
month, multiplied by the quota share percentage).
Renewal Premiums - ULTIMA V (gross premiums received during the $ ___________
month, multiplied by the quota share percentage.
Commission charge backs on early deaths or withdrawals. $ ___________
Sum of amounts due to American Life and Annuity Company, Inc. $ ___________
AMOUNTS DUE ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
-----------------------------------------------------------
First Year Commission Allowances as defined in Schedule V, multiplied $ ___________
by first year premium for the 3 year surrender charge plans, multiplied by
the quota share percentage.
First Year Commission Allowances as defined in Schedule V, multiplied $ ___________
by first year premium for the 5, 7 and 9 - year surrender charge plans,
multiplied by the quota share percentage.
First Year Commission Allowances as defined in Schedule V, multiplied $ ___________
by first year premium for the ULTIMA II plan, multiplied by the quota
share percentage.
First Year Commission Allowances as defined in Schedule V, multiplied $ ___________
by first year premium for the ULTIMA III plan, multiplied by the quota
share exchange.
First Year Commission Allowances as defined in Schedule V, multiplied $ ___________
by first year premium for the ULTIMA V plan, multiplied by the quota
share percentage.
First Year Acquisition Allowance as defined in Schedule V, multiplied $ ___________
by the premium collected, multiplied by the quota share percentage,
Monthly Maintenance Trail Allowance as defined in Schedule V, $ ___________
multiplied by the account value at the end of the month on all policies
in force at least one year, multiplied by the quota share percentage.
Annual Commission Trail Allowance as defined in Schedule V, $ ___________
multiplied by the account value at the beginning of policy years 4+ on
all 3-year surrender charge plans, multiplied by the quota share percentage.
Renewal Commission Allowances multiplied by the renewal premium $ ___________
for the 5, 7 and 9 year surrender charge plans, multiplied by the quota
share percentage.
Renewal Commission Allowances multiplied by the renewal premium $ ___________
for the ULTIMA II plan, multiplied by the quota share percentage.
Renewal Commission Allowances multiplied by the renewal premium $ ___________
for the ULTIMA III plan, multiplied by the quota share percentage.
Renewal Commission Allowances multiplied by the renewal premium $ ___________
for the ULTIMA V plan, multiplied by the quota share percentage.
Surrender values paid during the month, multiplied by the quota share $ ___________
percentage.
Annuity payments paid during the month, multiplied by the quota share $ ___________
percentage.
Death benefits paid during the month, multiplied by the quota share $ ___________
percentage.
State premium taxes paid during the month, multiplied by the quota $ ___________
share percentage.
Guaranty Fund Assessments paid during the month, multiplied by the $ ___________
quota share percentage.
Sum of amounts due to Allianz Life Insurance Company of North $ ___________
America.
MONTHLY SETTLEMENT
------------------
Monthly net cash flow (sum of amounts due to American Life and $ ___________
Annuity Company, Inc. minus sum of amounts due Allianz Life
Insurance Company of North America.
REINSURER'S Funds Withheld Account (Reserves multiplied by the $ quota share
percentage) as of the last day of the current month.
REINSURER'S Funds Withheld Account (Reserves multiplied by the $ quota share
percentage) as of the last day of the preceding month.
Change in REINSURER'S Funds Withheld Account. $ ___________
Gross Investment Income (on REINSURER'S Funds Withheld $ Account) as defined in
C.3.
Net amount due (Monthly net cash flow plus Gross Investment Income $ minus the
Change in REINSURER'S Funds Withheld Account).
Note: If the net amount due is negative, then that amount is due from American Life and Annuity
Company, Inc. to Allianz Life Insurance Company of North America. If the net amount due is
positive, then the amount is due from Allianz Life Insurance Company of North American Life and
Annuity Company, Inc.
ADDITIONAL ITEMS NEEDED BY AMERICAN LIFE AND ANNUITY COMPANY, INC. FOR FINANCIAL
REPORTING
Surrender charges realized during the month, multiplied by the quota $ ___________
share percentage.
Surrender charges waived on death during the month, multiplied by $ ___________
the quota share percentage.
A monthly listing of reserves, account values, and interest credited.
SCHEDULE V
ALLOWANCES
----------
II COMMISSION ALLOWANCES
---------------------
ULTIMA I
3 YEAR SURRENDER CHARGE 5,7 AND 9 YEAR SURRENDER
----------------------- ------------------------
CHARGE
------
Policy Year Allowances Annual Trail Allowances
----------- ---------- ------------ ----------
1 4.25% 7.25%
2+ 4.25% 7.25%
4+ 1.0%
ULTIMA II
5 YEAR SURRENDER CHARGE
Policy Year Allowance
----------- ---------
1 2.25%
2+ 2.25%
ULTIMA III
5 YEAR SURRENDER CHARGE
-----------------------
Policy Year Allowance
----------- ---------
1 3.25%
2+ 3.25%
ULTIMA V
5 YEAR SURRENDER CHARGE
-----------------------
Policy Year Allowance
----------- ---------
1 5.25%
2+ 5.25%
II. ADMINISTRATION ALLOWANCE
A. Acquisition Allowance
0.85% For the first $25,000,000 of premium collected.
0.75% For the next $25,000,000 of premium collected.
0.625% For all premium collected in excess of $50,000.00.
B. Maintenance Allowance
Policy Year Monthly Trail
----------- -------------
1 0%
2+ 0.02958%
