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EXHIBIT 10.4
Amendment Number 2 to the
Automatic Variable Annuity Reinsurance Agreement
(Referred to as the Agreement)
Between
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
St. Petersburg, Florida
(referred to as the Reinsured)
and
WMA LIFE INSURANCE COMPANY LIMITED
▇▇▇▇▇▇▇▇, Bermuda
(referred to as the Reinsurer)
Effective October 1, 1999
I. Article II, DEFINITIONS, "Cumulative Effective Growth Rate" is added to
read as follows:
"Cumulative Effective Growth Rate" equals the five year rolling growth of
premiums collected in years t = 1 to 5, defined by:
{ ( [ (1/5) x (P1 + P2 + P3 + P4 + P5) ]/[(1/2) x (P1 + P2)) ] ) 1/2 - 1},
where P1, ..., P5 are the WMA Total Variable Annuity First Year Payments
collected by the Reinsured in previous five years, including an accrual to
the end of the current year, based on premiums collected through November
of the current year. P5 stands for the premiums collected in the current
year with an accrual to the end of the calendar year. P1 stands for premium
collected in the current calendar year minus four.
II. Schedule B1, AMOUNT OF REINSURANCE, is replaced by the following:
The amount of reinsurance under this Agreement shall be the Reinsurer's
quota share percentage shown below of the liability of the Reinsured on all
annuity contracts in the forms listed in Schedule A, Business Reinsured.
Quota Share Percentages for Issue Dates in 1998, 1999, and 2000: For issue
dates in 1998, the quota share percentage will be 40%.
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The quota share percentage shall be 10%, commencing as of the effective
date of this amendment, for policies issued from January 1, 1999 through
September 30, 1999 previously reinsured on a 40% quota-share basis.
Pursuant to Amendment Number 1 to the Agreement, Article XIV, RECAPTURE,
Paragraph 1, the Reinsured elects to recapture seventy five percent (75%)
of the Reinsured Policies issued from January 1, 1999, through September
30, 1999. The Reinsured will pay the Reinsurer a Recapture Fee equal to
$4,439,173 plus accrued interest at an effective rate of 9%, which shall
accrue from October 1, 1999 to the date such amount is settled and paid,
which shall be paid no later than January 31, 2000. The Reinsured may
offset the Recapture Fee against amounts otherwise due the Reinsured.
For policies issued from October 1, 1999 through December 31, 2000, the
quota share percentage will be 10%.
Quota Share Percentages for Issue Dates in 2001 and later: The Reinsurer
and the Reinsured will jointly determine the quota share percentages no
later than December 1st applicable to new issues in the following calendar
year. The determining factors for the quota share percentage are the
expected WMA Total Variable Annuity First Year Payments Collected by the
Reinsured for the calendar year that the quota share percentage will be
applicable. This determination of the quota share percentage will be on a
mutually acceptable basis, recognizing the good faith nature of this
Agreement, and with references to the estimates made by both parties, based
on results from prior periods.
Notwithstanding the provisions of the previous three paragraphs and at any
time on or after January 1, 2000 and before January 1, 2003, the Reinsurer
shall have the option (provided the Reinsurer demonstrates sufficient
capacity) to prospectively increase the quota share percentage on all
reinsured policies issued from the beginning of the prior calendar year to
the date the Reinsurer elects to increase the quota share percentage. The
quota share percentage, as increased, shall not exceed the Scheduled Quota
Share Percentage in accordance with terms contained in Schedule B1 of the
Agreement, as amended. The Reinsurer shall demonstrate its capacity by
showing the Reinsured that its unassigned invested securities, together
with anticipated cash flows (including retrocession facilities), will be
sufficient to meet expected reinsurance settlements, with regard to the
policies subject to the increased quota share percentage, for a period of
not less than twenty-four months following the date the Reinsurer elects to
increase the quota share percentage. Upon election to increase the quota
share percentage, the initial ceding allowance payable to the Reinsured
shall equal (a) less (b), where:
(a) equals settlements that would have otherwise occurred under the
Agreement, had the increased quota share percentage been applicable
from the beginning of the prior calendar year to the date the Reinsurer
elects to increase the quota share percentage, accrued at an effective
rate of * %, and
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* Material omitted pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934.
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(b) equals all settlements due or paid under the Agreement from the
beginning of the prior calendar year to the date the Reinsurer elects
to increase the quota share percentage, accrued at an effective rate of
* %.
The initial ceding allowance shall be payable within 14 days after the
Reinsurer's election to increase the quota share percentage.
Thereafter, the quota share percentage applicable to all new policies
issued and reinsured shall be determined in accordance with terms contained
in Schedule B1 of the Agreement, as amended.
The Scheduled Quota Share Percentages for each threshold of expected WMA
Total Variable Annuity First Year Payments Collected by the Reinsured are
shown in the following table:
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WMA TOTAL VARIABLE ANNUITY FIRST SCHEDULED
YEAR PAYMENTS COLLECTED BY THE QUOTA SHARE
REINSURED (IN MILLIONS) PERCENTAGE
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$100-249 40%
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$250+ 50%
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The scheduled quota share percentages may be reduced 5%, if the expected
WMA Total Variable Annuity First Year Payments Collected by the Reinsured
are anticipated to decline from the sum of the most recent twelve months'
Payments and the Cumulative Effective Growth Rate is less than 15%. A
reduction in the quota share percentage will be mutually acceptable to both
parties.
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* Material omitted pursuant to Rule 24b-2 under the Securities Exchange Act
of 1934.
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* * * * *
Except as expressed herein, all terms, covenants and provisions of the
Automatic Variable Annuity Reinsurance Agreement not in conflict with the
provisions of this amendment shall remain unaltered and in full force and
effect.
In witness of the above, the Reinsured and the Reinsurer, by their respective
officers have executed this amendment in duplicate at the dates and places
indicated and shall be effective as of October 1, 1999.
WESTERN RESERVE LIFE WMA LIFE INSURANCE
ASSURANCE CO. OF OHIO COMPANY LIMITED
at St. Petersburg, Fl at Kamuela, Hawaii
on March 16, 2000 on March 20, 2000
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Title: VP & Managing Actuary Title: Vice President
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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Title: EVP Title: Vice President
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