Exhibit 10.31
Note: Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment filed with the SEC under Rule 406. The
omitted material has been fiiled separately with the SEC. The location
of the omitted confidential information is indicated herein by
"[***]."
1732-0-1
REINSURANCE AGREEMENT
between
GENERAL AMERICAN LIFE INSURANCE COMPANY
of
St. Louis, Missouri
referred to in this Agreement as the Company and
INTEGRITY LIFE INSURANCE COMPANY
of
Worthington, Ohio
referred to in this Agreement as the Reinsurer
TABLE OF CONTENTS
I. Scope of Reinsurance
II. Liability
III. General Provisions
IV. Reinsurance Premiums
V. Withdrawals and Interest Payments
VI. Accounting and Settlement
VII. Duration and Recapture
VIII. Terminal Accounting and Settlement
IX. Arbitration
X. Insolvency
XI. Execution
Schedule A - Products and Amounts Reinsured
Schedule B - Allowances
Schedule C - Accounting Report
Schedule D - Investment Policy
Schedule E - Trust Agreement
The Company and the Reinsurer mutually agree to reinsure on the terms and
conditions set out below. This Agreement is an indemnity reinsurance agreement
solely between the Company and the Reinsurer, and performance of the obligations
of each party under this Agreement shall be rendered solely to the other party.
In no instance shall anyone other than the Company or Reinsurer have any rights
under this Agreement, and the Company shall be and remain solely liable to any
insured, Participating Group Retirement Plan Contract owner, Funding Agreement
owner or beneficiary under any Participating Group Retirement Plan or Funding
Agreement reinsured hereunder.
ARTICLE I
SCOPE OF REINSURANCE
1. Funding Agreements Reinsured. The Reinsurer agrees to indemnify the
Company and the Company agrees to reinsure with the Reinsurer according to
the terms and conditions of this Agreement, the risks under certain
Funding Agreements and Participating Group Retirement Plan Contracts
(hereinafter referred to as the "Product(s)") described in Schedule A.
2. Coverages and Exclusions.
a) Only risks under the Products referred to in Paragraph 1, to the
extent of the limits specified in Schedule A, are reinsured under
this Agreement.
b) The Reinsurer shall have no liability to the Company for
reimbursement of any Product loans made to Product owners with
respect to the portion of the Products reinsured under this
Agreement.
3. Plan of Reinsurance. This indemnity reinsurance will be on a coinsurance
basis.
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ARTICLE II
LIABILITY
1. Liability. The liability of the Reinsurer on any Products reinsured
hereunder shall begin upon the Reinsurer's receipt of applicable portion
of premiums, in accordance with Article IV, but not prior to the effective
date of this Agreement. The reinsurance under this Agreement with respect
to any Products reinsured hereunder shall be maintained in force without
reduction as long as the liability of the Company under such Products
remains in force without reduction, unless reinsurance is terminated or
reduced or as otherwise provided herein. The Reinsurer's liability on any
Products reinsured hereunder shall terminate with that of the Company, but
not extending beyond the termination date of this Agreement.
ARTICLE III
GENERAL PROVISIONS
1. Reinsurance Conditions. The reinsurance hereunder is subject to the same
limitations and conditions as the insurance under the Products written by
the Company which are reinsured hereunder, except as otherwise provided
herein.
2. Administration of Products Reinsured. The Company shall administer the
Products reinsured hereunder and shall perform all accounting for such
Products.
3. Allowance for Commissions and Expenses. The Reinsurer shall pay the
Company the allowance for commissions and expenses determined in
accordance with Schedule B.
4. Premium Taxes. The Reinsurer shall be required to reimburse the Company
for the percentage of premium taxes incurred, determined in accordance
with Schedule B.
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5. Product Chances. If a change is made in the terms and conditions of the
Products issued by the Company and reinsured hereunder, which increases or
reduces the liability of the Company on such Products, changes the plan of
insurance or makes any other Product change, the Company and the Reinsurer
shall share in such change in proportion to their respective liabilities
under this Agreement. Provided, further, any such changes in the Products
shall be previously agreed upon between the Company and the Reinsurer.
6. Oversights. If failure to pay any premiums due or to do any other act
required by this Agreement is unintentional and caused by misunderstanding
or oversight, the Company and the Reinsurer will adjust the situation to
what it would have been had the misunderstanding or oversight not
occurred.
7. Inspection. At any reasonable time, each party may inspect and audit the
original papers, and any and all other books or documents relating to or
affecting reinsurance under this Agreement.
8. Amendments. This Agreement may be amended by mutual agreement of the
parties. Any such amendments shall be in writing, signed by both parties.
9. Headings and Schedules. Article and paragraph headings are not a part of
this Agreement and shall not affect the terms hereof. The schedules
attached are a part of this Agreement.
10. Offset. The Company or the Reinsurer may offset any amounts due from one
party to the other under this Agreement.
11. Coinsurance Reserve. A reserve will be established for the portion
reinsured by the Reinsurer which shall be equal to or greater than the
minimum statutory reserve required by the Insurance Department of the
Company's state of domicile or the State of Ohio, whichever is
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greater, on the portion of the Products reinsured, hereinafter referred to
as the "Coinsurance Reserve."
12. Entire Agreement Clause. The terms expressed in this Agreement, which by
definition and reference, should include that certain Engagement Agreement
entered into as of March 12, 1993, as amended, between the Company and
Analytical Risk Management, Ltd., (now known as ARM Financial Group,
Inc.), the parent of the Reinsurer, and made a part of this Agreement by
reference, constitute the entire agreement between the parties with
respect to the business being reinsured hereunder and there are no
understandings between the parties other than as expressed in this
Agreement.
Any change or modification to this Agreement is null and void unless made
by wntten amendment to this Agreement and signed by both parties.
13. Trust Agreement. The Company and the Reinsurer have agreed to enter into
the "Trust Agreement" attached to this Agreement as Schedule E. Pursuant
to the terms of the Trust Agreement, the Company, on the effective date of
this Agreement, will place assets in a trust account having a book value,
plus accrued interest, no less than 100 percent of the Coinsurance
Reserve. The Reinsurer will be responsible for maintaining the trust
account during the duration of this Agreement so that the book value of
all assets deposited therein plus the accrued interest thereon will at all
times be no less than 100 percent of the Coinsurance Reserve. To this end,
the Reinsurer will deposit cash into the trust account at the end of each
month on which the Coinsurance Reserve exceeds the book value of the
assets in the trust account plus accrued interest thereon at the end of
that calendar month. If at the end of any calendar month the Coinsurance
Reserve is less than the book value of the assets in the trust account
plus accrued interest thereon, the Reinsurer may withdraw cash or
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other assets with a book value in the amount of the excess from the trust
account at the end of that calendar month.
The Reinsurer will be responsible for maintaining the trust account during
the duration of this Agreement so that the market value of all assets
deposited therein plus the accrued interest thereon, will at the end of
each calendar month, be no less than 97% of the Coinsurance Reserve. The
trustee will report monthly, the market value of the portfolio assets to
the Company and to the Reinsurer. If the portfolio fails to comply with
either this minimum market value requirement or any other investment
guideline as agreed upon and set forth in Schedule D, the Reinsurer will
have 15 business days from the date of the trustee's report to bring the
portfolio of assets in the Trust back into compliance. If the Reinsurer
fails to comply with the terms of the Trust within the 15 business day
period, the Company will have the option, in its sole and absolute
discretion, to commence recapture, without penalty, of the Reinsurer's
share of the Products reinsured under this Agreement. If, at the time of
recapture, the value of the assets held in the Trust is insufficient to
cover 100% of the Coinsurance Reserve, the Reinsurer will have 15 business
days to reimburse the Company for the shortage.
14. Recapture. If, on any calendar quarter-end, the Reinsurer's "Total
Adjusted Capital" falls below 150% of the Reinsurer's "Company Action
Level", the Company will have the right to commence recapture, without
penalty, of the Reinsurer's share of the Products reinsured under this
Agreement. The amounts, Total Adjusted Capital and Company Action Level,
refer to the amounts as defined in the NAIC Life Risk-Based Capital Report
Including Overview and Instructions for Companies, published annually by
the National Association of Insurance Commissioners. The Reinsurer will
provide to the Company on a calendar quarterly basis, or upon reasonable
request of the Company, a report illustrating the
5
calculation of the Reinsurer's Total Adjusted Capital and the Reinsurer's
Company Action Level. If any such report indicates that the Reinsurer's
Total Adjusted Capital has fallen below 150% of its Company Action Level,
the Company will have the right to commence recapture, without penalty, of
the Reinsurer's share of the Products reinsured under this Agreement. If,
at the time of recapture, the market value of the assets held in the Trust
is insufficient to cover 100% of the Coinsurance Reserve, the Reinsurer
will have 15 business days to reimburse the Company for the shortage.
ARTICLE IV
REINSURANCE PREMIUMS
Reinsurance Premiums. The Company shall pay to the Reinsurer as reinsurance
premiums each day the gross contributions the Company receives on such day on
Products reinsured hereunder in proportion to the amount reinsured hereunder.
ARTICLE V
WITHDRAWALS AND INTEREST PAYMENTS
1. Notice. The Company will maintain records to support withdrawals and
interest payments. The Reinsurer reserves the right to review these
benefit records and proofs will be furnished the Reinsurer upon request.
2. Withdrawals and Interest Payments. The Reinsurer will pay the Company each
day that portion of the withdrawals and interest payments paid by the
Company that day on Products reinsured hereunder which corresponds to the
portion of the Products reinsured hereunder.
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3. Liability and Payment. The Reinsurer will accept the decision of the
Company on withdrawals and interest payments on Products reinsured
hereunder. The Reinsurer will pay its share in a lump sum equal to its
percentage reinsured to the Company in the same form as the form of
withdrawals and interest payment settlement of the Company.
4. Contested Withdrawals and Interest Payments. The Company will advise the
Reinsurer of its intention to contest, compromise or litigate a withdrawal
or interest payment involving Products reinsured hereunder. The Reinsurer
will pay its share of the usual expense of the contest in addition to its
share of the withdrawal or interest payment itself, or it may choose not
to participate in the contest. If the Reinsurer chooses not to
participate, it will discharge its liability by payment of the full amount
of its liability on the Product reinsured to the Company. The Reinsurer
shall not be liable for any part of any damages, compensatory or punitive,
assessed against the Company based on its alleged misconduct in the
handling of withdrawals and interest payments or in other dealings with
its Product owners.
5. Assistance and Advice. On any claim on a Product reinsured hereunder, the
Reinsurer will, at the request of the Company, advise and assist the
Company in its determination of the liability and in the best procedure to
follow with respect to a claim of doubtful validity, provided that the
Reinsurer shall not be liable to the Company or to any third party for
claims arising out of such advice and assistance.
6. Annuitization. In the event of annuitization of any amounts reinsured
hereunder, the Reinsurer will pay the Company an amount equal to the
portion of the annuity purchase value of such amount reinsured hereunder.
No further obligation or liability will exist for the Reinsurer for such
annuitized amounts.
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ARTICLE VI
ACCOUNTING AND SETTLEMENT
1. Accounting Periods. The accounting shall be on a calendar month basis,
except that the initial accounting period shall run from the effective
date of this Agreement through the last day of the calendar month in which
the effective date of this Agreement falls. The final accounting period
shall run from the end of the preceding calendar month until the
termination date of this Agreement.
2. Accounting Reports. Accounting reports shall be submitted to the Reinsurer
by the Company not later than 15 days after the end of each accounting
period. Such reports shall be in the form of Schedule C and shall include
information on the amount of reinsurance premiums, allowances, withdrawal
and interest payments and Coinsurance Reserves on the Products reinsured
for the preceding accounting period.
Annual accounting reports necessary to the filing of the Reinsurer's
Annual Statement blank and its Federal Income tax return shall be
submitted to the Reinsurer by the Company within 30 days after the end of
a calendar year.
3. Settlements. Reinsurance premiums, withdrawals and interest payments will
be settled as described in Article IV and Article V.
4. Amounts Due. Except as otherwise specifically provided in this Agreement,
all amounts due to be paid to either the Reinsurer or the Company shall be
determined on a net basis as of the last day of each calendar month and
shall be due and payable as of such date.
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5. Delayed Payments and Recalculations. If there is a delayed settlement or a
recalculation of an amount due, there will be an interest charge computed
at an effective annual 8% interest rate for the period commencing with the
accounting period in which the charge applies.
ARTICLE VII
DURATION AND RECAPTURE
1. Duration. Except as otherwise provided herein, this Agreement shall be
unlimited in duration.
2. Termination by the Reinsurer. The Reinsurer may terminate this Agreement
on 90 days prior written notice to the Company with respect to reinsurance
not yet placed in force.
3. Termination by the Company. The Company may terminate this Agreement on 90
days prior written notice to the Reinsurer with respect to new business.
4. Chances of Ownership or Control. The Company may terminate this Agreement
and recapture, without penalty, the Reinsurer's share of the Products
reinsured under this Agreement upon any change of ownership or control of
the Reinsurer away from ARM Financial Group, Inc.
ARTICLE VIII
TERMINAL ACCOUNTING AND SETTLEMENT
1. Terminal Accounting. In the event that all reinsurance under this
Agreement is terminated in accordance with Article III, a terminal
accounting and settlement shall take place.
2. Date. The terminal accounting date shall be the effective date of
termination pursuant to any notice of termination given under this
Agreement or such other date as shall be mutually agreed to in writing.
3. Settlement. The terminal accounting and settlement shall consist of:
9
a) the settlements as provided in Articles IV, V and VI, computed as of
the terminal accounting date; and
b) payment by the Reinsurer to the Company of the Coinsurance Reserves
on the portion of the Products reinsured hereunder as of the
terminal accounting date.
If the calculation of the terminal accounting and settlement produces an
amount owing to the Company, such amount shall be paid by the Reinsurer to
the Company. If the calculation of the terminal accounting and settlement
produces an amount owing to the Reinsurer, such amount shall be paid by
the Company to the Reinsurer.
ARTICLE IX
ARBITRATION
1. It is the intention of the Reinsurer and the Company that the customs and
practices of the insurance and reinsurance industry will be given full
effect in the operation and interpretation of this Agreement. The parties
agree to act in all things with the highest good faith. If the Reinsurer
or the Company cannot mutually resolve a dispute which arises out of or
relates to this Agreement, however, the dispute will be decided through
arbitration. The arbitrators will base their decision on the terms and
conditions of this Agreement plus, as necessary, on the customs and
practices of the insurance and reinsurance industry rather than solely on
a strict interpretation of the applicable law; there will be no appeal
from their decision, and any court having jurisdiction of the subject
matter and the parties may reduce that decision to judgment.
2. To initiate arbitration, either the Company or the Reinsurer will notify
the other party by Certified Mail of its desire to arbitrate, stating the
nature of its dispute and the remedy sought. The party to which the notice
is sent will respond to the notification in writing within 10 days of its
receipt.
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3. There will be three arbitrators who will be current or former officers of
life insurance companies other than the contracting companies. Each of the
contracting companies will appoint one of the arbitrators and these two
arbitrators will select the third. If either party refuses or neglects to
appoint an arbitrator within 60 days, the other party may appoint the
second arbitrator. If the two arbitrators do not agree on a third
arbitrator within 60 days of their appointment, each of the arbitrators
will nominate three individuals. Each arbitrator will then decline two of
the nominations presented by the other arbitrator. The third arbitrator
will then be chosen from the remaining two nominations by drawing lots.
4. 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 Section 1 of this Article. Therefore, at no time will either
the Company 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 provided by both the Company and the Reinsurer to
inform the arbitrators of the nature and facts of the dispute. Likewise,
any written or oral arguments provided to the arbitrators concerning the
dispute will be coordinated with the other party and will be provided
simultaneously to the other party or will take place in the presence of
the other party. Further, at no time will any arbitrator be informed that
the arbitrator has been named or chosen by one party or the other.
5. The arbitration hearing will be held on the date and at the place fixed by
the arbitrators. In no event will this date be later than six months after
the appointment of the third arbitrator. As soon as possible, the
arbitrators will establish pre-arbitration procedures as warranted by
facts and issues of the particular case. At least 10 days prior to the
arbitration hearing, each party will provide the other party and the
arbitrators with a detailed statement of the facts and
11
arguments it will present at the arbitration hearing. The arbitrators may
consider any relevant evidence; they will give the evidence such weight as
they deem it entitled to after consideration of any objections raised
concerning it. The party initiating the arbitration will 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.
6. The cost of arbitration will be borne by the losing party unless the
arbitrators decide otherwise.
ARTICLE X
INSOLVENCY
If the Company becomes insolvent, reinsurance hereunder shall be payable by the
Reinsurer directly to the Company or its liquidator, receiver, or statutory
successor on the basis of the liability of the Company under the Products
reinsured, without diminution because of insolvency.
The Reinsurer shall be given, within a reasonable time after a claim is filed in
the insolvency proceedings, written notice of the pendency of each claim which
may involve the reinsurance afforded by this Agreement. The Reinsurer shall have
the right, at its sole discretion, to investigate the claim and interpose in the
proceedings where the claim is to be adjudicated, at its own expense, any
defense which it deems available to it or the Company. A proportionate share of
the expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent Company as part of the expense of liquidation to
the extent of the benefit accruing to the Company solely as a result of the
defense undertaken by the Reinsurer.
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ARTICLE XI
EXECUTION
In witness of the above, this Agreement is signed in duplicate at the dates and
places indicated; however, this Agreement shall take effect on the date of
execution of the Trust Agreement attached as Schedule E.
General American Life Insurance Company
Place: St. Louis, Missouri
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Executive Vice President--Investments
-------------------------------------
By: _____________________________________
Title: Assistant Secretary
-------------------------------------
Date: [Illegible]
-------------------------------------
Integrity Life Insurance Company
Place: Louisville, Kentucky
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
-------------------------------------
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: General Counsel and Secretary
-------------------------------------
Date: March 28, 1996
-------------------------------------
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SCHEDULE A
PRODUCTS AND AMOUNTS REINSURED
The proportion of the Products reinsured under this Agreement shall be a
quota-share of the Products issued on and after the effective date of this
Agreement, and gross contributions received on or after the effective date of
this Agreement on Products issued before the effective date of this Agreement on
the following forms:
Form Quota Share
---- -----------
FRFA-395 50%
FRGIC-293 50%
SCHEDULE B
ALLOWANCES
1. The Reinsurer will pay the Company an expense allowance for each
accounting period equal to:
[***] percent times the Reinsurer's share of the Statutory Reserves in
force at the end of the accounting period, plus the Reinsurer's share of
commissions paid and premium taxes incurred on the Products.
2. The Company will pay the Reinsurer a marketing allowance for each
accounting period equal to:
[***] percent times the Company's share of the Statutory Reserves in
force at the end of the accounting period.
[***] This material has been omitted pusuant to a request for confidential
treatment filed with the SEC under Rule 406. The omitted material has
been filed separately with the SEC.
SCHEDULE C
ACCOUNTING REPORT
MONTHLY REPORT TO: ____________________
FOR PERIOD ENDING: ____________________
Amounts Due Reinsurer
---------------------
Reinsurance Premiums $___________________
Allowances $___________________
TOTAL $___________________
Amounts Due Company
-------------------
Withdrawals $___________________
Payments ____________________
Allowances ____________________
TOTAL $___________________
NET DUE Reinsurer (Company) $___________________
NUMBER OF PRODUCTS REINSURED ____________________
COINSURANCE RESERVE $___________________
SCHEDULE D
INVESTMENT POLICY
The Investment Guidelines for the portfolio assets held in trust shall be as
follows:
1. The average effective duration of the portfolio in the trust cannot exceed
two years;
2. The average credit quality of the portfolio cannot be less than A;
3. The portfolio in trust cannot contain investment in real estate,
commercial mortgage loans, common stocks, NAIC "6" rated securities,
leveraged futures or leveraged derivatives;
4. Below investment grade securities, those defined by a NAIC rating of 3, 4
or 5 cannot exceed 10% of the portfolio; and
5. Options (caps, swaps, floors, etc.) may be used, but the purchase cost of
the options cannot exceed 5% of the portfolio.
SCHEDULE E
TRUST AGREEMENT
TRUST AGREEMENT
This Agreement, effective as of April 1, 1996, is made by and among
Integrity Life Insurance Company, a corporation organized and existing under the
laws of the State of Ohio (the "Grantor"), General American Life Insurance
Company, a corporation organized and existing under the laws of the State of
Missouri (the "Beneficiary"), and Fleet National Bank, a national banking
organization (the "Trustee").
Witnesseth
Whereas Grantor and Beneficiary have entered into a Reinsurance
Agreement which will take effect on the date of execution of this Trust
Agreement, and to which this Trust Agreement is attached, whereby Grantor, as
Reinsurer, has agreed to indemnify Beneficiary, as cedent Company, against loss
(the "Reinsurance Agreement"), and
Whereas Grantor and Beneficiary desire to create a trust account to hold
assets at all times as security for the performance by Grantor of its
obligations set forth in the Reinsurance Agreement.
Now, therefore, the parties agree as follows:
ARTICLE I
TRUST ACCOUNT
1.01 TRUST ACCOUNT ESTABLISHMENT. Grantor hereby establishes a trust account
with Trustee for the sole use and benefit of Beneficiary, upon the terms and
conditions herein (the "Trust Account). The Beneficiary shall deposit cash or
cash equivalents in the Trust Account equal to the reinsurance premiums due the
Grantor pursuant to the Reinsurance Agreement. Such deposits shall be made on
each day that reinsurance premiums are due. The Beneficiary shall notify the
Grantor and the Grantor will notify the Trustee in writing of each deposit
before such deposit is made. Such notifications may be provided by facsimile,
provided, however, that the sender shall confirm receipt of such notification.
1.02 TRUST ACCOUNT. Trustee and its lawfully appointed successors is and are
authorized and will have power to receive such cash and other property as
Grantor from time to time may transfer or
remit to or vest in said Trustee or place in such Trustee's hands or under said
Trustee's control, and to hold, invest, reinvest and dispose of the same for the
uses and purposes and in the manner and according to the provisions herein. All
such trusteed assets at all times will be maintained as a trust account,
separate and distinct from all other assets on the books and records of Trustee.
1.03 INVESTMENT RESPONSIBILITY. The responsibility for investing and
reinvesting the assets, which includes the active management of such assets, in
the Trust Account, will be that of the Grantor. Trustee will not be required to
take any action with respect to the investment or reinvestment of the Trust
Account's assets unless and until it has received written confirmation of the
transaction from Grantor or its authorized investment advisor, ARM Capital
Advisors, Inc. Any written deposit or investment or reinvestment direction
received by the Trustee from the Grantor or its authorized investment advisor
shall constitute a certification by the Grantor to the Trustee that the assets
so deposited or to be purchased pursuant to such direction are Authorized
Investments. The Trustee shall not be liable for losses from investments of any
trusteed assets made in accordance with this Agreement.
1.04 AUTHORIZED INVESTMENTS. Assets deposited in the Trust Account and
investments and reinvestments thereof shall consist solely of assets of the
types specified in Schedule A (the "Authorized Investments"). In addition,
Grantor warrants that investments and reinvestments of assets in the Trust
Account will at all times meet all regulatory requirements imposed by the state
of Ohio. The Trustee shall not be liable for compliance with such Authorized
Investments requirements or state insurance law regulatory requirements. In the
event that a monthly Trustee report to Beneficiary and Grantor indicates
non-compliance with any Authorized Investment requirement, Grantor shall have a
period of 15 business days from the date of receipt of the report in which to
bring the assets in the Trust Account into compliance with the Authorized
Investment requirements.
1.05 MANDATORY TRUST ASSET LEVELS. The Grantor shall maintain assets in the
Trust Account in an amount equal to or greater than the Mandatory Trust Asset
Levels specified in Schedule B. The Trustee shall not be liable for compliance
with such Mandatory Trust Asset Levels. In the event that a monthly Trustee
report to Beneficiary and Grantor indicates that the value of assets in the
Trust Account is less than the Mandatory Trust Asset Levels at the end of any
calendar month, Grantor
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shall have a period of 15 business days from the date of receipt of the report
in which to deposit assets in the Trust Account to comply with the Mandatory
Trust Asset Levels.
1.06 BLANK ASSIGNMENTS AND ENDORSEMENTS. Grantor shall, upon execution of
this Agreement, and from time to time thereafter as required, execute
assignments or endorsements in blank for all securities or other property
standing in Grantor's name which are delivered to Trustee to form a part of the
Trust Account so that, whenever necessary pursuant to Sections 1.10 and 3.01
hereof, Trustee can assign any such asset to the Beneficiary without the consent
or signature of Grantor or any person or entity; any assets received by Trustee
which are not in such proper negotiable form will not be accepted by Trustee and
will be returned to Grantor as unacceptable.
1.07 ASSET SUBSTITUTION. Assets forming a part of the Trust Account may be
substituted with other Authorized Investments by the Grantor so long as the
then current market-value of the Authorized Investment so substituted will
not be less than the then current market value of the assets withdrawn. The
Trustee will be protected in relying upon any written statement of Grantor as
to the current market value of any assets so withdrawn or substituted.
1.08 DIVIDENDS, INTEREST AND OTHER INCOME. If Trustee has received no
written notice from Beneficiary of any violation of the requirements of the
Reinsurance Agreement or this Agreement concerning the amount of Authorized
Investments in the Trust Account, all dividends, interest and other income
resulting from the investment of the assets in the Trust Account, excluding
principal paydowns on investments, will be the property of Grantor. To the
extend that Trustee will collect and receive such income from the Trust Account,
Trustee shall pay over the amount of such income, no more frequently than
monthly, upon the written direction of Grantor; provided, however, that Trustee
will have no obligation with respect to the collection of such income. If a
written notice of violation has been received from the Beneficiary, Trust will
hold such dividends, interest and other income in the Trust Account and not pay
such funds to Grantor except with the written consent of Beneficiary or unless
such notice is rescinded by Beneficiary.
1.09 WITHDRAWALS BY GRANTOR. Grantor agrees and covenants that it will
withdraw the assets of the Trust Account for the following purposes only:
(a) to pay Beneficiary amounts owed pursuant to the Reinsurance
Agreement, such amounts to be wire transferred directly from the Trustee
to the Beneficiary pursuant to written
3
directions from the Grantor, which shall include a certification that
such withdrawal is required to satisfy Grantor's obligations under the
terms of the Reinsurance Agreement; and
(b) to withdraw any amounts held in the Trust Account that exceed the
amount of the Mandatory Trust Asset Levels at the end of any calendar
month.
1.10 WITHDRAWALS BY BENEFICIARY. Subject to the terms and conditions of
Section 1.12 herein, Beneficiary agrees and covenants that it will withdraw the
assets of the Trust Account for the following purposes only:
(a) to pay Beneficiary for Grantor's obligations under the Reinsurance
Agreement if not otherwise paid by Grantor pursuant to written
directions from the Beneficiary, which shall include a certification
that such withdrawal is required to satisfy Grantor's obligations under
the terms of the Reinsurance Agreement;
(b) in connection with termination of the Trust Agreement pursuant to
Section 3.01 hereof; and
(c) in connection with the recapture by the Beneficiary of the products
reinsured under the Reinsurance Agreement.
1.11 PROPRIETARY RIGHTS. Grantor will have the full unqualified right to
vote and execute consents and to exercise any and all proprietary rights not
inconsistent with this Trust Agreement with respect to any securities or other
property forming a part of the Trust Account.
1.12 TRANSFERS TO BENEFICIARY. No less than ten business days after receipt
by Trustee of a written demand from Beneficiary, which demand will satisfy the
requirements of this Agreement including Section 1.10, and provided that Grantor
has not disagreed with such demand in accordance with the procedure set forth
below, Trust will complete the assignment or endorsement of the blank assigned
or endorsed certificates or obligations as specified in Beneficiary's demand, so
as to transfer absolutely and unequivocally all right, title and interest
therein to Beneficiary and deliver the physical custody thereof to Beneficiary.
The demand must be delivered to Trustee by overnight mail service, and shall
include a certification from Beneficiary that notice of such demand has been
simultaneously furnished by Beneficiary to Grantor by overnight mail service.
The Trustee will be protected in relying upon such certification of Beneficiary.
Beneficiary and Grantor understand that with regard to certificates of deposit
or other assets that are delivered to Trustee, Trustee may not be able to
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deliver such assets to Beneficiary in negotiable form but, in such instance,
will execute a form of assignment provided to it by Beneficiary assigning all of
Trustee's rights and interest in such assets to Beneficiary.
If Grantor disagrees with any demand by Beneficiary pursuant to this
Section. Grantor will within six business days after receipt of the notification
of demand notify Beneficiary and Trustee in writing of its disagreement.
Grantor shall be deemed to have received Beneficiary's notification of demand on
the day next succeeding the day on which such notification was received by the
Trustee. If Beneficiary and Grantor are unable to resolve the disagreement
within 15 business days of Grantor's receipt of the notification of demand,
Trustee will be so informed in writing and the resulting dispute will be settled
pursuant to Section 1.13 of this Agreement. The transfer of any assets to
Beneficiary by Trustee will be held in abeyance pending the decision of the
arbitrators as provided for in Section 1.13. Trustee will incur no liability
and will be fully protected for any delivery made by it pursuant to such written
demand of Beneficiary unless, as provided for above, Trustee has received timely
written notice of dispute between Beneficiary and Grantor.
Trustee will not permit withdrawals or other transactions by Grantor
which would reduce the amount of the Trust Account other than those described in
Section 1.09 except with the written consent of the Beneficiary, which consent
will not be unreasonably withheld.
1.13 ARBITRATION.
(a) It is the intention of the parties that the customs and practices of
the insurance and reinsurance industry will be given full effect in the
operation and interpretation of this agreement. The parties agree to act in all
things with the highest good faith. If the Grantor and the Beneficiary cannot
mutually resolve a dispute which arises out of or relates to this Agreement, the
dispute will be decided through arbitration. The arbitrators will base their
decision on the terms and conditions of this Agreement and, as necessary, on the
customs and practices of the insurance and reinsurance industry rather than
solely on a strict interpretation of the applicable law. There will be no
appeal from the decision of the arbitrators, and any court having jurisdiction
of the subject matter and the parties may reduce that decision to judgment.
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(b) To initiate arbitration, either the Grantor or the Beneficiary will
notify the other party of its desire to arbitrate, stating the nature of its
dispute and the remedy sought. The party to which the notice is sent will
respond to the notification in writing within ten days of its receipt.
(c) There will be three arbitrators who will be current or former
officers of life insurance companies not affiliated with any party to this
Agreement. The Grantor and the Beneficiary will each appoint one arbitrator,
and these two arbitrators will select the third arbitrator. If either party
refuses or neglects to appoint an arbitrator within 60 days, the other party may
appoint the second arbitrator. If the two arbitrators do not agree on a third
arbitrator within 60 days of their appointment, each of the arbitrators will
nominate three individuals. Each arbitrator will then decline two of the
nominations presented by the other arbitrator. The third arbitrator will then
be chosen from the remaining two nominations by drawing lots.
(d) 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
Section (a) above. Therefore, at no time will either the Grantor or the
Beneficiary 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 provided by both the
Grantor and the Beneficiary to inform the arbitrators of the nature and facts of
the dispute. Likewise, any written or oral arguments provided to the
arbitrators concerning the dispute will be coordinated with the other party and
will be proved simultaneously to the other party or will take place in the
presence of the other party. Further, at no time will any arbitrator be
informed that the arbitrator has been named or chose by one party or the other.
(e) The arbitration hearing will be held on the date and at the place
fixed by the arbitrators. In no event will this date be later than six months
after the appointment of the third arbitrator. As soon as possible, the
arbitrators will establish pre-arbitration procedures as warranted by facts and
issues of the particular case. At least ten days prior to the arbitration
hearing, each party will provide the other with a detailed statement of the
facts and arguments it will present at the arbitration hearing. The arbitrators
may consider any relevant evidence; they will give the evidence such weight as
they deem it entitled to after consideration of any objections raised concerning
it. The party initiating the arbitration will have the burden of proving its
case by a
6
preponderance of the evidence. Each party may examine any witnesses who testify
at the arbitration hearing. The final decision of the arbitrators will be
rendered in writing and provided to the parties to this Agreement.
(f) The cost of arbitration will be borne by the losing party unless the
arbitrators decide otherwise.
(g) In the event of a dispute among the parties hereto as to the
distribution of trust assets, the Trustee may continue to hold such disputed
assets until, as set forth herein, receipt of joint written instructions from
the other parties hereto or a final decision of the arbitrators as subscribed in
this Section directs disposition of the assets; or the Trustee may, at the
expense of the other parties hereto, deposit by the appropriate procedure the
assets into court.
ARTICLE II
TRUSTEE
2.01 TRUSTEE QUALIFICATIONS. The Trustee must be a bank or trust company and
must be a member of the Federal Reserve System of the United States of America.
The Trustee may not be a parent, subsidiary or affiliate of either the Grantor
or Beneficiary.
2.02 TRUSTEE COMPENSATION. The Trustee will be entitled to receive as
compensation for its services thereunder, an annual fee, computed and payable
quarterly, at such rate as may be mutually agreed upon from time to time in
writing by the Trustee, Grantor, and Beneficiary. Grantor and Beneficiary will
share equally the annual fee of the Trustee and all reasonable expenses of the
Trustee, including reasonable fees of counsel. Grantor shall be responsible for
physical payment of all such fees and Beneficiary shall reimburse Grantor for
its share of such fees.
2.03 DUTIES OF TRUSTEE.
(a) The Trustee will be liable for the safekeeping and administration of
the Trust Account in accordance with provisions of this Trust Agreement. The
Trustee will not be liable for losses of or damage to the assets in the Trust
Account which are under its care, custody, possession or control, or under the
care, custody, possession or control of its nominee, including but not limited
to losses due to fire, burglary, robbery, theft or mysterious disappearance
except as caused by the Trustee's
7
own bad faith, wilful misconduct or negligence. In the event of loss of or
damage to such assets, the Trustee will promptly replace such assets with like
kind and quality together with all rights and privileges pertaining to such
assets or, if such replacement is not feasible, deposit in the Trust Account
cash equal to the fair market value of such assets determined as of the date of
the discovery of the loss. Under no circumstances, however, will the Trustee be
liable for consequential damage. The Trustee shall make no distributions of
cash or cash equivalents except according to the terms of this Agreement.
Furthermore, the obligation and liability of the Trustee to make such
distributions shall be limited to the cash or cash equivalents on deposit with
it pursuant to this Agreement.
(b) The Trustee is directed to transfer into the name of nominees
selected by it all registered securities from time to time held under this
Agreement. The Trustee will be responsible for acts of its nominees with
respect to such securities. Securities will be held in a nominee name of the
Trustee, by authorized officers of the Trustee to facilitate the holding
transfer of the title on behalf of the Trustee. To effect the transfer of
registered securities into the name of the Trustee's nominee, to facilitate the
collection of any payment thereon and to effect any other action in relation
thereto or in order to meet any requirement thereof, Grantor authorizes the
Trustee to execute in Grantor's name, and to deliver any instrument determined
by the Trustee to be appropriate in furtherance of the purposes hereof, and to
guarantee in the Trustee's name as the signature of Grantor any signature so
placed on such instrument.
(c) The Trustee may utilize the services of any Federal Reserve Bank or
Depository Trust Company for the purpose of book-entry deposits. All other
assets which are not in Federal Reserve book-entry form will be held by the
Trustee in bearer form or in Trustee's nominee name for reinsurance trusts. The
Trustee shall have no liability or responsibility for any action or omission of
any Federal Reserve Bank or the Depository Trust Company, including any error or
delay by such Bank or Depository to remit any payment or deliver any notice,
report or other communication in respect of any assets, or any error or
inaccuracy in such Bank's or Depository's books and records.
(d) The Trustee shall perform such duties in the administration of this
Agreement, and only such duties, as are specifically set forth in this
Agreement. The Trust shall not be charged with any duty or obligation arising
under or be bound by the provisions of any other agreement between the Grantor
and Beneficiary.
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2.04 RELIANCE BY TRUSTEE. Subject to Section 2.05, Trustee will be protected
in acting upon any statement, notice, resolution, request, demand, consent,
order, certificate, report, appraisal, opinion, telegram, cablegram, radiogram,
letter or other paper or document believed by Trustee to be genuine and to have
been signed, sent or presented by the proper party or parties. All notices to
Trustee will be deemed to be effective when received by the Trustee unless
otherwise noted therein.
2.05 VERIFICATIONS. Whenever in the administration of the Trust Account
created by this Trust Agreement Trustee deems it necessary or desirable that a
matter be proved or established prior to taking, suffering or omitting any
action thereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a statement or certificate signed by or on behalf of Grantor or
Beneficiary, as applicable, and delivered to Trustee and said certificate will
be full warrant to Trustee for any action taken, suffered or omitted by it on
the faith thereof, but in its discretion, Trustee may require such other or
additional evidence as it may deem reasonable.
2.06 AUTHORIZED SIGNATURES. Except when otherwise expressly provided in this
Agreement, any statement, certificate, notice, request, consent, approval, or
other instrument to be delivered or furnished by Grantor or Beneficiary will be
sufficiently executed if executed in the name of Grantor or Beneficiary as
applicable by such officer or officers of Grantor or Beneficiary or by such
other agent or agents of Grantor or Beneficiary as may be designated in a
resolution or letter of advice by Grantor or Beneficiary. Written notice of
such designation by Grantor and Beneficiary shall be filed with Trustee.
Trustee will be protected in acting upon any written statement or other
instrument made by such officer or agent of Grantor or Beneficiary with respect
to the Authority conferred on him.
2.07 OPINION OF COUNSEL. Trustee may consult with counsel of its choice or
counsel for Grantor or Beneficiary. The opinion of said counsel will be full
and complete authority and protection for Trustee with respect to any action
taken, suffered or omitted by it in good faith and in accordance with the
opinion of said counsel other than with respect to the withdrawal of trust
assets by Grantor or Beneficiary.
9
2.08 RECORDS AND REPORTS.
(a) Trustee will keep full and complete records of the administration of
the Trust Account. Grantor and Beneficiary may examine such records at any time
during business hours by any person or persons duly authorized in writing by
Grantor or Beneficiary.
(b) Trustee will furnish to Grantor and Beneficiary an accounting of all
assets in the Trust Account upon its inception and thereafter as of the end
calendar month. Trustee agrees it will have the responsibility to use its best
efforts to determine the market value of all assets in the Trust Account on a
monthly basis and to inform Grantor and Beneficiary of such market value in
writing within ten business days after the end of each month. Trustee will
furnish to Grantor and Beneficiary a transaction report detailing any deposits
to, substitutions of, or withdrawals from the Trust Account within ten business
days after the end of each month.
(c) Trustee agrees to immediately inform Grantor telephonically,
confirmed in writing within two business days, if any interest or principal
payment on any of the assets held in the Trust is not received by Trustee within
five days of its due date.
2.09 ACCEPTANCE OF TRUST. Trustee hereby accepts the trust herein created
and declared upon the terms herein expressed. Trustee may resign by written
resignation effective not less than 90 days after receipt thereof by Grantor and
Beneficiary. Grantor may remove Trustee at any time, without assigning any
cause therefore. No such resignation or removal will be effective until a
successor trustee has been appointed by Grantor and approved by Beneficiary and
the successor trustee has accepted such appointment and all assets in the Trust
have been duly transferred to such successor trustee pursuant to written
instructions from Grantor to Trustee regarding delivery of the Trust assets. In
case of the appointment of a successor trustee, all of the powers, rights and
duties of the Trustee named herein, and every successor trustee will succeed to
take and have all the estate, powers, rights and duties which belonged to or
were held by its predecessor. Any trustee who resigns or is removed will have
the right to a final accounting with respect to the Trust Account.
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ARTICLE III
MISCELLANEOUS PROVISIONS
3.01 Termination. Termination of this Trust Agreement shall occur upon the
termination of the Reinsurance Agreement, or:
(a) if Beneficiary recaptures the products reinsured under the
Reinsurance Agreement pursuant to Article III, Section 14 or Article
VII, Section 4 of the Reinsurance Agreement; or
(b) if Grantor commences or becomes subject to any proceeding due to
inability to meet its financial obligations, including rehabilitation,
liquidation, dissolution, or conservation, commenced under any
applicable Federal or State law or regulation; or
(c) if Grantor fails to make a deposit of cash or cash equivalents in
the Trust Account to comply with the Mandatory Trust Asset Levels as
required by Section 1.05 of this Agreement; or
(d) if Grantor fails to timely submit any report or certification or
notice as required under this Agreement; or
(e) if Grantor knowingly makes any material representation or warranty
in connection with this Agreement or knowingly submits any report or
certification that proves to be untrue or inaccurate in any material
respect;
provided that in each such instance the Beneficiary shall provide written notice
to the Grantor and the Trustee of the occurrence of any such termination event
and the Grantor shall not have remedied or cured such termination event within
15 business days after actual receipt of such notice. The Beneficiary shall
provide written notice to the Trustee stating that the termination event has or
has not been remedied or cured, and shall include a certification from
Beneficiary that a copy of such notice has been simultaneously furnished by
Beneficiary to Grantor by overnight mail service.
In the event that the Beneficiary has provided the required written
notice and certification to the Trustee stating that the termination event has
not been remedied or cured and this Trust Agreement is terminated, then
Beneficiary has the right to request Trustee to transfer, pay over, and deliver
to the Beneficiary, on the first business day following Trustee's actual receipt
of such written
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notice and certification, all of the assets held in the Trust Account so as to
transfer absolutely and unequivocally all right, title and interest to such
assets. Such transfer, payment, and delivery shall constitute a full and
sufficient discharge and acquaintance of the Trustee in respect thereof.
3.02 GOVERNING LAW. The provision of and validity and construction of this
Trust Agreement and any amendments thereto will be governed by and construed in
accordance with the laws of the State of Ohio and the Trust Account created
hereunder will be administered in accordance with the laws of the State of Ohio.
3.03 AMENDMENTS. This Trust Agreement may be amended at any time by written
agreement signed by Grantor and Beneficiary and delivered to Trustee; provided,
however, that no such amendment will be effective to increase the powers, rights
or duties of Trustee without Trustee's written consent.
3.04 NOTICES. Except as may otherwise be provided herein, all notices,
requests, demands or instructions to the Beneficiary, the Grantor or to the
Trustee which are given hereunder shall be in writing and shall be deemed
sufficiently given if sent by certified mail, postage prepaid, or reputable
overnight mail delivery such as Federal Express, Airborne, Purolator, DHL or
United Parcel Service, fees prepaid, addressed as follows:
If to the Beneficiary, General American Life Insurance Company, ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, attention of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇;
If to the Grantor, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, attention of Madison ▇. ▇▇▇▇▇▇▇;
If to the Trustee, Fleet National Bank, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, attention of the Corporate Trust Department.
3.05 ENFORCEABILITY. In the event any provision of this Trust Agreement will
be held invalid or unenforceable for any reason, such invalidity or
unenforceability will not affect the remaining parts of this Trust Agreement.
3.06 COUNTERPARTS. This Trust Agreement may be executed in any number of
counterparts, each of which will be deemed an original, and the counterparts
will constitute but one and the same instrument, which will be sufficiently
evidenced by any one counterpart.
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3.07 SUCCESSORS AND ASSIGNS. This Trust Agreement shall be binding upon the
successors and assigns of the parties hereto. Except as stated herein, this
Trust Agreement is not subject to any conditions or qualifications.
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ARTICLE IV
EXECUTION
In witness whereof, the parties hereto have executed this Trust
Agreement on the date indicated above.
GRANTOR
Integrity Life Insurance Company
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
--------------------------------------
BENEFICIARY
General American Life Insurance Company
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Executive Vice President-Investments
--------------------------------------
TRUSTEE
-------
Fleet National Bank
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Vice President
--------------------------------------
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SCHEDULE A
Authorized Investments:
(a) The average effective duration of the portfolio in the Trust cannot
exceed two years.
(b) The average credit quality of the portfolio in the Trust cannot be less
than A.
(c) The portfolio in the Trust cannot contain any investments in real
estate, commercial mortgage loans, common stocks, NAIC "6" rated
securities, leveraged futures, or leveraged derivatives.
(d) Below investment grade securities, those defined by a NAIC rating of 3,
4 or 5 cannot exceed 10% of the portfolio.
(e) Options (caps, swaps, floors, etc.) may be used, but the purchase cost
of the options cannot exceed 5% of the portfolio.
SCHEDULE B
Mandatory Trust Asset Levels:
(a) Grantor will maintain the book value of assets held in the Trust Account
plus accrued interest thereon at a minimum of 100% of the amount of the
Coinsurance Reserve. Coinsurance Reserve shall have the same meaning
given to it in the Reinsurance Agreement.
(b) Grantor will maintain the market value of assets held in the Trust
Account plus accrued interest thereon at a minimum of 97% of the
Coinsurance reserve.
