EXHIBIT 10.1
REINSURANCE AGREEMENT
REINSURANCE AGREEMENT
between the
NORTHBROOK LIFE INSURANCE COMPANY, Northbrook, Illinois
(hereinafter "NORTHBROOK")
and
ALLSTATE LIFE INSURANCE COMPANY, Northbrook, Illinois
(hereinafter "ALLSTATE")
Article I
BASIS OF REINSURANCE
--------------------
1. One-hundred percent (100%) of the net benefits (defined in Article II,
Paragraph 1), under all eligible policies (defined in Schedule A) of
NORTHBROOK, will be reinsured with ALLSTATE.
2. This reinsurance will be ceded to ALLSTATE on an automatic coinsurance
basis.
3. In no event will reinsurance under this Agreement be in force unless the
corresponding policy issued by NORTHBROOK or the reinsurance accepted by
NORTHBROOK is in force.
Article II
REINSURANCE BENEFITS
--------------------
1. Net benefits are defined as follows:
(a) For a policy issued directly by NORTHBROOK and reinsured under this
Agreement, net benefits are the actual amounts payable by NORTHBROOK to
the policyholder, less any amounts payable to NORTHBROOK by another
reinsurer with respect to the policy. These payments include death
benefits, endowment benefits, annuity benefits, disability benefits,
benefits under A & H policies, surrender benefits and payments on
supplementary contracts with and without life contingencies.
(b) For policies reinsured by NORTHBROOK and retroceded under this
Agreement, net benefits are the actual amounts payable by
NORTHBROOK to the ceding company with respect to the policy reinsured
by NORTHBROOK. These payments will include commissions and expense
allowances on reinsurance accepted.
2. With respect to policies issued directly or reinsured by NORTHBROOK on or
prior to the Effective Date of this Agreement, ALLSTATE's liability for net
benefits will begin on the first day following the Agreement's Effective
Date. This liability will include net benefits incurred on or prior to the
Effective Date of this Agreement, but not paid until after the Agreement's
Effective Date.
3. With respect to policies issued directly or reinsured by NORTHBROOK after
the Effective Date of this Agreement, ALLSTATE's liability for net benefits
will begin simultaneously with that of NORTHBROOK and will include any
liability NORTHBROOK may incur as a result of a Temporary Insurance
Agreement or Conditional Receipt issued in conjunction with a policy
subject to this Agreement.
4. ALLSTATE's liability under this Agreement will continue as long as
NORTHBROOK remains liable on the underlying coverage, and will terminate
simultaneously with NORTHBROOK's termination of liability.
Article III
RESERVE TRANSFERS
-----------------
1. On or before the Effective Date of this Agreement, NORTHBROOK shall pay to
ALLSTATE one million dollars ($1,000,000) in cash.
2. Within one-hundred and eighty (180) days following the Effective Date of
this Agreement, NORTHBROOK shall pay to ALLSTATE assets with statutory book
value equal to (a) less (b), where (a) and (b) are as defined below.
NORTHBROOK shall also pay to ALLSTATE interest on this amount; such amount
being equal to the sum of (c) and (d), as defined below.
(a) Net statutory reserves determined as the portion of the following
items (i) through (viii), minus items (ix) through (xi) attributable
to the policies (or portion of such policies) ceded to ALLSTATE under
this Agreement. The applicable portion of these items will be
calculated as of the Effective Date of this Agreement and will be
based on the corresponding items from NORTHBROOK's General Account
statutory financial statement as filed with the Illinois Insurance
Department.
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ITEM NAIC STATEMENT REFERENCE* DESCRIPTION
---- ------------------------- -----------
(i) Page 3, Line 1 Aggregate reserve for life
policies and contracts
(ii) Page 3, Line 2 Aggregate reserve for A & H
policies and contracts
(iii) Page 3, Line 3 Supplementary contracts
without life contingencies
(iv) Page 3, Lines 4.1 & 4.2 Policy and contract claims
(v) Page 3, Line 9 Premium and annuity
considerations received in
advance
(vi) Page 3, Lines 10.1, 10.2 & 10.3 Liability for premiums and other
deposit funds
(vii) Page 3, Lines 11.1, 11.2 & 11.3 Policy and contract liabilities
not included elsewhere
(viii) Page 3, Line 15 Cost of collection on premiums
and annuity considerations
deferred and uncollected in
excess of total loading
(ix) Page 2, Lines 11.1, 11.2 & 11.3 Reinsurance ceded (amounts
due)
(x) Page 2, Line 14 Life insurance premiums and
annuity considerations deferred
and uncollected
(xi) Page 2, Line 15 Accident and health premiums
due and unpaid
-----------------------
/*/ References herein are to the 1986 NAIC Statutory Statement.
Appropriate adjustment will be made for changes, if any, in the NAIC Statutory
Statement on or after the Effective Date.
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(b) The amount transferred under Article III, Paragraph 1.
(c) All interest payments, dividend payments and mortgage payments
received by NORTHBROOK, between the Effective Date of this Agreement
and the date of asset transfer, on the assets transferred.
(d) Interest on cash transferred at an effective rate of six percent (6%)
per annum, compounded daily, from the Effective Date of this Agreement
to the date of asset transfer.
3. Within sixty (60) days following the filing of ALLSTATE's 1987 Federal
Income Tax return, NORTHBROOK shall pay to ALLSTATE assets with statutory
book value equal to 0.4 x [(a)-(b)], where (a) and (b) are as defined
below.
(a) Net statutory reserves on the Effective Date of this Agreement as
calculated under Article III, Paragraph 2, Item (a).
(b) Net tax reserves on the Effective Date of this Agreement for the items
listed in Article III, Paragraph 2, Item (a), as revalued for purposes
of calculating the 1987 Federal Income Tax liability.
4. Within ninety (90) days following the recapture by NORTHBROOK of any
business ceded to another reinsurer, NORTHBROOK shall pay to ALLSTATE
assets with statutory book value equal to (a)x[1+(b)(c)/365], where (a)
through (c) are as defined below.
(a) Net Statutory reserves, as defined in Article III, Paragraph 2, Item
(a), attributable to the policies so recaptured. The applicable
portion of these items will be calculated as of the end of the month
following the date of recapture.
(b) The annual rate of interest appearing on NORTHBROOK's General Account
statutory financial statement (NAIC Statement Reference/**/: Exhibit
2, Line 8) as filed with the Illinois Insurance Department as of the
end of the calendar year immediately preceding the date of recapture.
-----------------------
/**/ References herein are to the 1986 NAIC Statutory Statement.
Appropriate adjustments will be made for changes, if any, in the NAIC Statutory
Statement on or after the Effective Date.
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(c) The number of days between the end of the month following the date of
recapture and the date when payment is made.
5. Within sixty (60) days following the filing of an Allstate Federal Income
Tax return for a year in which there was a recapture by NORTHBROOK of any
business ceded to another reinsurer, NORTHBROOK shall pay to ALLSTATE
assets with statutory book value equal to the product of the then current
Federal Income Tax rate applicable to ALLSTATE and the amount (a)-(b),
where (a) and (b) are as defined below.
(a) Net Statutory reserves, as defined in Article III, Paragraph 2, Item
(a), attributable to the policies so recaptured. The applicable
portion of these items will be calculated as of the end of the
calendar year following the date of recapture.
(b) Net tax reserves for the items listed in Article III, Paragraph 2,
Item (a), attributable to the policies so recaptured and as revalued
for purposes of calculating ALLSTATE's Federal Income Tax liability.
The applicable portion of these items will be calculated as of the end
of the calendar year following the date of recapture.
Article IV
MONTHLY SETTLEMENTS
-------------------
1. Within thirty (30) days following the end of each calendar month in which
this Agreement is in effect, NORTHBROOK shall pay to ALLSTATE, with respect
to eligible policies under this Agreement, a reinsurance premium equal to
(or the accounting equivalent of) the sum Items (a) and (b) below less the
sum of Items (c), (d) and (e) below.
(a) Gross premiums (direct and reinsurance assumed) collected by
NORTHBROOK during the month.
(b) Reserves transferred from a NORTHBROOK Separate Account to the
NORTHBROOK General Account during the month.
(c) Gross premiums refunded by NORTHBROOK during the month to
policyholders.
(d) Reserves transferred from the NORTHBROOK General Account to a
NORTHBROOK Separate Account during the month.
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(e) Reinsurance premiums paid by NORTHBROOK during the month to reinsurers
other than ALLSTATE.
2. Within thirty (30) days following the end of each calendar month in which
this Agreement is in effect, ALLSTATE shall pay to NORTHBROOK a benefit and
expense allowance equal to (or the accounting equivalent of) the sum of
Items (a), (b), (c) and (d) below.
(a) Net benefits (as defined in Article II, Paragraph 1) paid by
NORTHBROOK during the month with respect to the policies ceded under
this Agreement.
(b) Commissions and other sales compensation incurred by NORTHBROOK during
the month with respect to the policies ceded under this Agreement.
(c) General insurance expenses incurred by NORTHBROOK during the month
with respect to the policies ceded under this Agreement.
(d) Insurance taxes, licenses and fees (excluding Federal Income Tax)
incurred by NORTHBROOK during the month with respect to the policies
ceded under this Agreement.
Article V
OVERSIGHTS
----------
ALLSTATE shall be bound as NORTHBROOK is bound, and it is expressly understood
and agreed that if failure to reinsure or failure to comply with any terms of
this Agreement is shown to be unintentional and the results of misunderstanding
or oversight on the part of either NORTHBROOK or ALLSTATE, both NORTHBROOK and
ALLSTATE shall be restored to the positions they would have occupied had no such
error or oversight occurred.
Article VI
POLICY CHANGES
--------------
If any change is made in coverage reinsured under this Agreement, NORTHBROOK
shall notify ALLSTATE.
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Article VII
RECAPTURE
---------
1. If a policy reinsured under this Agreement becomes ineligible for
reinsurance (as specified in Schedule A), the policy will be immediately
recaptured by NORTHBROOK.
2. NORTHBROOK shall notify ALLSTATE of any such recapture.
3. Upon receiving notice of recapture, ALLSTATE shall pay to NORTHBROOK an
amount equal to the net statutory reserves associated with the recaptured
policy. This amount will be determined in accordance with the formula
defined in Article III, Paragraph 2, Item (a), as of the end of the month
following the date of recapture.
Article VIII
INSPECTION OF RECORDS
---------------------
NORTHBROOK and ALLSTATE shall have the right, at any reasonable time, to examine
at the office of the other, any books, documents, reports or records which
pertain in any way to the policies reinsured under this Agreement.
Article IX
INSOLVENCY
----------
1. In the event of the insolvency of NORTHBROOK, reinsurance hereunder is
payable by ALLSTATE on the basis of its liability hereunder without
diminution because of the insolvency of NORTHBROOK.
2. Further, in the event of the insolvency of NORTHBROOK, the liquidator,
receiver or statutory successor of the insolvent NORTHBROOK shall give
written notice to ALLSTATE of the pendency of an obligation of the
insolvent NORTHBROOK on any policy reinsured, whereupon ALLSTATE 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 NORTHBROOK or its liquidator or statutory successor. The
expense thus incurred by ALLSTATE shall be chargeable, subject to court
approval, against the insolvent NORTHBROOK as part of the expenses of
liquidation to the extent of a proportionate share of the benefit
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which may accrue to NORTHBROOK solely as a result of the defense undertaken
by ALLSTATE.
3. All monies due NORTHBROOK or ALLSTATE under this Agreement shall be offset
against each other, dollar for dollar, regardless of any insolvency of
either party.
Article X
ARBITRATION
-----------
Any dispute arising with respect to this Agreement which is not settled by
mutual agreement of the parties shall be referred to arbitration. Within twenty
(20) days from receipt of written notice from one party that an arbitrator has
been appointed, the other party will also name an arbitrator. The two
arbitrators will choose a third arbitrator and will forthwith notify the
contracting parties of such choice. Each arbitrator should be a present or
former officer of a life insurance company and should have not present or past
affiliation with this Agreement or with either party. The arbitrators will
consider this Agreement as an honorable engagement rather than merely as a legal
obligation, and will be relieved of all judicial formalities. The decision of
the arbitrators will be final and binding upon the parties hereto. Each party
shall bear the expenses of its own arbitrator and shall jointly and equally bear
the expenses of the third arbitrator and of the arbitration. Any such
arbitration will take place at the Home Office of NORTHBROOK, unless some other
location is mutually agreed upon.
Article XI
PARTIES TO AGREEMENT
--------------------
This Agreement is solely between NORTHBROOK and ALLSTATE. The acceptance of
reinsurance hereunder does not create any right or legal relation whatever
between ALLSTATE and any party in interest under any policy reinsured hereunder.
NORTHBROOK shall be and remain solely liable to any insured, contract owner, or
beneficiary under any policy reinsured hereunder.
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Article XII
DURATION OF AGREEMENT
---------------------
This Agreement will be effective as of December 31, 1987, and will be unlimited
as to its duration; provided, however, it may be terminated with respect to the
reinsurance of new business by either party giving sixty (60) days prior written
notice of termination to the other party.
IN WITNESS HEREOF, the parties to this Agreement have caused it to be duly
executed in duplicate by their respective officers on the date shown below.
NORTHBROOK LIFE INSURANCE COMPANY of Northbrook, Illinois
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------
Title Assistant Vice President, Assistant Secretary and
Assistant General Counsel
Date October 20, 1987
ALLSTATE LIFE INSURANCE COMPANY of Northbrook, Illinois
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
Title Vice President and Controller
Date October 20, 1987
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