EXHIBIT 10.10
COINSURANCE AGREEMENT
This Coinsurance Agreement (this "Agreement") is by and between EquiTrust
Life Insurance Company, a corporation organized under the laws of the State of
lowa (hereinafter referred to as the "Reinsurer"), and American Equity
Investment Life Insurance Company, a company organized under the laws of the
State of lowa (hereinafter referred to as the "Company").
The Company and the Reinsurer mutually agree to enter into a reinsurance
transaction under the terms and conditions stated herein. This Agreement is an
indemnity reinsurance agreement solely between the Company and the Reinsurer,
and the performance of the obligations of each party under this Agreement shall
be rendered solely to the other party. In no instance, except as set forth in
the insolvency provisions of this Agreement, shall anyone other than the Company
or the Reinsurer have any rights under this Agreement, and the Company shall be
and shall remain the only party hereunder that is liable to any insured or
beneficiary under the policy reinsured hereunder.
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (definitions are applicable to both the singular and the plural forms
of each term defined in this Article):
1.1 "ACCOUNTING PERIOD" means monthly with the period ending on the last
day of each calendar month.
1.2 "ACCRUAL RATE" means the current prime rate as published in the Wall
Street Journal applicable to the period that a payment is due
plus 1.00%.
1.3 "BUSINESS DAY" means any day that is not a Saturday, Sunday or other
day on which national banking institutions are required or permitted by
law or executive order to be closed.
1.4 "COMMISSION ALLOWANCE" shall have the meaning set forth in Schedule C.
1.5 "EFFECTIVE DATE" shall have the meaning set forth in Section 2.1.
1.6 "EXPENSE ALLOWANCE" shall have the meaning set forth in Schedule C.
1.7 "INCURRED CLAIMS" shall mean partial surrenders, full surrenders, death
claims, and all other contractual benefits.
1.8 "INITIAL ACCRUAL RATE" means 7.30% per annum.
1.9 "INSURANCE TAXES AND CHARGES" means all insurance taxes (not including
any federal, state or local tax measured by net income), Guaranty Fund
assessments, and other insurance fees and charges related to the
Reinsured Policies.
1.10 "POLICY" means any individual insurance policy described in Schedule A
and all endorsements, riders, benefits, and amendments thereto.
1.11 "PREMIUMS" means the gross considerations for the Policies reinsured
hereunder.
1.12 "MONTHLY ACCOUNTING REPORT" means the report required to be prepared in
accordance with Section 10.2 and Schedule B.
1.13 "MONTHLY ACCOUNTING PERIOD" means monthly with the period ending on the
last day of each calendar month.
1.14 "QUOTA SHARE" means the percentage of risk assumed by the Reinsurer
with respect to the different classes of Reinsured Policies, as set
forth on Schedule A.
1.15 "REINSURANCE PREMIUM" shall have the meaning specified in Section 4.1.
1.16 "REINSURED POLICY" shall mean all Policies reinsured under this
Agreement.
1.17 "RESERVES" means Exhibit 8, part B policy reserves as defined under
statutory accounting principles.
1.18 "SETTLEMENT AMOUNT" means the net amount due and payable to either
party with respect to any Accounting Period as set forth in Section
10.3.
1.19 "TERMINAL ACCOUNTING AND SETTLEMENT" as described in Section 12.1 means
the final accounting and payment of any amount due either party upon
the termination of this Agreement.
ARTICLE II
COVERAGE
2.1 COVERAGE. As of August 1, 2001, (the "Effective Date"), the Company
agrees to cede to the Reinsurer, and the Reinsurer agrees to indemnify
the Company for the Quota Share of the risks under the Policies as of
the Effective Date. The liability of the Reinsurer with respect to its
share of the risks under the Reinsured Policies including liability for
Incurred Claims under the Reinsured Policies shall begin simultaneously
with that of the Company, but not prior to the Effective Date.
2.2 CONDITIONS. The reinsurance hereunder is subject to the same
limitations, terms and conditions as the applicable Reinsured Policy
hereunder, except as otherwise provided in this Agreement.
2.3 EXCLUSIONS. This Agreement does not apply to any risks except those
risks under the applicable Reinsured Policy hereunder.
2
ARTICLE III
GENERAL PROVISIONS
3.1 CONFIDENTIALITY.
In performing the obligations arising under this Agreement, Reinsurer may have
access to and receive disclosure of certain information from Company which is
confidential or proprietary (hereinafter "Confidential Information").
Confidential Information includes all information provided by Company to
Reinsurer except (a) information which Reinsurer has confirmed is publicly
known, so long as it is not publicly known through the acts or omissions of
Reinsurer; or (b) information which is legally required to be disclosed by
Reinsurer under a requirement of a governmental agency or a court of law having
jurisdiction, but only if Reinsurer discloses only that information which, in
the reasonable opinion of its counsel, is required to be disclosed. Reinsurer
agrees that it will not disclose the Confidential Information to a third party
other than to carry out the Reinsurer's obligations under this Agreement.
Reinsurer further agrees not to appropriate any Confidential Information for its
own use either during the course of or subsequent to termination of this
Agreement. If Reinsurer discloses the Confidential Information to a third party
in order to perform the obligations under this Agreement, the Reinsurer will
disclose to the Company and will require the third party to agree to the
confidentiality standards set forth in this paragraph. Company has the right,
but not the obligation to audit the Confidential Information in the possession
of Reinsurer to detect use of the Confidential Information which is in violation
of this Coinsurance Agreement. Reinsurer's obligations with respect to the
confidentiality and security of the Confidential Information shall survive
termination of this Agreement. All Confidential Information in any medium and
any copies thereof, shall be promptly returned to Company or destroyed at
Company's option upon request of Company or upon termination of this Agreement.
Notwithstanding anything in this Section 3.1 to the contrary, Company agrees
that Reinsurer may disclose to analysts, rating agencies and/or any other
parties approved in advance by Company, information limited to (i) the existence
this Agreement; (ii) the quota share amount and total dollar amount of
reinsurance hereunder (premiums, benefits, and expenses); and (iii) the terms of
the Reinsured Contracts, but specifically excluding contract specific data from
the pricing models for the Reinsured Contracts, commission rates and/or the
identities of any of Company's sales agents.
3.2 INSPECTION. Either party or its designated representative may upon
advance notice of at least ten (10) business days inspect, at the
offices of the Company or the Reinsurer, as the case may be, where such
records are located, and conduct reasonable audits of, the papers and
any and all other books or documents of the Company or the Reinsurer
reasonably relating to the Reinsured Policy and the administrative
responsibilities hereunder, during normal business hours for such
period as this Agreement is in effect or for as long thereafter as the
Company or the Reinsurer, as the case may be, seeks performance by the
other party pursuant to the terms of this Agreement. The information
obtained shall be used only for purposes relating to the reinsurance
provided under this Agreement and shall not be disclosed to any person
without the express permission of the other party, except to the extent
that disclosure is required by law. Each party will bear its own out of
pocket costs in conducting investigations under this Section. Each
3
party's rights under this Section 3.2 shall survive termination of this
Agreement until all reinsured policies have expired by their terms.
3.3 MISUNDERSTANDINGS AND OVERSIGHTS. If any delay, omission, error or
failure to pay amounts due or to perform any other act required by this
Agreement is unintentional and caused by misunderstanding, accident, or
oversight, the Company and the Reinsurer shall adjust the situation to
what it would have been had the misunderstanding, accident or oversight
not occurred. The party first discovering such misunderstanding,
accident or oversight, or act resulting from the misunderstanding or
oversight, shall notify the other party in writing promptly upon
discovery thereof and the parties shall act to correct such
misunderstanding or oversight promptly upon receipt of such notice.
However, this Section 3.3 shall not be construed as a waiver by either
party of its right to enforce strictly the terms of this Agreement.
3.4 MISSTATEMENT. In the event that the liability provided by a Reinsured
Policy is increased or decreased because of a misstatement of fact, the
reinsurance hereunder shall increase or decrease proportionate to the
Quota Share thereunder.
3.5 POLICY CHANGES. The Company and the Reinsurer shall share, based upon
the applicable Quota Share, in any increase or decrease in the
Company's liability that results from any change in the terms or
conditions of any Reinsured Policy arising from the insured's addition
or deletion of riders.
3.6 COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS.
(a) AGREEMENTS TO BE CONSTRUED IN ACCORDANCE WITH EXISTING LAW. It is
the intention of the parties that this Agreement and related
documents shall comply with all applicable federal and state laws
and regulations in such a way that a Reinsured Policy remains
reinsured on the quota share reinsurance plan.
(b) AMENDMENT UPON FAILURE TO COMPLY. In the event that it is
determined by a regulatory authority, or by either party upon the
advice of regulatory authorities that this Agreement or related
documents fail to conform to the requirements of existing
applicable laws and regulations, the parties shall exercise
reasonable efforts to reach an agreement to amend the Agreement or
related documents so as to return the parties to the economic
position that they would have been in had no such change occurred,
or so that both parties share proportionately in the economic
detriment of such change. If the parties are unable to reach an
agreement to amend the Agreement or related documents, then the
party adversely affected by the change shall have the right to
bring its dispute to arbitration in accordance with the provisions
of Article XIV, but in no event will this Agreement terminate
prior to resolution of the dispute in arbitration.
(c) STANDARD OF CARE - The Reinsurer agrees to perform the duties set
forth herein in a manner consistent with general life insurance
and with a standard of care equal to the standards it uses on
similar policies that it directly writes and in accordance with
applicable laws and regulations. The Reinsurer shall maintain all
licenses, obtain all
4
regulatory approvals and comply with all regulatory requirements
necessary to perform its obligations contemplated under this
Agreement.
3.7 SETOFF AND RECOUPMENT. 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 Company or the Reinsurer
with respect to this Agreement, are deemed mutual debts or credits, as
the case may be, and shall be set off, and only the net balance shall
be allowed or paid.
3.8 PAYMENTS. All payments made pursuant to this Agreement shall be made in
immediately available U.S. funds.
ARTICLE IV
PAYMENTS TO THE REINSURER
4.1 REINSURANCE PREMIUMS. The Company will pay the Quota Share of premium
on Reinsured Policies as shown on Schedule A.
4.2 OPTION SETTLEMENTS. The Company will pay the Quota Share portion
of the option settlements related to the equity indexed Reinsured
Policies
ARTICLE V
PAYMENTS TO THE COMPANY
5.1 POLICY BENEFITS. The Reinsurer shall pay its Quota Share of
all policy benefits including death benefits, withdrawals, surrenders,
and annuitizations.
5.2 COMMISSION AND EXPENSE ALLOWANCES. The Reinsurer shall pay its Quota
Share of all Commission and Expense Allowances as shown in Schedule C.
5.3 OPTION COST. The Reinsurer shall pay its Quota Share of the actual
direct cost of options for options purchased to match the risk of the
equity indexed Reinsured Policies.
ARTICLE VI
RESERVES
6.1 RESERVES. The Reinsurer shall establish and maintain appropriate
Reserves with respect to the Reinsured Policies and shall hold their
quota share of Reserves hereunder.
ARTICLE VII
ACCOUNT PAYABLE/RECEIVABLE
7.1 ACCOUNT PAYABLE/RECEIVABLE. The Reinsurer will set up an Account
Receivable equal to its Quota Share percentage of the fair value of the
option assets backing the equity
5
indexed Reinsured Policies. The Company will set up an Account Payable
in the same amount.
ARTICLE VIII
CREDITED RATES/NON-GUARANTEED ELEMENTS
8.1 CREDITED RATES/NON-GUARANTEED ELEMENTS. The Company shall be
responsible for determining Credited Rates and Non-Guaranteed Elements
for the Reinsured Policies. In the event the Company is out of
compliance with the spread covenants in their restated and amended
credit agreement dated as of April 7, 2000 by and among the Company and
US Bank and if the Company is not back in compliance within a sixty
(60) day period, then the Reinsurer shall have the right to propose
credited interest rates and all other non-guaranteed elements of the
reinsured policies to the Company for approval. Approval shall not be
unreasonably withheld by the Company.
ARTICLE IX
ADMINISTRATION
9.1 POLICY ADMINISTRATION. The Company shall perform all
administration of the Reinsured Policies. This includes purchasing
options that are designed to match the risk of the equity indexed
Reinsured Policies.
9.2 RECORD KEEPING. Reinsurer shall maintain all records and correspondence
for services performed by Reinsurer hereunder relating to the Reinsured
Policies in accordance with industry standards of insurance record
keeping. In addition, the records shall be made available for
examination, audit, and inspection by any State Insurance Department
within whose jurisdiction the Reinsurer or the Company operates. The
Reinsurer and Company further agree that in the event of the
termination of this Agreement, any such records in the possession of
the Reinsurer shall promptly be duplicated and forwarded to the Company
unless otherwise instructed.
9.3 INDEMNIFICATION AND CONTROL OF DEFENSE.
(a) The Reinsurer shall have no duty or obligation to defend against
any legal action or proceeding brought against the Company. The
Reinsurer shall fully cooperate with the Company's efforts to
defend such legal action or proceedings and will make available to
the Company and its counsel such evidence relevant to such actions
or proceedings as the Reinsurer may have as a result of performing
its obligations under this Agreement.
(b) The Reinsurer shall not be liable to the Company for actions
within the scope of the Reinsurer's actual authority in performing
its obligations to the Company under this Agreement when such
performance is in accordance with the standard expressed in
Section 3.6(c) "Standard of Care."
6
(c) The Company shall indemnify and hold harmless and defend the
Reinsurer against any costs (including reasonable attorney's fees)
or expenses, damages or judgments whatsoever which the Reinsurer
may suffer as a result of the Reinsurer being named as a party
defendant in any suit instituted by any persons to whom a Policy
has been issued, or by any beneficiary, heir, legatee, or personal
representative of such policyholder, where the Reinsurer's actions
relevant to the suit are within the scope of the Reinsurer's
actual authority in performing its obligations to the Company
under this Agreement and were performed in accordance with the
standard expressed in Section 3.6(c) "Standard of Care."
(d) The Reinsurer shall indemnify and hold harmless and defend the
Company against any costs (including reasonable attorney's fees)
or expenses, damages or judgments whatsoever which the Company may
suffer as a result of the Company being named as a party defendant
in any suit instituted by any persons to whom a Policy has been
issued, or by any beneficiary, heir, legatee, or personal
representative of such policyholder, where the Reinsurer's actions
relevant to the suit are within its obligations to the Company
under this Agreement and were not performed in accordance with the
standard expressed in Section 3.6(c) "Standard of Care."
(e) Any party entitled to indemnification under this Agreement shall
(1) give prompt notice to the party from whom indemnification is
sought of any claim with respect to which it seeks
indemnification; (2) permit such indemnifying party to assume and
control defense of such claim with counsel reasonably satisfactory
to the indemnified party; provided, however, that any party
entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such
claim, but the fees and expenses of such separate counsel shall be
paid by the person employing separate counsel unless (a) the
indemnifying party has agreed to pay such fees and expenses or (b)
the indemnifying party shall have failed to assume the defense of
such claim and to employ counsel reasonably satisfactory to such
party. No indemnifying party shall be subject to any liability for
any settlement made without its consent except where the
indemnifying party has failed to assume the defense of such claim
and to employ counsel reasonably satisfactory to the indemnified
party. An indemnifying party who elects not to assume the defense
of a claim will not be obligated to pay the fees and expenses of
more than one counsel at any one time for all parties indemnified
by such indemnifying party with respect to such claim, which
counsel shall be designated in writing by the indemnified party
and shall be reasonably acceptable to the indemnifying party.
ARTICLE X
ACCOUNTING AND SETTLEMENT
10.1 INSURANCE ACCOUNTING. The Company shall maintain separate books of
account with respect to any Reinsured Policy, setting forth the data
required in Schedule B.
10.2 MONTHLY ACCOUNTING REPORTS. Within ten (10) Business Days following the
end of each Accounting Period, the Company shall supply the Reinsurer
with a Monthly Accounting Report with the information as shown in Part
I of Schedule B. On a quarterly basis
7
following the end of each calendar quarter the Company will include the
information shown in Part II of Schedule B within fifteen (15) calendar
days after the end of the calendar quarter and Schedule D within twenty
one (21) calendar days after the end of the calendar quarter.
10.3 SETTLEMENTS. On a weekly basis the Company will determine an estimated
Settlement Amount in accordance with Schedule B, accumulated with
interest at the Accrual Rate. If the accumulated tentative settlement
amount is positive, the Company will pay that amount to the Reinsurer.
If the accumulated tentative Settlement Amount is negative, the
Reinsurer will pay that amount to the Company. On a monthly basis the
Reinsurer or the Company, as the case may be, shall pay any amount due,
as adjusted by the accumulated tentative settlement amounts, to the
other party within ten (10) Business Days of the receipt or submission
of the Monthly Accounting Report.
10.4 ACCUMULATION OF SETTLEMENT AMOUNT. The Settlement Amount shall be
accumulated with interest at the Accrual Rate from date each portion of
the Settlement Amount is incurred to the date the Settlement Amount is
due. If the Settlement is not paid by the due date, interest shall
continue to accumulate at the Accrual Rate until such time that the
Settlement Amount is paid. The Settlement Amount will be adjusted by
the accumulated tentative settlement amounts.
10.5 RECONCILIATION. Each party shall have the right to review all
individual components of transactions reflected in the Monthly
Accounting Reports, and to request adjustments, as appropriate. Any
amount due either party in connection with such adjustment shall be
paid within ten (10) Business Days of the receipt of notice that
additional amounts are due.
10.6 INTEREST PAYMENTS. Payment due to either the Reinsurer or the Company
shall accrue interest at the Accrual Rate.
ARTICLE XI
TERM AND TERMINATION
11.1 DURATION. Except as otherwise provided herein, this Agreement
will be effective for so long as any Reinsured Policy is in effect.
11.2 REINSURER'S LIABILITY. The liability of the Reinsurer with respect
to the Reinsured Policy shall terminate on the date the liability of
the Company on such Reinsured Policy is terminated.
11.3 TERMINATION. Should either party to this Agreement at any time:
(a) become insolvent;
(b) file a petition in bankruptcy;
(c) go into liquidation or rehabilitation;
(d) have a receiver appointed; or
(e) have its Company Action Level Risk Based Capital ratio as defined
by the National Association of Insurance Commissioners (NAIC) drop
below 100%,
8
then in such event the other party shall have the right to terminate
this Agreement immediately upon notice to the other party.
11.4 TERMINATION DUE TO NONPAYMENT. Either party may terminate this
Agreement if the other party fails to pay, when due, any amounts due
under this Agreement provided that the delinquent party has been given
at least twenty (20) Business Days advance written notice of its intent
to terminate for that reason. Either party may avoid termination
pursuant to this Section 11.4 by paying all amounts that are delinquent
and then due on or before the date upon which the Agreement would have
terminated in accordance with the notice from the other party. The
other party shall provide written notice to the curing party that the
default has been adequately cured.
11.5 TERMINATION FOR MATERIAL BREACH. In addition to all other rights and
remedies, either party may terminate this Agreement by providing the
other party with a minimum of thirty (30) days prior written notice in
the event the other party commits a material breach of any provision of
the Agreement. Said notice must specify the nature of said material
breach. The breaching party shall have twenty (20) Business days from
the date of the breaching party's receipt of the foregoing notice to
cure said material breach to the reasonable satisfaction of the
non-breaching party. If the breach is cured, the other party shall
provide written notice to the curing party that the breach has been
adequately cured. In the event the breaching party fails to cure the
material breach within said twenty (20) Business day period, then at
the option of the non-breaching party and upon notice, this Agreement
will terminate upon expiration of the thirty (30) day notice period.
Notwithstanding the foregoing, the parties shall cooperate with each
other to effect a cure of any breach of the terms of this Agreement.
11.6 TERMINATION BY REINSURER. The Reinsurer has the right to terminate this
agreement with respect to new business at any time by giving sixty (60)
days notice to the Company.
11.7 TERMINATION BY THE COMPANY. The Company has the right to recapture this
business after a period of 10 years. If the Company exercises its right
to recapture the business, the Company will pay a recapture fee to the
Reinsurer equal to the unamortized Commission and Expense Allowance
with the amortization period of the Commission and Expense Allowance
corresponding to the surrender charge period of each policy form
ARTICLE XII
PAYMENTS UPON TERMINATION OF AGREEMENT
12.1 PAYMENTS ON TERMINATION.
(a) In the event that this Agreement shall be terminated under
Sections 11.3, 11.4 or 11.5 a net accounting and settlement as to
any balance due under this Agreement shall be undertaken by the
parties to this Agreement (the "Terminal Accounting and
Settlement"), which calculations shall be performed as of the day
that is 90 days from the date that the liability of the Reinsurer
shall have finally terminated (the "Terminal Accounting Date").
The Terminal Accounting Date will be 120 days after the date of
termination.
9
(b) As of the Terminal Accounting Date, the Company shall supply the
Reinsurer with a final Schedule B and the Settlement Amount will
be paid as due pursuant to Section 10.3.
(c) In addition to the final Settlement Amount payment, the Company
shall pay to the Reinsurer the Reinsurer's quota share portion of
the unamortized portion of the Commission and Expense Allowance
with the amortization period of the Commission and Expense
Allowance corresponding to the surrender charge period of each
policy form. The Reinsurer shall pay to the Company its quota
share portion of the account values or the Reinsured Policies.
(d) Any payment required under the Terminal Accounting and Settlement
by the Company shall be paid by the Company no later than thirty
(30) days after the Terminal Accounting Date. Payments made after
such time shall be deemed to be a delayed payment within the
meaning of Section 11.6, and shall accrue interest accordingly. In
the event that the calculation for the payment required under the
Terminal Accounting and Settlement cannot be accurately calculated
by such date, then an estimate shall be paid, with a supplemental
accounting being made when the accurate information shall become
available.
12.2 SUPPLEMENTAL ACCOUNTING. In the event that, subsequent to the Terminal
Accounting and Settlement an adjustment is made with respect to any
amount taken into account in the Terminal Accounting and Settlement, a
supplemental accounting shall be made. Any net amount owed to the
Reinsurer or the Company by reason of such supplemental accounting,
plus any interest due accumulated at the Accrual Rate to the date of
payment, shall be paid promptly upon the completion of such
supplemental accounting.
ARTICLE XIII
INSOLVENCY
13.1 PAYMENTS. In the event of the insolvency of the Company, payments due
the Company on all reinsurance made, ceded, renewed or otherwise
becoming effective under this Agreement shall be payable by the
Reinsurer directly to the Company or to its liquidator, receiver, or
statutory successor on the basis of the liability of the Company under
Reinsured Policies without diminution because of the insolvency of the
Company.
13.2 EXECUTORY CONTRACT. It is expressly understood that this Agreement is
an executory contract as long as both parties are required to perform
under this Agreement. On the insolvency of either party, if this
Agreement is not confirmed by the insolvent party and given status as
an "Administrative Expense", then the other party may terminate for
nonperformance without additional payment other than those required
under Section 12.1.
10
ARTICLE XIV
DISPUTE RESOLUTION
14.1 DISPUTE RESOLUTION. If a dispute, controversy, or claim arises out of
or relates to this Agreement, its termination or non-renewal, or the
alleged breach thereof, and if said dispute cannot be settled through
direct discussions, the parties agree to first endeavor to settle the
dispute in an amicable manner by mediation administered by the American
Arbitration Association ("AAA") under its Commercial Mediation Rules,
before resorting to arbitration. If the matter has not been resolved
pursuant to mediation within thirty (30) days of the commencement of
such mediation (which period may be extended by mutual agreement in
writing), then any unresolved dispute, controversy, or claim arising
out of or relating to this Agreement, its termination or non-renewal,
or the breach thereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the AAA, and judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The arbitration shall be conducted by a sole
arbitrator or, at the election of either party, before a panel of three
arbitrators. Selection of the arbitrator(s) shall be in accordance with
the Commercial Arbitration Rules of the AAA. The arbitrator(s) shall
allow each party to conduct limited relevant discovery. The
arbitrator(s) shall have no authority to award punitive damages or any
damages not measured by the prevailing party's actual damages, and may
not, in any event, make any ruling, finding or award that does not
conform to the terms and conditions of this Agreement and applicable
state and federal laws. All fees and expenses of arbitration shall be
borne by the parties equally. However, each party shall bear the
expense of its own counsel, experts, witnesses, and preparation and
presentation of the arbitration matter. Any such arbitration shall be
conducted in West Des Moines, Iowa.
ARTICLE XV
DAC TAX
The parties hereto agree to the following pursuant to Section 1.848-2(g)(8)
of the Income Tax Regulations issued December 1992, under Section 848 of the
Internal Revenue Code of 1986, as amended. This election shall be effective for
2001 and for all subsequent taxable years for which this Agreement remains in
effect.
15.1 The term "party" will refer to either contracting company as
appropriate.
15.2 The terms used in this Article are defined by reference to Regulation
Section 1 848-2 in effect December 1992.
15.3 The party with the net positive consideration for the Coinsurance
Agreement for each taxable year will capitalize specified policy
acquisition expenses with respect to the Coinsurance Agreement without
regard to the general deductions limitation of Section 848(c)(1).
11
15.4 Both parties agree to exchange information pertaining to the amount of
net consideration under the Coinsurance Agreement each year to ensure
consistency or as otherwise required by the Internal Revenue Service.
15.5 The Company will submit a schedule to the Reinsurer by May 1 of each
year of the calculation of the net consideration for the preceding
calendar year. This schedule of calculations will be accompanied by a
statement signed by one of the Company's officers stating that the
Company will report such net consideration in its tax return for the
preceding calendar year.
15.6 The Reinsurer may contest such calculation by providing an alternative
calculation to the Company in writing within 30 days of receipt of the
calculation. If the Reinsurer does not notify the Company, the
Reinsurer will report the net consideration determined by the Company
in its tax return for the previous calendar year.
15.7 If the calculation of the net consideration is contested, the parties
will act in good faith to reach an agreement as to the correct amount
within thirty (30) days of the date that the Company receives the
Reinsurer's alternative calculation. If the parties reach agreement on
an amount of net consideration, each party shall report such amount in
their respective tax returns for the previous calendar year. If the
parties are unable to reach an agreement on the amount of the net
consideration, then the dispute will be resolved pursuant to Article
XIV of this Agreement.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 HEADINGS AND SCHEDULES. Headings used herein are not a part of this
Agreement or related documents and shall not affect the terms hereof.
The attached Schedules A, B, C, and D are a part of this Agreement.
12
16.2 NOTICES. All notices and communications hereunder shall be in writing
and shall become effective when received. Any written notice shall be
sent by either certified or registered mail, return receipt requested,
or overnight delivery service (providing for delivery receipt) or
delivered by hand. All notices or communications under this Agreement
shall be addressed as follows:
If to the Company:
American Equity Investment Life Insurance Company
0000 Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxx Xxx Xxxxxx, XX 00000
Attention:
If to the Reinsurer:
EquiTrust Life Insurance Company
0000 Xxxxxxxxxx Xxx
Xxxx Xxx Xxxxxx XX 00000
Attention:
16.3 SUCCESSORS AND ASSIGNS. This Agreement and related documents cannot be
assigned by either party without the prior written consent of the
other. The provisions of this Agreement and related documents shall be
binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successor and assigns as permitted
herein.
16.4 EXECUTION IN COUNTERPARTS. This Agreement and related documents may be
executed by the parties hereto in any number of counterparts, and by
each of the parties hereto in separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one
and the same instrument.
16.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties hereto. This Agreement supersedes all prior discussions,
negotiations, understandings, commitments and agreements with respect
to the subject matter hereof. Any amendment or modification of this
Agreement will not be effective unless made in writing and signed by
the parties hereto.
16.6 REGULATORY APPROVAL OF AMENDMENTS. When and if, under insurance, public
health or other applicable laws or regulations, the approval of any
amendment to this Agreement or related documents by one or more
federal, state or local regulatory authorities is required, the
amendment shall not take effect unless and until all such necessary
approvals have been received by the Company.
16.7 GOVERNING LAW. This Agreement and related documents shall be
governed by and construed in accordance with the laws of the State of
lowa.
13
16.8 WAIVERS AND REMEDIES. The waiver by any of the parties of any other
party's prompt and complete performance or breach or violation, of any
provisions of this Agreement and related documents shall not operate or
be construed as a waiver of any subsequent breach or violation, and the
waiver by any of the parties to exercise any right or remedy which it
may possess hereunder shall not operate or be construed as a bar to the
exercise of such right or remedy by such party upon the occurrence of
any subsequent breach or violation.
16.9 SEVERABILITY. In the event any section or provision of this Agreement
or related documents is found to be void and unenforceable by a court
of competent jurisdiction, the remaining sections and provisions of
this Agreement or related documents shall nevertheless be binding upon
the parties with the same force and effect as though the void or
unenforceable part had not been severed or deleted.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative.
EQUITRUST AMERICAN EQUITY INVESTMENT
LIFE INSURANCE CO. LIFE INSURANCE COMPANY
By: /s/ Xxxxxxx X. Xxxx By: /s/ X.X. Xxxxx
------------------- --------------
Name: Xxxxxxx X. Xxxx Name: X.X. Xxxxx
Title: CEO Title: Chairman
Date: December 18, 2001 Date: December 19, 2001
14
SCHEDULE A
CONTRACTS AND RISKS REINSURED
Company agrees to cede to the Reinsurer, and the Reinsurer agrees to accept from
the Company, the Quota Share reinsurance participation for the risks as
scheduled below that are not currently reinsured under another agreement:
PERIOD OF POLICY ISSUE QUOTA SHARE
August 1, 2001 through December 31, 2001 70%
2002 40%
2003 40%
REINSURED CONTRACTS
FPDA- 1(3%)
XXXX-0
XXXX-0
XXXX-0
XXXX-0
XXXX-0
I-2000
I-2001
INDEX
INDEX-12
INDEX-13
INDEX-15
INDEX-16
INDEX-17
INDEX-18
INDEX-19
INDEX-5
INDEX-6
INDEX-8
INDEXP3
SUPER-7
SPDA-2
SPDA-5
State variations of the listed products are included under this agreement
Effective date of this Schedule: August 1, 2001
15
SCHEDULE B
Part I
MONTHLY ACCOUNTING REPORT
(For qualified and non-qualified business, separately)
(All amounts are net of reinsurance to other reinsurers)
I. PREMIUM
------------------
II. OPTION SETTLEMENTS
------------------
III. CLAIMS
------------------
IV. COMMISSION ALLOWANCE
------------------
V. ACQUISITION EXPENSE ALLOWANCE
------------------
VI. MAINTENANCE EXPENSE ALLOWANCE
------------------
VII. OPTION COSTS
------------------
VIII. Net (I + II - III - IV - V - VI - VII)
------------------
IX. Reinsured%
------------------
X. Settlement Amount
(VIII times IX) ------------------
XI. Accumulated Settlement Amount
------------------
Part II
Quarterly Accounting Information
RESERVES - END OF PERIOD
Account Value
------------------
Reserves
------------------
ACCOUNT PAYABLE
------------------
AMORTIZATION OF OPTION COST
------------------
16
SCHEDULE C
COMMISSION AND EXPENSE ALLOWANCE FOR REINSURED POLICIES
The Reinsurer will grant to the Company the quota share percentage of the
following commission and expense allowances on the business reinsured:
ANNUAL PER POLICY EXPENSE ALLOWANCES
Acquisition Expense $ 125
Maintenance Expense $ 50
The Maintenance Expense Allowance will be calculated on a monthly basis as
follows:
(C/12) * (A + B)/2 where
A is the number of policies inforce as of the beginning of each
month, and
B is the number of policies inforce as of the end of the each
month, and
C is the annual per policy expense allowance.
The Acquisition Expense Allowance shall be adjusted from time to time to reflect
the per policy expense deferrable under Generally Accepted Accounting
Principles.
COMMISSION EXPENSE ALLOWANCES
The commission expense allowance shall be an amount as determined by the Company
based upon their published commission schedules and shall be the Quota Share
portion of commissions actually paid.
17
SCHEDULE D
GAAP ACCOUNTING REPORT
(All amounts are net of reinsurance to other reinsurers)
EIA Traditional
I. BEGINNING GAAP RESERVE
------------------ -------------------
II. LESS: BEGINNING OF PERIOD Not Applicable
------------------
accumulated interest credits
+ embedded derivative - current year option
+ embedded derivative - forward starting option
III. BEGINNING ACCOUNT VALUE HOST CONTRACT (I - II)
------------------ -------------------
IV. PREMIUMS
------------------ -------------------
V. INTEREST CREDITED
------------------ -------------------
VI. BONUS INTEREST CREDITED
------------------ -------------------
VII. BENEFITS
------------------ -------------------
VIII. SURRENDER CHARGES
------------------ -------------------
IX. PORTION OF PREMIUMS AND BENEFITS
RELATING TO EMBEDDED DERIVATIVES AND/OR
ACCUMULATED INDEX CREDITS Not Applicable
------------------
X. ENDING ACCOUNT VALUE HOST CONTRACT
(III + IV + V+ VI- VII - VIII- IX)
------------------ -------------------
XI. ADD: END OF PERIOD Not Applicable
------------------
accumulated interest credits
+ embedded derivative - current year option
+ embedded derivative - forward starting option
XII. ENDING GAAP RESERVE (X + XI)
------------------ -------------------
RESERVES - END OF PERIOD (BY ISSUE YEAR)
------------------ -------------------
POLICY COUNT - END OF PERIOD (BY ISSUE YEAR)
------------------ -------------------
18
FIRST AMENDMENT TO
COINSURANCE AGREEMENT
This First Amendment to the
Coinsurance Agreement ("First Amendment") is
made and entered into by and between EquiTrust Life Insurance Company
("Reinsurer") and American Equity Investment Life Insurance Company ("Company")
and shall be effective August 1, 2001.
WHEREAS, the Reinsurer and Company wish to amend the
Coinsurance Agreement
entered into between the parties with an effective date of August 1, 2001 (the
"
Coinsurance Agreement").
NOW, THEREFORE, the Coinsurance Agreement is hereby amended by adding the
following definitions to Article I:
ESTIMATED PAYMENT means the amount paid by the Company to the Reinsurer as
an estimate of the Settlement Amount as specified in Section 10.3.
NET SETTLEMENT AMOUNT means the Settlement Amount as determined by Schedule
B less the estimated Settlement Amount paid by the Company to the Reinsurer.
NOW, THEREFORE, the Coinsurance Agreement is hereby further amended by
deleting Section 10.3 and replacing it with the following:
SETTLEMENTS. At the beginning of each month the Company shall make an
estimate of the Settlement Amount in accordance with Schedule B and, if
positive, shall remit that amount to the Reinsurer by the 3rd Business Day of
the month. On a monthly basis the Reinsurer or the Company, as the case may be,
shall pay the Net Settlement Amount, to the other party within ten (10) Business
Days of the receipt or submission of the Monthly Accounting Report.
NOW, THEREFORE, the Coinsurance Agreement is hereby further amended by
deleting Section 10.4 and replacing it with the following:
ACCUMULATION OF NET SETTLEMENT. If the Net Settlement is not paid by the
due date, interest shall accumulate at the Accrual Rate from the due date of the
payment until such time that the Net Settlement is paid. If the Estimated
Payment is not within 25% of the Settlement Amount, the Net Settlement Amount
shall be accumulated from the middle of the accounting period to the due date at
the Accrual Rate.
NOW, THEREFORE, the Coinsurance Agreement is hereby further amended by
deleting Section 12.1 (c) and replacing it with the following:
In addition to the final Settlement Amount, the Reinsurer shall pay to the
Company its quota share portion of the account values of the Reinsured Policies.
NOW, THEREFORE, the Coinsurance Agreement is hereby further amended by
deleting Schedule B and replacing it with the following:
19
SCHEDULE B
Part I
MONTHLY ACCOUNTING REPORT
(For qualified and non-qualified business, separately)
(All amounts are net of reinsurance to other reinsurers)
XII. PREMIUM
------------------
XIII. OPTION SETTLEMENTS
------------------
XIV. CLAIMS
------------------
XV. COMMISSION ALLOWANCE
------------------
XVI. ACQUISITION EXPENSE ALLOWANCE
------------------
XVII. MAINTENANCE EXPENSE ALLOWANCE
------------------
XVIII. OPTION COSTS
------------------
XIX. Net (I + II - III - IV - V - VI - VII)
------------------
XX. Reinsured %
------------------
XXI. Settlement Amount
(VIII times IX) ------------------
XXII. Estimated Payment
------------------
XXIII. Net Settlement Amount (X - XI)
------------------
Part II
Quarterly Accounting Information
RESERVES - END OF PERIOD
Account Value
------------------
Reserves
------------------
ACCOUNT PAYABLE
------------------
AMORTIZATION OF OPTION COST
------------------
20
IN WITNESS WHEREOF, the parties have executed this First Amendment
effective August 1, 2001.
EQUITRUST AMERICAN EQUITY INVESTMENT
LIFE INSURANCE COMPANY LIFE INSURANCE COMPANY
By:/s/ Xxxxxxx X. Xxxx By: /s/ X.X. Xxxxx
------------------- --------------
Name: Xxxxxxx X. Xxxx Name: X.X. Xxxxx
Title: CEO Title: Chairman
Date: February 18, 2002 Date: February 26, 2002
21
