EXHIBIT (g)(1)
AUTOMATIC REINSURANCE AGREEMENT
Between
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
New York, New York
And
SWISS RE LIFE COMPANY AMERICA
New York, New York
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AUTOMATIC REINSURANCE AGREEMENT
Contents
ARTICLE 1 Scope of Agreement
ARTICLE II Commencement & Termination of Liability
ARTICLE III Oversights - Clerical Errors
ARTICLE IV Mortality Net Amount At Risk
ARTICLE V Reinsurance Premiums
ARTICLE VI Reinsurance Administration
ARTICLE VII Settlement of Claims
ARTICLE VIII Tax Credits
ARTICLE IX Regulatory Compliance
ARTICLE X Access to Records
ARTICLE XI Insolvency
ARTICLE XII Arbitration
ARTICLE XIII Rights of Offsetting Balances Due
ARTICLE XIV Contract and Program Changes
ARTICLE XV DAC Tax
ARTICLE XVI Parties to Agreement
ARTICLE XVII Entire Agreement
ARTICLE XVIII Special Termination or Settlement
ARTICLE XIX Governing Law
ARTICLE XX Severability
ARTICLE XXI Original Conditions
ARTICLE XXII Duration of Agreement
Signature Page
EXHIBIT A - Variable Annuities Covered Under This Agreement
EXHIBIT B - Investment Options
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AUTOMATIC REINSURANCE AGREEMENT
THIS AGREEMENT between the AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW
YORK, a corporation organized under the laws of the State of New York,
hereinafter referred to as the "Company", and SWISS RE LIFE COMPANY AMERICA, a
corporation organized under the laws of the State of New York, hereinafter
referred to as "Swiss Re America", WITNESSETH AS FOLLOWS:
ARTICLE I
Scope of Agreement
1. On and after the 1st day of July, 1996, the Company will automatically
reinsure with Swiss Re America, and Swiss Re America will automatically accept:
(a) a 100% quota share of the mortality net amount at risk, as defined in
Article IV, generated by the Guaranteed Minimum Death Benefit
provisions within the variable annuity contracts issued by the Company
as set forth in Exhibit A and inforce as of the 1 st day of July,
1996, and
(b) a 100% quota share of the mortality net amount at risk, as defined in
Article IV, generated by the Guaranteed Minimum Death Benefit
provisions within the variable annuity contracts issued by the Company
as set forth in Exhibit A and with effective dates on or after the 1st
day of July, 1996.
2. Swiss Re America's maximum liability on any one life reinsured hereunder
shall be One Million Dollars ($1,000,000), as specified in Article IV of this
Agreement.
3. This Agreement covers only the Company's liability for claims paid under
variable annuity contracts written on the contract forms specified in Exhibit A
and supported by the investment options listed in Exhibit B which were reviewed
by Swiss Re America prior to their issuance.
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ARTICLE II
Commencement & Termination of Liability
1. On reinsurance ceded under the terms of this Agreement, the liability
of Swiss Re America shall commence on and after July 1, 1996, and will
terminate upon the earliest of annuitization, surrender or termination in
accordance with Article XXII.
2. Swiss Re America shall be liable for reimbursement of claims on only
those deaths where the date of death is on or after July 1, 1996, in
accordance with Article VII.
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ARTICLE III
Oversights - Clerical Errors
Should either the Company or Swiss Re America fail to comply with any of the
terms of this Agreement, and if this is shown to be unintentional and the
result of a misunderstanding, oversight or clerical error on the part of either
the Company or Swiss Re America, then this Agreement shall not be deemed
abrogated thereby, but both companies shall be restored to the position they
would have occupied had no such oversight, misunderstanding, or clerical error
occurred. Such conditions are to be reported and corrected promptly after
discovery.
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ARTICLE IV
Mortality Net Amount At Risk
The mortality net amount at risk for each variable annuity contract
reinsured hereunder shall be calculated as of the last day of each calendar
month and shall be equal to the death benefit less the contract value of the
annuity, up to a maximum of One Million Dollars ($1,000,000) per life. The
death benefit and the contract value shall be as described in the variable
annuity contract forms specified in Exhibit A.
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ARTICLE V
Reinsurance Premiums
1.(a) Reinsurance premiums shall be calculated monthly. The initial
reinsurance premium will be equal to zero, subject to paragraph b),
below. Subsequent reinsurance premiums shall be equal to 150% of the
prior calendar month's death claim reimbursement, subject to the
minimum and maximum monthly premiums stated in 1(b) and 1(c), below.
(b) The minimum monthly premium shall be equal to the product of the
current minimum monthly premium rate and the greater of the average
aggregate account value or the average aggregate Guaranteed Minimum
Death Benefit over each calendar month of all variable annuities
reinsured hereunder.
The current minimum monthly premium rate shall be equal to ______
basis points (______) for all issue ages.
(c) The maximum monthly premium shall be equal to the product of the
current maximum monthly premium rate and the greater of the average
aggregate account value or the average aggregate Guaranteed Minimum
Death Benefit over each calendar month of all variable annuities
reinsured hereunder.
The current maximum monthly premium rate shall be equal to ______
basis points (______) for all issue ages.
2. The current maximum monthly reinsurance premium rate shall be in effect
for a minimum of 20 years from the effective date of this reinsurance
Agreement. Thereafter, it may be increased based on future expectations, but
not beyond the guaranteed maximum monthly premium rate of ______ basis points
(______) for all issue ages.
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3. The total reinsurance premium shall be reduced by the ratio of the sum of
the mortality net amount at risk in excess of $1 million on any lives reinsured
hereunder to Swiss Re America's share of the total mortality net amount at risk
on all variable annuity contracts.
4. The monthly reinsurance premium shall be due and payable as described in
Article VI.
5. The reinsurance premium rates described above shall remain in effect as
long as the death benefit design, the contract fees, the mortality and expense
charges, the administration fees, and the surrender charges in effect at the
inception of this Agreement remain unchanged. The Company shall notify Swiss Re
Life America of any change to the preceding items. Within 30 days of such
notice, Swiss Re Life America shall notify the Company of any change in
reinsurance premium rates resulting from such change. The Company will have the
right to accept such change in rates or exclude affected policies from this
Agreement.
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ARTICLE VI
Reinsurance Administration
1. Within 30 days of the end of each calendar month, the Company will
furnish Swiss Re America a separate electronic report for each Guaranteed
Minimum Death Benefit design specified in Exhibit A, valued as of the last day
of that month. Each report will indicate for all inforce annuities reinsured
hereunder:
a) Annuitant's name, sex, date of birth, issue age and social security
number
b) Owner's name, sex, date of birth, issue age and social security
number
c) Contract number
d) Contract date
e) Contract form number
f) Tax status
g) Current contract value in total and by sub-account and fixed
account, if any.
h) Current cash surrender value
i) Cumulative net considerations
j) Current Minimum Guaranteed Death Benefit
k) Current contract death benefit
l) Current contract mortality risk amount
2. Additionally, within 30 days of the end of each calendar month, the
Company will furnish Swiss Re America with a separate seriatim termination
report, indicating the following:
a) Terminations by death, including cause of death
b) Terminations by lapse
c) Terminations by annuitization
3. Additionally, within 30 days of the end of each calendar month, the
Company will furnish Swiss Re America a separate paper report summarizing the
following data:
a) Reinsurance premiums due Swiss Re America
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b) Number and amount of death claim reimbursements due the Company
c) Total number of contracts reinsured
d) Total current contract value
e) Total current cash surrender value
f) Total cumulative net considerations
g) Total current Guaranteed Minimum Death Benefit
h) Total current death benefit
i) Total current mortality risk amount
4. If the net balance is due Swiss Re America, the amount due shall be
remitted with the report statement. If the net balance is due the Company,
Swiss Re America shall remit the amount to the Company within 10 days of the
receipt of the report.
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ARTICLE VII
Settlement of Claims
1. The claims that are eligible for reimbursement are only those that the
Company is required to pay on deaths that occur on or after the effective date
of this Agreement.
2. In the event the Company provides satisfactory proof of claim (the
Certificate of Death and, if available, the Claimant's Statement and/or
Attending Physicians Statement) to Swiss Re America, claim settlements made by
the Company shall be unconditionally binding on Swiss Re America.
3. The death claim reimbursed by Swiss Re America shall be determined as of
the date due proof of death is received at the Company's office.
4. Within 30 days of the end of each month, the Company shall notify Swiss
Re America of the reinsured death benefits paid in that month and Swiss Re
America will reimburse the Company, as provided in Article VI, for the
reinsured benefits.
5. Settlement by Swiss Re America shall be in a lump sum regardless of the
mode of payment made by the Company to the beneficiary.
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ARTICLE VIII
Tax Credits
Swiss Re America shall not reimburse the Company for state premium taxes.
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ARTICLE IX
Regulatory Compliance
1. Swiss Re America agrees to comply with all regulatory directives required
to permit the Company to receive statutory reserve credit for the reinsurance
ceded under this Agreement.
2. The Company warrants that it has secured all necessary federal and state
licenses and approvals, and that it is operating in compliance with federal
investment laws and state investment and insurance laws and regulations.
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ARTICLE X
Access to Records
1. Swiss Re America, or its duly authorized representative, shall have free
access at all reasonable times to books and records maintained by any division,
department and branch offices of the Company which pertain to reinsurance ceded
to Swiss Re America under this Agreement and all claims made in connection
therewith.
2. Notwithstanding the provisions of paragraph 1, above, if undisputed
balances due from Swiss Re Life America have not been paid for the two most
recent reported calendar quarters, Swiss Re Life America shall not have access
to any of the Company's records relating to this Agreement without the specific
consent of the Company.
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ARTICLE XI
Insolvency
1. In the event of the insolvency of the Company, all reinsurance made,
ceded, renewed or otherwise becoming effective under this Agreement shall be
payable by Swiss Re America directly to the Company or to its liquidator,
receiver, or statutory successor on the basis of the liability of the Company
under the contract or contracts reinsured without diminution because of the
insolvency of the Company. It is understood, however, that in the event of the
insolvency of the Company, the liquidator, receiver or statutory successor of
the insolvent Company shall give written notice of the pendency of a claim
against the insolvent Company on the policy reinsured within a reasonable time
after such claim is filed in the insolvency proceeding and that, during the
pendency of such claim, Swiss Re America 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 Company
or to its liquidator, receiver or statutory successor.
2. It is further understood that the expense thus incurred by Swiss Re
America shall be chargeable, subject to court approval, against the insolvent
Company as part of the expense of liquidation to the extent of a proportionate
share of the benefit which may accrue to the Company solely as a result of the
defense undertaken by Swiss Re America. Where two or more assuming insurers are
involved in the same claim and a- majority in interest elect to interpose
defense to such claim, the expense shall be apportioned in accordance with the
terms of this Reinsurance Agreement as though such expense had been incurred by
the Company.
3. In the event of the insolvency of Swiss Re America and the appointment of
receivers therefor, the liability of Swiss Re America shall not terminate but
shall continue with respect to the reinsurance ceded to Swiss Re America by the
Company prior to the date of such insolvency or appointment.
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ARTICLE XII
Arbitration
1. In the event of any difference arising hereafter between the contracting
parties with reference to any transaction under this Agreement, the same shall
be referred to three arbitrators who must be current or former executive
officers of life insurance or life reinsurance companies other than the two
parties to this Agreement or their affiliates, each of the contracting
companies to appoint one of the arbitrators and such two arbitrators to select
the third. If either party refuses or neglects to appoint an arbitrator within
60 days after receipt of the written request for arbitration, the other party
may appoint a second arbitrator.
2. If the two arbitrators fail to agree on the selection of a third
arbitrator within 60 days of their appointment, such third arbitrator shall be
appointed by a Justice of the Supreme Court of the State of New York.
3. The arbitrators shall consider this Reinsurance Agreement not merely as a
legal document but also as a gentlemen's agreement. In resolving the dispute,
the arbitrators will give full consideration to the customs and practices of
the life insurance and life reinsurance industry, insofar as they are not in
conflict with the specific terms of this Agreement. The arbitrators shall
decide by a majority vote. There shall be no appeal from their written decision.
4. Unless the arbitrators decide otherwise, each party shall bear the
expense of its own arbitration, including its arbitrator and outside attorney
fees, and shall jointly and equally bear with the other party the expense of
the third arbitrator. Any remaining costs of the arbitration proceedings shall
be apportioned by the Board of Arbitrators.
5. The provisions of this Article shall survive the termination of this
Agreement.
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ARTICLE XIII
Right of Offsetting Balances Due
The Company and Swiss Re America shall have, and may exercise at any time,
the right to offset any balance or balances due one party to the other, its
successors or assigns, against balances due the other party under this
Agreement or under any other Agreements or Contracts previously or subsequently
entered into between the Company and Swiss Re America. This right of offset
shall not be affected or diminished because of insolvency of either party to
this Agreement.
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ARTICLE XIV
Contract and Program Changes
1. The Company may amend, substitute, add or delete variable investment
funds to the underlying investment funds supporting the annuity contract as
described in the contract general provisions. No such change will be made by
the Company without prior notification to Swiss Re America and without the
prior approval of the Securities and Exchange Commission, if necessary. The
Company agrees to maintain at all times a satisfactory selection of core
investment options with characteristics similar to those listed in Exhibit B.
2. The Company will also give Swiss Re America advance notice of any other
changes to its annuity product design, its fees and charges, or its
distribution systems and/or methods.
3. Should any such change result in a material increase in the reinsured net
amount at risk and/or material decrease in the reinsurance premiums due, Swiss
Re America shall have the right to modify any or all of the following: a) the
reinsurance premium rates, b) the amount of reinsurance that may be ceded
automatically to Swiss Re Life America, and c) the termination provision of
this Agreement.
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ARTICLE XV
DAC Tax
1. The Company and Swiss Re America hereby agree to the following pursuant to
Section 1.848-2(g)(8) of the Income Tax Regulation issued December 1992, under
Section 848 of the Internal Revenue Code of 1986, as amended. This election
shall be effective as of the Effective Date of this Agreement and for all
subsequent taxable years for which this Agreement remains in effect.
(a) The term "party" will refer to either the Company or Swiss Re
America, as appropriate.
(b) The terms used in this Article are defined by reference to
Regulation 1.848-2 in effect December 1992.
(c) The party with the net positive consideration for this Agreement
for each taxable year will capitalize specified policy acquisition
expenses with respect to this Agreement without regard to the
general deductions limitation of Section 848(c)(1).
(d) Both parties agree to exchange information pertaining to the amount
of net consideration under this Agreement each year to ensure
consistency or as otherwise required by the Internal Revenue
Service.
(e) The Company will submit a schedule to Swiss Re America by May 1 of
each year of its calculation of the net consideration for the
preceding calendar year. This schedule of calculations will be
accompanied by a statement stating that the Company will report
such net consideration in its tax return for the preceding calendar
year.
(f) Swiss Re America may contest such calculation by providing an
alternative calculation to the Company by June 1. If Swiss Re
America does not so notify the Company, the Company will report the
net consideration as determined by the Company in the Company's tax
return for the previous calendar year.
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(g) If Swiss Re America contests the Company's calculation of the net
consideration, the parties will act in good faith to reach an
agreement as to the correct amount by July 1. If the Company and
Swiss Re America reach agreement on an amount of the net
consideration, each party shall report such amount in their
respective tax returns for the previous calendar year.
2. Swiss Re America and the Company represent and warrant that they are
subject to U.S. taxation under Subchapter L of Chapter 1 of the Internal
Revenue Code.
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ARTICLE XVI
Parties to Agreement
This Agreement is an indemnity reinsurance agreement solely between the
Company and Swiss Re America. The acceptance of reinsurance hereunder shall not
create any right or legal relation whatever between Swiss Re America and the
annuitant, owner, beneficiary or any other party under any contracts of the
Company which may be reinsured hereunder, and the Company shall be and remain
solely liable to such parties under such contracts reinsured hereunder.
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ARTICLE XVII
Entire Agreement
This Agreement and any amendments thereto, shall constitute the entire
agreement between the parties with respect to business reinsured hereunder.
There are no understandings between the parties other than as expressed in this
Agreement and any change or modification of this Agreement shall be null and
void unless made by written amendment to the Agreement and signed by both
parties .
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ARTICLE XVIII
Special Termination or Settlement
1. In addition to the provisions of Article XXII, either party may terminate
this Agreement immediately upon written notice to the other party in the event
that:
a) One party should at any time become insolvent, suffer any
impairment of capital, or file a petition in bankruptcy, or go into
liquidation or rehabilitation, or have a receiver appointed, or be
acquired or controlled by any unrelated insurance company or
organization, or
b) Any law or regulation of any Federal, State or Local Government of
any jurisdiction in which the Company is doing business should
render illegal the arrangements made under this Agreement.
2. Either party may terminate this Agreement immediately upon written notice
to the other party in the event that, upon calculation of the Risk Based
Capital Formula prescribed by the National Association of Insurance
Commissioners and applied to either party's annual statement (which shall be
furnished upon request), it is found that either party's total adjusted capital
is equal to or less than the other party's Risk Based Capital (defined as the
Company Action Level).
Payment
3. Amounts due the Company or Swiss Re Life America under the provisions of
this Article shall include all present and future obligations and shall include
unearned premiums, outstanding losses (including IBNR), and other balances.
4. In the event the reinsurance risk is placed with a successor reinsurer by
the Company, or the Company elects to recapture the reinsurance risk, the
Company will, upon receipt of payment, provide Swiss Re Life America with a
full and final release of Swiss Re Life America's liability under this
Agreement.
5. When requested by either party, an appraisal of outstanding losses and
IBNR shall be made by an independent actuary and the costs of same shall be
divided equally between the parties.
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6. Settlement shall take into account adjustment for net present value.
7. The provisions of this Article shall survive the termination of this
Agreement.
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ARTICLE XIX
Governing Law
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
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ARTICLE XX
Severability
If any provisions of this Agreement shall be rendered illegal or
unenforceable by the laws, regulations, or public policy of any state, such
provision shall be considered void in such state, but this shall not affect the
validity or enforceability of any other provision of this Agreement or the
enforceability of such provision in any other jurisdiction.
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ARTICLE XXI
Original Conditions
All reinsurance ceded hereunder shall be subject to the same clauses, terms,
conditions, endorsements, and exclusions as the Company's policies, it being
the parties' intent that Swiss Re Life America shall, with respect to the
policies, follow the fortunes of the Company unless such clauses, terms,
conditions, endorsements, and exclusions are in conflict with specific terms of
this Agreement. The Company must provide Swiss Re Life America written
notification of any change which affects the original conditions of any policy
not less than fifteen (15) days after the change takes effect. Swiss Re Life
America will provide written notification to the Company as to Swiss Re Life
America's acceptance or rejection of the change within fifteen (15) days after
receipt of notice of the change. If Swiss Re Life America accepts any such
change, Swiss Re Life America will (a) assume a proportionate share of any
increase in the Company's liability resulting from the change, and (b) receive
credit for a proportionate share of any decrease in the Company's liability
resulting from the change. If Swiss Re Life America rejects any such change,
Swiss Re Life America's liability under this Agreement will be determined as if
no such change had occurred.
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ARTICLE XXII
Duration of Agreement
1. Except as specified in Article XVIII, this Agreement shall be unlimited
as to its duration but may be reduced or terminated as provided in this
Article, below.
2. Upon 180 days written notice, either the Company or Swiss Re America may
cancel this Agreement for new business any time on or after the second
anniversary of this Agreement. Upon each reinsurance contract anniversary, this
facility may be renewed for another year, subject to mutually acceptable terms.
3. Any time on or after the fifteenth anniversary of this Agreement, the
Company may, upon 90 days written notice, irrevocably elect to cancel the
reinsurance in force under this Agreement. Upon election, the reinsurance shall
be recaptured at a constant rate by reducing the quota share percentage set
forth in Article I, paragraph 1, by 2.8% per month. The reduction shall begin
in the month of election and continue for 36 consecutive months. The quota
share percentage will then be equal to 0% and the reinsurance ceded hereunder
will be fully recaptured and this Agreement shall then be terminated.
4. After recapture is effected, reinsurance premiums payable and claims
recoverable by the Company, calculated in accordance with the provisions of
Articles V, VI and VII of this Agreement, are to be reduced by the cumulative
percentage recaptured by the Company.
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IN WITNESS WHEREOF, the Company and Swiss Re America have caused their names to
be subscribed and duly attested hereunder by their respective Authorized
Officers.
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
SWISS RE LIFE & HEALTH AMERICA INC., formerly
SWISS RE LIFE COMPANY AMERICA
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EXHIBIT A
Variable Annuities Covered Under This Agreement
I. Contract Form Numbers: 45649-4/87NY (For New York issues)
45649-4/87 (For all other issues)
II. Policy Dates:
Policies in force on July 1, 1996.
Policies with issue dates of July 1, 1996 and later.
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EXHIBIT B
Investment Options
I. The General Account
General Account Option
II. The Variable Account
A. Alliance Gallery
Alliance Variable Product Series Fund
Money Market
Short-Term Multi-Market
Growth
Growth and Income
Premier Growth
International
Quasar
Technology
Utility Income
Worldwide Privatization
Conservative Investors
Growth Investors
Total Return
North American Government Income
Global Dollar Government
U.S. Government/High Grade Securities
Global Bond
B. The Variable Annuity
Delaware Group Premium Fund
Equity Income
Growth
Capital Reserves
High Yield
Multiple Strategies
Money Market
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EXHIBIT B
Investment Options
C. Profile
Alliance Variable Products Series Fund
Conservative Investors
Growth Investors
Growth and Income
Growth
Quasar
Technology
Dreyfus Stock Index
Dreyfus Variable Investment Fund
Zero Coupon Bond
Fidelity Variable Insurance Products Fund
Growth
High Income
Money Market
Overseas
Fidelity Variable Insurance Products Fund II
Asset Manager
Investment Grade Bond
Tomorrow Funds Retirement Trust
Short-Term Retirement
Medium- Term Retirement
Long- Term Retirement
Xxxxxx Worldwide Insurance Trust
Gold and Natural Resources
Worldwide Balanced
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