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REINSURANCE AGREEMENT
by and among
MONY LIFE INSURANCE COMPANY OF AMERICA
and
PROTECTIVE LIFE INSURANCE COMPANY
Dated as of October 1, 2013
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TABLE OF CONTENTS
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ARTICLE PAGE
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ARTICLE I DEFINITIONS 1
Section 1.1 Definitions 1
ARTICLE II BASIS OF REINSURANCE AND BUSINESS REINSURED 16
Section 2.1 Reinsurance 16
Section 2.2 Separate Accounts 17
Section 2.3 Existing Reinsurance 17
Section 2.4 Non-Guaranteed Elements 20
Section 2.5 Reserves and Liabilities Reporting 21
Section 2.6 Insurance Contract Changes 21
Section 2.7 Follow the Fortunes 22
ARTICLE III TRANSFER OF ASSETS; PAYMENTS; SETTLEMENTS; ADMINISTRATION 22
Section 3.1 Initial Payments by the Ceding Company 22
Section 3.2 Additional Payments by the Ceding Company 26
Section 3.3 Payments by the Reinsurer 27
Section 3.4 Net Settlement 27
Section 3.5 Delayed Payments 28
Section 3.6 Offset and Recoupment Rights 29
Section 3.7 Administration 29
Section 3.8 Certain Reports 29
Section 3.9 Books and Records 29
Section 3.10 Assumption Reinsurance; Conversions 30
Section 3.11 Security Interest 31
Section 3.12 Bank Accounts 32
ARTICLE IV LICENSES; SECURITY 33
Section 4.1 Licenses 33
Section 4.2 Security 33
Section 4.3 Trust Account and Settlements 33
Section 4.4 Investment of Trust Assets 33
Section 4.5 Deposit of Assets 34
Section 4.6 Adjustment of Security and Withdrawals 34
Section 4.7 Termination of Trust Account 35
Section 4.8 RBC Event 35
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ARTICLE V OVERSIGHTS; COOPERATION; REGULATORY MATTERS 35
Section 5.1 Oversights 35
Section 5.2 Cooperation 35
Section 5.3 Regulatory Matters 35
ARTICLE VI DAC TAX 36
Section 6.1 Election 36
Section 6.2 United States Tax Status Representation 37
Section 6.3 Breach of Representation 37
ARTICLE VII INSOLVENCY 37
Section 7.1 Insolvency of the Ceding Company 37
Section 7.2 Cut-Through 38
ARTICLE VIII DURATION; RECAPTURE 38
Section 8.1 Duration 38
Section 8.2 Survival 39
Section 8.3 Recapture 39
Section 8.4 Recapture Payments 40
Section 8.5 Novation of Existing Reinsurance Agreement Following Recapture or
Termination 40
ARTICLE IX INDEMNIFICATION; DISCLAIMER 40
Section 9.1 Reinsurer's Obligation to Indemnify 40
Section 9.2 Ceding Company's Obligation to Indemnify 41
Section 9.3 Third Party Claim Procedures 41
Section 9.4 Procedures for Direct Claims 43
Section 9.5 Indemnification Payments 44
Section 9.6 Additional Indemnification Provisions 44
Section 9.7 No Duplication 45
Section 9.8 Waiver of Duty of Utmost Good Faith 45
ARTICLE X MISCELLANEOUS 46
Section 10.1 Notices 46
Section 10.2 Entire Agreement 47
Section 10.3 Governing Law; Submission to Jurisdiction 48
Section 10.4 Disputes over Certain Calculations 49
Section 10.5 No Third Party Beneficiaries 49
Section 10.6 Expenses 49
Section 10.7 Counterparts 49
Section 10.8 Severability 50
Section 10.9 Assignment 50
Section 10.10 Waivers and Amendments 50
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Section 10.11 Interpretation 50
SCHEDULES
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Schedule 1.1(A)- MLOA Business
Schedule 1.1(B)- Excluded MLOA Business
Schedule 1.1(C)- Net Retained Liabilities Ceding Commission Adjustment
Schedule 1.1(D)- Separate Accounts
Schedule 1.1(E)- Shared Reinsurance Agreements
Schedule 3.1 - Transferred Assets
EXHIBITS
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Exhibit A - Trust Agreement
Exhibit B - Settlement Statement
Exhibit C - Investment Guidelines
Exhibit D - Terminal Settlement under Section 8.4
ANNEXES
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Annex A-1 - Ceding Company Notice of Material Breach
Annex A-2 - Ceding Company Notice of Failure to Pay
Annex B - Reinsurer Notice of Failure to Pay
Annex C - Form of Representations Letter Agreement
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REINSURANCE AGREEMENT
THIS REINSURANCE AGREEMENT (the "AGREEMENT"), is made and entered into on
October 1, 2013 and effective as of the Effective Time by and between MONY Life
Insurance Company of America, an Arizona-domiciled life insurance company (the
"CEDING COMPANY"), and Protective Life Insurance Company, a Tennessee-domiciled
life insurance company (the "REINSURER"). For purposes of this Agreement, the
Ceding Company and the Reinsurer shall each be deemed a "PARTY."
WHEREAS, AXA Equitable Financial Services, LLC ("AEFS") has agreed to
sell, and the Reinsurer has agreed to purchase, all of the outstanding stock of
MONY Life Insurance Company, a New York-domiciled life insurance company
("MONY"), pursuant to a Master Agreement, dated as of April 10, 2013, by and
among AEFS, AXA Financial, Inc. and the Reinsurer (the "MASTER AGREEMENT");
WHEREAS, as contemplated by the Master Agreement, the Ceding Company
wishes to cede to the Reinsurer, and the Reinsurer wishes to reinsure, on a
one-hundred percent (100%) indemnity reinsurance basis, on the terms and
conditions set forth herein, certain risks arising in respect of the Covered
Insurance Policies (as hereinafter defined); and
WHEREAS, simultaneously with their entry into this Agreement on the date
hereof, the Ceding Company and the Reinsurer are entering into, (i) the
Administrative Services Agreement, pursuant to which the Reinsurer, in its
capacity as the Administrator, shall provide, or cause the provision of, certain
administrative services on behalf of the Ceding Company with respect to the
Covered Insurance Policies; (ii) the Transition Services Agreement, pursuant to
which AEFS shall provide, or cause the provision of, certain services to the
Reinsurer with respect to the Business during a transition period following the
Closing; and (iii) the Trust Agreement, pursuant to which a trustee shall hold
assets as security for the satisfaction of the obligations of the Reinsurer to
the Ceding Company under this Agreement.
NOW, THEREFORE, in consideration of the mutual and several promises and
undertakings herein contained, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the Ceding Company
and the Reinsurer agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Any capitalized term used but not defined herein
shall have the meaning set forth in the Master Agreement. The following terms
have the respective meanings set forth below throughout this Agreement:
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(a) "ADJUSTED CEDING COMMISSION" means an amount equal to (i) the Ceding
Commission MINUS (ii) the Net Retained Liabilities Ceding Commission Adjustment
with respect to the Net Retained Liabilities as of the Effective Time.
(b) "ADMINISTRATOR" means the Reinsurer in its capacity as administrator
under the Administrative Services Agreement.
(c) "AFFILIATED DISTRIBUTORS" means AXA Network, LLC, AXA Advisors, LLC
and AXA Distributors, LLC and any permitted successors and assigns.
(d) "AGREEMENT" has the meaning set forth in the preamble.
(e) "BANK ACCOUNTS" has the meaning set forth in SECTION 3.12.
(f) "CEDING COMPANY" has the meaning set forth in the preamble.
(g) "CEDING COMPANY DOMICILIARY STATE" means the State of Arizona, or, if
the Ceding Company changes its state of domicile to another state, such other
state if, in the reasonable judgment of the Reinsurer, such change of domicile
does not adversely affect in any material respect any rights and obligations of
the Reinsurer under this Agreement, the Administrative Services Agreement or the
Trust Agreement. For the avoidance of doubt, any requirement (i) on the part of
the Reinsurer or the Ceding Company to increase reserves associated with the
Covered Insurance Policies, (ii) on the part of the Reinsurer to obtain any
additional license, authorization or approval from a Governmental Authority to
reinsure the Reinsured Liabilities or provide administrative services with
respect to the Covered Insurance Policies or (iii) on the part of the Reinsurer
to provide additional security in order to provide the Ceding Company with
Reserve Credit, in each case as a result of such change of domicile would
adversely affect in a material respect the rights and obligations of the
Reinsurer under this Agreement, the Administrative Services Agreement and the
Trust Agreement.
(h) "CEDING COMPANY EXTRA-CONTRACTUAL OBLIGATIONS" means (i) all
Extra-Contractual Obligations to the extent arising out of, resulting from or
related to any act, error or omission before the Effective Time, whether or not
intentional, negligent, in bad faith or otherwise, by the Ceding Company or any
of its Affiliates, or any service providers or Distributors engaged or
compensated by the Ceding Company or any of its Affiliates or otherwise; and
(ii) all Extra-Contractual Obligations to the extent arising out of, resulting
from or related to any act, error or omission on or after the Effective Time,
whether or not intentional, negligent, in bad faith or otherwise, by the Ceding
Company or any of its Affiliates, or any service providers or Distributors
engaged or compensated by the Ceding Company or any of
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its Affiliates (excluding the Reinsurer in its capacity as Administrator
pursuant to the Administrative Services Agreement and any successor, assign,
designee or subcontractor appointed by the Reinsurer as Administrator) unless
such act, error or omission was undertaken at the specific direction or request
of the Reinsurer, in which case any resulting act, error or omission shall be a
Reinsurer Extra-Contractual Obligation.
(i) "CEDING COMPANY INDEMNIFIED PARTIES" has the meaning set forth in
SECTION 9.1.
(j) "CLAIMS NOTICE" has the meaning set forth in SECTION 9.3(a).
(k) "CLOSING TRANSFERRED ASSET VALUE" has the meaning set forth in SECTION
3.1(a).
(l) "COMPANY ACTION LEVEL RBC" means, at any date of determination, two
hundred percent (200%) of the authorized control level risk based capital of the
Reinsurer determined in accordance with SAP and the Applicable Law of the state
of domicile of the Reinsurer.
(m) "COMPANY STATUTORY BOOK VALUE" means, with respect to any Eligible
Asset, the amount carried in respect of such asset by the Ceding Company as an
admitted asset determined in accordance with SAP of the Ceding Company
Domiciliary State, but disregarding any permitted practices applicable to the
Ceding Company.
(n) "COVERED INSURANCE POLICIES" means (i) the In Force Policies and (ii)
the New Policies.
(o) "DISPUTED ITEM" has the meaning set forth in SECTION 3.1(d).
(p) "DISPUTE NOTICE" has the meaning set forth in SECTION 3.1(d).
(q) "DISTRIBUTORS" means the brokers, broker-dealers, insurance agents,
producers, distributors or other Persons who marketed or produced or who
currently market or produce the Covered Insurance Contracts or successors
thereto, including the Affiliated Distributors.
(r) "EFFECTIVE TIME" means 12:01 a.m. (New York time) on October 1, 2013,
unless the Closing Date is December 31, 2013, in which case the Effective Time
means 11:59 p.m. (New York time) on December 31, 2013.
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(s) "EFFECTIVE TIME TRANSFERRED ASSET VALUE" has the meaning set forth in
SECTION 3.1(c).
(t) "ELIGIBLE ASSETS" has the meaning set forth in SECTION 4.4.
(u) "ESTIMATED INITIAL REINSURANCE PREMIUM" has the meaning set forth in
SECTION 3.1(a).
(v) "EXCLUDED LIABILITIES" means (i) the Ceding Company Extra-Contractual
Obligations, (ii) Liabilities that are subject to indemnity from AEFS and AXA
Financial, Inc. pursuant to ARTICLE IX arising out of any breaches of or
inaccuracies in the representations and warranties made in SECTION 3.20 (Product
Tax Matters) of the Master Agreement, (iii) any "Excluded Liability" as defined
in the Master Agreement and (iv) any other Liabilities that are not Reinsured
Liabilities or Reinsurer Extra-Contractual Obligations, including Net Retained
Liabilities.
(w) "EXISTING REINSURANCE AGREEMENTS" means all agreements, treaties
slips, binders, cover notes and other similar arrangements under which the
Ceding Company has ceded to reinsurers risks arising in respect of the Covered
Insurance Policies where such agreements are (i) in force as of the date hereof
or (ii) terminated but under which there remains any outstanding Liability from
the reinsurer, and any agreement, treaty, slip, binder cover note or other
similar arrangement entered into by the Ceding Company with the prior written
approval of the Reinsurer to replace any of such arrangements following any
termination or recapture thereof, as all such arrangements may be in force from
time to time and at any time.
(x) "EXTRA-CONTRACTUAL OBLIGATIONS" means all Liabilities (for the
avoidance of doubt, other than Liabilities arising under the express terms and
conditions of the Covered Insurance Policies), including Liabilities for fines,
penalties, Taxes, fees, forfeitures, compensatory, punitive, exemplary, special,
treble, bad faith, tort or any other form of extra-contractual damages, and
legal fees and expenses relating thereto, that arise from any act, error or
omission, whether or not intentional, negligent, in bad faith or otherwise, in
connection with (i) the form, sale, marketing, underwriting, production,
issuance, cancellation or administration of the Covered Insurance Policies, (ii)
the investigation, defense, trial, settlement or handling of claims, benefits,
dividends or payments under or relating to the Covered Insurance Policies, or
(iii) the failure to pay or the delay in payment or errors in calculating or
administering the payment of benefits, claims, dividends or any other amounts
due or alleged to be due under or in connection with the Covered Insurance
Policies.
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(y) "FAIR MARKET VALUE" means, as of any date of determination, (i) as to
cash, the amount thereof; and (ii) as to an asset other than cash, the fair
market value of such asset determined in accordance with SAP of the Reinsurer
domiciliary state and either (A) based on the closing price obtained from
Interactive Data Corporation or another third party pricing service reasonably
acceptable to the Ceding Company, or (B) if such fair market value is not
reasonably available from a third party pricing service, as determined by the
Reinsurer, in each case together with any accrued and unpaid interest thereon.
(z) "FINANCED AMOUNTS" means, as of any date of determination, with
respect to all or any portion of the Covered Insurance Policies consisting of
term life insurance policies retroceded by the Reinsurer in connection with any
reserve financing or securitization as of such date, an amount equal to (i) the
General Account Reserves as of such date, MINUS (ii) the Reinsurance Receivables
as of such date, MINUS (iii) the amount of Uncollected/Deferred Premiums as of
such date, MINUS (iv) reserve credits as of such date under the Existing
Reinsurance Agreements that are novated to the Reinsurer after the Effective
Time, in each case only with respect to the portion of such amounts in respect
of all or any portion of such term life insurance Covered Insurance Policies
that are retroceded in connection with any such reserve financing or
securitization; PROVIDED that the Financed Amounts shall not exceed $275,000,000
without the prior written consent of the Ceding Company; PROVIDED FURTHER,
HOWEVER, that in the event that the Reinsurer's RBC Ratio falls below 250% as of
a calendar quarter-end and the Reinsurer has not cured such shortfall as of the
forty-fifth (45th) calendar day following such calendar quarter-end, the
Financed Amounts shall, thereafter, be reduced by the amount of the economic
reserves, as of such date of determination, associated with any such reserve
financing or securitization.
(aa) "GENERAL ACCOUNT LIABILITIES" means the following Liabilities of the
Ceding Company arising out of or relating to the Covered Insurance Policies,
other than the Separate Account Liabilities, the Net Retained Liabilities, and
the Excluded Liabilities, and net of Reinsurance Recoveries:
(i) all Liabilities for claims and benefits, claim expenses,
interest on claims, interest on policy funds, withdrawals, surrenders, and
other contract benefits, in each case arising under the terms of the
Covered Insurance Policies for claims incurred and actually reported to
the Ceding Company as of the Effective Time or incurred after the
Effective Time;
(ii) all Liabilities arising out of any changes to the terms and
conditions of the Covered Insurance Policies permitted or required under
SECTION 2.6;
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(iii) Taxes in respect of premiums received by the Ceding Company at
or after the Effective Time, and the portion, if any, of assessments and
similar charges assessed after the Effective Time in respect of the
Covered Insurance Policies in connection with participation by either the
Ceding Company or the Reinsurer, whether voluntary or involuntary, in any
guaranty association established or governed by any Governmental
Authority, less the portion, if any, of premium tax credits, deductions
and offsets associated with such assessments and similar charges assessed
after the Effective Time, as utilized;
(iv) Commissions (including both fronted and trail commissions),
expense allowances, benefit credits, other compensation and other
servicing and administration fees payable with respect to the Covered
Insurance Policies to the Affiliated Distributors to the extent accrued
after the Effective Time;
(v) all Liabilities for amounts payable at or after the Effective
Time for returns or refunds of premiums in respect of the Covered
Insurance Policies;
(vi) all payments due under the Existing Reinsurance Agreements in
respect of the Covered Insurance Policies at or after the Effective Time;
(vii) dividends payable at or after the Effective Time under the
Covered Insurance Policies;
(viii) all Liabilities which relate to (x) amounts held in the
general account of the Ceding Company pending transfer to the Separate
Accounts or the Shared Separate Account, and (y) Covered Insurance
Policies that contemplate payment from a Separate Account or the Shared
Separate Account the amount of which exceeds the assets of such Separate
Account or Shared Separate Account, as applicable, (without duplication of
amounts set forth in clause (i) above), in each case in respect of the
Covered Insurance Policies for claims incurred and actually reported to
the Ceding Company as of the Effective Time or incurred after the
Effective Time; and
(ix) any other Liability arising out of the Covered Insurance
Policies to the extent that a reserve or accrual has been established and
reported in a specific line item on the Reinsurance Closing Statement
(after any disputes with respect thereto have been finally resolved in
accordance with SECTION 3.1).
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(bb) "GENERAL ACCOUNT RESERVES" means the aggregate amount of general
account reserves of the Ceding Company (without regard to the reinsurance
provided hereunder) with respect to the General Account Liabilities net of
Reinsurance Reserves, determined in accordance with SAP or Applicable Law of the
Ceding Company Domiciliary State; PROVIDED, the term "GENERAL ACCOUNT RESERVES"
does not include the Separate Account Reserves. For the avoidance of doubt, such
General Account Reserves shall include the amounts for General Account
Liabilities that would be reflected in lines 1 through 9.3 inclusive, column 1
and line 13, column 1, in the "Liabilities, Surplus and Other Funds" section of
the NAIC statement blank used to prepare the Ceding Company's balance sheet in
its most recent Statutory Financial Statements, or if the line numbers are
changed pursuant to relevant guidance from the NAIC, the successor to such line
numbers, excluding amounts that would be reflected on line 4 for incurred but
unreported claims reserves in respect of claims incurred prior to the Effective
Time.
(cc) "INCOME" has the meaning set forth in the Trust Agreement.
(dd) "INDEMNIFIED PARTY" has the meaning set forth in SECTION 9.3(a).
(ee) "INDEMNIFYING PARTY" has the meaning set forth in SECTION 9.3(a).
(ff) "IN FORCE POLICIES" means any and all binders, endorsements, riders,
policies, certificates, and contracts of insurance, supplementary contracts of
insurance and annuity issued or renewed by the Ceding Company prior to the
Effective Time and in force at the Effective Time that correspond to the policy
forms of the Ceding Company identified on SCHEDULE 1.1(A), but excluding for the
avoidance of doubt any and all other policies, binders, endorsements, riders,
certificates and contracts of insurance and supplementary contracts of insurance
issued or renewed by the Ceding Company, including those that correspond to the
policy forms of the Ceding Company identified on SCHEDULE 1.1(B). For the
avoidance of doubt, any policy, binder, endorsement, rider, certificate,
contract of insurance or supplementary contract issued or renewed by the Ceding
Company on a policy form that is not listed on SCHEDULE 1.1(A) is not an In
Force Policy.
(gg) "INITIAL REINSURANCE PREMIUM" means an amount equal to (i) the
General Account Reserves as of the Effective Time, PLUS (ii) the interest
maintenance reserve of the Ceding Company attributable to the General Account
Reserves (calculated without regard to the exclusion of Net Retained Liabilities
in the definition of "General Account Liabilities") immediately prior to the
consummation of the transactions contemplated by this Agreement (excluding for
the avoidance of doubt, any interest maintenance reserve created as a result of
the payment of the Initial Reinsurance Premium), MINUS (iii) the Policy Loan
Balance
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as of the Effective Time, MINUS (iv) the amount of Reinsurance Receivables as of
the Effective Time, MINUS (v) the amount of Uncollected/Deferred Premiums as of
the Effective Time.
(hh) "INITIAL REINSURANCE PREMIUM ADJUSTMENT" shall be equal to (i) the
difference (whether positive or negative) between the Initial Reinsurance
Premium as reflected on the Reinsurance Closing Statement as finally determined
pursuant to SECTION 3.1 MINUS the Estimated Initial Reinsurance Premium MINUS
(ii) the difference (whether positive or negative) between the Effective Time
Transferred Asset Value as finally determined pursuant to SECTION 3.1 and the
Closing Transferred Asset Value.
(ii) "INTEREST RATE" means the average of the daily "prime rate"
(expressed as a rate per annum) published in The Wall Street Journal for each of
the days in the applicable period plus 3%.
(jj) "LIABILITIES" means any and all debts, liabilities, commitments or
obligations, whether direct or indirect, accrued or fixed, known or unknown,
absolute or contingent, matured or unmatured or determined or determinable,
whether arising in the past, present or future.
(kk) "MASTER AGREEMENT" has the meaning set forth in the recitals.
(ll) "NET RETAINED LIABILITIES" means all Liabilities in respect of any
Covered Insurance Policy that, under the terms of any Existing Reinsurance
Agreement covering such Covered Insurance Policy, (i) for which the Ceding
Company is required to retain unreinsured and for its own account a portion of
such Liabilities or (ii) in the opinion of either the Ceding Company or the
Reinsurer requires consent from any party to such agreement in order to effect
reinsurance under this Agreement and as to which a waiver of such requirement or
other consent has not been obtained.
(mm) "NET RETAINED LIABILITIES CEDING COMMISSION ADJUSTMENT" means, with
respect to any Net Retained Liabilities, the amount determined in accordance
with SCHEDULE 1.1(c).
(nn) "NET RETAINED LIABILITIES POLICY" has the meaning set forth in
SECTION 2.3(e).
(oo) "NET RETAINED LIABILITIES RESERVES" means, as of any time of
determination, an amount equal to the General Account Reserves (calculated
without regard to the exclusion of Net Retained Liabilities in the definition of
"General Account Liabilities") with respect to the Net Retained Liabilities as
of such time.
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(pp) "NET SETTLEMENT" has the meaning set forth in SECTION SECTION 3.4(a).
(qq) "NEW POLICIES" means any and all binders, endorsements, riders,
policies, certificates, and contracts of insurance, supplementary contracts of
insurance and annuity contracts issued or renewed on or after the Effective Time
by Reinsurer as Administrator in accordance with SECTION 2.1(B) hereof, Section
3.8 of the Administrative Services Agreement or Section 5.14 of the Master
Agreement.
(rr) "NON-GUARANTEED ELEMENTS" means cost of insurance charges, loads and
expense charges, credited interest rates, mortality and expense charges,
administrative expense risk charges, variable premium rates, variable paid-up
amounts, policyholder dividends and other policy features that are subject to
change.
(ss) "NOTICE OF MINIMUM BALANCE" has the meaning set forth in the Trust
Agreement.
(tt) "PARTY" has the meaning set forth in the preamble.
(uu) "PERCENTAGE OF COMPANY ACTION LEVEL" means, with respect to any date
of determination, the percentage equal to (i) the quotient of the Total Adjusted
Capital of the Reinsurer as of such date of determination DIVIDED BY the Company
Action Level RBC determination, MULTIPLIED BY (ii) 100.
(vv) "POLICY LOAN BALANCE" means, with respect to any date of
determination, amount of contract loans in respect of the Covered Insurance
Policies, as of such date, as would be reflected in line 6, column 3 in the
"Assets" section of the NAIC statement blank used to prepare the Ceding
Company's balance sheet in its most recent Statutory Financial Statement or if
the line number is changed pursuant to relevant guidance from the NAIC, the
successor line number to such line number, net of any unearned policy loan
interest on such loans but including any due and accrued interest thereon,
determined in accordance with SAP or Applicable Law of the Ceding Company
Domiciliary State, excluding the portion of such amounts in respect of any
Covered Insurance Policy that, under the terms of any Existing Reinsurance
Agreement covering such Covered Insurance Policy, (i) the Ceding Company is
required to retain unreinsured and for its own account a portion of the
Liabilities in respect of such Covered Insurance Policy or (ii) in the opinion
of either the Ceding Company or the Reinsurer requires consent from any party to
such agreement in order to effect reinsurance under this Agreement and as to
which a waiver of such requirement or other consent has not been obtained.
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(ww) "PREMIUMS" means premiums, considerations, deposits, payments, loan
interest and principal repayments and other amounts received by or on behalf of
the Ceding Company in respect of the Covered Insurance Policies (other than with
respect to Net Retained Liabilities).
(xx) "QUARTERLY ACCOUNTING PERIOD" means each calendar quarter during the
term of this Agreement or any fraction thereof ending on the Recapture Date or
the date this Agreement is otherwise terminated in accordance with SECTION 8.1,
as applicable.
(yy) "RBC RATIO" means (i) with respect to a calendar year end, the
Percentage of Company Action Level as of such calendar year end and (ii) with
respect to a quarter end, the Reinsurer's publicly disclosed estimate of the
Percentage of Company Action Level as of such quarter end or, if such estimate
is not publicly disclosed, the Reinsurer's good faith estimate of the Percentage
of Company Action Level as of such quarter end using to the extent any factors
are not reasonably available, reasonable hypothetical amounts.
(zz) "RECAPTURE DATE" has the meaning set forth in SECTION 8.3(a).
(aaa) "RECAPTURE TRIGGERING EVENT" means any of the following occurrences:
(i) the Reinsurer becomes insolvent or has been placed into
liquidation, rehabilitation, conservation, supervision, receivership or
similar proceedings (whether voluntary or involuntary), or there has been
instituted against it proceedings for the appointment of a receiver,
liquidator, rehabilitator, conservator, or trustee in bankruptcy, or other
agent known by whatever name, to take possession of its assets or assume
control of its operations, and, in any such case such proceeding shall
continue undismissed for forty-five (45) calendar days;
(ii) the Reinsurer's RBC Ratio falls below 150% as of a calendar
quarter-end and the Reinsurer has not cured such shortfall as of the
forty-fifth (45th) calendar day following such calendar quarter-end;
PROVIDED, that in the event there is a material change in the factors and
formulae prescribed by the insurance regulatory authority in the
Reinsurer's state of domicile with respect to the components of and
methodologies contained in such calculation, the Parties shall amend this
Agreement to incorporate an alternate calculation that is reasonably
equivalent to the components of and methodologies contained in the
calculation of the Reinsurer's RBC Ratio in effect as of the Effective
Time within thirty (30) calendar days after the implementation of such
change;
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(iii) there has been a material breach of SECTION 4.1 or 4.2 of this
Agreement by the Reinsurer, and such breach has not been cured within
twenty (20) Business Days after the Reinsurer has received written notice
of such breach from the Ceding Company in the form attached hereto as
ANNEX A-1; or
(iv) the Reinsurer fails to pay any material amount due to the
Ceding Company under this Agreement and (i) such amount is not subject to
a good faith dispute and (ii) such failure is not cured within sixty (60)
days after the Reinsurer has received written notice of such breach from
the Ceding Company in the form attached hereto as ANNEX A-2.
(bbb) "RECOVERIES COLLATERAL" has the meaning set forth in SECTION
3.11(a).
(ccc) "RECOVERIES" has the meaning set forth in SECTION 3.2(a).
(ddd) "REINSURANCE CLOSING STATEMENT" has the meaning set forth in SECTION
3.1(c).
(eee) "REINSURANCE PREMIUM" has the meaning set forth in SECTION 2.3(a).
(fff) "REINSURANCE RECEIVABLES" means, as of any date of determination,
the sum of (x) the amounts recoverable from reinsurers in respect of the Covered
Insurance Policies, as of such date, as would be reflected in line 16.1, column
3 in the "Assets" section of the NAIC statement blank used to prepare the Ceding
Company's balance sheet in its most recent Statutory Financial Statement or if
the line number is changed pursuant to relevant guidance from the NAIC, the
successor line number to such line number, PLUS (ii) the funds held by or
deposited with reinsured companies in respect of the Covered Insurance Policies,
as of such date, as would be reflected in line 16.2, column 3 in the "Assets"
section of the NAIC statement blank used to prepare the Ceding Company's balance
sheet in its most recent Statutory Financial Statement or if the line number is
changed pursuant to relevant guidance from the NAIC, the successor line number
to such line number, PLUS (iii) other amounts receivable under reinsurance
contracts from reinsurers in respect of the Covered Insurance Policies, as of
such date, as would be reflected in line 16.3, column 3 in the "Assets" section
of the NAIC statement blank used to prepare the Ceding Company's balance sheet
in its most recent Statutory Financial Statement or if the line number is
changed pursuant to relevant guidance from the NAIC, the successor line number
to such line number, in each case determined in accordance with SAP or
Applicable Law of the Ceding Company Domiciliary State and, in each case,
11
excluding the portion of such amounts in respect of any Covered Insurance Policy
that, under the terms of any Existing Reinsurance Agreement covering such
Covered Insurance Policy, (i) the Ceding Company is required to retain
unreinsured and for its own account any portion of the Liabilities in respect of
such Covered Insurance Policy or (ii) in the opinion of either the Ceding
Company or the Reinsurer requires consent from any party to such agreement in
order to effect reinsurance under this Agreement and as to which a waiver of
such requirement or other consent has not been obtained.
(ggg) "REINSURANCE RECOVERIES" means all amounts actually collected by the
Ceding Company on or after the Effective Time under the Existing Reinsurance
Agreements in respect of the Covered Insurance Policies for claims incurred and
actually reported to the Ceding Company as of the Effective Time or incurred
after the Effective Time (including all recoveries, returns, amounts in respect
of profit sharing and all other sums to which the Ceding Company may be entitled
under the Existing Reinsurance Agreements in respect of the Covered Insurance
Policies), except to the extent such amounts collected under the Existing
Reinsurance Agreements relate to the Ceding Company Extra-Contractual
Obligations.
(hhh) "REINSURANCE RESERVES" means, with respect to any date of
determination, the aggregate amount of reserves of the Ceding Company with
respect to the General Account Liabilities ceded to reinsurers under Existing
Reinsurance Agreements, as of such date, as would be reflected in line 22,
column 2 in Schedule S - Part 7 of the NAIC statement blank used to prepare the
Ceding Company's balance sheet in its most recent Statutory Financial Statement,
excluding, for the avoidance of doubt, amounts for incurred but unreported
claims reserves in respect of claims incurred prior to the Effective Time, or if
the line number is changed pursuant to relevant guidance from the NAIC, the
successor line number to such line number, determined in accordance with SAP or
Applicable Law of the Ceding Company Domiciliary State.
(iii) "REINSURED LIABILITIES" means the General Account Liabilities and
the Separate Account Liabilities.
(jjj) "REINSURER" has the meaning set forth in the preamble.
(kkk) "REINSURER TERMINATION DATE" has the meaning set forth in SECTION
8.3(b).
(lll) "REINSURER TERMINATION EVENT" means the following occurrence: the
Ceding Company fails to pay any material amount due to the Reinsurer under this
Agreement and (x) such amount is not subject to a good faith dispute and (y)
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such failure is not cured within sixty (60) days after the Ceding Company has
received written notice of such failure from the Reinsurer in the form attached
hereto as ANNEX B.
(mmm) "REINSURER EXTRA-CONTRACTUAL OBLIGATIONS" means all
Extra-Contractual Obligations (other than those related to the Net Retained
Liabilities Policies) arising out of, resulting from or relating to any act,
error or omission on and after the Effective Time, whether or not intentional,
negligent, in bad faith or otherwise, by the Reinsurer or any of its Affiliates,
or any service providers engaged or compensated by the Reinsurer or its
Affiliates or otherwise other than any Ceding Company Extra-Contractual
Obligations; PROVIDED, HOWEVER, that Reinsurer Extra-Contractual Obligations
shall not include any Excluded Liabilities.
(nnn) "REINSURER INDEMNIFIED PARTIES" has the meaning set forth in SECTION
9.2.
(ooo) "REINSURER STATUTORY BOOK VALUE" means with respect to any Eligible
Asset, the amount carried in respect of such asset by the Reinsurer as an
admitted asset determined in accordance with SAP of the Reinsurer's domiciliary
state, but disregarding any permitted practices applicable to the Reinsurer.
(ppp) "REQUIRED BALANCE" means, as of any date of determination, an amount
equal to (i) the General Account Reserves as of such date, MINUS (ii) the Policy
Loan Balance as of such date, MINUS (iii) the Reinsurance Receivables as of such
date, MINUS (iv) the amount of Uncollected/Deferred Premiums as of such date,
MINUS (v) reserve credits as of such date under the Existing Reinsurance
Agreements that are novated to the Reinsurer after the Effective Time, MINUS
(vi) Financed Amounts as of such date.
(qqq) "RESERVE CREDIT" means full reserve credit for the reinsurance ceded
to the Reinsurer under this Agreement in the Statutory Financial Statements
required to be filed by the Ceding Company with the Governmental Authority
charged with supervision of insurance companies in the Ceding Company
Domiciliary State.
(rrr) "RESOLUTION PERIOD" has the meaning set forth in SECTION 3.1(e).
(sss) "SAP" means the statutory accounting principles prescribed or
permitted by the insurance regulatory authorities of an insurance or reinsurance
company's state of domicile, consistently applied.
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(ttt) "SEPARATE ACCOUNTS" means the registered and unregistered separate
accounts of the Ceding Company identified in SCHEDULE 1.1(D) hereto, other than
the Shared Separate Account.
(uuu) "SEPARATE ACCOUNT LIABILITIES" has the meaning set forth in SECTION
2.2(b).
(vvv) "SEPARATE ACCOUNT RESERVES" means the aggregate amount of reserves
of the Ceding Company attributable to the Separate Account Liabilities,
determined in accordance with SAP and Applicable Law of the Ceding Company
Domiciliary State.
(www) "SETTLEMENT STATEMENT" has the meaning set forth in SECTION 3.4(a).
(xxx) "SHARED REINSURANCE AGREEMENTS" means the Existing Reinsurance
Agreements identified on SCHEDULE 1.1(E) hereto.
(yyy) "SHARED SEPARATE ACCOUNT" means MONY Life Insurance Company of
America Shared Account "L".
(zzz) "STATUTORY FINANCIAL STATEMENTS" means, with respect to any Party,
the annual and quarterly statutory financial statements of such Party filed with
the Governmental Authority charged with supervision of insurance companies in
the jurisdiction of domicile of such Party to the extent such Party is required
by Applicable Law to prepare and file such financial statements.
(aaaa) "TERMINAL ACCOUNTING PERIOD" means the Quarterly Accounting Period
during which the Recapture Date or the Reinsurer Termination Date occurs.
(bbbb) "TERMINAL SETTLEMENT" has the meaning set forth in SECTION 8.4.
(cccc) "TERMINAL SETTLEMENT STATEMENT" has the meaning set forth in
SECTION 8.4.
(dddd) "THIRD-PARTY CLAIM" has the meaning set forth in SECTION 9.3(a).
(eeee) "TOTAL ADJUSTED CAPITAL" means, with respect to any insurance
company, its total adjusted capital as calculated in accordance with the most
current formula for calculating such amount adopted by the insurance regulatory
authority in such insurance company's state of domicile.
(ffff) "TRANSACTION AGREEMENTS" means the Master Agreement and each of the
Ancillary Agreements other than this Agreement.
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(gggg) "TRANSFERRED ASSETS" has the meaning set forth in SECTION 3.1(a).
(hhhh) "TREASURY REGULATIONS" means the Treasury Regulations (including
temporary and proposed Treasury Regulations) promulgated by the United States
Department of Treasury with respect to the Code or other United States federal
Tax statutes.
(iiii) "TRUST ACCOUNT" means the reserve trust account established by the
Reinsurer for the benefit of the Ceding Company under the Trust Agreement.
(jjjj) "TRUST AGREEMENT" means that certain Trust Agreement dated as of
the date hereof by and among the Reinsurer, the Ceding Company and the Trustee,
as trustee, substantially in the form of EXHIBIT A hereof.
(kkkk) "TRUSTEE" means The Bank of New York Mellon, as trustee under the
Trust Agreement or any replacement trustee from time to time acting as trustee
thereunder.
(llll) "UCC" has the meaning set forth in SECTION 3.11(b).
(mmmm) "UNCOLLECTED/DEFERRED PREMIUMS" means, as of any date of
determination, the sum of (i) uncollected premiums and agents' balances in the
course of collection in respect of the Covered Insurance Policies, as of such
date, as would be reflected in line 15.1, column 3 in the "Assets" section of
the NAIC statement blank used to prepare the Ceding Company's balance sheet in
its most recent Statutory Financial Statement or if the line number is changed
pursuant to relevant guidance from the NAIC, the successor line number to such
line number, PLUS (ii) deferred premiums and agents' balances and installments
booked but deferred and not yet due in respect of the Covered Insurance
Policies, as of such date, as would be reflected in line 15.2, column 3 in the
"Assets" section of the NAIC statement blank used to prepare the Ceding
Company's balance sheet in its most recent Statutory Financial Statement or if
the line number is changed pursuant to relevant guidance from the NAIC, the
successor line number to such line number, in each case determined in accordance
with SAP or Applicable Law of the Ceding Company Domiciliary State and, in each
case, excluding the portion of such amounts in respect of any Covered Insurance
Policy that, under the terms of any Existing Reinsurance Agreement covering such
Covered Insurance Policy, (i) the Ceding Company is required to retain
unreinsured and for its own account any portion of the Liabilities in respect of
such Covered Insurance Policy or (ii) in the opinion of either the Ceding
Company or the Reinsurer requires consent from any party to such agreement in
order to effect reinsurance under this Agreement and as to which a waiver of
such requirement or other consent has not been obtained.
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(nnnn) "UNRESOLVED ITEMS" has the meaning set forth in SECTION 3.1(f).
ARTICLE II
BASIS OF REINSURANCE AND BUSINESS REINSURED
Section 2.1 REINSURANCE.
(a) Subject to the terms and conditions of this Agreement, as of the
Effective Time, the Ceding Company hereby cedes on an indemnity reinsurance
basis to the Reinsurer, and the Reinsurer hereby accepts and agrees to assume
and indemnity reinsure, one hundred percent (100%) of all General Account
Liabilities on a coinsurance basis and one hundred percent (100%) of all
Separate Account Liabilities on a modified coinsurance basis. In addition, on
and after the Effective Time, the Reinsurer hereby assumes and agrees to
indemnify and hold the Ceding Company harmless from and against all Reinsurer
Extra-Contractual Obligations. This Agreement is solely between the Ceding
Company and the Reinsurer and shall not create any legal relationship whatsoever
between the Reinsurer and any Person other than the Ceding Company. The
reinsurance effected under this Agreement shall be maintained in force, without
reduction, unless such reinsurance is recaptured, terminated or reduced as
provided herein. On and after the Effective Time, the Reinsurer shall be
obligated to make payments to or on behalf of the Ceding Company, as and when
due, of all Reinsured Liabilities.
(b) Upon the reinstatement or reissuance of any reduced, terminated,
lapsed or surrendered Covered Insurance Policy either pursuant to its policy
terms or by the Reinsurer pursuant to the terms of the Administrative Services
Agreement, such Covered Insurance Policy shall be automatically reinsured
hereunder. Except as set forth in the proviso below, any conversion, exchange or
replacement policy or contract issued by the Ceding Company and arising from a
Covered Insurance Policy that is converted, exchanged or replaced pursuant to
its policy terms shall be deemed to constitute a Covered Insurance Policy for
purposes of this Agreement and shall be automatically reinsured hereunder;
PROVIDED, HOWEVER, that if a policyholder of a Covered Insurance Policy chooses
to convert, exchange or replace such Covered Insurance Policy pursuant to its
policy terms with a policy or contract issued by the Ceding Company that does
not correspond to (i) a policy form identified on SCHEDULE 1.1(A) or (ii) a new
policy form filed by the Reinsurer as permitted under the Administrative
Services Agreement, such new policy or contract shall not constitute a Covered
Insurance Policy and will not be reinsured hereunder. A terminated policy or
contract that would have been a Covered Insurance Policy had it been in force at
the Effective Time, that later reinstates pursuant to its policy provisions,
will be reinsured by the Reinsurer and become a Covered Insurance Policy. The
Reinsurer will be
16
entitled to retain any Premiums and interest for coverage that
is received for such reinstatement, and the Ceding Company will transfer to the
Reinsurer the amount of reserves for such reinstated Covered Insurance Policy
calculated as of the Effective Time. The effective date of reinsurance for such
reinstated Covered Insurance Policy shall be the Effective Time.
Section 2.2 SEPARATE ACCOUNTS.
(a) For each of the Covered Insurance Policies (other than the Net
Retained Liabilities Policies), the amount to be invested on a variable basis in
accordance with the terms of such Covered Insurance Policy shall be held by the
Ceding Company in the Separate Accounts or the Shared Separate Account, as
applicable, and all Premiums with respect to such Covered Insurance Policy shall
be deposited in the Separate Accounts or the Shared Separate Account to the
extent required to be deposited therein by the terms of such Covered Insurance
Policy. From and after the Effective Time, the Ceding Company shall retain, and
own all assets contained in the Ceding Company's Separate Accounts and the
Shared Separate Account and shall hold the Separate Account Reserves with
respect to the Covered Insurance Policies that are funded, in whole or in part,
by one or more of the Ceding Company's Separate Accounts or Shared Separate
Account and such Separate Account Reserves shall be reported by the Ceding
Company on its Separate Account balance sheets, consistent with SAP of the
Ceding Company Domiciliary State. From and after the Effective Time, the
Separate Accounts and the Shared Separate Account as they relate to the Covered
Insurance Policies shall be administered by the Reinsurer pursuant to the
Administrative Services Agreement.
(b) For each of the Covered Insurance Policies (other than the Net
Retained Liabilities Policies), the amount to be paid with respect to
surrenders, loans, annuitization payments, death benefits, compensation or any
other amounts with respect to such Covered Insurance Policy for claims incurred
and actually reported to the Ceding Company as of the Effective Time or incurred
after the Effective Time that by the terms of such Covered Insurance Policy
contemplate payment from the Separate Accounts or the Shared Separate Account
(other than the Excluded Liabilities) (the "SEPARATE ACCOUNT LIABILITIES") shall
be paid out of the Separate Accounts or the Shared Separate Account, as
applicable, to the extent so contemplated.
Section 2.3 EXISTING REINSURANCE.
(a) This Agreement is written net of Reinsurance Recoveries, however, the
Reinsurer agrees to make payment on behalf of the Ceding Company of all General
Account Liabilities calculated without regard to the
17
reduction for Reinsurance Recoveries, in consideration for the Ceding Company's
assignment to the Reinsurer of the Reinsurance Recoveries in SECTION 3.2(a)(ii).
As part of the Reinsured Liabilities, the Reinsurer shall, in accordance with
ARTICLE III, reimburse the Ceding Company for, or pay on behalf of the Ceding
Company, all premiums and other amounts due under the Existing Reinsurance
Agreements in respect of the Covered Insurance Policies at or after the
Effective Time ("REINSURANCE PREMIUM"). The Reinsurer shall bear all risk of
collecting amounts due in respect of the Covered Insurance Policies under the
Existing Reinsurance Agreements. The Reinsurer, on behalf of the Ceding Company,
shall assume responsibility for administration of the Existing Reinsurance
Agreements including the Shared Reinsurance Agreements to the extent provided in
the Administrative Services Agreement, in accordance with the terms of the
Administrative Services Agreement.
(b) The Ceding Company agrees that it shall take any actions reasonably
requested by the Reinsurer to maintain in full force and effect each of the
Existing Reinsurance Agreements and to perform fully each of its obligations
thereunder to the extent such action is not an action required to be taken by
the Administrator under the Administrative Services Agreement. The Ceding
Company may not modify, amend or terminate any Existing Reinsurance Agreement or
waive any of its rights under any such agreement without the Reinsurer's prior
written consent and shall fully enforce, at the expense of the Reinsurer, all of
its rights thereunder, including, without limitation, at the Reinsurer's
request, requiring the collateralization by the third party reinsurer of reserve
balances and other amounts thereunder. With the Reinsurer's consent, the Ceding
Company may exercise any right it may have to recapture risks ceded thereby
under any of the Existing Reinsurance Agreements or to otherwise terminate any
such agreement and shall, at the Reinsurer's instruction and expense, effect any
such action with respect to the management or administration of the Existing
Reinsurance Agreements as the Reinsurer shall reasonably request, including,
without limitation, termination or recapture, as may be available under or with
respect to the terms of any Existing Reinsurance Agreement; PROVIDED, HOWEVER,
that the Reinsurer shall indemnify and hold harmless the Ceding Company for
Losses arising out of any such action so requested by the Reinsurer in
accordance with ARTICLE IX. The Ceding Company agrees that it shall, at the
direction and expense of the Reinsurer, pursue commercially reasonable
management and collection efforts with respect to the Existing Reinsurance
Agreements and, in general, will cooperate with the Reinsurer in the management
of the Existing Reinsurance Agreements.
(c) From and after the Effective Time, at the Reinsurer's request and
expense, the Ceding Company shall cooperate with the Reinsurer to novate any
Existing Reinsurance Agreement other than a Shared Reinsurance Agreement
18
from the Ceding Company to the Reinsurer or a designated Affiliate of the
Reinsurer. The Ceding Company shall promptly advise the Reinsurer of any
communications with respect to any such proposed novation. All correspondence
from either the Ceding Company or the Reinsurer to any reinsurer under an
Existing Reinsurance Agreement in connection with any such proposed novation
shall be in a form approved by the other Party; PROVIDED that any such approval
shall not be unreasonably withheld, conditioned or delayed. At the Reinsurer's
instruction and expense, the Ceding Company shall effect any such action with
respect to any such proposed novation as the Reinsurer shall reasonably request,
including sending correspondence requesting that an Existing Reinsurance
Agreement (other than a Shared Reinsurance Agreement) be novated to the
Reinsurer or a designated Affiliate of the Reinsurer in a form approved by the
Reinsurer; PROVIDED, HOWEVER, that the Reinsurer shall indemnify and hold
harmless the Company for Losses arising out of any such action so requested by
Reinsurer in accordance with ARTICLE IX.
(d) From and after the Effective Time, to the extent reasonably requested
by the other party, each party shall cooperate with the other party to cause the
reinsurer under any Shared Reinsurance Agreement to enter into a partial
novation of such Shared Reinsurance Agreement to the Reinsurer with respect to
the Covered Insurance Policies reinsured thereunder or a new reinsurance
arrangement with the Ceding Company or the Reinsurer with respect to the Covered
Insurance Policies reinsured under such Shared Reinsurance Agreement; PROVIDED,
HOWEVER, that neither party nor their Affiliates shall be required to compromise
any right, asset or benefit or expend any out-of-pocket costs or incur any
liabilities or provide any other consideration in connection therewith.
(e) To the extent that not all waivers and consents necessary in order to
reinsure 100% of the Net Retained Liabilities under this Agreement are received
prior to the Effective Time, from and after the Effective Time, the Reinsurer
and the Ceding Company shall, and shall cause their respective Affiliates to,
continue to cooperate and use their reasonable best efforts to obtain, all such
waivers and consents. The Ceding Company and the Reinsurer shall promptly advise
the other party of any communications with respect to any such waivers and
consents. All correspondence from either the Ceding Company or the Reinsurer to
any Person from whom such a waiver or consent is sought shall be in a form
approved by the other party, PROVIDED that any such approval shall not be
unreasonably withheld, conditioned or delayed. Each party shall effect any such
action with respect to such waivers and consents as the other party shall
reasonably request. The out-of-pocket costs and expenses of obtaining such
waivers and consents shall be shared pursuant to Section 5.5(c) of the Master
Agreement. To the extent that after the Effective Time, any such waivers or
consents are obtained or the parties otherwise agree that such waivers or
19
consents are not required, then the Net Retained Liability as to which such
wavier or consent is obtained or agreement is reached shall no longer be deemed
a Net Retained Liability for purposes of this Agreement and instead shall be
considered part of the Reinsured Liabilities hereunder effective as of the date
of the following transfers, which the parties shall schedule as promptly as
practicable following such waiver, consent or agreement. On such agreed date,
the Ceding Company shall transfer to the Reinsurer an amount of Eligible Assets
with a Company Statutory Book Value (including investment income due and accrued
but excluding the amount of any principal and interest (to the extent included
in such valuation) paid or to be paid to the Ceding Company (and not the
Reinsurer) following the date of determination as holder of record of such asset
on or prior to such date) equal to the sum of (i) an amount equal to (A) the Net
Retained Liabilities Reserves with respect to such former Net Retained Liability
for which waiver or consent was obtained, or as to which agreement was reached,
as of the date of such transfer PLUS (B) the interest maintenance reserve of the
Ceding Company attributable the Eligible Assets to be transferred to the
Reinsurer for the period from the Effective Time to the date of such transfer of
Eligible Assets to the Reinsurer (but excluding, for the avoidance of doubt, any
interest maintenance reserve created as a result of the payment to the Reinsurer
for such former Net Retained Liability), MINUS (C) the Policy Loan Balance with
respect to such former Net Retained Liability as of the date of such transfer,
MINUS (D) the amount of Reinsurance Receivables for such former Net Retained
Liability, as of the date of such transfer, MINUS (E) the amount of
Uncollected/Deferred Premiums for such former Net Retained Liability as of the
date of such transfer; LESS (ii) the Net Retained Liability Ceding Commission
Adjustment with respect to such former Net Retained Liability for which waiver
or consent was obtained, or as to which agreement was reached. For the avoidance
of doubt, the amount in clause (ii) above may be a negative number, in which
case the absolute value of such amount shall be added to the sum of clause (i)
above to determine the amount of Eligible Assets the Ceding Company shall
transfer to the Reinsurer on such agreed date. Prior to obtaining any such
required consents or waivers or reaching such agreement, the Covered Insurance
Policy from which Net Retained Liabilities arise (in each case, a "NET RETAINED
LIABILITIES POLICY") shall not be reinsured hereunder, but the Reinsurer shall
provide administrative services with respect to any Net Retained Liabilities
Policies pursuant to the Administrative Services Agreement in the manner set
forth therein.
Section 2.4 NON-GUARANTEED ELEMENTS. The Reinsurer may, from time to
time, make recommendations to the Ceding Company with respect to Non-Guaranteed
Elements so long as the recommendations comply with the written terms of the
Covered Insurance Policies, Applicable Law and Actuarial Standards of Practice
promulgated by the Actuarial Standard Board governing redetermination of
non-guaranteed charges. The
20
Ceding Company shall establish Non-Guaranteed Elements, taking into account the
recommendations of the Reinsurer with respect thereto. The Ceding Company shall
fully consider any such recommendations and act reasonably and in good faith in
determining whether any such recommendations should be accepted and shall not
unreasonably delay implementation of any accepted recommendations more than ten
Business Days after such recommendations are provided in writing; PROVIDED,
HOWEVER, that the Reinsurer shall indemnify and hold harmless the Ceding Company
for Losses arising out of the Ceding Company's acceptance and implementation of
the Reinsurer's recommendations in accordance with ARTICLE IX.
Section 2.5 RESERVES AND LIABILITIES REPORTING. The Reinsurer shall
provide to the Ceding Company the reports and information required by Section
5.1(a) of the Administrative Services Agreement within the time frames specified
in the Administrative Services Agreement. With respect to the calendar year-end
reserves and liabilities with respect to the Covered Insurance Policies, the
Reinsurer's appointed actuary shall provide a certification that in his opinion,
the reserves and related actuarial values concerning the Covered Insurance
Policies:
(a) are computed in accordance with presently accepted actuarial
standards consistently applied and are fairly stated, in accordance with
sound actuarial principles;
(b) are based on actuarial assumptions which produce reserves at
least as great as those called for in any contract provision as to
reserve basis and method, and are in accordance with all other policy or
contract provisions;
(c) meet the requirements of the insurance laws and regulations of
the Reinsurer's state of domicile and, to the extent applicable
regulations of the Reinsurer's state of domicile vary materially from the
parallel requirements of the Ceding Company's state of domicile, a good
faith estimate of the effects of any such differences and a summary
description of the Reinsurer's methodologies used in developing such
estimations; and
(d) have been subjected to satisfactory asset adequacy testing in
accordance with applicable regulations.
Any certification provided pursuant to this SECTION 2.5 is not, and shall
not be deemed to constitute, any representation as to the ultimate adequacy or
sufficiency of the reserves held by the Ceding Company or the Reinsurer in
respect of the Covered Insurance Policies.
Section 2.6 INSURANCE CONTRACT CHANGES. Except as directed by the
Reinsurer or as performed by the Reinsurer (or its duly appointed assignee or
delegatee) acting on
21
behalf of the Ceding Company in the Reinsurer's capacity as Administrator and to
the extent permitted under the terms of the Administrative Services Agreement,
the Ceding Company shall not (a) change the terms or conditions of any Covered
Insurance Policy or Existing Reinsurance Agreement, other than for any change
required by the terms of any Covered Insurance Policy or Existing Reinsurance
Agreement, or by any Governmental Authority or Applicable Law or (b) enter into
any settlement of any Covered Insurance Policy or Existing Reinsurance
Agreement. If the Reinsured Liabilities under any of the Covered Insurance
Policies are changed (a) because of changes made on or after the Effective Time
in the terms and conditions of the Covered Insurance Policies or Existing
Reinsurance Agreements or settlements in respect of Covered Insurance Policies
or Existing Reinsurance Agreements effected by the Reinsurer acting in its
capacity as Administrator or at the direction of the Reinsurer, or (b) pursuant
to the terms of any Covered Insurance Policies or by reason of the requirements
of any Governmental Authority or Applicable Law, the Reinsurer will participate,
on the reinsurance basis set forth in SECTION 2.1, and assume one hundred
percent (100%) of all Reinsured Liabilities resulting from such changes. With
respect to any change that, despite being required by the terms of any Covered
Insurance Policies, any Governmental Authority or Applicable Law, the
Administrator determines not to implement, the Ceding Company shall, to the
extent practicable, prior to the effectiveness of any such change, promptly
notify the Reinsurer of such required change and afford the Reinsurer, at the
Reinsurer's expense, the opportunity, to the extent practicable, to object to
such change under applicable administrative procedures.
Section 2.7 FOLLOW THE FORTUNES. The Reinsurer's Liability under this
Agreement shall commence on the Effective Time, and the Reinsurer's Liability
under this Agreement shall, subject to the terms, conditions and limits of this
Agreement and the other Transaction Agreements, be subject in all respects to
the same risks, terms, rates, conditions, interpretations, assessments, waivers
and proportion of Premiums paid to, and the reinsurance recoveries benefiting,
the Ceding Company with respect to the Reinsured Liabilities and Covered
Insurance Policies, the true intent of this Agreement being that the Reinsurer
shall, subject to the terms, conditions, and limits of this Agreement and the
other Transaction Agreements, follow the fortunes of the Ceding Company with
respect to the Reinsured Liabilities and the Covered Insurance Policies.
ARTICLE III
TRANSFER OF ASSETS; PAYMENTS; SETTLEMENTS; ADMINISTRATION
Section 3.1 INITIAL PAYMENTS BY THE CEDING COMPANY.
(a) As consideration for the Reinsurer's agreement to provide
reinsurance pursuant to this Agreement, the Ceding Company will transfer,
on the Closing Date, to the Reinsurer, or at the Reinsurer's direction, to
the Reinsurer by transfer to the Trust Account, cash and other Eligible
Assets listed in SCHEDULE 3.1
22
(with such additions or subtractions in accordance with the selection
methodology set forth in SCHEDULE 3.1) (the "TRANSFERRED ASSETS") with a
Company Statutory Book Value (including investment income due and accrued
but excluding the estimated amount of any principal and interest (to the
extent included in such valuation) paid or to be paid to the Ceding
Company (and not the Reinsurer) following the date of determination as
holder of record of such asset on or prior to the Effective Time) as of
the last day of the calendar month two calendar months prior to the
calendar quarter in which the Closing occurs, unless the Closing occurs on
December 31, 2013, in which case, the Transferred Assets will be valued as
of November 30, 2013, or in any case as of such other date mutually agreed
by the Parties, for purposes of the Closing (the "CLOSING TRANSFERRED
ASSET VALUE"), equal to the excess of (i) the Initial Reinsurance Premium
determined by reference to the Estimated Closing Statement (the "ESTIMATED
INITIAL REINSURANCE PREMIUM") delivered pursuant to the Master Agreement
over (ii) the Adjusted Ceding Commission payable by the Reinsurer pursuant
to the Master Agreement and SECTION 3.3 of this Agreement. Such payment
shall be adjusted following the date hereof in accordance with the
mechanics set forth in this SECTION 3.1. On and after the Closing Date,
the Ceding Company and the Reinsurer shall execute any additional
documents, instruments or conveyances of any kind which may be reasonably
necessary to transfer the Transferred Assets, including a customary
representations letter with respect to private placement securities
included in the Transferred Assets in the form attached hereto as ANNEX C.
(b) In addition, the Ceding Company hereby sells, assigns, transfers
and delivers to the Reinsurer as additional reinsurance premium, effective
as of the Effective Time, all of Ceding Company's right, title and
interest under the Covered Insurance Policies to receive principal and
interest paid on policy loans (other than the portion of any such policy
loans that did not constitute admitted assets under SAP as of the
Effective Time) free and clear of any liens or other encumbrances.
(c) The Reinsurer shall, on or before the date that is 90 calendar
days after the Closing Date, deliver to the Ceding Company a statement
(the "REINSURANCE CLOSING STATEMENT") consisting of calculations in
reasonable detail of (i) the Initial Reinsurance Premium, (ii) the Company
Statutory Book Value (including investment income due and accrued but
excluding the amount of any principal and interest (to the extent included
in such valuation) paid or to be paid to the Ceding Company (and not the
Reinsurer) following the date of determination as holder of record of such
asset on or prior to the Effective Time) as of the Effective Time of the
Transferred Assets transferred on the Closing Date pursuant to SECTION
3.1(a) (the "EFFECTIVE TIME TRANSFERRED ASSET VALUE") and (iii) the
Initial Reinsurance Premium Adjustment, in the case of (i) and (ii) in the
23
same format as the corresponding components of the Estimated Closing
Statement and prepared in accordance with the Closing Statement
Methodologies.
(d) The Reinsurance Closing Statement shall become final, binding
and conclusive upon the Ceding Company and the Reinsurer on the sixtieth
day following the Ceding Company's receipt of the Reinsurance Closing
Statement, unless prior to such sixtieth day the Ceding Company delivers
to the Reinsurer a written notice (a "DISPUTE NOTICE") stating that the
Ceding Company believes the Reinsurance Closing Statement contains
mathematical errors or was not prepared in accordance with the Closing
Statement Methodologies and specifying in reasonable detail each item that
the Ceding Company disputes (each, a "DISPUTED ITEM"), the amount in
dispute for each Disputed Item and the reasons supporting the Ceding
Company's positions.
(e) If the Ceding Company delivers a Dispute Notice, then the Ceding
Company and the Reinsurer shall seek in good faith to resolve the Disputed
Items during the thirty-day period beginning on the date the Reinsurer
receives the Dispute Notice (the "RESOLUTION PERIOD"). If the Reinsurer
and the Ceding Company reach agreement with respect to any Disputed Items,
the Reinsurer shall revise the Reinsurance Closing Statement to reflect
such agreement.
(f) If the Reinsurer and the Ceding Company are unable to resolve
all of the Disputed Items during the Resolution Period, then the Reinsurer
and the Ceding Company shall jointly engage and submit the unresolved
Disputed Items (the "UNRESOLVED ITEMS") to the Transaction Consultant. The
Reinsurer, on the one hand, and the Ceding Company, on the other hand,
shall promptly (and in any event within 10 Business Days) after the
Transaction Consultant's engagement, each submit to the Transaction
Consultant their respective computations of the Unresolved Items still in
dispute and information, arguments and support for their respective
positions, and shall concurrently deliver a copy of such materials to the
other party. Each party shall then be given an opportunity to supplement
the information, arguments and support included in its initial submission
with one additional submission to respond to any arguments or positions
taken by the other party in such other party's initial submission, which
supplemental information shall be submitted to the Transaction Consultant
(with a copy thereof to the other party) within five Business Days after
the first date on which both parties have submitted their respective
initial submissions to the Transaction Consultant. The Transaction
Consultant shall thereafter be permitted to request additional or
clarifying information from the parties, and each of the parties shall use
its reasonable best efforts to furnish to the Transaction Consultant such
work papers and other documents and information pertaining to the
Unresolved Items as the Transaction Consultant may reasonably request. The
Transaction Consultant shall act as an arbitrator to determine, based
solely on presentations by the Reinsurer and the Ceding Company and not by
independent review, only the Unresolved Items still in dispute. The
Reinsurer
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and the Ceding Company shall use their reasonable best efforts to cause
the Transaction Consultant to issue its written determination regarding
the Unresolved Items within thirty days after such items are submitted for
review. The Transaction Consultant shall make a determination with respect
to the Unresolved Items only in a manner consistent with this SECTION 3.1
and the Closing Statement Methodologies, and in no event shall the
Transaction Consultant's determination of the Unresolved Items be for an
amount that is outside the range of the Reinsurer's and the Ceding
Company's disagreement. The determination of the Transaction Consultant
shall be final, binding and conclusive upon the Reinsurer and the Ceding
Company absent manifest error, and the Reinsurer shall revise the Closing
Statement to reflect such determination upon receipt thereof. The fees,
expenses and costs of the Transaction Consultant shall be borne equally by
the Reinsurer and the Ceding Company.
(g) Each Party shall use its reasonable best efforts to provide
promptly to the other party all information and reasonable access to
employees as the other Party shall reasonably request in connection with
review of the Reinsurance Closing Statement or the Dispute Notice, as the
case may be, including all work papers of the accountants who audited,
compiled or reviewed such statements or notices (subject to the requesting
Party and its representatives entering into reasonable customary
undertakings required by the other Party's accountants in connection
therewith), and shall otherwise cooperate in good faith with the other
Party to arrive at a final determination of the Reinsurance Closing
Statement.
(h) In the event that the Initial Reinsurance Premium Adjustment is
positive, then the Ceding Company shall, within 2 Business Days of the
determination pay to the Reinsurer an amount of cash equal to the Initial
Reinsurance Premium Adjustment, together with interest thereon from and
including the Closing Date to but not including the date of such transfer,
computed at the Interest Rate by wire transfer of immediately available
funds to an account designated by the Reinsurer.
(i) In the event that the Initial Reinsurance Premium Adjustment is
negative, then the Reinsurer shall, within 2 Business Days of the
determination thereof, transfer to the Ceding Company an amount of cash
equal to the absolute value of the Initial Reinsurance Premium Adjustment,
together with interest thereon from and including the Closing Date to but
not including the date of such transfer, computed at the Interest Rate, by
wire transfer of immediately available funds to an account designated by
the Ceding Company.
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Section 3.2 ADDITIONAL PAYMENTS BY THE CEDING COMPANY.
(a) As additional consideration for the reinsurance provided herein
effective as of the Effective Time, the Ceding Company hereby sells,
assigns, transfers and delivers to the Reinsurer as premium hereunder all
of its rights, title and interest in one hundred percent (100%) of all of
the following amounts actually received or receivable from and after the
Effective Time by the Ceding Company or the Reinsurer, whether in its role
as reinsurer hereunder or as Administrator, with respect to the Covered
Insurance Policies (other than with respect to Net Retained Liabilities)
(items (i) through (iv) below, collectively, the "RECOVERIES"):
(i) Premiums;
(ii) Reinsurance Recoveries;
(iii) Without duplication, all charges, fees, indemnification,
revenue-sharing or other payments made to the Ceding Company
attributable to the use of any mutual fund organization's mutual
funds as funding vehicles to the extent attributable to the Covered
Insurance Policies (other than with respect to Net Retained
Liabilities), including, but not limited to, management fees,
marketing fees, 12b-1 fees, record-keeping fees, policy loan fees,
mortality and expense risk charges, administrative expense charges,
administrative services fees, rider charges, contract maintenance
charges, back-end sales loads and other considerations billed
separately, and amounts for the pre-Tax amount of any expense
reimbursement;
(iv) all amounts that are transferrable from the Separate
Accounts or the Shared Separate Account to the general account of
the Ceding Company in respect of the Covered Insurance Policies; and
(v) without duplication, all other payments, collections,
releases of funds to the Ceding Company and recoveries relating to
the Reinsured Liabilities or the Covered Insurance Policies (other
than with respect to Net Retained Liabilities), including all
premiums, payments, reimbursements, interest or other amounts that
the Ceding Company receives in connection with any reinstatement or
reissuance of a Covered Insurance Policy or any conversion, exchange
or replacement policy that is reinsured under this Agreement.
The Ceding Company agrees to execute and record all additional documents
and take all other steps reasonably requested by the Reinsurer to
effectuate such
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transfer to the Reinsurer. Direct receipt by the Reinsurer, including in
its role as Administrator under the Administrative Services Agreement, or
any of its Affiliates of any such amounts shall satisfy the Ceding
Company's obligations to transfer any such amount to the Reinsurer
hereunder. Notwithstanding anything herein to the contrary, the Ceding
Company is not selling, assigning, transferring, or delivering to the
Reinsurer, and Reinsurer shall have no right, title or interest in,
amounts recoverable or receivable from reinsurers under the Existing
Reinsurance Agreements in respect of the Covered Insurance Policies as of
the Effective Time or the amount of uncollected Premiums and deferred
Premiums as of the Effective Time, in each case to the extent such amounts
did not constitute admitted assets as of the Effective Time.
(b) The Ceding Company hereby and pursuant to the Administrative
Services Agreement appoints the Reinsurer as its agent to collect all
Recoveries in the Ceding Company's name. The Ceding Company agrees and
acknowledges that the Reinsurer and its permitted assigns and delegatees
are entitled to enforce, in the name of the Ceding Company, all rights at
law or in equity or good faith claims of the Ceding Company with respect
to such Recoveries. If necessary for such collection, the Ceding Company
shall reasonably cooperate, at the Reinsurer's expense, in any litigation
or other dispute resolution mechanism relating to such collection. The
Parties acknowledge and agree that the Reinsurer shall be responsible for
and has hereby assumed the financial risk of any uncollected or
uncollectible Recoveries. To the extent that the Ceding Company recovers
any Recoveries from any third party attributable to the Covered Insurance
Policies, the Ceding Company shall, in accordance with SECTION 3.4,
transfer such amounts to the Reinsurer, together with any pertinent
information that the Ceding Company may have relating thereto.
Section 3.3 PAYMENTS BY THE REINSURER. In consideration of the Ceding
Company's cession of the Covered Insurance Policies to the Reinsurer hereunder,
the Reinsurer shall (a) pay to the Ceding Company, on the Closing Date, the
Adjusted Ceding Commission in the manner contemplated in SECTION 3.1 and (b) pay
and discharge, or indemnify the Ceding Company for the payment and discharge of,
all Reinsured Liabilities which are or which become due and payable by the
Reinsurer under the terms of this Agreement and the Administrative Services
Agreement at or at any time after the Effective Time.
Section 3.4 NET SETTLEMENT.
(a) During the term of this Agreement, a settlement amount between
the Ceding Company and the Reinsurer as of the last day of each Quarterly
Accounting Period (the "NET SETTLEMENT") shall be calculated by the
Reinsurer in accordance with clause (b) below, and a statement setting
forth details of such
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calculation (the "SETTLEMENT STATEMENT") in the form as set forth in
EXHIBIT B hereto shall be delivered by the Reinsurer to the Ceding Company
not later than thirty (30) calendar days after the end of each Quarterly
Accounting Period. If the amount of the Net Settlement for a Quarterly
Accounting Period is positive, the Reinsurer shall pay the absolute value
of such amount to the Ceding Company at the time it delivers the
Settlement Statement for such Quarterly Accounting Period to the Ceding
Company. If the amount of the Net Settlement for a Quarterly Accounting
Period is negative, the Ceding Company shall pay such amount to the
Reinsurer within five (5) Business Days of its receipt of the Settlement
Statement for such Quarterly Accounting Period.
(b) The Net Settlement with respect to any Quarterly Accounting
Period for the reinsurance covered hereunder is equal to the following:
(i) the Reinsured Liabilities actually paid by the Ceding
Company during such Quarterly Accounting Period, PLUS
(ii) the Reinsurance Premium actually paid by the Ceding
Company during such Quarterly Accounting Period, MINUS
(iii) the Recoveries actually received by the Ceding Company
during such Quarterly Accounting Period.
(c) For the avoidance of doubt, to the extent that the Reinsurer
makes any direct payments to or on behalf of the Ceding Company in respect
of Reinsured Liabilities or the Reinsurance Premiums in respect of a
Quarterly Accounting Period prior to the completion of the relevant Net
Settlement process, whether in its capacity as the Administrator or
otherwise, the amount of any such payments shall be excluded from the Net
Settlement. In addition, to the extent the Reinsurer receives any
Recoveries in respect of a Quarterly Accounting Period prior to the
completion of the relevant Net Settlement process, whether in its capacity
as the Administrator or otherwise, the amount of any such Recoveries
received shall be excluded from the Net Settlement. To the extent that the
Ceding Company receives any Recoveries in respect of a Quarterly
Settlement Period and remits such Recoveries to the Reinsurer under the
terms of the Administrative Services Agreement prior to the completion of
the relevant Net Settlement process, the amount of such Recoveries so
remitted shall be excluded from the Net Settlement.
Section 3.5 DELAYED PAYMENTS. If there is a delayed settlement of any
payment due hereunder, interest will accrue on such payment at the Interest Rate
until settlement is made. For purposes of this SECTION 3.5 a payment will be
considered overdue, and such interest will begin to accrue, on the first day
immediately following the date such
28
payment is due. For greater clarity, a payment shall be deemed to be due
hereunder on the last date on which such payment may be timely made under the
applicable provision.
Section 3.6 OFFSET AND RECOUPMENT RIGHTS. Any debits or credits incurred
on or after the Effective Time in favor of or against either the Ceding Company
or the Reinsurer with respect to this Agreement are deemed mutual debits or
credits and may be set off and recouped, and only the net balance shall be
allowed or paid. In the event of any insolvency, rehabilitation, conservatorship
or comparable proceeding by or against the Ceding Company or the Reinsurer, the
rights of offset and recoupment set forth in this SECTION 3.6 shall apply to the
fullest extent permitted by Applicable Law.
Section 3.7 ADMINISTRATION. Pursuant to the terms of the Administrative
Services Agreement but subject to the Transition Services Agreement, the
Reinsurer, in its capacity as Administrator, will administer the Covered
Insurance Policies, the Existing Reinsurance Agreements, the Separate Accounts
and the Shared Separate Account to the extent provided in the Administrative
Services Agreement.
Section 3.8 CERTAIN REPORTS.
(a) Not later than sixty (60) calendar days after the end of each
calendar year, and forty-five (45) days after the end of any calendar
quarter, the Reinsurer shall provide to the Ceding Company a calculation
of the RBC Ratio of the Reinsurer as of the last day of such calendar year
or quarter, as applicable. Each such calculation shall include reasonable
supporting detail with respect to such calculation.
(b) The Reinsurer shall provide written notice of the occurrence of
any Recapture Triggering Event within two (2) Business Days after its
occurrence or its calculation of the RBC Ratio which would result in a
Recapture Triggering Event. In addition, the Reinsurer shall cooperate
fully with the Ceding Company and promptly respond to the Ceding Company's
reasonable inquiries from time to time concerning the determination of
whether a Recapture Triggering Event has occurred.
(c) At the Ceding Company's request, the Reinsurer shall provide the
Ceding Company with its annual and quarterly Statutory Financial
Statements and a copy of its annual audited Statutory Financial Statements
along with the audit report thereon.
Section 3.9 BOOKS AND RECORDS. The Reinsurer shall, and shall cause its
Affiliates to, preserve, until such date as may be required by the Reinsurer's
standard document retention policies (or such other later date as may be
required by Applicable Law), all books and records related to the Covered
Insurance Policies. During such
29
period, upon any reasonable request from the Ceding Company or its
representatives, the Reinsurer shall (a) provide to the Ceding Company and its
representatives reasonable access to such books and records during normal
business hours; PROVIDED that such access shall not unreasonably interfere with
the conduct of the business of the Reinsurer, and (b) permit the Ceding Company
and representatives to make copies of such records, in each case of (a) and (b),
at the sole cost of the Ceding Company or its representatives. Such books and
records may be sought under this SECTION 3.9 by the Ceding Company for any
reasonable purpose, including to the extent reasonably required in connection
with accounting, litigation, securities law disclosure or other similar purpose.
Notwithstanding the foregoing, any and all such books and records may be
destroyed by the Reinsurer if the Reinsurer sends to the Ceding Company written
notice of its intent to destroy such records, specifying in reasonable detail
the contents of the records to be destroyed; such records may then be destroyed
after the sixtieth (60th) day following such notice unless the Ceding Company
notifies the Reinsurer that it desires to obtain possession of such records, in
which event the Reinsurer shall transfer the records to the Ceding Company and
the Ceding Company shall pay all reasonable expenses of the Reinsurer in
connection therewith.
Section 3.10 ASSUMPTION REINSURANCE; CONVERSIONS. Subject to compliance
with Section 5.14(d) of the Master Agreement, the Reinsurer shall have the
right, but not the obligAtion, to the extent permitted by Applicable Law, (a) to
replace, in whole or in part, the Covered Insurance Policies with evidences of
coverage issued by the Reinsurer or an Affiliate of the Reinsurer, (b) to issue
policies by the Reinsurer or an Affiliate of Reinsurer upon the exercise by a
policyholder of a conversion right under a Covered Insurance Policy, in lieu of
a conversion policy issued by the Ceding Company or (c) to assume and novate, in
whole or in part, some or all of the Covered Insurance Policies so as to
substitute the Reinsurer or an Affiliate of the Reinsurer as the insurer
directly liable to the payees under such Covered Insurance Policies; PROVIDED
that, in each case, the Reinsurer or the applicable Affiliate of the Reinsurer
pays to the Affiliated Distributor of the replaced, replaced in lieu of
converted or novated Covered Insurance Policy commissions in accordance with
Section 5.14(d) of the Master Agreement. The Ceding Company shall, upon the
Reinsurer's request, cooperate with the Reinsurer and take all actions
reasonably requested by the Reinsurer to cause such replacements, conversions or
assumptions and novations of the Covered Insurance Policies by the Reinsurer or
an Affiliate of the Reinsurer. Any costs and expenses of such replacements,
conversions or assumptions and novations shall be borne by the Reinsurer and the
Reinsurer shall reimburse the Ceding Company for all reasonable and documented
out-of-pocket costs and expenses incurred by the Ceding Company or its
Affiliates in connection with such replacements, conversions or assumptions and
novations.
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Section 3.11 SECURITY INTEREST.
(a) The Parties intend the Ceding Company's assignment pursuant to the
first sentence of SECTION 3.2(A) to be a present assignment of all of the Ceding
Company's rights, title and interest and not an assignment as collateral.
However, to the extent that such assignment is not recognized as a present
assignment, is not valid or is recharacterized as a pledge rather than a lawful
conveyance to the Reinsurer, the Ceding Company does hereby grant, bargain,
sell, convey, assign and otherwise pledge to the Reinsurer all of the Ceding
Company's now owned and hereafter acquired or arising, whether governed by
Article 9 of the UCC or other law, wherever located, and all proceeds and
products thereof, right, title and interest, if any (legal, equitable or
otherwise) to all Recoveries (and any lockbox or account set up for the receipt
of the Recoveries after the Effective Time) (the "RECOVERIES COLLATERAL") to
secure all of the Ceding Company's obligations under this Agreement.
(b) Upon the failure of the Ceding Company to fully perform any of its
material obligations under this Agreement, which failure remains uncured ten
(10) days after written notice thereof is received by the Ceding Company, the
Reinsurer shall have, in addition to all other rights under this Agreement or
under Applicable Law, the following rights:
(i) the right to exercise all rights and remedies granted a secured
party under the Uniform Commercial Code, as said code has been enacted in
the State of Arizona, the State of Tennessee, or any other applicable
jurisdiction (the "UCC"), as though all the Recoveries Collateral
constituted property subject to a security interest under Article 9
thereof;
(ii) the right to set off;
(iii) the right to intercept and retain monies and property in any
lockbox or account set up for the receipt of Recoveries and otherwise;
(iv) without giving rise to any right to double recovery under this
SECTION 3.11, the right to reasonable attorneys' fees incurred in
connection with the enforcement of this Agreement or in connection with
disposition of the Recoveries Collateral; and
(v) the right to dispose of the Recoveries Collateral.
(c) This SECTION 3.11 is being included in this Agreement to ensure that,
if an insolvency or other court determines that, notwithstanding the provisions
of this Agreement, including SECTION 3.2(a), and the express intent of
31
the parties in entering into this Agreement, the Ceding Company retained
ownership of or any rights in the Recoveries Collateral, the Reinsurer's rights
to the Recoveries Collateral are protected with a first priority, perfected
security interest, and it is the intent of the Parties that this SECTION 3.11 be
interpreted as such.
(d) Nothing contained herein shall be construed to support the conclusion
that the Ceding Company will retain any ownership of or any rights in the
Recoveries Collateral after the Effective Time or to support the conclusion that
the Reinsurer does not acquire full ownership thereof as of the Effective Time.
(e) The Ceding Company shall execute and deliver and the Reinsurer is
authorized to execute and deliver any and all financing statements reasonably
requested by the Reinsurer to the extent that it may appear appropriate to the
Reinsurer to file such financing statements in order to perfect the Reinsurer's
title under Article 9 of the UCC to any and all Recoveries Collateral and the
Ceding Company shall do such further acts and things as the Reinsurer may
request in order that the security interest granted hereunder may be maintained
as a first perfected security interest.
Section 3.12 BANK ACCOUNTS. During the term of this Agreement, the
Reinsurer may maintain accounts with banking institutions with respect to the
Covered Insurance Policies (the "BANK ACCOUNTS"). The Reinsurer may open one or
more new Bank Accounts or, at the request of the Reinsurer, the Ceding Company
shall cooperate with the Reinsurer to identify and transfer to the Reinsurer, as
fiduciary of the Ceding Company, control over existing bank accounts of the
Ceding Company that were used by the Ceding Company exclusively in the
administration of the Covered Insurance Contracts prior the Effective Time. The
Reinsurer shall have the exclusive authority over the Bank Accounts including,
without limitation, the exclusive authority to (a) open the Bank Accounts in the
name of the Ceding Company, (b) designate the authorized signatories on the Bank
Accounts, (c) issue drafts on and make deposits in the Bank Accounts in the name
of the Ceding Company, (d) make withdrawals from the Bank Accounts and (e) enter
into agreements with respect to the Bank Accounts on behalf of the Ceding
Company; PROVIDED, that in no event shall the Ceding Company be responsible for
any fees, overdraft charges or other payments, liabilities or obligations with
respect to any such Bank Accounts or be obligated to provide funding for the
Bank Accounts. The Ceding Company shall do all things necessary at the
Reinsurer's expense to (x) enable and authorize the Reinsurer to use the Ceding
Company's existing lockboxes with respect to the Covered Insurance Policies and
(y) to enable the Reinsurer to open and maintain the Bank Accounts including,
without limitation, executing and delivering such depository resolutions and
other documents as may be requested from time to time by the banking
institutions. The Ceding Company agrees that without the
32
Reinsurer's prior written consent it shall not make any changes to the
authorized signatories on the Bank Accounts nor attempt to withdraw any funds
therefrom. Notwithstanding the foregoing, pursuant to the Administrative
Services Agreement, the Reinsurer and the Company will establish accounts
separate from the Bank Accounts for the administration of the Net Retained
Liabilities Policies.
ARTICLE IV
LICENSES; SECURITY
Section 4.1 LICENSES. At all times during the term of this Agreement, the
Reinsurer shall (i) hold and maintain all licenses and authorizations required
by the Ceding Company Domiciliary State so that the Ceding Company may receive
Reserve Credit or (ii) establish and maintain at its expense security in the
form of letters of credit, assets held in a reinsurance trust or a combination
thereof in a manner required by the Ceding Company Domiciliary State so that the
Ceding Company may receive Reserve Credit.
Section 4.2 SECURITY.
(a) During the term of this Agreement until such time as a Trust
Account is no longer required pursuant to SECTION 4.7, as security for the
payment of amounts due the Ceding Company under this Agreement, the
Reinsurer, as grantor, shall establish and maintain the Trust Account with
a trustee reasonably acceptable to the Ceding Company naming the Ceding
Company as sole beneficiary thereof. Concurrently with the execution of
this Agreement, on the Closing Date, the Reinsurer shall deposit into the
Trust Account Eligible Assets with a Reinsurer Statutory Book Value
(including investment income due and accrued) equal to the Required
Balance as of the Effective Time (calculated based on the Estimated
Closing Statement). All transfers to and withdrawals from the Trust
Account shall be in accordance with and subject to the requirements set
forth in the Trust Agreement; PROVIDED that, in addition to the
requirements set out in the Trust Agreement, the Reinsurer shall transfer
amounts to, and withdraw amounts from, the Trust Account as set forth in
SECTION 4.6.
Section 4.3 TRUST ACCOUNT AND SETTLEMENTS. The trustee shall hold assets
in the Trust Account pursuant to the terms of the Trust Agreement.
Section 4.4 INVESTMENT OF TRUST ASSETS. The assets held in the Trust
Account shall be valued at their Reinsurer Statutory Book Value (including
investment income due and accrued). The assets that may be held in the Trust
Account shall consist of cash and investments consistent with the investment
guidelines as set forth on EXHIBIT C (the assets pursuant to this sentence being
the "ELIGIBLE ASSETS").
33
Section 4.5 DEPOSIT OF ASSETS. Prior to depositing assets in the Trust
Account, the Reinsurer will execute assignments or endorsements in blank, or
transfer legal title to the trustee of all shares, obligations or any other
assets requiring assignments, in order that the Ceding Company, or the trustee
upon the direction of the Ceding Company, may whenever necessary negotiate these
assets without the consent or signature from the Reinsurer or any other entity.
Section 4.6 ADJUSTMENT OF SECURITY AND WITHDRAWALS. Subject to SECTION
4.7, the amount of security provided by the Reinsurer shall be adjusted
following the end of each Quarterly Accounting Period to be equal to the
Required Balance as of the end of such Quarterly Accounting Period (such amounts
to be calculated by the Reinsurer and a report thereof to be furnished to the
Ceding Company no later than the thirtieth (30th) calendar day following the end
of such Quarterly Accounting Period) as follows.
(a) If the aggregate Reinsurer Statutory Book Value of the Eligible
Assets held in the Trust Account at the end of any Quarterly Accounting
Period is less than the Required Balance, calculated based on the most
recent Quarterly Accounting Period report, the Reinsurer shall, no later
than ten (10) Business Days following delivery of the relevant report,
transfer additional Eligible Assets to the Trust Account so that the
aggregate Reinsurer Statutory Book Value of the Eligible Assets held in
the Trust Account is not less than the Required Balance as of the end of
such Quarterly Accounting Period.
(b) If the aggregate Reinsurer Statutory Book Value of the Eligible
Assets in the Trust Account at the end of any Quarterly Accounting Period
exceeds the Required Balance, calculated based on the most recent
Quarterly Accounting Period report, then the Reinsurer shall have the
right to withdraw the excess from the Trust Account in accordance with the
terms of the Trust Agreement.
(c) The report required to be delivered by the Reinsurer as
described in this SECTION 4.6 shall include a listing of each asset in the
Trust Account and the Reinsurer Statutory Book Value of each such asset as
of the end of the relevant Quarterly Accounting Period and indicate if any
such asset is not an Eligible Asset.
(d) WITHDRAWALS BY THE CEDING COMPANY. The Ceding Company may
withdraw the assets held in the Trust Account only in accordance with the
terms of the Trust Agreement. The amount of any withdrawal from the Trust
Account in excess of amounts permitted under the terms of the Trust
Agreement shall be deemed maintained in a constructive trust for the
benefit of the Reinsurer and promptly returned to the Reinsurer.
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Section 4.7 TERMINATION OF TRUST ACCOUNT. Notwithstanding anything to the
contrary herein, if the report required to be delivered by the Reinsurer as
described in SECTION 4.6 with respect to any Quarterly Accounting Period
demonstrates that the sum of the Required Balance plus the amount of any
outstanding Financed Amounts is less than or equal to $50,000,000, then (i) the
Reinsurer and the Ceding Company shall promptly deliver a Notice of Minimum
Balance to the Trustee and (ii) the Reinsurer shall have no further obligation
to maintain any assets in the Trust Account pursuant to this Agreement.
Section 4.8 RBC EVENT. Notwithstanding anything to the contrary herein, if
the Reinsurer's RBC Ratio falls below 150% as of a calendar quarter-end and the
Reinsurer has not cured such shortfall as of the forty-fifth (45th) calendar day
following such calendar quarter-end, then the security provided by the Reinsurer
shall be adjusted following the end of each Quarterly Accounting Period
thereafter to ensure that the Fair Market Value of Eligible Assets held in the
Trust Account at the end of any Quarterly Accounting Period is at least equal to
the Required Balance and all references in this ARTICLE IV to "Reinsurer
Statutory Book Value" shall be deemed references to "Fair Market Value";
PROVIDED, HOWEVER, that if the Reinsurer's RBC Ratio equals or exceeds 200% as
of any subsequent calendar quarter-end, then the security provided by the
Reinsurer shall adjust again such that following the end of each Quarterly
Accounting Period thereafter, the Reinsurer need only ensure that the Reinsurer
Statutory Book Value of Eligible Assets held in the Trust Account at the end of
such Quarterly Accounting Period is at least equal to the Required Balance and
all references in this ARTICLE IV that were deemed references to "Fair Market
Value" pursuant to this SECTION 4.8 shall again refer to "Reinsurer Statutory
Book Value".
ARTICLE V
OVERSIGHTS; COOPERATION; REGULATORY MATTERS
Section 5.1 OVERSIGHTS. Unintentional or inadvertent delays, errors or
omissions made in connection with this Agreement or any transaction hereunder
shall not relieve either Party from any Liability which would have attached had
such delay, error or omission not occurred; and both Parties shall be restored
as closely as possible to the positions they would have occupied if no delay,
error or omission had occurred, PROVIDED that, in all cases, such error or
omission is rectified as soon as reasonably practicable after discovery by the
Party making such error or omission or responsible for such delay, and PROVIDED,
FURTHER, that said responsible Party shall be responsible for any additional
Liability which attaches as a result.
Section 5.2 COOPERATION. Each Party hereto shall cooperate fully with the
other in all reasonable respects in order to accomplish the objectives of this
Agreement.
Section 5.3 REGULATORY MATTERS. Solely to the extent not otherwise covered
by the Administrative Services Agreement, if the Ceding Company or the Reinsurer
receives
35
notice of, or otherwise becomes aware of, any inquiry, investigation or
proceeding from or at the direction of a Governmental Authority relating to or
affecting the Covered Insurance Policies that would reasonably be expected to
have an adverse effect on the other Party, the Ceding Company or the Reinsurer,
as applicable, shall promptly notify the other Party thereof, whereupon the
Parties, at their own expense, shall cooperate in good faith and use their
respective commercially reasonable efforts to resolve such matter in a mutually
satisfactory manner, in light of all the relevant business, regulatory and legal
facts and circumstances.
ARTICLE VI
DAC TAX
Section 6.1 ELECTION. The parties hereto shall make the election provided
in Section 1.848-2(g)(8) of the Treasury Regulations under Section 848 of the
Code. The specifics of this election are as follows:
(a) The Ceding Company and the Reinsurer shall make the following
election pursuant to Section 1.848-2(g)(8) of the Treasury Regulations
under Section 848 of the Code. This election shall be effective for the
first year in which this Agreement is effective and for all subsequent
taxable years for which this Agreement remains in effect. Each party
hereto shall make the election by timely attaching to its tax returns the
schedule required by Section 1.848-2(g)(8)(ii) of such Regulation.
(b) The terms used in this ARTICLE VI, and not otherwise defined in
this Agreement, are defined by reference to Treasury Regulation Section
1.848-2 in effect on the date this Agreement is executed.
(c) The party hereto with the net positive consideration for this
Agreement for each taxable year shall capitalize specified policy
acquisition expenses with respect to this Agreement without regard to the
general deductions limitation of Section 848(c)(1).
(d) Both parties hereto shall exchange information pertaining to the
amount of net consideration under this Agreement each year to ensure
consistency or as otherwise required by the Internal Revenue Service.
(e) The Reinsurer shall submit a schedule to the Ceding Company by
May 1 of each year of its calculation of the net consideration for the
preceding calendar year. This schedule of calculations shall be
accompanied by a statement signed by an officer of the Reinsurer stating
that the Reinsurer shall report such net consideration in its tax return
for the preceding calendar year.
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(f) The Ceding Company may contest such calculation by providing an
alternative calculation to the Reinsurer in writing within 30 calendar
days of Ceding Company's receipt of the Reinsurer's calculation. If the
Ceding Company does not so notify the Reinsurer, the Ceding Company shall
report the net consideration as determined by the Reinsurer in the Ceding
Company's tax return for the previous calendar year.
(g) If the Ceding Company contests the Reinsurer's calculation of
the net consideration, the parties hereto shall act in good faith to reach
an agreement as to the correct amount within 30 calendar days of the date
the Ceding Company submits its alternative calculation. If the Reinsurer
and the Ceding Company 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 Reinsurer and the Ceding Company do not
reach agreement on the calculation of net consideration with such 30 day
period, then the net consideration for the preceding calendar year shall
be determined by an independent accounting firm in accordance with SECTION
10.4.
Section 6.2 UNITED STATES TAX STATUS REPRESENTATION. Each of the Parties
represents and warrants that it is subject to United States taxation under the
provisions of Subchapter L of Chapter 1 of Subtitle A of the Code.
Section 6.3 BREACH OF REPRESENTATION. Should either Party breach the
representation and warranty of Tax status set forth in this Article, the
breaching Party agrees to indemnify and hold the non-breaching Party, its
directors, officers, employees, agents, and shareholders harmless from all
Liability, loss, damages, fines, penalties, interest, and reasonable attorney's
fees, which the non-breaching Party, its directors, officers, employees, agents,
and shareholders may sustain by reason of such breach.
ARTICLE VII
INSOLVENCY
Section 7.1 INSOLVENCY OF THE CEDING COMPANY. In the event of the
insolvency of the Ceding Company, all reinsurance made, ceded, renewed or
otherwise becoming effective under this Agreement shall be payable by the
Reinsurer directly to the Ceding Company or to its statutory liquidator,
receiver or statutory successor on the basis of the Liability of the Ceding
Company under the Covered Insurance Policies without diminution because of the
insolvency of the Ceding Company except: (1) where this Agreement specifically
provides for the Reinsurer to make payment to the payees under the Covered
Insurance Policies in the event of the insolvency of the Ceding Company; or (2)
where the Reinsurer, with the consent of the direct insured, has assumed the
policy obligations of the Ceding Company as direct obligations of the Reinsurer
to the payees
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under a Covered Insurance Policy and in substitution for the obligations of the
Ceding Company to the payees.
Section 7.2 CUT-THROUGH.
(a) In the event the Ceding Company does not pay amounts otherwise
payable under a Covered Insurance Policy as a result of a court of
competent jurisdiction or the state insurance regulatory authority in the
Ceding Company's domiciliary state issuing an order finding the Ceding
Company to be insolvent or entering an order to the Ceding Company which
legally prohibits the Ceding Company from paying amounts otherwise payable
under a Covered Insurance Policy because of the Ceding Company's financial
condition, then the Reinsurer may elect to pay on behalf of the Ceding
Company 100% of any Reinsured Liabilities payable by the Ceding Company
under the Covered Insurance Policy that has not been previously paid by
the Ceding Company, subject always to the other terms, conditions,
exclusions and limitations of the Covered Insurance Policy. If the
Reinsurer elects to make such payment in accordance with the preceding
sentence, the Reinsurer shall make such payment directly to the insured
under the Covered Insurance Policy (such party entitled to payment, the
"PAYEE"). The Reinsurer shall be deemed to have all the rights of the
Ceding Company and be subrogated to all the rights of the Ceding Company
to the extent of such payment. Any such payment by the Reinsurer shall be
used to discharge the Ceding Company from its related payment obligation
under the subject Covered Insurance Policy and shall be treated as a
payment by the Ceding Company for all purposes.
(b) The Reinsurer shall have no obligation to indemnify the Ceding
Company for amounts paid or payable by the Ceding Company in respect of a
Covered Insurance Policy to the extent of any payments made by the
Reinsurer to the applicable Payee of such Covered Insurance Policy in
accordance with SECTION 7.2(a), and the Reinsurer shall be discharged of
its payment obligations to the Ceding Company, or to its conservator,
rehabilitator, receiver, liquidator or statutory successor, under this
Agreement to the extent of such payments.
ARTICLE VIII
DURATION; RECAPTURE
Section 8.1 DURATION. This Agreement shall continue in force until such
time as (i) the Ceding Company's Liability arising out of or related to all
Covered Insurance Policies reinsured hereunder is terminated in accordance with
their respective terms, (ii) the Ceding Company has elected to recapture the
reinsurance of Covered Insurance Policies in full in accordance with SECTION
8.3(a) or (iii) the Reinsurer has elected to terminate this Agreement in
accordance with SECTION 8.3(b).
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Section 8.2 SURVIVAL. Notwithstanding the other provisions of this
ARTICLE VIII, the terms and conditions of ARTICLES I, VI and IX and the
provisions of SECTION 10.1, Section 10.3, SECTION 10.6, and ERROR! REFERENCE
SOURCE NOT FOUND. shall remain in full force and effect after the termination of
this Agreement.
Section 8.3 RECAPTURE.
(a) Upon the occurrence of a Recapture Triggering Event, the Ceding
Company shall have the right (but not the obligation) to recapture all,
and not less than all, of the reinsurance ceded under this Agreement, by
providing the Reinsurer with written notice of its intent to effect
recapture. Recapture of the Covered Insurance Policies shall be effective
on the tenth day following the day on which the Ceding Company has
provided the Reinsurer with such notice (the "RECAPTURE DATE").
(b) Upon the occurrence of a Reinsurer Termination Event, the
Reinsurer shall have the right (but not the obligation) to terminate this
Agreement by providing the Ceding Company with written notice of its
intent to effect a termination of this Agreement. The termination of this
Agreement shall be effective on the tenth day following the day on which
the Reinsurer has provided the Ceding Company with such notice (the
"REINSURER TERMINATION DATE").
(c) Following a recapture pursuant to SECTION 8.3(a) or a
termination pursuant to SECTION 8.3(b), subject to the payment obligations
described in SECTION 8.4, both the Ceding Company and the Reinsurer will
be fully and finally released from all rights and obligations under this
Agreement in respect of the Covered Insurance Policies. Following the
consummation of the recapture or termination, (i) no additional Premiums
or other amounts payable under such Covered Insurance Policies shall be
payable to the Reinsurer hereunder, (ii) the Reinsurer shall have no
further right to receive any Recoveries, (iii) the Reinsurer shall have no
further right to receive principal and interest paid on policy loans in
respect of the Covered Insurance Policies and (iv) the Reinsurer shall
have no further obligation to pay any Reinsured Liabilities or other
amounts hereunder.
(d) Notwithstanding the remedies contemplated by this ARTICLE VIII
or the other Transaction Agreements, (i) the Ceding Company may, in its
sole discretion, require direct payment by the Reinsurer and (ii) the
Reinsurer may, in its sole discretion, require direct payment by the
Ceding Company, of any sum in default under this Agreement or any other
Transaction Agreement in lieu of exercising the remedies in ARTICLE VIII,
and it shall be no defense to any such claim that the Ceding Company or
the Reinsurer might have had other recourse.
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Section 8.4 RECAPTURE PAYMENTS. In connection with a recapture or
termination pursuant to SECTION 8.3, the Reinsurer shall prepare a settlement
statement within fifteen (15) calendar days of the Recapture Date or the
Reinsurer Termination Date, as applicable (the "TERMINAL SETTLEMENT STATEMENT")
setting forth the terminal settlement calculated in accordance with EXHIBIT D
for the Terminal Accounting Period (the "TERMINAL SETTLEMENT"). If the amount of
the Terminal Settlement for the Terminal Accounting Period is positive, the
Ceding Company shall pay such amount to the Reinsurer within five (5) calendar
days of its receipt of the Terminal Settlement Statement. If the amount of the
Terminal Settlement for the Terminal Accounting Period is negative, the
Reinsurer shall pay the absolute value of such amount to the Ceding Company at
the time it delivers the Terminal Settlement Statement to the Ceding Company. In
addition, following the Recapture Date or the Reinsurer Termination Date, as
applicable, the Trust Account shall be terminated and any remaining amounts in
trust pursuant to SECTION 4.3 shall be released to the Reinsurer after the full
satisfaction of the Terminal Settlement pursuant to the Terminal Settlement
Statement. The Ceding Company shall promptly take all actions, including
providing written consent to the Trustee, to permit such termination of the
Trust Account and release of such assets to the Reinsurer.
Section 8.5 NOVATION OF EXISTING REINSURANCE AGREEMENT FOLLOWING RECAPTURE
OR TERMINATION. In connection with any recapture or termination under SECTION
8.3 of this Agreement, the Reinsurer shall cooperate with the Ceding Company and
use commercially reasonable efforts to seek to novate the Existing Reinsurance
Agreements (to the extent such Existing Reinsurance Agreements cover the Covered
Insurance Policies) that have been novated to the Reinsurer to the Ceding
Company with effect as of the Recapture Date or Reinsurer Termination Date, as
applicable, whereupon the Ceding Company shall have the benefits and obligations
under such Existing Reinsurance Agreements, in each case as of the Recapture
Date or the Reinsurer Termination Date, as applicable.
ARTICLE IX
INDEMNIFICATION; DISCLAIMER
Section 9.1 REINSURER'S OBLIGATION TO INDEMNIFY. The Reinsurer hereby
agrees to indemnify, defend and hold harmless the Ceding Company and its
Affiliates and their respective officers, directors, stockholders, employees,
representatives, successors and assigns (collectively, the "CEDING COMPANY
INDEMNIFIED PARTIES") from and against any and all Losses incurred by the Ceding
Company Indemnified Parties to the extent arising from (i) any breach by the
Reinsurer of the covenants and agreements of the Reinsurer contained in this
Agreement, (ii) written instructions or objections of the Reinsurer pursuant to
SECTION 2.3(c) or SECTION 2.4, (iii) any Reinsurer Extra-Contractual Obligations
and (iv) any successful enforcement of this indemnity.
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Section 9.2 CEDING COMPANY'S OBLIGATION TO INDEMNIFY. The Ceding Company
hereby agrees to indemnify, defend and hold harmless the Reinsurer and its
Affiliates and their respective officers, directors, stockholders, employees,
representatives, successors and assigns (collectively, the "REINSURER
INDEMNIFIED PARTIES") from and against any and all Losses incurred by the
Reinsurer Indemnified Parties to the extent arising from (i) any breach by the
Ceding Company of the covenants and agreements of the Ceding Company contained
in this Agreement, (ii) all Excluded Liabilities, (iii) all Net Retained
Liabilities, and (iv) any successful enforcement of this indemnity.
Section 9.3 THIRD PARTY CLAIM PROCEDURES.
(a) In the event that any Reinsurer Indemnified Party or Ceding
Company Indemnified Party (an "INDEMNIFIED PARTY") determines to assert a
claim for indemnification hereunder arising from a claim or demand made,
or an Action or investigation instituted by any Person not either a party
to this Agreement or an Affiliate of a party to this Agreement for which
an indemnifying party (an "INDEMNIFYING PARTY") may have liability
hereunder to an Indemnified Party (a "THIRD PARTY CLAIM"), such
Indemnified Party shall promptly give written notice (a "CLAIMS NOTICE")
to the Indemnifying Party describing in reasonable detail the facts and
circumstances with respect to the subject matter of such claim and the
amount or estimated amount of the Losses sought to be recovered thereunder
to the extent ascertainable (which estimate shall not be conclusive on the
final amount of such claim). The failure by any Indemnified Party to
notify the Indemnifying Party promptly shall not relieve the Indemnifying
Party of its indemnification obligations except to the extent such failure
shall actually prejudice an Indemnifying Party.
(b) Subject to the provisions of SECTION 9.3(d), upon receipt of a
Claims Notice, the Indemnifying Party shall have the right to assume the
defense and control of Third Party Claims described in such Claims Notice.
In the event the Indemnifying Party exercises such right to assume the
defense and control of a Third Party Claim, the Indemnified Party shall
have the right but not the obligation reasonably to participate in (but
not control) the defense of such Third Party Claim with its own counsel
and at its own expense; PROVIDED, HOWEVER, that if (i) the Indemnifying
Party and the Indemnified Party are both named parties to the proceedings
and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them,
(ii) the Indemnified Party assumes the defense of a Third Party Claim
after the Indemnifying Party has failed diligently to pursue the defense
of a Third Party Claim it has assumed, as provided in the first sentence
of SECTION 9.3(d), or (iii) the Indemnifying Party is not entitled to a
legal defense or counterclaim available to the Indemnified Party, then the
Indemnifying Party shall be liable for
41
the reasonable fees and expenses of one outside counsel to the Indemnified
Party. Any election by an Indemnifying Party to assume the defense of a
Third Party Claim must be delivered by the Indemnifying Party to the
Indemnified Party within 20 Business Days after receipt of the Indemnified
Party's Claims Notice, and failure on the part of the Indemnifying Party
to send such notice within such 20 Business Day period shall be deemed an
election not to assume the defense of such Third Party Claim. If the
Indemnifying Party elects to assume the defense of a Third Party Claim,
then the Indemnified Party shall, and shall cause each of its directors,
officers, employees, agents, representatives, Affiliates and permitted
assigns to, cooperate reasonably with the Indemnifying Party in the
defense of any such Third Party Claim, which cooperation shall include
designating a liaison counsel to whom the Indemnifying Party may direct
notices and other communications, using reasonable best efforts to make
witnesses available, and providing records and documents to the extent
such witnesses, records and documents are relevant to the Third Party
Claim.
(c) If the Indemnifying Party (i) elects not to defend the
Indemnified Party against a Third Party Claim, by not delivering notice of
its election to assume the defense of such Third Party Claim within the
period specified in SECTION 9.3(b), or (ii) after assuming the defense of
a Third Party Claim, failing to take reasonable steps necessary to defend
such Third Party Claim, the Indemnified Party shall have the right, at all
times, but not the obligation, to assume its own defense, and the
Indemnifying Party shall have the right, but not the obligation, to
participate reasonably in any such defense and to employ separate counsel
of its choosing at its own expense. In no event shall the Indemnified
Party's right to indemnification for a Third Party Claim be adversely
affected by its assumption of the defense of such Third Party Claim.
(d) The Indemnified Party shall not consent to a settlement of, or
the entry of any judgment arising from, any Third Party Claim without the
consent of the Indemnifying Party, such consent not to be unreasonably
withheld, conditioned or delayed. The Indemnifying Party shall not settle,
compromise or offer to settle or compromise, any Third Party Claim without
the prior written consent of the Indemnified Party if such settlement or
compromise would result in (i) injunctive or other nonmonetary relief
against the Indemnified Party or any of its Affiliates, including the
imposition of a consent order, injunction or decree that would restrict
the future activity or conduct of the Indemnified Party or any of its
Affiliates, (ii) a finding or admission of a violation of Applicable Law
or violation of the rights of any Person by the Indemnified Party or any
of its Affiliates or (iii) subject to SECTION 9.3(e), any monetary
liability of the Indemnified Party that will not promptly be paid or
reimbursed by the Indemnifying Party.
42
(e) If the Indemnifying Party proposes to make or accept a good
faith, bona fide offer to settle or compromise any Third Party Claim and
such proposed settlement or compromise would result in any monetary
liability of the Indemnified Party that would not promptly be paid or
reimbursed by the Indemnifying Party then the Indemnifying Party shall
submit such proposal to the Indemnified Party for approval and the
Indemnified Party shall have the option, in its sole discretion, to
approve or reject such proposal. If the Indemnified Party approves such
proposal, the Indemnifying Party may settle or compromise such Third Party
Claim on the terms set forth in such approved proposal. If the Indemnified
Party rejects such proposal, the Indemnifying Party will have the option,
in its discretion, either (i) to continue the defense of such Third Party
Claim, in which event it may not accept or make an offer to settle or
compromise such Third Party Claim on the proposed terms that were rejected
by the Indemnified Party, and the terms of this SECTION 9.3 will continue
to apply with respect to such Third Party Claim, or (ii) to enter into an
arrangement with the Indemnified Party in which (A) the Indemnifying Party
will promptly pay to the Indemnified Party the amount that would have been
paid to the third party under such proposal to settle or compromise such
Third Party Claim, (B) such proposed settlement or compromise will, for
all purposes under this Agreement other than for purpose of this SECTION
9.3(e), be deemed to have been effected and indemnified under this
Agreement and (C) the Indemnified Party will assume the defense of such
Third Party Claim at its own cost and with its own counsel, will not be
subject to any further limitations or restrictions under this Agreement
with respect to the defense, settlement or compromise of such Third Party
Claim, will not be entitled to any further indemnification under this
Agreement with respect to such Third Party Claim and will not be required
to reimburse the Indemnifying Party for, or return any amount to the
Indemnifying Party with respect to, such Third Party Claim, regardless of
whether the amount that the Indemnified Party is ultimately required to
pay to such third party upon final resolution of such Third Party Claim is
greater or less than the amount paid to the Indemnified Party by the
Indemnifying Party pursuant to this SECTION 9.3(e).
Section 9.4 PROCEDURES FOR DIRECT CLAIMS. In the event any Indemnified
Party determines to bring a claim that does not involve a Third Party Claim for
indemnity against any Indemnifying Party, the Indemnified Party shall promptly
deliver written notice of such claim to the Indemnifying Party describing in
reasonable detail the facts and circumstances with respect to the subject matter
of such claim, and the amount or estimated amount of the Losses sought to be
recovered thereunder to the extent ascertainable (which estimate shall not be
conclusive on the final amount of such claim). The failure by any Indemnified
Party to notify the Indemnifying Party promptly shall not relieve the
Indemnifying Party of its indemnification obligation to the extent such failure
actually prejudices the Indemnifying Party with respect to such claim. The
Indemnifying Party shall have a period of 15 Business Days following receipt of
the notice described in
43
this SECTION 9.4 within which to respond to such claim. If the Indemnifying
Party does not respond within such 15-Business Day period, the Indemnifying
Party will be deemed to have accepted such claim. If the Indemnifying Party
rejects all or any part of such claim, the Indemnified Party shall be free to
seek enforcement of its rights of indemnification under this Agreement with
respect to such claims.
Section 9.5 INDEMNIFICATION PAYMENTS. Any payment arising under this
ARTICLE IX shall be made by wire transfer of immediately available funds to such
account or accounts as the Indemnified Party shall designate to the Indemnifying
Party in writing.
Section 9.6 ADDITIONAL INDEMNIFICATION PROVISIONS. In addition to any
other limitations contained in Article IX, the obligations of the Ceding Company
and the Reinsurer to indemnify any Reinsurer Indemnified Party or Ceding Company
Indemnified Party, as the case may be, are subject to the following:
(a) The amount of any indemnification payments finally determined to
be due to an Indemnified Party pursuant to this Article IX shall be
decreased by the amount of any Tax benefit (in the form of cash actually
received or reduction in cash Taxes actually paid) actually recognized by
any Indemnified Party in respect of such Loss prior to the end of the
taxable year in which an indemnity payment is made by an Indemnifying
Party to an Indemnified Party with respect to such Loss, to the extent
that such Tax benefit does not exceed the amount of the indemnity payment
received by the Indemnified Party, net of any expenses incurred by such
Indemnified Party in pursuing such Tax benefit, and (ii) increased by the
amount of any Tax cost realized prior to the end of such taxable year by
any Indemnified Party as a result of the receipt or accrual of the
indemnity payment with respect to such Loss. If any such Tax benefit (or
portion thereof) is disallowed, as a result of an audit or otherwise, the
applicable Indemnifying Party shall promptly pay to the applicable
Indemnified Party the amount of such disallowed Tax benefit within 30 days
after the Indemnified Party notifies the Indemnifying Party that the
adjustment with respect to such disallowance has been paid or otherwise
taken into account.
(b) Upon making any indemnification payment in respect of a Loss
with respect to all or a portion of which the Indemnified Party could have
recovered from an unaffiliated third party (other than a Taxing
Authority), if the Indemnified Party shall have received full payment of
all Losses with respect to the underlying claim, the Indemnifying Party
will, to the extent of such payment and to the extent permitted under
Applicable Law and any applicable contractual obligations to third
parties, be subrogated to all rights of the Indemnified Party against such
unaffiliated third party in respect of the Loss to which the payment
relates. Each such Indemnified Party and Indemnifying Party will duly
execute
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upon request all instruments reasonably necessary to evidence and perfect
the above-described subrogation rights.
(c) The amount of any Losses sustained by an Indemnified Party and
owed by an Indemnifying Party shall be reduced by any amount actually
recovered by such Indemnified Party with respect thereto under any
insurance or reinsurance coverage, or from any other party alleged to be
responsible therefor. The Indemnified Party shall use commercially
reasonable best efforts to collect any amounts available under such
insurance or reinsurance coverage and from such other party alleged to
have responsibility. If, at any time subsequent to any indemnification
actually having been paid pursuant to this Article IX, the Indemnified
Party receives an amount under insurance or reinsurance coverage or from
such other party with respect to Losses so indemnified, then such
Indemnified Party shall promptly reimburse by that amount the applicable
Indemnifying Party for any such indemnification payment actually made by
such Indemnifying Party up to the amount received by the Indemnified
Party, net of any expenses incurred by the Indemnified Party in collecting
any such amount and any increases in insurance premiums attributable to
such recovery; PROVIDED that such reimbursement shall only be required to
the extent the Indemnified Party would otherwise retain an amount greater
than the full amount of the Losses incurred by the Indemnified Party as a
result of the underlying claim.
(d) For the avoidance of doubt, Ceding Company shall not be under
any obligation to indemnify any Reinsurer Indemnified Party for any Loss
that was specifically reflected or reserved for on the Reinsurer Closing
Statement, as finally determined pursuant to SECTION 3.1, or that was
otherwise specifically included in the calculation of the Initial
Reinsurance Premium as reflected on such Reinsurance Closing Statement.
For the avoidance of doubt, amounts recorded in a general ledger account
or in the supporting workpapers or other detail to a balance sheet used to
calculate amounts reflected on the Reinsurance Closing Statement shall be
considered included in the calculation of the Initial Reinsurance Premium
on such Reinsurance Closing Statement.
Section 9.7 NO DUPLICATION. To the extent that a Reinsurer Indemnified
Party or a Ceding Company Indemnified Party has received payment in respect of a
Loss pursuant to the provisions of any other Transaction Agreement, such
Reinsurer Indemnified Party or Ceding Company Indemnified Party shall not be
entitled to indemnification for such Loss under this Agreement to the extent of
such payment.
Section 9.8 WAIVER OF DUTY OF UTMOST GOOD FAITH. In recognition that each
Party has consummated the transactions contemplated by this Agreement and the
Transaction Agreements to which it is a party, based on mutually negotiated
representations, warranties, covenants, remedies and other terms and conditions
as are
45
fully set forth herein and therein, the Ceding Company and the Reinsurer
absolutely and irrevocably waive resort to the duty of "utmost good faith" or
any similar principle in connection with the cession of liabilities from the
Ceding Company to the Reinsurer as of the Effective Time; PROVIDED, HOWEVER,
that the Reinsurer reserves all of its rights and remedies in respect of any
such duty of utmost good faith or similar duty of disclosure of the Ceding
Company arising after the Effective Time to the extent information relating to
the liabilities reinsured hereunder has not been disclosed, or is not otherwise
available to the Reinsurer, including in its capacity as Administrator, or any
of its designees or agents.
ARTICLE X
MISCELLANEOUS
Section 10.1 NOTICES. All notices, requests, and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given:
(a) if to the Ceding Company:
MONY Life Insurance Company of America
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
Attention: General Counsel
With concurrent copies (which shall not constitute notice)
to:
AXA Equitable Financial Services, LLC
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: General Counsel
AXA S.A.
00 xxxxxx Xxxxxxxx
00000 - Xxxxx
Xxxxxx
Facsimile: x00 0 00 00 00 00
Attention: General Counsel
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Debevoise & Xxxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxxx, Esq.
Xxxxxxx X. Lion, Esq.
if to the Reinsurer:
Protective Life Insurance Company
0000 Xxxxxxx 000 Xxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
Telephone: (000) 000-0000
Attention: General Counsel
With a concurrent copy (which shall not constitute notice)
to:
Xxxxxxx Xxxx & Xxxxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxx X. Xxxxxxxxx, Esq.
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5:00 p.m. on a Business
Day in the place of receipt. Otherwise, any such notice, request or
communication shall be deemed to have been received on the next succeeding
Business Day in the place of receipt.
Section 10.2 ENTIRE AGREEMENT. This Agreement (and the Master Agreement,
the Administrative Services Agreement, the Transition Services Agreement, the
Trust Agreement and the other agreements contemplated hereby and thereby, and
the Exhibits, Schedules and Annexes hereto and thereto) together contain the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements, written or oral, with respect thereto.
47
Section 10.3 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING AS TO
VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR RULES OF CONFLICT OF LAWS, TO THE
EXTENT SUCH PRINCIPLES OR RULES ARE NOT MANDATORILY APPLICABLE BY STATUTE AND
WOULD PERMIT OR REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
Subject to SECTION 3.1 and SECTION 10.4, the Ceding Company and the Reinsurer
each hereby irrevocably submit to the jurisdiction of the courts of the State of
New York and the federal courts of the United States of America located in the
State, City and County of New York solely in respect of the interpretation and
enforcement of the provisions of this Agreement and in respect of the
transactions contemplated hereby. The Ceding Company and the Reinsurer
irrevocably agree, subject to SECTION 3.1 and SECTION 10.4, that such
jurisdiction of such courts with respect thereto shall be exclusive, except
solely to the extent that all such courts shall lawfully decline to exercise
such jurisdiction. The Ceding Company and the Reinsurer each hereby waives, and
agrees not to assert, as a defense in any Action for the interpretation or
enforcement hereof or in respect of any such transaction, that it is not subject
to such jurisdiction. The Ceding Company and the Reinsurer hereby waive, and
agree not to assert, to the maximum extent permitted by law, as a defense in any
Action for the interpretation or enforcement hereof or in respect of any such
transaction, that such Action may not be brought or is not maintainable in such
courts or that the venue thereof may not be appropriate or that this Agreement
may not be enforced in or by such courts. The Ceding Company and the Reinsurer
hereby consent to and grant any such court jurisdiction over the person of such
parties and over the subject matter of any such dispute and agrees that mailing
of process or other papers in connection with any such Action in the manner
provided in SECTION 10.1 or in such other manner as may be permitted by law,
shall be valid and sufficient service thereof.
(b) EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
(c) The Ceding Company and the Reinsurer acknowledge that disputes
relating to this Agreement and disputes relating to the Master Agreement may
overlap, and agree that if any Reinsurer Indemnified Party has a right to
indemnification or recovery under both this Agreement and the Master Agreement
48
or any other Ancillary Agreement, the Reinsurer Indemnified Party shall have the
right to seek and obtain indemnification or recovery under any or all of such
agreements; PROVIDED that the Reinsurer Indemnified Party may not obtain
duplicative indemnification or other recovery under such agreements.
Section 10.4 DISPUTES OVER CERTAIN CALCULATIONS. After the Effective Time,
any dispute between the Parties with respect to the calculation of amounts that
are to be calculated or reported pursuant to this Agreement (other than disputes
with respect to the Reinsurance Closing Statement which shall be resolved in
accordance with SECTION 3.1 hereof, including disputes with respect to any Net
Settlement or the amount of the Terminal Settlement, that cannot be resolved by
the Parties within sixty calendar days, shall be referred to an independent
accounting firm of national recognized standing (which shall not have any
material relationship with the Reinsurer or the Ceding Company) mutually agreed
to by the Parties; PROVIDED, HOWEVER, that where the dispute involves an
actuarial issue, the dispute shall instead be referred to an independent
actuarial firm of national recognized standing (which shall not have any
material relationship with the Reinsurer or the Ceding Company) mutually agreed
to by the Parties. There shall be no appeal from the decision made by such firm,
which shall be final and binding, except that, either Party may petition a court
having jurisdiction over the Parties and subject matter to reduce the
arbitrator's decision to judgment. The fees charged by the accounting firm or
actuarial firm, as applicable, to resolve the dispute shall be allocated between
the Ceding Company and the Reinsurer by such firm in accordance with its
judgment as to the relative merits of the Parties' positions in respect of the
dispute.
Section 10.5 NO THIRD PARTY BENEFICIARIES. Other than the rights granted
to the Reinsurer Indemnified Parties and the Ceding Company Indemnified Parties
under ARTICLE IX, nothing in this Agreement is intended or shall be construed to
give any Person, other than the Parties hereto, their successors and permitted
assigns, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
Section 10.6 EXPENSES. Except as otherwise provided herein, the Parties
hereto shall each bear their respective expenses incurred in connection with the
negotiation, preparation, execution, and performance of this Agreement and the
transactions contemplated hereby, including all fees and expenses of counsel,
actuaries and other representatives.
Section 10.7 COUNTERPARTS. This Agreement may be executed by the Parties
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the Parties hereto. Each
party may deliver its counterpart to this
49
Agreement by facsimile or other means of electronic transmission that utilizes
image scan technology and delivery of such counterpart by any such means shall
be valid as manual delivery of an original counterpart hereof.
Section 10.8 SEVERABILITY. Any term or provision of this Agreement that is
determined by a court of competent jurisdiction to be inoperative or
unenforceable for any reason shall, as to that jurisdiction, be ineffective
solely to the extent of such invalidity or unenforceability without rendering
invalid or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. If any provision of this Agreement is
determined by a court of competent jurisdiction to be so broad as to be
unenforceable, that provision shall be interpreted to be only so broad as is
enforceable.
Section 10.9 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, permitted
assigns and legal representatives. Unless otherwise provided herein, neither
this Agreement, nor any right or obligation hereunder, may be assigned by any
party (in whole or in part) without the prior written consent of the other party
hereto.
Section 10.10 WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the parties hereto, or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any party on
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right, power or
privilege, nor any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.
Section 10.11 INTERPRETATION.
(a) The parties acknowledge and agree that, except as specifically
provided herein, they may pursue judicial remedies at law or in equity in
the event of a dispute with respect to the interpretation or construction
of this Agreement.
(b) This Agreement shall be interpreted and enforced in accordance
with the provisions hereof without the aid of any canon, custom or rule of
law requiring or suggesting construction against the party causing the
drafting of the provision in question.
(c) The table of contents, articles, titles, captions and headings
to sections herein are inserted for convenience of reference only and are
not intended
50
to be a part of or to affect the meaning or interpretation of this
Agreement. The Schedules, Exhibits and Annexes referred to herein are be
construed with and as an integral part of this Agreement to the same
extent as if they were set forth verbatim herein. All references herein to
Articles, Sections, Exhibits, Schedules and Annexes shall be construed to
refer to Articles and Sections of, and Exhibits and Schedules and Annexes
to, this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they are deemed to be followed by
the words "without limitation". Unless the context otherwise requires, the
words "hereof," "herein" and "hereunder" and words of similar import when
used in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. All terms defined in this
Agreement have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined
therein. The definitions in this Agreement are applicable to the singular
as well as the plural forms of such terms and to the masculine as well as
to the feminine genders of such term. Any agreement or instrument defined
or referred to herein or any agreement or instrument that is referred to
herein means such agreement or instrument as from time to time amended,
modified or supplemented, including by waiver or consent and references to
all attachments thereto and instruments incorporated therein. Any statute
or regulation referred to herein means such statute or regulation as
amended, modified, supplemented or replaced from time to time (and, in the
case of statutes, includes any rules and regulations promulgated under the
statute), and references to any section of any statute or regulation
include any successor to the section. Any agreement referred to herein
include reference to all Exhibits, Schedules, Annexes and other documents
or agreements attached thereto.
[The rest of this page intentionally left blank.]
51
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the date set forth above.
MONY LIFE INSURANCE COMPANY OF AMERICA
By:
-----------------------------------
Name:
Title:
PROTECTIVE LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
Title:
52
SCHEDULE 1.1(A)
MLOA BUSINESS
PRODUCT NAMES DATE ADMIN MLOA POLICY FORM
LAUNCHED SYSTEM
------------------------------------------- ------------ ----------- ------------------------------
Single Premium Deferred Annuity Oct-82 TOPS B4-82, B5-82
Universal Life Jan-83 TOPS B1-82
Universal Life - SCP Dec-83 TOPS B1-83
Strategist Aug-85 TOPS B1-85, B2-85
SPWL Sep-85 TOPS B6-86, B1-87
Single Premium Deferred Annuity Nov-85 TOPS B5-82
Universal Life II Sep-86 TOPS B2-86, B3-86
UL - Payroll Deduction Oct-86 TOPS B5-86
Single Premium Deferred Annuity Aug-86 TOPS B4-82
Single Premium Immediate Annuity May-86 TOPS 327-D, 328-D
MONYMaster (FPVA1) Oct-87 TOPS X0-00, X0-00, X0-00
XX 0 Xxx-00 XXXX B9-88, B10-88
MONYMaster (FPVA2) Aug-88 TOPS B1-88, B3-88, B5-88
Single Premium Deferred Annuity Sep-89 TOPS B1-89, B2-89
UL 4 Dec-90 TOPS B1-90
MONYCompetitor Jan-93 TOPS B9-88, B10-88
MONYChampion Jan-93 TOPS B1-90
MONYSuccessor (LSUL) Apr-94 TOPS B1-93
MONY Equity Master Jan-95 TOPS X0-00, X0-00
XXXXXxxxxx Xxxxxx Master (SVUL) May-98 Cyberlife B1-98
MONYCustom Equity Master (VUL) May-98 Cyberlife B2-98, B3-98
MONYCustom Term 50 May-98 Cyberlife B4-98
MONYCustom Master (VA98) 1998,2000 Cyberlife B5-98, B6-98
MONYCustom Term 5, 10, 15, 20 Jun-98 Cyberlife B7-98
MONYCustom Term 1 May-98 Cyberlife B12-98
GUL (inc. MONYCustom Benefit Plus) Feb-99 Vantage B13-98
MONYCustom Estate Master (SVUL) 2000 Cyberlife B1-98
MONYCustom Equity Master (VUL) 2000 Cyberlife B2-98, B3-98
MONY Level Term 2000-2004 Cyberlife B1-00, B2-00, B7-98
UL 2001 2001 Cyberlife B3-00
SUL 2001 2001 Cyberlife B6-00
Interest Sensitive Whole Life 2002 Cyberlife B3-02, B4-02
UL 02 (Splash) 2002 Cyberlife B3-00
1
SUL 02 (Splash) 2002 Cyberlife B6-00
VUL 02 (Splash) 2002 Cyberlife B2-98, B3-98
SVUL 02 (Splash) 2002 Cyberlife B1-98
Flex Premium Deferred Annuity 2002 EPIC B1-02, B2-02
Flex Prem Variable Annuity 2002 Cyberlife B7-02, B8-02, B9-02, B10-02
VUL 03 (Tweak) Jan-03 Cyberlife B2-98 + 02211
UL 03 May-03 Cyberlife B1-03, B2-03
VUL 03 Jun-03 Cyberlife B3-03, B4-03
FPVA C-share, L-share 2003 Cyberlife B7-03, B8-03
Group Term 2003 Vantage B10-03, B10C-03
NOTE: The listed policy forms are for the generic form. State variations, where
they exist, have the same form number with the two-digit state code appended.
NOTE: Some policy forms were used for multiple releases of similar products.
2
SCHEDULE 1.1(B)
EXCLUDED MLOA BUSINESS
PRODUCT NAMES DATE ADMIN MLOA POLICY FORM
LAUNCHED SYSTEM
------------------------------------------- ----------- ---------- ------------------------------
CSVUL 1997 Andesa B1-96
IL Legacy 2005 L70 06-100
IL Legacy S. 150 2009 L70 ICC09-100
Indexed Universal Life 2012 L70 ICC12-100
NOTE: The listed policy forms are for the generic form. State variations, where
they exist, have the same form number with the two-digit state code appended.
NOTE: Some policy forms were used for multiple releases of similar products.
SCHEDULE 1.1(C)
NET RETAINED LIABILITIES CEDING COMMISSION ADJUSTMENT
If there are no Net Retained Liabilities as of the Effective Time, the Net
Retained Liabilities Ceding Commission Adjustment shall be zero.
In the event that there are Net Retained Liabilities as of the Effective Time,
the Net Retained Liabilities Ceding Commission Adjustment shall be determined as
follows:
1. For purposes of the Closing, the Ceding Company shall cause Milliman
to evaluate the impact on appraisal values of the Covered Insurance
Policies reflected in the actuarial report prepared by Xxxxxxxx,
Inc. with respect to, among other things, the Covered Insurance
Policies dated November 5, 2012 (the "APPRAISAL REPORT") resulting
from the exclusion from this Agreement of such Net Retained
Liabilities by rolling forward to the Effective Time the analysis
done in the attached memorandum (and reflecting such analysis in the
format of the attached memorandum) (the "EFFECTIVE TIME APPRAISAL
REPORT").
2. The Net Retained Liabilities Ceding Commission Adjustment as of the
Effective Time will be equal to the sum of the following amount
calculated for each of the cohorts reflected in the Effective Time
Appraisal Report that constitute Net Retained Liabilities: (a) the
Ceding Commission (as adjusted pursuant to the Master Agreement)
minus (b)(i) the ratio of the value without the excluded policies to
the baseline value (with all of the values taken from the "Including
Appraisal Transaction Tax Benefit" column reflecting a 10% discount
rate on page 4 of the Effective Time Appraisal Report), times (ii)
the Ceding Commission (as adjusted pursuant to the Master
Agreement).
In the event that following the Effective Time, any waivers or consents needed
to reinsure Net Retained Liabilities are obtained or the parties otherwise agree
that such waivers or consents are not required, the Net Retained Liabilities
Ceding Commission Adjustment with respect to such former Net Retained
Liabilities shall equal the portion of the Net Retained Liabilities Ceding
Commission Adjustment related to such former Net Retained Liabilities that as
was determined as of the Effective Time in accordance with this Schedule 1.1(C).
SCHEDULE 1.1(D)
SEPARATE ACCOUNTS
MONY Life Insurance Company of America Separate Account "A"
MONY Life Insurance Company of America Separate Account "L"
SCHEDULE 1.1(E)
SHARED REINSURANCE AGREEMENTS
- Automatic Reinsurance Agreement No. 2005-7T (Coinsurance Basis), effective
as of January 16, 2004, by and among MONY Life Insurance Company of
America and Scottish Re (U.S.), Inc. , as amended.
- Automatic Reinsurance Agreement No. 2005-8T (Coinsurance Basis), effective
as of January 16, 2004, by and among MONY Life Insurance Company of
America and Munich American Reassurance Company, as amended.
- Coinsurance Agreement, effective as of November 1, 1997, by and among MONY
Life Insurance Company of America and The Lincoln National Life Insurance
Company, as amended.
- Coinsurance Agreement, effective as of July 31, 2000, by and among MONY
Life Insurance of America and The Lincoln National Life Insurance Company,
as amended.
- Automatic and Facultative Reinsurance Agreement No. 2005-5T (Coinsurance
Basis), effective as of January 16, 2004, by and among MONY Life Insurance
Company of America and Security Life of Denver Insurance Company, as
amended.
- Automatic and Facultative Reinsurance Agreement No. 2005-6T (Coinsurance
Basis), effective as of January 16, 2004, by and among MONY Life Insurance
Company of America and The Canada Life Assurance Company, as amended.
- Reinsurance Agreement, effective as of January 1, 1984, among The Mutual
Life Insurance Company of America and North American Life and Casualty
Company, as amended.
- Automatic Bulk YRT Non-Refund Agreement, effective as of November 16,
1998, by and among MONY Life Insurance Company, MONY Life Insurance
Company of America and Allianz Life Insurance Company of North America.
- Automatic Yearly Renewable Term Reinsurance Agreement, effective as of
November 16, 1998, by and among MONY Life Insurance Company, MONY Life
Insurance Company of America and General & Cologne Life Re of America, as
amended.
- Facultative YRT Reinsurance Agreement, effective as of January 1, 1984, by
and among The MONY Life Insurance Company of America and General American
Life Insurance Company, as amended.
- Automatic YRT Reinsurance Agreement (No. 6594-00-00), effective as of
November 16, 1998, by and among MONY Life Insurance Company, MONY Life
Insurance Company of America and RGA Reinsurance Company, as amended.
- Automatic Agreement, effective as of April 1, 1991, by and among MONY Life
Insurance Company of America and Saint Louis Reinsurance Company, as
amended.
- Reinsurance Agreement, effective as of January 1, 1983, by and among MONY
Life Insurance Company of America and Transamerica Occidental Life
Insurance Company, as amended.
SCHEDULE 3.1
TRANSFERRED ASSETS
[See attached Schedule 3.1]
If the Company Statutory Book Value of the assets listed on Schedule 3.1 is
greater than the amount equal to (i) the Initial Reinsurance Premium less (ii)
the Adjusted Ceding Commission, then the Transferred Assets shall consist of the
investment assets on Schedule 3.1 less an amount of cash equal to such excess;
provided that if the amount of cash listed on Schedule 3.1 is less than such
excess, the Transferred Assets shall consist of a subset of the investment
assets on Schedule 3.1 that have a yield, duration and credit profile
substantially similar to the yield, duration and credit profile to the assets
listed on Schedule 3.1, in round lots to the extent possible.
If the Company Statutory Book Value of the assets listed on Schedule 3.1 is less
than the amount equal to (i) the Initial Reinsurance Premium less (ii) the
Adjusted Ceding Commission, the Ceding Company shall transfer cash in the amount
equal to such shortfall; provided that if the amount of such shortfall is
greater than $50 million, the Ceding Company shall transfer assets that have a
yield, duration and credit profile substantially similar to the yield, duration
and credit profile to the assets listed on Schedule 3.1 with a Company Statutory
Book Value equal to such shortfall. In no event shall the Transferred Assets
include investment assets that may not be transferred to the Reinsurer pursuant
to transfer restrictions in the agreements underlying such investment assets
that have not been waived or for which consent has not been received.
EXHIBIT A
TRUST AGREEMENT
EXHIBIT B
SETTLEMENT STATEMENT
[See attached Exhibit B]
EXHIBIT C
INVESTMENT GUIDELINES
INVESTMENT GUIDELINES
MLOA REINSURANCE TRUST ASSETS
1
TABLE OF CONTENTS
MLOA REINSURANCE TRUST ASSETS
INVESTMENT GUIDELINES PAGE
I. General Investment Philosophy 3
II. Portfolio Quality 4
III. Enterprise Limits 5-8
A. Corporate / Government & Government Related
B. Structured Products
IV. Portfolio Duration 9
V. Commercial Paper and Money Market Funds 10
VI. Temporary & Other Than Temporary Impaired (OTTI) Assets 11
VII. Trading Process 12
A. Trading Guidelines
B. Trading Authorization
VIII. Policy Application 13
2
I. GENERAL INVESTMENT PHILOSOPHY
PHILOSOPHY
The Investments Department will invest in a portfolio of assets that will
enable the company to support its liabilities and earn an appropriate
risk-adjusted rate of return for our shareholders while meeting all
applicable statutory requirements. The investment portfolio will be
managed in accordance with the following guidelines:
- Preservation of Principal - Invest with a strong bias towards
principal preservation.
- High Quality Assets - Invest with a bias toward high quality
assets.
- Diversification - Avoid outsized investments in any single
asset class or issuer no matter how attractive the opportunity
may appear.
- Credit Research - Perform our own fundamental, bottom-up
research rather than rely on the analysis of others.
- Risk - Reward Profile - Strive to make investments only when
we feel there is an appropriate risk- return trade-off.
- Long Term View - Invest for the long term because we are
making long-term commitments to our policy holders through our
ability to support our liabilities.
- Liquidity - Maintain ample liquidity to be able to meet our
obligations under normal and stress market conditions.
The Chief Investment Officer (CIO) is responsible for managing the
investment portfolio in accordance with this Philosophy.
The Chief Risk Officer (CRO) is responsible for providing independent
monitoring and oversight of the CIO and Investment Department's
conformance with this Philosophy.
The CIO will report material exceptions to these Investment Guidelines to
the Finance and Investment Committee (F&I Committee) on a quarterly basis.
This report will describe the nature of the exception(s), the cause(s) and
action(s) taken or planned to address and correct the exception(s).
The Reinsurer shall review the assets held in the Trust Account for
compliance with the investment guidelines on a quarterly basis. The
Reinsurer shall notify the Ceding Company no later than three Business
Days after the conclusion of such quarterly review of any failure of an
asset in the Trust Account to be an Eligible Asset discovered in the
course of such review and correct such failure within ten Business Days
of the conclusion of such review or receive approval from the Ceding
Company to allow an existing failure to remain for a longer period of
time; PROVIDED that the Reinsurer shall have a period of 30 days
following the date of the Effective Time to cure any failure of
Transferred Asset (other than a commercial mortgage loan) deposited in
the Trust Account to be an Eligible Asset.
Any asset that is transferred from Ceding Company will be deemed an
Eligible Asset and any violation created by a Transferred Asset shall be
deemed acceptable by Ceding Company and will not require Reinsurer to
cure.
3
II. PORTFOLIO QUALITY
STATEMENT OF POLICY
The quality target for the overall fixed income bond portfolio is A3/A-
(Xxxxx'x/S&P). The overall fixed income bond portfolio includes the following
sectors: Corporates, Governments and Government Related, and Structured
Products. All fixed income securities held by the Trust will be denominated and
payable in US dollars.
MACRO SECTOR ALLOCATIONS / LIMITS
Investments Policy Committee (IPC) will monitor sector allocations to Fixed
Income Investments on a quarterly basis
CONTROLS AND PROCEDURES
Compliance is the responsibility of the CIO.
PERIODIC REVIEW
Portfolio quality will be calculated by corporate accounting and reported as
part of the quarterly financial statements.
PORTFOLIO RATING METHODOLOGY
CUSIP level security ratings will be aggregated to determine the overall
portfolio rating quality for the fixed income bond portfolio using the following
order of priority and will be weighted by STAT book value:
Security rating based on rating agency (Xxxxx'x/S&P/Fitch) will use the
following logic:
i. If three agency ratings are available (Xxxxx'x/S&P/Fitch): the
middle rating will be used;
ii. If two agency ratings are available: the lower of the two ratings
will be used;
iii. If only one agency rating is available: that rating will be used;
Security rating will be based on the NAIC rating if the ratings based on rating
agency are not available.
SUBSTITUTION AND REPLACEMENT
Substitution and replacement of Trust assets are permitted provided that after
giving effect to any such action, the market value of the Trust Portfolio is at
least equivalent to the market value of the Trust portfolio immediately prior to
such action.
4
III. ENTERPRISE LIMITS
A. Corporates, Government, and Government Related
CORPORATES
Corporates are defined as public corporate securities and private placement
securities.
STATEMENT OF POLICY
The aggregate exposure limits for corporate credit issuers will be based on
percent of Consolidated Statutory Book Value of Trust Assets and Ultimate Parent
Issuer Ratings as follows:
CREDIT RATING LIMIT
--------------------------- ---------------
AAA 6.0%
--------------------------- ---------------
AA 5.0%
--------------------------- ---------------
A 4.5%
--------------------------- ---------------
BBB 4.0%
--------------------------- ---------------
BB 3.0%
--------------------------- ---------------
PROCESS USED TO COMPUTE AGGREGATE EXPOSURE LIMIT
1) AGGREGATE CORPORATE CREDIT EXPOSURE MEASURE
The basis for measuring Aggregate Single Name Corporate Exposure will be:
- Statutory book value for Bonds and Short-term Investments
2) EXPOSURE LIMIT DERIVATION
Aggregate Corporate Credit Exposure / Consolidated STAT Book Value of
Trust Assets expressed as a percentage
3) CORPORATE CREDIT
- Assets rated below Baa3/BBB- may not be purchased for the Trust. The
aggregate amount of the Trust Assets held rated below Baa3/BBB-
(Xxxxx'x/S&P) or rated NAIC 3 or below will be limited to 4% of
Total Trust Assets (measured on the basis of statutory book value).
Trust Assets rated below Ba3/BB- (Xxxxx'x/S&P) or rated NAIC 4 or
below may not be held without the prior approval of the Ceding
Company.
- Aggregate foreign exposure (excluding Canada) will be limited to 20%
of statutory book value of total Trust assets; per country limit set
at 10% excluding US and Canada.
- Aggregate exposure to individual industry sectors will not exceed
the greater of the respective percentages of the Barclays US Credit
Index or 15% of statutory book value of the Trust assets.
- Private placement securities, excluding 144A Securities, to
represent no more than 25% of statutory book value of Trust assets.
- Notwithstanding anything in the guidelines to the contrary,
individual CUSIP level positions shall not be required to be less
than $2,000,000.
Aggregate exposure limits for corporate credit issuers will be based on
statutory book value of aggregate Trust portfolio based on percentage
limits shown in table above and Ultimate Parent Issuer Ratings.
5
4) RATING METHODOLOGY FOR CORPORATE EXPOSURES
Corporate Exposure Credit Ratings used in the above table will be based on
following order of priority:
I. Ultimate Parent Rating
x. Xxxxx'x - Ultimate Parent Issuer Rating (if unavailable,
senior unsecured debt rating)
b. S&P - Long Term Local Issuer Credit Rating
x. Xxxxx - Xxxx Term Issuer Default Rating (if unavailable,
senior unsecured debt rating)
II. If above ratings are unavailable: Xxxxx'x/S&P/Fitch Security
Rating will be used and average rating will be weighted based
on STAT book value:
For I and II above, security rating will use the following
logic:
a. If three ratings are available (Xxxxx'x, S&P, Fitch):
the middle rating will be used
b. If two ratings are available: the lower of the two
ratings will be used
c. If only one rating is available: that rating will be
used
III. If agency ratings are not available: NAIC ratings will be used
and the average rating will be weighted based on STAT book
value
IV. If agency and NAIC ratings are not available for private
placements: ERM's Head of Credit Risk will request a rating
from the NAIC Securities Valuation Office (SVO).
GOVERNMENT AND GOVERNMENT RELATED
- U.S. Treasuries - No explicit limits
- Agency Debt Limits
- Government Sponsored Entities (GSE) - Xxxxxx Mae and
Xxxxxxx Mac have a limit of 10% STAT Book Value of Trust
Assets per GSE
POLICY AND PROCEDURES
- Purchases of non- investment corporate securities rated XXXX
0, XXXX 0, XXXX 0, XXXX 6 are not permitted.
- For Exposure computation, the Aggregate Exposure Percent (2)
based on ratings (3) must adhere to prescribed limits in the
table above.
- Enterprise Risk Management's (ERM) Credit Risk Unit will
monitor limits and update on a quarterly basis.
- The Reinsurer shall review the assets held in the Trust
Account for compliance with the investment guidelines on a
quarterly basis. The Reinsurer shall notify the Ceding Company
no later than three Business Days after the conclusion of such
quarterly review of any failure of an asset in the Trust
Account to be an Eligible Asset discovered in the course of
such review and correct such failure within ten Business Days
of the conclusion of such review or receive approval from the
Ceding Company to allow an existing failure to remain for a
longer period of time; PROVIDED that the Reinsurer shall have
a period of 30 days following the date of the Effective Time
to cure any failure of Transferred Asset (other than a
commercial mortgage loan) deposited in the Trust Account to be
an Eligible Asset.
6
- Limits exceptions are reported on a quarterly basis to the
Investments Policy Committee for approval.
- Trust portfolio quality will be calculated by the Reinsurer's
corporate accounting department and reported quarterly as part
of the quarterly reporting requirements pursuant to the
Administrative Services Agreement.
7
III. ENTERPRISE LIMITS
B. Structured Products
STATEMENT OF POLICY
Instruments collateralized by credit card, auto receivables, residential
mortgages and commercial mortgages will adhere to the following guidelines based
on external agency (Xxxxx'x, S&P, Fitch) ratings:
ASSET BACKED SECURITIES (ABS)
AAA-RATED CARDS (Chase, BoA, GE, Amex, Capital One, Xxxxx Fargo, Discover,
Citi): Exposure is limited to maximum of 10% of STAT Book Value of Trust
Assets for these issuer master trusts.
AAA-RATED AUTO (Ford, Volkswagen, Honda, Toyota, BMW, Mercedes-Benz,
Chrysler, Harley-Davidson, Porsche, Nissan, Hyundai, CarMax, Bank of
America, Ally): Exposure is limited to maximum of 10% of STAT Book Value
of Trust Assets for these issuer master trusts.
Any type of ABS security that is not Super Senior or Senior tranche is
limited to 1% of STAT Book Value of Trust Assets.
COMMERCIAL MORTGAGE BACKED SECURITIES (CMBS)
AAA-rated issues originated from Commercial Mortgage securitization trusts
are limited to 10% of STAT Book Value of Trust Assets.
Any type of CMBS security that is not Super Senior or Senior tranche is
limited to 1% of STAT Book Value of Trust Assets.
AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES (AGENCY RMBS)
- Holdings of Agency RMBS securities (Xxxxxx Xxx, Xxxxxxx Mac & Xxxxxx
Mae) i.e., mortgage pass-throughs and CMO's in total will not exceed
10% of STAT Book Value of Trust Assets
- Structured Products will be limited to 20% of the STAT Book Value of
Trust Assets.
8
IV. PORTFOLIO DURATION
STATEMENT OF POLICY
- The overall portfolio duration is targeted not to vary by more than
+/- 1.0 year from the liability duration.
- Individual portfolio product/segment durations are targeted not to
vary by more than +/- 2.0 years from the liability duration of their
corresponding interest sensitive product line.
CONTROLS AND PROCEDURES
- Asset durations are produced and reviewed by the Asset/Liability
Management Committee on a monthly basis.
- Liability durations are based on varying methodologies dependent on
current market conditions and the underlying contract/policy
attributes and reviewed by the Asset/Liability Management Committee.
- When individual portfolio product/segment durations fall outside the
+/-2.0 years duration target, a discussion will be held by the
Asset/Liability Committee to determine what action, if any, is
necessary.
- Compliance is the responsibility of the Asset Liability Management
unit.
PERIODIC REVIEW
- Duration information is reported to the Asset/Liability Committee
each month. The Asset/Liability Management Committee consists of
CIO, CFO, CRO, Chief Actuary, Chief Accountant and other officers.
- Overall portfolio duration information is also included in the
Finance and Investment Committee presentation to the Board of
Directors.
9
V. COMMERCIAL PAPER AND MONEY MARKET FUNDS
STATEMENT OF POLICY
- Commercial Paper and Money Market Fund investments may be used on a
short-term basis for cash management purposes. All commercial paper
investments must be rated A-1/P-1 or higher. All money market funds
must be short-term in nature and have investment policies consistent
with high-grade short-term investments (i.e. A-1/P-1, maximum 1-year
term).
CONTROLS AND PROCEDURES
- Compliance is the responsibility of the portfolio manager at the
time investment decision is made.
- Commercial paper trades must be entered into trading system and
approved by an authorized signer.
PERIODIC REVIEW
- Commercial paper and money market investments are subject to review
daily by Investment Officers, including the CIO.
10
VI. TEMPORARY & OTHER THAN TEMPORARY IMPAIRED ASSETS
STATEMENT OF POLICY
- Credit risk assets that have a market value below the current book
value must be reviewed quarterly to determine if any impairment
exists and the nature of any impairment in order to remain compliant
with accounting standards. If an Other-than-Temporary Impaired asset
is identified, it is written down to its appropriate value per GAAP
and Statutory accounting rules.
CONTROLS AND PROCEDURES
- Within approximately 10-15 days of month-end, the corporate bond and
private placement managers will each prepare a Watch List of all
assets, by company level, whose market value is below book value.
The mortgage-backed portfolio manager will prepare a watch list that
will only include assets that have a market value below 80% of book
value, as well as material investments rated below A-.
- The respective analysts will prepare and document a detailed
explanation of facts for each asset, including a justification for
continuing to hold the asset and/or identification of a potential
impairment.
- A number of factors are considered in evaluating whether impairment
is Other-than-Temporary. Factors include, but are not limited to: 1)
actions taken by rating agencies; 2) default by the issuer; 3) the
significance of the decline; 4) the intent and ability to hold the
investment until recovery; 5) the time period during which the
decline has occurred; 6) an economic analysis of the issuer's
industry; and 7) the financial strength, liquidity, and
recoverability of the issuer and/or collateral.
PERIODIC REVIEW
- The CIO will review the watch list quarterly with the Portfolio
Managers to gain an understanding of whether any impairment needs to
be recognized and the nature and amount of impairment.
INVESTMENTS IMPAIRMENTS PROCESS OVERVIEW
INVESTMENTS
------------------------------------- \ ERM
Director of Fixed Income \ -----------------------------------------
Recommends OTTI securities for review \ Head of Credit Risk Oversight
------------------------------------- \ Reviews all recommended impairments
\ -----------------------------------------
/ |
------------------------------------- / IPC
CRE Loans (SVP of Mortgage Loans) - / -----------------------------------------
Recommends delinquent /foreclosed / Review only when ERM and
loans for review / Investments disagree
------------------------------------- -----------------------------------------
|
CORPORATE ACCOUNTING
-----------------------------------------
Final Review prior to financial reporting
-----------------------------------------
11
VII. TRADING PROCESS
A. TRADING GUIDELINES
STATEMENT OF POLICY
- All commitments to purchase or sell assets must be recorded on
the Trade System within 24 hours of the oral commitment.
- All trade contingencies must be fully disclosed within 24
hours of the oral commitment.
CONTROLS AND PROCEDURES
- Investment Middle Office compares trade date information to
the broker confirmation trade information, where available.
PERIODIC REVIEW
- Material lags in notification of trades will be recorded by
Investment Middle Office and reviewed with the CIO.
- The settlement process will uncover any trades not entered
into the trading system.
B. TRADE AUTHORIZATION
STATEMENT OF POLICY
- All trades must be approved in accordance with the Standard
Securities Resolution and Standard Derivatives Resolution of
the Board of Directors of the company.
- All trades, excluding money market investments, must be
entered into the trading system within 24 hours of when the
trade is agreed to by the portfolio manager.
CONTROLS AND PROCEDURES
- All trades must be entered into the trading system by a signer
listed in the Standard Securities Resolution and Standard
Derivatives Resolution of the Board of Directors of the
company.
- All trades, excluding money market investments, must be
approved in the trading system by a second authorized signer,
different from the individual entering the trade into the
system.
- Permissions are established in the trading system that permit
only authorized signers to enter and approve trades
PERIODIC REVIEW
- Any exceptions to the signatory process will be recorded by
Investment Middle Office and will be reviewed by ERM.
12
VIII. POLICY APPLICATION
STATEMENT OF POLICY
- The policies contained herein are applicable the operations of MLOA
Reinsurance Trust.
- All investments made on behalf of insurance subsidiaries will be in
accordance with applicable state regulation.
PERIODIC REVIEW
- The Investment Guidelines will be reviewed and approved by the Board
of Directors each calendar year.
- The exceptions to these guidelines need to be brought to Investments
Policy Committee (IPC) by ERM's Head of Credit Risk for review /
approval on a quarterly basis
- Investment Guidelines will be applied using the last quarterly filed
STAT Book Value of Trust Assets.
13
EXHIBIT D
TERMINAL SETTLEMENT UNDER SECTION 8.4
The Terminal Settlement shall equal:
1. Amounts payable by the Ceding Company to the Reinsurer pursuant to SECTION
3.2(a) as of the Recapture Date, or the Reinsurer Termination Date, as
applicable, plus
2. An amount equal to the amount of any cash and assets withdrawn by the
Ceding Company or any successor by operation of law, including, without
limitation, any liquidator, rehabilitator, receiver or conservator of the
Ceding Company from the Trust Account prior to the date of recapture or
termination, and not used to satisfy claims of policyholders under the
Covered Insurance Policies prior to the date of recapture or termination,
or otherwise pay amounts due to the Ceding Company pursuant to this
Agreement, plus
3. An amount equal to the sum of the unamortized portions as of the Recapture
Date or the Reinsurer Termination Date, as applicable, of the Adjusted
Ceding Commission and any Net Retained Liability Ceding Commission
Adjustments paid by the Reinsurer, in each case amortized in a manner
consistent with the Actuarial Report, less
4. Amounts payable by the Reinsurer to the Ceding Company for the Reinsured
Liabilities pursuant to SECTION 3.3 as of the Recapture Date or the
Reinsurer Termination Date, as applicable, less
5. An amount equal to (i) the General Account Reserves, MINUS (ii) the Policy
Loan Balance, MINUS (iii) the Reinsurance Receivables, MINUS (iv) the
amount of Uncollected/Deferred Premiums, minus (v) reserve credits, and
amounts receivable or recoverable under the Existing Reinsurance
Agreements that are novated to the Reinsurer after the Effective Time, in
each case as of the Recapture Date or the Reinsurer Termination Date, as
applicable.
ANNEX A - 1
FORM OF MATERIAL BREACH NOTICE
From: MONY Life Insurance Company of America ("Ceding Company")
To: Protective Life Insurance Company ("Reinsurer")
Attn: General Counsel
Date: [ ]
Re: Material Breach
Dear Sirs:
Reference is made to the Reinsurance Agreement, dated as of October 1, 2013,
between the Reinsurer and the Ceding Company (as amended, modified or
supplemented from time to time, the "Reinsurance Agreement"). Capitalized terms
used without definition herein shall have the meanings set forth in the
Reinsurance Agreement.
We hereby notify you that there has been the following material breach of
Section [4.1][4.2] of the Reinsurance Agreement by the Reinsurer:
[INSERT DESCRIPTION OF MATERIAL BREACH]
This letter shall constitute notice of a material breach of Section [4.1][4.2]
of the Reinsurance Agreement by the Reinsurer. If the Reinsurer does not cure
such material breach within twenty (20) Business Days of receipt of this letter,
such occurrence shall constitute a "Recapture Triggering Event" under the
Reinsurance Agreement.
Yours faithfully,
[________]
For and on behalf of
MONY Life Insurance Company of America
Cc: [=]
ANNEX A - 2
FORM OF NON-PAYMENT NOTICE
From: MONY Life Insurance Company of America ("Ceding Company")
To: Protective Life Insurance Company ("Reinsurer")
Attn: General Counsel
Date: [ ]
Re: Non-Payment of a Material Amount
Dear Sirs:
Reference is made to the Reinsurance Agreement, dated as of October 1, 2013,
between the Reinsurer and the Ceding Company (as amended, modified or
supplemented from time to time, the "Reinsurance Agreement"). Capitalized terms
used without definition herein shall have the meanings set forth in the
Reinsurance Agreement.
We hereby notify you that the Reinsurer has failed to pay the following material
amount due to the Ceding Company under the Reinsurance Agreement and such amount
is not subject to a good faith dispute:
[INSERT DESCRIPTION OF NON-PAYMENT]
This letter shall constitute notice of failure to pay a material amount due to
the Ceding Company under the Reinsurance Agreement. If the Reinsurer does not
cure such failure to pay within sixty (60) days of receipt of this letter, such
occurrence shall constitute a "Recapture Triggering Event" under the Reinsurance
Agreement
Yours faithfully,
[________]
For and on behalf of
MONY Life Insurance Company of America
Cc: [=]
ANNEX B
FORM OF NON-PAYMENT NOTICE
From: Protective Life Insurance Company ("Reinsurer")
To: MONY Life Insurance Company of America ("Ceding Company")
Attn: General Counsel
Date: [ ]
Re: Non-Payment of a Material Amount
Dear Sirs:
Reference is made to the Reinsurance Agreement, dated as of October 1, 2013,
between the Reinsurer and the Ceding Company (as amended, modified or
supplemented from time to time, the "Reinsurance Agreement"). Capitalized terms
used without definition herein shall have the meanings set forth in the
Reinsurance Agreement.
We hereby notify you that the Ceding Company has failed to pay the following
material amount due to the Reinsurer under the Reinsurance Agreement:
[INSERT DESCRIPTION OF NON-PAYMENT]
This letter shall constitute notice of failure to pay a material amount due to
the Reinsurer under the Reinsurance Agreement. If the Ceding Company does not
cure such failure to pay within sixty (60) days of receipt of this letter, such
occurrence shall constitute a "Reinsurer Termination Event" under the
Reinsurance Agreement
Yours faithfully,
[________]
For and on behalf of
Protective Life Insurance Company
Cc: AXA Equitable Financial Services, LLC
Attn: General Counsel
ANNEX C
FORM OF LETTER AGREEMENT
FORM OF LETTER AGREEMENT
[Closing Date]
Re: Project New Year
Dear Sirs:
Reference is hereby made to the Reinsurance Agreement (the "Reinsurance
Agreement"), dated as of [___], 2013, between the undersigned ("Ceding Company")
and Protective Life Insurance Company ("Reinsurer") and the transfer of the
Notes and the Transferred Rights (as defined below) to the Reinsurer as set
forth in Section 3.1 of the Reinsurance Agreement in reliance on an exemption
from registration under the Securities Act of 1933, as amended (the "Act").
CERTAIN DEFINITIONS
As used herein, the following terms have the respective meanings set forth
below:
"CLOSING DATE" means [INSERT DATE], 2013.
"NOTE AGREEMENTS" means [INSERT DEFINITION].
"NOTES" means [INSERT DEFINITION].
1
"TRANSFERRED RIGHTS" means all of Ceding Company's right, title and
interest in, to and under rights related to the Notes, namely: (i) any and
all amounts funded or payable to Ceding Company under the financing
documents, and all obligations owed to Ceding Company in connection with
the Notes; (ii) the financing documents (iii) all claims (including
"claims" as defined in Section101(5) of the Bankruptcy Reform Act of 1978,
11 U.S.C. Sections 101 ET SEQ., as amended), suits, causes of action, and
any other right of Ceding Company, whether known or unknown, against the
Issuers, or any of their respective Affiliates, agents, representatives,
contractors, advisors, or any other Person that in any way is based upon,
arises out of or is related to any of the foregoing, including, to the
extent permitted to be assigned under applicable law, all claims
(including contract claims, tort claims, malpractice claims, and claims
under any law governing the purchase and sale of, or indentures for,
securities), suits, causes of action, and any other right of Ceding
Company against any attorney, accountant, financial advisor, or other
Person arising under or in connection with the financing documents; (iv)
all guaranties and all collateral and security of any kind in respect of
the foregoing; (v) all cash, securities, or other property, and all
setoffs and recoupments, received, applied, or effected by or for the
account of Ceding Company under the Notes and other extensions of credit
under the financing documents (whether for principal, interest, fees,
reimbursement obligations, or otherwise) from and after the Closing Date,
including all distributions obtained by or through redemption,
consummation of a plan of reorganization, restructuring, liquidation, or
otherwise of the Issuers, or the financing documents, and all cash,
securities, interest, dividends, and other property that may be exchanged
for, or distributed or collected with
2
respect to, any of the foregoing; (vi) the economic benefit of permanent
commitment reductions, permanent repayments of principal and amendment,
consent, waiver and other similar non-ordinary course fees received by
Ceding Company from and after the Closing Date; and (vii) any and all
proceeds of the foregoing.
COVENANTS
In consideration of the mutual covenants and agreements contained in the
Reinsurance Agreement and this Letter Agreement, Ceding Company hereby covenants
to, and agrees with, Reinsurer as follows:
(i) Ceding Company shall attach or shall cause its nominee to attach an
appropriate, duly executed bond power together with, if required, a medallion
signature-guarantee or other mutually acceptable authentication of the signature
on such bond power or another mutually acceptable instrument of transfer (each a
"BOND POWER") to each Note and deliver the original Notes and Bond Powers to
Reinsurer on the Closing Date in accordance with Reinsurer's written delivery
instructions.
(ii) On or following the Closing Date, Reinsurer may effect the
re-registration of the Notes in the name of Reinsurer or Reinsurer's nominee and
Ceding Company shall cooperate with Reinsurer to the extent reasonably necessary
in connection with such re-registration.
3
(iii) Ceding Company shall execute and deliver all further documents or
instruments reasonably requested by Reinsurer in order to effect the irrevocable
sale and transfer of the Transferred Rights pursuant to the Reinsurance
Agreement.
CEDING COMPANY REPRESENTATIONS AND WARRANTIES
Ceding Company hereby represents and warrants to Reinsurer as of the
Closing Date that:
(i) Ceding Company is the sole legal and beneficial owner of the Notes and
will transfer such Notes free and clear of any liens, security interests,
charges, encumbrances or claims of others of any kind. Ceding Company is not
acting as an agent or broker in selling the Notes and the Transferred Rights to
Reinsurer.
(ii) Ceding Company is duly organized and validly existing under the laws
of the jurisdiction of its organization and has full right, power and authority
to transfer the Transferred Rights to Reinsurer.
(iii) This Letter Agreement has been duly and validly authorized, executed
and delivered by all necessary corporate action on the part of Ceding Company
and
4
constitutes the legal, valid and binding obligation of Ceding Company
enforceable against Ceding Company in accordance with its terms, except as such
enforceability may be limited to (x) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and (y) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(iv) No consent or approval of any party, including any governmental or
regulatory authority or body, is required in connection with the execution,
delivery and performance of this Letter Agreement by Ceding Company or the sale
by Ceding Company of the Notes and the Transferred Rights to Reinsurer.
(v) There are no judicial, administrative or other proceedings arising out
of or in connection with the Transferred Rights pending against Ceding Company
before any court, administrative or governmental body which would materially
adversely affect the Transferred Rights or Reinsurer's rights and remedies under
this Agreement or in respect of the Transferred Rights. To the best of Ceding
Company's knowledge, (i) Ceding Company has not received any written notice,
claim or demand from or on behalf of the Issuer or any other person or entity
which asserts that any transfer, including transfers of payments received from
or on account of the Transferred Rights is void or voidable as an actual or
constructive fraudulent transfer, and (ii) the Transferred Rights are not void
or voidable or subject to any defense, right of set-off or recoupment,
counterclaim, claim, subordination or impairment of any kind.
5
(vi) The Notes have not been registered under the Act or any state
securities or "Blue Sky" laws and may be resold only pursuant to an exemption
under the Act and in accordance with the terms of the Note Agreements and
applicable state securities laws. Neither Ceding Company nor anyone acting on
Ceding Company's behalf has taken any action which would subject the sale of the
Notes to the registration provisions of Section 5 of the Act and Ceding
Company's sale of the Notes to Reinsurer does not require registration under the
Act.
(vii) Ceding Company is an "accredited investor" (within the meaning of
Rule 501 of Regulation D under the Act). Neither Ceding Company nor anyone
acting on Ceding Company's behalf has offered or sold the Notes by any form of
general solicitation or general advertising. Ceding Company is not an
"affiliate" (within the meaning of Rule 144 under the Act) of the Issuers.
(viii) Ceding Company (1) is a sophisticated institutional investor, (2)
has knowledge and experience in financial and business matters, (3) is capable
of evaluating the merits and risks of its sale of the Notes and the Transferred
Rights and (4) is able to bear the economic risk of such sale.
(ix) Ceding Company acknowledges that (1) Reinsurer currently may have,
and later may come into possession of material non-public information regarding
the Issuers, the Notes or the Transferred Rights (the "Ceding Company Excluded
Information"), (2) Ceding Company has not requested the Ceding Company Excluded
Information, (3) Ceding Company has determined to sell its Notes and the
Transferred Rights notwithstanding its lack of knowledge of the Ceding Company
Excluded
6
Information and (4) Reinsurer shall have no liability to Ceding Company and
Ceding Company hereby waives any and all claims it may have or may hereafter
acquire against Reinsurer relating to any failure by Reinsurer to disclose the
Ceding Company Excluded Information to Ceding Company in connection with Ceding
Company's sale of the Notes and the Transferred Rights, provided that this
paragraph will not limit any of Reinsurer's express representations, warranties
and agreements herein.
(x) Ceding Company is a "qualified institutional buyer" as that term is
defined in Rule 144A(a)(1) under the Securities Act, and, as such, has the
financial sophistication, knowledge and experience in financial matters, and
access to the information, necessary to make an informed investment decision
with respect to Ceding Company's proposed sale of the Transferred Rights.
(xi) Ceding Company acknowledges that it has conducted, to the extent it
deemed necessary, an independent investigation of such matters, and has had the
opportunity to receive such information and documents as, in its judgment, are
necessary for it to make an informed investment decision, and has not relied
upon Reinsurer for any investigation or assessment to evaluate the transactions
contemplated hereby.
(xii) To Ceding Company's actual knowledge, (i) no event of default has
occurred and is continuing, and (ii) no event has occurred which with the giving
of notice or passage of time or both would become an event of default, pursuant
to the Notes and the Note Agreements.
(xiii) To the knowledge of Ceding Company, there is no valid defense or
offset to the payment to Ceding Company of the Notes in accordance with its
terms.
7
(xiv) Ceding Company agrees to promptly remit any payments received by it
in connection with the Notes and the Transferred Rights (other than from
Reinsurer) after the Closing Date to Reinsurer in immediately available funds to
an account provided by Reinsurer.
(xv) No proceedings are pending against Ceding Company or, to the best of
Ceding Company's knowledge, threatened against Ceding Company before any
relevant governmental authority that, in the aggregate, will materially and
adversely affect any action taken or to be taken by Ceding Company in connection
with this transfer and assignment.
(xvi) Except as set forth in this Letter Agreement and the Reinsurance
Agreement, Ceding Company has made no representations, warranties or agreements,
express or implied, of any kind with respect to the Notes or the Transferred
Rights. Ceding Company has no obligations to Reinsurer, express or implied,
including, without limitation, fiduciary obligations, with respect to the Notes
or the Transferred Rights except for the obligations specifically set forth in
this Letter Agreement or the Reinsurance Agreement.
8
REINSURER REPRESENTATIONS AND WARRANTIES
Reinsurer hereby represents and warrants to Ceding Company as of the
Closing Date that:
(i) This Letter Agreement has been duly and validly authorized, executed
and delivered by all necessary corporate action on the part of Reinsurer and
constitutes the legal, valid and binding obligation of Reinsurer enforceable
against Reinsurer in accordance with its terms, except as such enforceability
may be limited to (x) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally, and (y) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and no consent
or approval of any party is required in connection with the execution, delivery
and performance of this Letter Agreement by Reinsurer or the purchase by
Reinsurer of the Notes and the Transferred Rights.
(ii) Reinsurer understands that the Notes have not been and will not be
registered under the Act or any state securities or "Blue Sky" laws, and may be
resold only pursuant to an exemption under the Act and in accordance with the
terms of the Note Agreements and applicable state securities laws and that
neither the Issuers nor Ceding Company is required to register the Notes.
(iii) Reinsurer will comply with all applicable federal and state
securities laws in connection with any subsequent resale of the Notes and the
Transferred Rights.
9
(iv) Reinsurer is an "accredited investor" (within the meaning of Rule 501
of Regulation D under the Act).
(v) Reinsurer (1) is a sophisticated institutional investor, (2) has
knowledge and experience in financial and business matters, (3) is capable of
evaluating the merits and risks of its investment in the Notes and the
Transferred Rights and (4) is able to bear the economic risks of such
investment.
(vi) [Reinsurer represents that it is not (1) an employee benefit plan (as
defined in section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), whether or not it is subject to the provisions of Title I
of ERISA, or (2) a plan described in Section 4975(e)(1) of the Internal Revenue
Code of 1986, as amended (the "CODE")].
(vii) Reinsurer is acquiring the Notes and the Transferred Rights for its
own account as a dealer with the intention of reselling the Notes in reliance on
an exemption from registration under the Act. Reinsurer will comply with all
applicable federal and state securities laws in connection with any subsequent
resale of the Notes.
(viii) Reinsurer acknowledges that (1) Ceding Company currently may have
and later may come into possession of material non-public information regarding
the Issuers, the Notes or the Transferred Rights (the "REINSURER EXCLUDED
INFORMATION"), (2) Reinsurer has not requested the Reinsurer Excluded
Information, (3) Reinsurer has determined to purchase the Notes and the
Transferred Rights notwithstanding its lack of knowledge of the Reinsurer
Excluded Information and (4) Ceding Company shall have no liability to Reinsurer
and Reinsurer hereby waives any and all claims it may have or
10
may hereafter acquire against Ceding Company relating to any failure by Ceding
Company to disclose the Reinsurer Excluded Information to Reinsurer in
connection with Reinsurer's purchase of the Notes and the Transferred Rights,
provided that this paragraph will not limit any of Ceding Company's express
representations, warranties and agreements herein.
(ix) Reinsurer acknowledges that it has conducted, to the extent it deemed
necessary, an independent investigation of such matters, and has had the
opportunity to receive such information and documents as, in its judgment, are
necessary for it to make an informed investment decision, and has not relied
upon Ceding Company for any investigation or assessment to evaluate the
transactions contemplated hereby.
(x) Reinsurer agrees to become bound by all of the terms of, and to assume
all of the rights, obligations and interests as successor to Ceding Company
under the Note Agreements and other financing documents.
(xi) Reinsurer is a "qualified institutional buyer" as that term is
defined in Rule 144A(a)(1) under the Securities Act, and, as such, has the
financial sophistication, knowledge and experience in financial matters, and
access to the information, necessary to make an informed investment decision
with respect to Reinsurer's proposed purchase of the Transferred Rights.
(xii) Reinsurer acknowledges that Ceding Company makes no representation
or warranty whatsoever concerning the accuracy, adequacy, completeness or truth
of the statements made by the Issuers in the Note Agreements and other financing
documents; and that Ceding Company shall have no liability for any misstatement
of a material fact
11
contained in any of the Note Agreements or financing documents or for the
omission therefrom of any material fact required to be stated therein in order
to make the statements therein not misleading.
(xiii) Reinsurer is not a Competitor (as defined in the relevant Note
Agreements) of any of the Issuers.
(xiv) Except as set forth in this Letter Agreement and the Reinsurance
Agreement, Reinsurer has made no representations, warranties or agreements,
express or implied, of any kind with respect to the Notes or the Transferred
Rights. Reinsurer has no obligations to Ceding Company, express or implied,
including, without limitation, fiduciary obligations, with respect to the Notes
or the Transferred Rights except for the obligations specifically set forth in
this Letter Agreement or the Reinsurance Agreement.
12
The foregoing representations, warranties and agreements shall be deemed made as
of the Closing Date with Ceding Company's physical delivery of the Notes to
Reinsurer's representative or designee.
MONY LIFE INSURANCE COMPANY OF AMERICA
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
PROTECTIVE LIFE INSURANCE
COMPANY
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
13
