Exhibit G
COINSURANCE AND MODIFIED COINSURANCE AGREEMENT
by and between
COMMONWEALTH ANNUITY AND LIFE INSURANCE COMPANY
(the "CEDING COMPANY")
and
COMMONWEALTH ANNUITY AND LIFE REINSURANCE COMPANY LIMITED
acting in respect of its general account
(the "REINSURER")
Dated May 1, 2013
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION 4
Section 1.1. Definitions 4
Section 1.2. Interpretation 9
ARTICLE II EFFECTIVE DATE 10
Section 2.1. Effective Date 10
ARTICLE III BUSINESS REINSURED; OTHER REINSURANCE TREATIES; INFORMATION; GUARANTY FUND
ASSESSMENTS 10
Section 3.1. Funds Withheld Coinsurance 10
Section 3.2. Modified Coinsurance 10
Section 3.3. Initial Settlement 10
Section 3.4. Follow the Fortunes 11
Section 3.5. Information; Audits 11
Section 3.6. Confidential Information 12
Section 3.7. Other Reinsurance Treaties 12
Section 3.8. Non-Guaranteed Elements 12
Section 3.9. Premium Taxes and Guaranty Fund Assessments 13
Section 3.10. Conversion to Segregated Account 13
ARTICLE IV CREDIT FOR REINSURANCE FOR GENERAL ACCOUNT LIABILITIES 16
Section 4.1. PL General Account Modco Amount 16
Section 4.2. Funds Withheld Account 16
Section 4.3. Credit For Reinsurance 17
Section 4.4. Letter of Credit 17
Section 4.5. Trust Agreement 18
Section 4.6. Withdrawals from Credit Trust Account or Draws under Letter of Credit 19
Section 4.7. Priority of Use 20
ARTICLE V PAYMENT AND REINSURANCE ACCOUNTING 20
Section 5.1. Adjustments to PL General Account Modco Amount 20
Section 5.2. Adjustments for Other Reinsurance 20
Section 5.3. Adjustments to Funds Withheld Account 21
Section 5.4. Separate Accounts 21
i
Page
ARTICLE VI REPORTS; SETOFF RIGHTS 21
Section 6.1. Periodic Reports 21
Section 6.2. Periodic Settlements 21
Section 6.3. Offsets 21
ARTICLE VII REPRESENTATIONS, WARRANTIES AND COVENANTS 22
Section 7.1. Representations and Warranties of the Ceding Company 22
Section 7.2. Representations and Warranties of the Reinsurer 22
ARTICLE VIII ADMINISTRATION; CHANGES; CREDITING RATES 23
Section 8.1. Administration and Expense Allowances 23
ARTICLE IX TAXES 23
Section 9.1. Tax Status 23
Section 9.2. Policy Acquisition Expenses 23
Section 9.3. Excise Taxes 24
ARTICLE X INSOLVENCY 24
Section 10.1. Insolvency of Ceding Company 24
Section 10.2. Insolvency of Reinsurer 25
ARTICLE XI ARBITRATION 25
Section 11.1. Agreement to Arbitrate 25
Section 11.2. Initiation of Arbitration 25
Section 11.3. Appointment of Arbitration Panel 25
Section 11.4. Location of Arbitration 25
Section 11.5. Arbitration Award 26
Section 11.6. Waiver of Jury Trial 26
ARTICLE XII OVERSIGHTS, ERRORS AND OMISSIONS 26
ARTICLE XIII TERMINATION 26
Section 13.1. Duration 26
Section 13.2. Termination 26
Section 13.3. Settlement Upon Termination 26
ARTICLE XIV INDEMNIFICATION 27
Section 14.1. Reinsurer's Obligation to Indemnify 27
Section 14.2. Ceding Company's Obligation to Indemnify 27
ii
Page
ARTICLE XV MISCELLANEOUS 28
Section 15.1. Currency 28
Section 15.2. Notices 28
Section 15.3. Amendments; Waiver 29
Section 15.4. Successors and Assigns; Third Party Beneficiaries 29
Section 15.5. Duty of Cooperation 29
Section 15.6. Submission to Jurisdiction 29
Section 15.7. Governing Law 29
Section 15.8. Entire Agreement 30
Section 15.9. Severability 30
Section 15.10. Counterparts 30
INDEX OF SCHEDULES
Schedule 1.1A - Policy Forms Constituting the AFLIAC Contracts
Schedule 1.1B - Economic Reserves
Schedule 1.1C - Description of Separate Accounts
INDEX OF EXHIBITS
Exhibit A - Form of Periodic Report
iii
COINSURANCE AND MODIFIED COINSURANCE AGREEMENT
This Coinsurance and Modified Coinsurance Agreement (together with
the Schedules and Exhibits hereto, this "AGREEMENT"), dated as of May 1, 2013,
is made by and between COMMONWEALTH ANNUITY AND LIFE INSURANCE COMPANY, a life
insurance company domiciled in the Commonwealth of Massachusetts (together with
its successors and assigns, the "CEDING COMPANY"), COMMONWEALTH ANNUITY AND
LIFE REINSURANCE COMPANY LIMITED, a reinsurance company domiciled in Bermuda
and registered as a segregated accounts company under the Bermuda Segregated
Accounts Companies ▇▇▇ ▇▇▇▇, as amended (the "SAC ACT") ("COMMONWEALTH RE"),
acting in respect of its "general account" (as such term is defined in the SAC
Act together with its successors and assigns, the "REINSURER").
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS. The following terms, when used in this
Agreement, shall have the meanings set forth in this Section 1.1. The terms
defined below shall be deemed to refer to the singular or plural, as the
context requires.
(a) "AFFILIATE" of any Person means another Person that directly
or indirectly controls, is controlled by, or is under common control with, such
first Person, where "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management policies of a
Person, whether through the ownership of voting securities, by contract, as
trustee or executor, or otherwise (except as a result of an office or other
official position).
(b) "AFLIAC CONTRACTS" means the variable annuity contracts
(including any riders and endorsements) which (i) have been issued on the
policy forms listed on SCHEDULE 1.1A on or before the Effective Date, (ii) are
issued by the Ceding Company following the Effective Date (x) on the policy
forms listed on SCHEDULE 1.1A and (y) pursuant to the underwriting standards,
procedures and guidelines in effect as of the Effective Date, with such changes
thereto as are consented to by the Reinsurer (such consent not to be
unreasonably withheld, delayed or conditioned) or (iii) have been ceded as of
the Effective Date, or are ceded following the Effective Date, to the Ceding
Company pursuant to the FAFLIC Core Agreement.
(c) "AFLIAC GENERAL ACCOUNT" means all assets of the Ceding
Company or FAFLIC (which assets are subject to transfer to the Ceding Company
pursuant to the FAFLIC Core Agreement) supporting the AFLIAC Liabilities, other
than assets in Separate Accounts maintained by the Ceding Company or FAFLIC in
respect of such AFLIAC Liabilities, as determined in accordance with SAP.
(d) "AFLIAC GENERAL ACCOUNT RESERVES" means, as of a date, the
amount of reserves as of such date corresponding to the AFLIAC Liabilities
(other than such liabilities payable out of a Separate Account), such amount as
determined by the Ceding Company in accordance with SAP, including (A) AFLIAC
Liabilities for policy and contract claims whether
known or unknown (other than such liabilities payable out of a Separate
Account), (B) post-effective date interest maintenance reserves divided by 65%
and (C) amounts left on deposit. For avoidance of doubt, AFLIAC General Account
Reserves includes provision under SAP for Guaranteed Minimum Death and Living
Benefits. AFLIAC General Account Reserves include the effect of Commissioner's
Annuity Reserve Valuation Method SA Expense Allowance.
(e) "AFLIAC LIABILITIES" means all liabilities and obligations of
the Ceding Company based upon or arising out of the express written terms of
the AFLIAC Contracts, after deduction for any cessions under the Other
Reinsurance Treaties, but excluding any Extra Contractual Obligations (unless
assumed by the Ceding Company pursuant to the terms of the FAFLIC Core
Agreement).
(f) "AGREEMENT" shall have the meaning set forth in the recitals.
(g) "BUSINESS DAY" means a Monday, Tuesday, Wednesday, Thursday,
or Friday on which banking institutions in Bermuda or the Commonwealth of
Massachusetts are not obligated by applicable law to close.
(h) "CEDING COMPANY" shall have the meaning set forth in the
preamble.
(i) "CEDING COMPANY INDEMNITEES" shall have the meaning set forth
in Section 14.1.
(j) "CHARGED PREMIUM TAXES AND ASSESSMENTS" shall have the meaning
set forth in Section 3.9.
(k) "CODE" means the Internal Revenue Code of 1986, as from time
to time amended.
(l) "COMMISSION ALLOWANCE" means, as of the Effective Date, an
annual amount equal to the Reinsurer's Quota Share of compensation (including
both up front and trail commissions) and other servicing and administration
fees payable by the Ceding Company with respect to the AFLIAC Contracts or the
PL Contracts to or for the benefit of the distributors who marketed or produced
the AFLIAC Contracts or the PL Contracts.
(m) "COMMONWEALTH RE" shall have the meaning set forth in the
preamble.
(n) "CREDIT TRUST ACCOUNT" shall have the meaning set forth in
Section 4.3.
(o) "ECONOMIC RESERVES" means an amount calculated in accordance
with Schedule 1.1B.
(p) "EFFECTIVE DATE" means 12:01 a.m. (Eastern Time) on April 1,
2013.
(q) "EXPENSE ALLOWANCE" means, as of the Effective Date, an annual
amount equal to the Reinsurer's Quota Share of $83.00 per AFLIAC Contract and
PL Contract. Such amount shall be increased annually on the anniversary of the
Effective Date by the lower of
5
(A) 3.00% and (B) the percentage corresponding to the increase in the consumer
price index for all Urban Consumers (CPI-U), line item, "All Items - Unadjusted
12 mos. ended" published by the U.S. Department of Labor, or such other measure
mutually agreed by the parties.
(r) "EXTRA CONTRACTUAL OBLIGATIONS" means all liabilities,
obligations and expenses relating to the AFLIAC Contracts (other than those
arising under the express terms and conditions, and within the limits, of the
AFLIAC Contracts), whether to contractholders, certificate holders, sponsors,
insureds, producers, agents, brokers, Governmental Entities or any other
Person, which shall include (A) any liability for damages or claims in excess
of applicable policy limits, (B) any liability for statutory or regulatory
fines, damages, penalties, forfeitures or similar charges of a penal or
disciplinary nature, (C) any payment to the Internal Revenue Service or any
other Person resulting from or attributable to any act or omission of the
Ceding Company (including errors of product design, language, or
administration, or inaccurate or incomplete data maintained in books and
records) resulting in non-compliance of any Subject Contract with the
requirements of the Code and (D) any liability for punitive, consequential,
tort, bad faith, exemplary, special, treble or any other form of extra
contractual damages which arises from any act, error or omission, whether or
not intentional, in bad faith or otherwise, including any act, error or
omission relating to (1) the form, marketing, underwriting, production,
issuance, cancellation or administration of the AFLIAC Contracts, (2) the
investigation, defense, trial, settlement or handling of claims, benefits,
distributions, disbursements or any other payments arising out of or relating
to the AFLIAC Contracts or (3) the payment of claims, benefits, distributions,
disbursements or any other amounts due or alleged to be due under or in
connection with the AFLIAC Contracts.
(s) "FAFLIC" means First Allmerica Financial Life Insurance
Company.
(t) "FAFLIC CORE AGREEMENT" means the Core Coinsurance Agreement
dated December 30, 2005 between FAFLIC and the Ceding Company, as may be
amended from time to time.
(u) "FUNDS WITHHELD ACCOUNT" shall have the meaning set forth in
Section 4.2.
(v) "FUNDS WITHHELD ASSETS" shall have the meaning set forth in
Section 4.2.
(w) "GOVERNMENTAL ENTITIES" shall have the meaning set forth in
Section 7.1(c).
(x) "INITIAL FUNDS WITHHELD AMOUNT" shall have the meaning set
forth in Section 4.2(a).
(y) "INITIAL SETTLEMENT AMOUNT" shall have the meaning set forth
in Section 3.3(a).
(z) "LOSS" shall have the meaning set forth in Section 14.1.
6
(aa) "MODCO ASSETS" shall have the meaning set forth in
Section 4.1(b).
(bb) "NON-GUARANTEED ELEMENTS" means cost of insurance
charges, loads and expense charges, credited interest rates, mortality and
expense charges, administrative expense risk charges, general account contract
rates, loan rates, annuitization purchase rates, policyholder dividends and
other policy features that are subject to change, as applicable, under the
AFLIAC Contracts or PL Contracts.
(cc) "OTHER REINSURANCE TREATIES" means all reinsurance
agreements (other than this Agreement) under which any PL Contract or AFLIAC
Contract is reinsured for the benefit of the Ceding Company as such reinsurance
agreements may be terminated, non-renewed, renewed or replaced in accordance
with Section 3.7.
(dd) "PERIOD" means a specified period, agreed to by the
parties, which shall be no longer than a calendar quarter, commencing on the
first day not covered by the last Periodic Report issued up to and including
the final day covered in the next Periodic Report. Notwithstanding anything to
the contrary, the first Period shall commence on the Effective Date and shall
end on June 30, 2013. Unless the parties agree otherwise, each Period
thereafter shall be three months from the end of the prior Period.
(ee) "PERIODIC REPORT" shall mean the report substantially in
the form set forth on EXHIBIT A, with all amounts contained therein calculated
in accordance with SAP.
(ff) "PERSON" means an individual, corporation, partnership,
joint venture, association, limited liability company, trust, unincorporated
organization, governmental entity, or other entity.
(gg) "PL AGREEMENT" means the Modco Agreement, dated July 3,
2006, between Protective Life Insurance Company (as successor to Chase
Insurance Life & Annuity Company) and the Ceding Company (f/k/a Allmerica
Financial Life Insurance and Annuity Company), as amended November 20, 2007 and
April 1, 2012 and as further amended from time to time.
(hh) "PL CONTRACTS" means the variable annuity contracts, the
liabilities and obligations under which were assumed on a coinsurance or
modified coinsurance basis by the Ceding Company pursuant to the PL Agreement.
(ii) "PL GENERAL ACCOUNT" means with respect to the PL
Contracts, all assets supporting the PL Liabilities assumed under the PL
Agreement other than assets held by the Ceding Company in Separate Accounts
maintained by the Ceding Company or the issuer of the PL contracts in respect
of such PL Contracts, as determined in accordance with SAP.
(jj) "PL GENERAL ACCOUNT MODCO AMOUNT" means, as of any date
of determination, an amount equal to the PL General Account Reserves as of such
date.
7
(kk) "PL GENERAL ACCOUNT RESERVES" means, as of a date, the
amount of reserves as of such date corresponding to the PL Liabilities (other
than such liabilities payable out of a Separate Account), such amount as
determined by the Ceding Company in accordance with SAP, including (A) PL
Liabilities for policy and contract claims whether known or unknown (other than
such liabilities payable out of a Separate Account), (B) post-effective date
interest maintenance reserves divided by 65% and (C) amounts left on deposit.
For avoidance of doubt, PL General Account Reserves includes provision under
SAP for Guaranteed Minimum Death and Living Benefits. PL General Account
Reserves include the effect of Commissioner's Annuity Reserve Valuation Method
SA Expense Allowance.
(ll) "PL LIABILITIES" means all liabilities and obligations
of the Ceding Company based upon or arising out of the express written terms of
the PL Contracts assumed by the Ceding Company pursuant to the terms of the PL
Agreement, after deduction for any cessions under the Other Reinsurance
Treaties.
(mm) "QUALIFIED UNITED STATES FINANCIAL INSTITUTION" shall
have the meaning set forth in Massachusetts Insurance Code Section 175:20A(3)
or any applicable successor provision.
(nn) "QUOTA SHARE" means 100%.
(oo) "REINSURANCE PREMIUM" means the Reinsurer's Quota Share
of contractholder premiums and considerations received under the AFLIAC
Contracts and PL Contracts net of (1) premiums incurred through Other
Reinsurance Treaties and (2) a collection fee equals to 0.15% of premiums
incurred through Other Reinsurance Treaties.
(pp) "REINSURER" shall have the meaning set forth in the
preamble.
(qq) "REINSURER INDEMNITEES" shall have the meaning set forth
in Section 14.2.
(rr) "REQUIRED TRUST AMOUNT" shall have the meaning set forth
in Section 4.5(d).
(ss) "SAC ACT" shall have the meaning set forth in the
preamble.
(tt) "SAP" means, with respect to the Ceding Company, the
statutory accounting principles and practices prescribed or permitted by the
domiciliary state of the Ceding Company at the time of determination, applied
in a manner consistent with the historical reporting of the Ceding Company
(modified to the extent required by any changes in applicable law or statutory
accounting principles).
(uu) "SEGREGATED ACCOUNT" shall have the meaning set forth in
Section 3.10.
(vv) "SEPARATE ACCOUNTS" means the registered and
unregistered separate accounts maintained with respect to the AFLIAC Contracts
and the PL Contracts by the Ceding
8
Company, FAFLIC, Zurich American Life Insurance Company or the applicable
issuer of such AFLIAC Contract or PL Contract as identified in SCHEDULE 1.1C.
(ww) "SEPARATE ACCOUNT FEE INCOME" means the Reinsurer's
Quota Share of amounts paid to the AFLIAC General Account or the PL General
Account, as applicable, by the Separate Accounts for fees and expenses under
the AFLIAC Contracts or PL Contracts, as applicable, including but not limited
to mortality and expense charges, administrative fees, revenue sharing fees,
12b-1 fees and other fees due and payable thereunder.
(xx) "SEPARATE ACCOUNT NET CONTRACTHOLDER TRANSFERS" means,
in respect of a specified period, the Reinsurer's Quota Share of (i) the
aggregate account value transferred from the Separate Accounts to either the
AFLIAC General Account or PL General Account, as applicable, MINUS (ii) the
aggregate account value transferred from the AFLIAC General Account or PL
General Account, as applicable, to the Separate Accounts. For avoidance of
doubt, Separate Account Net Contractholder Transfers excludes changes in
Commissioner's Annuity Reserve Valuation Method expense allowances and Separate
Account Fee Income.
(yy) "SETTLEMENT AMOUNT" shall have the meaning set forth in
the Form of Periodic Report.
(zz) "SETTLEMENT DATE" means a date within ten Business Days
following transmittal of a Periodic Report.
(aaa) "TRUST AGREEMENT" means the Trust Agreement dated as of
April 17, 2013 by and among the Reinsurer, as grantor, the Ceding Company, as
beneficiary, and The Bank of New York Mellon, as trustee.
SECTION 1.2. INTERPRETATION.
(a) When a reference is made in this Agreement to an Article,
Section, Exhibit or Schedule, such reference shall be to an Article or Section
of, Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
Article and Section headings and table of contents contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
parties and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement unless expressly stated
otherwise herein. The use of the word "or" shall not be exclusive unless
expressly stated otherwise. The definitions contained 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 and neuter genders of such term. Any
statute defined or referred to herein or in any agreement or instrument that is
referred to herein means such statute as from time to time amended, modified or
supplemented, including successor statutes. References to a Person are also to
its successors and permitted assigns.
9
(b) The parties have participated jointly in the negotiation and
drafting of this Agreement; consequently, in the event an ambiguity or question
of intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the parties thereto, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of
any provisions of this Agreement.
ARTICLE II
EFFECTIVE DATE
SECTION 2.1. EFFECTIVE DATE. This Agreement shall become effective as of
the Effective Date and shall remain in force unless modified by mutual
agreement or terminated as provided for in Article XIII hereof.
ARTICLE III
BUSINESS REINSURED; OTHER REINSURANCE TREATIES; INFORMATION; GUARANTY FUND
ASSESSMENTS
SECTION 3.1. FUNDS WITHHELD COINSURANCE. As of the Effective Date, the
Ceding Company hereby agrees to cede on a funds withheld coinsurance basis to
the Reinsurer, and the Reinsurer hereby accepts and agrees to reinsure and
indemnify the Ceding Company for, the Quota Share of all AFLIAC Liabilities
giving rise to the AFLIAC General Account Reserves under the AFLIAC Contracts.
SECTION 3.2. MODIFIED COINSURANCE.
(a) SEPARATE ACCOUNT LIABILITIES UNDER AFLIAC CONTRACTS. As of the
Effective Date, the Ceding Company hereby agrees to cede on a modified
coinsurance basis to the Reinsurer, and the Reinsurer hereby accepts and agrees
to reinsure and indemnify the Ceding Company for, the Quota Share of all AFLIAC
Liabilities payable out of the Separate Accounts with respect to the AFLIAC
Contracts but excluding any AFLIAC Liabilities giving rise to AFLIAC General
Account Reserves under the AFLIAC Contracts.
(b) PL MODCO LIABILITIES. As of the Effective Date, the Ceding
Company hereby agrees to cede on a modified coinsurance basis to the Reinsurer,
and the Reinsurer hereby accepts and agrees to reinsure and indemnify the
Ceding Company for, the Quota Share of all PL Liabilities under the PL
Contracts.
SECTION 3.3. INITIAL SETTLEMENT.
(a) As consideration for the cessions contemplated hereunder, on
the date hereof, the Ceding Company or the Reinsurer, as applicable, shall pay
in cash by wire transfer of immediately available funds to the other party the
Initial Settlement Amount. The "Initial Settlement Amount" is an amount equal
to (i) a ceding allowance with respect to the AFLIAC Contracts equal to
$(32,581,437.93), MINUS (ii) a ceding allowance with respect to the PL
Contracts equal to $90,989,737.71, PLUS (iii) $(49,869,574.76). If the Initial
Settlement Amount
10
is a positive number it shall be payable by the Reinsurer, and if it is a
negative number, it shall be payable by the Ceding Company.
(b) In consideration for the reinsurance contemplated hereunder,
on the date hereof, the Ceding Company shall transfer to the Reinsurer the
Initial Funds Withheld Amount, but shall withhold payment to the Reinsurer of,
and shall immediately establish a payable to the Reinsurer for, the Initial
Funds Withheld Amount, and concurrently the Reinsurer shall establish a
receivable from the Ceding Company for the Initial Funds Withheld Amount.
SECTION 3.4. FOLLOW THE FORTUNES. The Reinsurer's liability under this
Agreement shall commence on the Effective Date, and all reinsurance with
respect to which the Reinsurer shall be liable by virtue of this Agreement
shall be subject in all respects to the same risks, terms, rates, conditions,
interpretations, assessments, waivers, proportion of premiums paid to, and
reinsurance recoveries benefiting, the Ceding Company, the true intent of this
Agreement being that the Reinsurer shall follow the fortunes of the Ceding
Company with respect to the AFLIAC Liabilities and PL Liabilities, and the
Reinsurer shall be bound, without limitation, by all payments and settlements
that constitute AFLIAC Liabilities and PL Liabilities entered into by the
Ceding Company as the administrator of the AFLIAC Contracts and the PL
Contracts on and after the Effective Date.
SECTION 3.5. INFORMATION; AUDITS.
(a) The Ceding Company shall provide to the Reinsurer all material
information available to it relating to the AFLIAC Liabilities and PL
Liabilities and, the Reinsurer agrees to keep such information confidential in
accordance with Section 3.5 hereof. Notwithstanding the foregoing, the Ceding
Company shall not be required to share any information with the Reinsurer to
the extent that (x) the Ceding Company is subject to a confidentiality
agreement with respect to such information, or (y) the Ceding Company is
prohibited from sharing such information with the Reinsurer pursuant to any
applicable law relating to the privacy of non-public personal information or
otherwise. Failure to provide any such information, or include any claim,
policy form or other information relating to the Reinsured Liabilities, shall
not affect the reinsurance coverage provided for by this Agreement. The
Reinsurer shall be responsible for any out-of-pocket costs, expenses and
payments (including, without limitation, any fees required in seeking a waiver
of confidentiality) in connection with obtaining and providing any such
material information or seeking a waiver of any confidentiality pursuant to
this Section 3.5(a).
(b) The Reinsurer, or its duly authorized legal, accounting, and
actuarial representatives, shall have access, at reasonable times and upon
reasonable notice during the term of this Agreement, to books and records
maintained by the Ceding Company which pertain to the reinsurance provided
under this Agreement and the employees, accountants and other relevant advisors
of the Ceding Company. The Reinsurer shall bear its own expenses in connection
with such access and shall promptly reimburse the Ceding Company for any
out-of- pocket expenses incurred by the Ceding Company in connection with such
access by the Reinsurer and its representatives.
11
SECTION 3.6. CONFIDENTIAL INFORMATION. Each of the Ceding Company and the
Reinsurer hereby agree to hold confidential and not disclose any client or
proprietary information (each as described in the succeeding paragraph) of the
other party, except as set forth in this Agreement, unless otherwise agreed to
in writing. The foregoing limitation shall not apply to proprietary information
to the extent such proprietary information otherwise becomes publicly
available, or the disclosure (i) has been mandated by law, or (ii) is duly
required by external auditors.
Client information includes medical, financial and other personal
information about proposed, current and former policyowners, insureds,
applicants, and beneficiaries of AFLIAC Contracts or PL Contracts. Proprietary
information includes but is not limited to underwriting manuals and guidelines,
applications and contract forms and premium rates and allowances of the
Reinsurer and the Ceding Company. In addition, the Ceding Company and the
Reinsurer will comply with relevant privacy legislation. Notwithstanding any
provision herein to the contrary, the confidentiality provisions of this
Agreement shall survive the termination hereof.
Notwithstanding any other provision of this agreement to the
contrary, information concerning the PL Contracts shall be subject to, and
disclosure thereof to the Reinsurer shall be restricted by, the provisions
concerning confidentiality set forth in the PL Agreement. Notwithstanding any
other provision of this agreement or the PL Agreement to the contrary, each of
the parties hereto may disclose to any person the tax structure and tax
treatment of this Agreement.
SECTION 3.7. OTHER REINSURANCE TREATIES.
(a) The collectability of reinsurance under the Other Reinsurance
Treaties with respect to the AFLIAC Contracts and the PL Contracts from
reinsurers of the Ceding Company shall be at the risk of and for the account of
the Ceding Company.
(b) The Ceding Company shall not terminate, recapture or non-renew
any Other Reinsurance Treaty without the Reinsurer's prior consent, not to be
unreasonably withheld conditioned or delayed; PROVIDED, that the Ceding Company
may terminate, recapture or non- renew any Other Reinsurance Treaty without the
consent of the Reinsurer if, in the reasonable determination of the Ceding
Company, such termination, recapture or non-renewal results from (i) an
increase in the rates payable under such Other Reinsurance Treaty, or (ii) a
material deterioration in the creditworthiness of the reinsurer under such
Other Reinsurance Treaty. From and after the date of any such termination,
recapture or non-renewal, which the Ceding Company shall promptly notify to the
Reinsurer, the Reinsurer shall be liable for, and receive the benefits relating
to, the Quota Share of increases to the Reinsured Liabilities related to such
termination, recapture or non-renewal.
SECTION 3.8. NON-GUARANTEED ELEMENTS.
(a) The Reinsurer will be liable for its Quota Share of all
Non-Guaranteed Elements.
12
(b) The Ceding Company shall determine Non-Guaranteed Elements
under this Agreement only in a manner consistent with the Ceding Company's
documented procedures in effect on the Effective Time or, in the absence of
such documented procedures, in a manner consistent with the historical
practices employed by the Ceding Company in establishing Non- Guaranteed
Elements. In either case, the Ceding Company agrees to take into account the
recommendations of the Reinsurer in connection with its determination of
Non-Guaranteed Elements (whether in response to a change proposed by the Ceding
Company or at the initiative of the Reinsurer) with respect thereto.
SECTION 3.9. PREMIUM TAXES AND GUARANTY FUND ASSESSMENTS. The Ceding
Company will pay (or will cause to be paid) all premium taxes (or other taxes
imposed in lieu thereof) ("PREMIUM TAXES") and guaranty fund assessments
("ASSESSMENTS") (whether incurred prior to, on or after the Effective Date)
related to the AFLIAC Contracts and the PL Contracts to the extent payable by
the Ceding Company under the PL Agreement. The Reinsurer shall reimburse the
Ceding Company for the Quota Share of any and all Premium Taxes and Assessments
other than fees characterized as "Class A " or "administrative" fees ("CHARGED
PREMIUM TAXES AND ASSESSMENTS") incurred by the Ceding Company on premiums
received by the Ceding Company on or after the Effective Date on the AFLIAC
Contracts to the extent allocated to the AFLIAC General Account or on the PL
Contracts to the extent allocated to the PL General Account and payable by the
Ceding Company under the PL Agreement. The Ceding Company shall include the
amount of such Premium Taxes and Assessments for which it seeks reimbursement
following the end of each Period on the Periodic Report for such Period. The
Ceding Company shall also deliver to the Reinsurer Premium Taxes and
Assessments information reasonably necessary for the Reinsurer to evaluate the
correctness of the calculation thereof. The Reinsurer shall pay to the Ceding
Company the amount of Premium Taxes and Assessments due as part of the periodic
settlement. The Ceding Company shall notify the Reinsurer as soon as possible
upon the commencement of an audit or other proceeding that may give rise to a
reimbursement obligation under this Section 3.9. The Ceding Company shall not
settle or compromise a claim that may give rise to a reimbursement obligation
under this Section 3.9 without the Reinsurer's consent. To the extent that the
Ceding Company shall obtain a refund or receive credit or any other benefit in
respect of all or any part of any Charged Premium Taxes and Assessments that
were the subject of reimbursement pursuant to this Section 3.9, Company shall
promptly pay to the Reinsurer the amount of such refund, credit or other
benefit.
SECTION 3.10. CONVERSION TO SEGREGATED ACCOUNT.
(a) Reinsurer is a segregated accounts company registered under
the SAC Act and may by written notice to the Ceding Company assign and novate
its rights, duties and obligations under this Agreement to Commonwealth Re
acting in respect of a segregated account (the "SEGREGATED ACCOUNT") upon the
terms and conditions set forth below. Such notice shall include the date as of
which the Reinsurer's rights duties and obligations under this Agreement are to
be assigned or novated to the Segregated Account and a certification that the
conditions set forth below have been satisfied.
13
(b) If and when the rights, duties and obligations of Reinsurer
under this Agreement are assigned and novated to the Segregated Account, then
the following provisions shall apply:
(i) The term "Reinsurer" shall mean the Segregated Account; and
(ii) The term "Commonwealth Re" shall refer to Commonwealth
Annuity and Life Reinsurance Company Limited acting in respect of its
"general account" (as such term is defined by the SAC Act).
(iii) Commonwealth Re shall contribute to the Segregated Account a
mutually agreed amount of capital.
(iv) This Agreement shall be treated as an insurance contract for
the purposes of the Insurance ▇▇▇ ▇▇▇▇ of Bermuda.
(v) The Segregated Account shall be maintained pursuant to the SAC
Act and this Agreement and Commonwealth Re shall allocate and direct to
the Segregated Account such assets and property whatsoever and howsoever
arising related to this Agreement with the effect that such assets and
property should be legally segregated for the benefit of the Ceding
Company from (A) the assets and property of Commonwealth Re acting in
respect of its "general account", and (B) the assets and property of any
other segregated account of Commonwealth Re.
(vi) This Agreement confers no voting rights on the Ceding Company
relative to either the affairs of the Segregated Account, the affairs of
any segregated account of Commonwealth Re or of the general account of
Commonwealth Re.
(vii) The assets of the Segregated Account arising out of or in
respect of the terms of this Agreement shall at all times be linked to
the Segregated Account and shall be kept segregated within the meaning of
the SAC Act and separate and distinct from all other funds and assets of
Commonwealth Re (except where all relevant parties, including the
Segregated Account, may expressly agree otherwise, and in accordance with
the provisions of section 17A of the SAC Act), and are not chargeable
with, and shall not be reduced by, any liability arising from any other
business of Commonwealth Re, including, without limitation, any liability
arising under the general account or any other segregated account of
Commonwealth Re.
(viii) All rights and interests in assets and property linked to
the Segregated Account shall be determined in accordance with this
Agreement and the terms of the SAC Act.
(ix) Pursuant to the terms of this Agreement, all premiums,
retro-premium and other receipts arising from this Agreement will be
linked to the Segregated Account. In addition, any reinsurance recoveries
arising from retrocessional reinsurance agreements
14
ceding all or any portion of the risks assumed hereunder shall be
linked to the Segregated Account.
(x) All payments of claims made by the Segregated Account under
this Agreement shall be paid only out of funds or other assets linked to
the Segregated Account.
(xi) Commonwealth Re may terminate the Segregated Account at any
time after the Reinsurer ceases to have any obligation or liability to
the Reinsured hereunder.
(xii) The Ceding Company acknowledges and recognizes the
applicability, validity and enforceability of the SAC Act and the terms
contained therein and in particular that the Segregated Account's
liability and obligations under this Agreement are limited to the assets
linked to the Segregated Account. Notwithstanding anything to the
contrary contained herein, the Segregated Account agrees and acknowledges
that there shall only be recourse to the assets linked to the Segregated
Account, the Funds Withheld Assets, the Letter of Credit or the assets in
the Credit Trust Account (except where all relevant parties, including
the Segregated Account, may expressly agree otherwise, and in accordance
with the provisions of section 17A of the SAC Act) and in the event of
the exhaustion of the assets linked to the Segregated Account, the Funds
Withheld Assets, the Letter of Credit and the assets in the Trust
Account, there shall be no recourse by any party to the assets which are
linked to any other segregated account (as that term is defined in the
SAC Act) established by Commonwealth Re or to the general account of
Commonwealth Re and that there is no obligation whatsoever for
Commonwealth Re to use any of its property or assets, other than the
assets linked to the Segregated Account, the Funds Withheld Assets, the
Letter of Credit or the assets in the Trust Account, to satisfy any claim
in the event of the exhaustion of the assets linked to the Segregated
Account, the Funds Withheld Assets, the Letter of Credit or the assets in
the Trust Account.
(xiii) For as long as the Segregated Account has outstanding
obligations due under this Agreement, Commonwealth Re shall not, and
shall not cause or permit the Segregated Account to, pay or distribute
assets of the Segregated Account other than a payment or distribution (A)
made to or for the benefit of the Ceding Company under the terms of this
Agreement, (B) made with the express written consent of the Ceding
Company (which consent may be withheld for any reason), (C) to pay all
claims against and expenses, fees and taxes of the Segregated Account
incurred in connection with or under (including without limitation
entering into, making or establishing as the case may be) this Agreement
or any purchase or investment by the Segregated Account expressly
contemplated by this Agreement or any subscription agreement,
shareholders agreement, participation agreement or other similar
agreement linked to the Segregated Account, or (D) which is a Qualifying
Distribution. A "Qualifying Distribution" is a distribution or payment of
assets from the Segregated Account to Commonwealth Re (or another
segregated account of Commonwealth Re) in an amount equal to or less than
the excess, if any, of (A) the surplus in the Segregated Account
determined in accordance with SAP over (B) 200% of the Segregated
Account's NAIC U.S. Authorized Control Level Risk-
15
Based Capital in respect of the applicable calendar year; provided that
(x) the Reinsurer is not in breach of any of its obligations under this
Agreement at the time such distribution or payment is made and (y) making
such payment or distribution will not result in a breach by the Reinsurer
of any of its obligations under this Agreement or in a violation by the
Reinsurer of applicable law.
(xiv) The Segregated Account, either individually or on behalf,
and for the benefit, of the Segregated Account, shall not at any time,
without the prior written approval of the Ceding Company (such consent
not to be unreasonably withheld) or unless expressly permitted by this
Agreement: (A) enter into any agreements or contracts with respect to the
Segregated Account other than this Agreement or (B) amend, rescind,
terminate or waive any rights under, or consent to the assignment of this
Agreement.
(xv) In the event of the insolvency, liquidation or rehabilitation
of the Commonwealth Re or the Segregated Account, the Ceding Company may
provide the Segregated Account, its receiver, rehabilitator, conservator,
liquidator or statutory successor with written notice of its intent to
terminate all reinsurance in force under this Agreement, regardless of
the duration the reinsurance has been in force. The effective date of a
termination due to the insolvency, liquidation or rehabilitation of the
Commonwealth Re or the Segregated Account is at the election of the
Ceding Company.
(xvi) Notwithstanding Section 15.7, matters concerning the
establishment and validity of the Segregated Account shall be governed
and construed in accordance with the laws of Bermuda.
ARTICLE IV
CREDIT FOR REINSURANCE FOR GENERAL ACCOUNT LIABILITIES
SECTION 4.1. PL GENERAL ACCOUNT MODCO AMOUNT. The PL General Account
Modco Amount shall increase or decrease at the end of each Period equal to the
movement in the PL General Account Reserves as reflected on the periodic
settlement, as provided in Section 5.2. The assets constituting the PL General
Account Modco Amount (the "MODCO ASSETS") shall be valued according to their
SAP carrying value.
SECTION 4.2. FUNDS WITHHELD ACCOUNT.
(a) On the date hereof, the Ceding Company will establish a funds
withheld coinsurance account (the "FUNDS WITHHELD ACCOUNT") consisting of the
appropriate pro rata share of general account assets of the Ceding Company
(excluding any assets held in trust by or on behalf of the Ceding Company, as
grantor, for the benefit of any other person, as beneficiary, with an aggregate
SAP carrying value equal to $867,367,822.64 (the "INITIAL FUNDS WITHHELD
AMOUNT"). The Funds Withheld Account will be maintained and controlled by the
Ceding Company.
(b) The Initial Funds Withheld Amount shall increase or decrease
at the end of each Period by the Ceding Company in its sole discretion and
reflected on the periodic
16
settlement, as provided in Section 5.3. The assets constituting the Funds
Withheld Account (the "FUNDS WITHHELD ASSETS") shall be valued according to
their SAP carrying value. The Funds Withheld Account shall remain in effect for
as long as the Reinsurer has outstanding obligations due under this Agreement
or until terminated by mutual agreement. The Funds Withheld Assets shall be
unencumbered and shall be subject to withdrawal solely by and under the
exclusive control of the Ceding Company.
(c) The Funds Withheld Amount, as of any date, shall be no more
than the AFLIAC General Account Reserves.
SECTION 4.3. CREDIT FOR REINSURANCE.
(a) In order to provide the Ceding Company with financial
statement credit for the reinsurance of the AFLIAC General Account Reserves
ceded hereunder on its statutory financial statement filed in its state of
domicile and all other states where the Ceding Company must file statutory
statements, and to the extent there is a need to maintain financial statement
credit in excess of that provided by the Funds Withheld Account, the Reinsurer
shall with the Ceding Company's approval create, as grantor, for the exclusive
benefit of the Ceding Company, an account (the "CREDIT TRUST ACCOUNT") with a
trustee that is a Qualified United States Financial Institution, naming the
Ceding Company as sole beneficiary thereof; PROVIDED, HOWEVER, that the
Reinsurer may instead have in place for the exclusive benefit of the Ceding
Company, a clean, irrevocable, unconditional and evergreen Letter of Credit
(the "LETTER OF CREDIT") with term of at least one year, issued or confirmed by
a Qualified United States Financial Institution to provide the Ceding Company
with financial statement credit for the reinsurance of the AFLIAC General
Account Reserves that are in excess of the Economic Reserves. In such case, the
Reinsurer shall ensure that the Credit Trust Account and/or Letter of Credit,
as applicable, are maintained in force while there remain AFLIAC General
Account Reserves ceded under this Agreement. The Ceding Company agrees to grant
or deny its approval under this Section 4.3(a) within 30 days after receiving a
request by the Reinsurer.
(b) The parties acknowledge and agree that, on the date hereof,
the Reinsurer will establish a Credit Trust Account under the Trust Agreement
consisting of Authorized Investments with a fair market value equal to
$49,869,574.76.
SECTION 4.4. LETTER OF CREDIT. If the Reinsurer elects to provide the
Ceding Company a Letter of Credit pursuant to Section 4.3, the Ceding Company
and the Reinsurer agree as follows:
(a) The Letter of Credit will provide for automatic extension of
the Letter of Credit without amendment for one year from the date of expiration
of said letter or any future expiration date unless 30 days prior to any
expiration the issuing bank shall notify the Ceding Company by registered mail
or courier service that the issuing bank elects not to consider the Letter of
Credit renewed for any additional period.
(b) The Letter of Credit may be drawn upon by the Ceding Company
at any time notwithstanding any other provision of this Agreement.
17
(c) If a Periodic Report prepared in accordance with Section
6.1(a) reflects that the aggregate financial statement credit provided by the
Funds Withheld Account, Credit Trust Account and Letter of Credit as of the
report date is not sufficient to provide the Ceding Company with full financial
statement credit for the reinsurance of the AFLIAC General Account Reserves
hereunder and such shortfall is not attributable to Economic Reserves, the
Reinsurer shall, within 30 days after receipt of notice of such shortfall,
secure delivery to the Ceding Company of an amendment of the Letter of Credit
increasing the amount of credit by the amount of such difference or, at its
option, comply with Section 4.5(d)(i). If the Periodic Report reflects,
however, that the sum of the AFLIAC General Account Reserves is less than such
aggregate financial statement credit as of the report date or the aggregate
value of the Funds Withheld Amount, the Credit Trust Account and the Letter of
Credit is more than required by applicable law to provide the Ceding Company
with financial statement credit for the reinsurance of the AFLIAC General
Account Reserves hereunder, the Ceding Company shall, within 30 days after
receipt of written request from the Reinsurer, release such excess credit by
agreeing to secure an amendment to the Letter of Credit reducing the amount of
credit available by the amount of such excess credit or the Reinsurer may
instead utilize the provisions of Section 4.5(d)(ii). For clarity, it is the
intent of the parties that the Letter of Credit be used to provide financial
statement credit for the reinsurance of AFLIAC General Account Reserves that
are in excess of the Economic Reserves only. Any other financial statement
credit shall be provided through Funds Withheld Assets or Authorized
Investments in the Credit Trust Account.
SECTION 4.5. TRUST AGREEMENT. If the Reinsurer elects to provide the
Ceding Company a Credit Trust Account pursuant to Section 4.3, the Ceding
Company and the Reinsurer agree as follows:
(a) The Reinsurer shall deposit in the Credit Trust Account,
Authorized Investments (as defined below) with a then current fair market value
equal to the AFLIAC General Account Reserves in excess of the amount of credit
provided by the Funds Withheld Account and the Letter of Credit, if any, and
the trustee shall hold assets in the Credit Trust Account for the benefit of
the Ceding Company pursuant to the terms of the Trust Agreement. The Credit
Trust Account shall be established and maintained in compliance with all
requirements of M.G.L. c. 175 or any successor provision and all other
applicable laws governing the Ceding Company's right to take financial
statement credit for the reinsurance under this agreement, including, without
limitation, 211 CMR 130.09 and 130.10 of the Code of Massachusetts Regulations
for the Commonwealth of Massachusetts.
(b) The assets deposited in the Credit Trust Account shall be
valued according to their fair market value as of the date as of which such
assets are required to be valued under Section 4.5(d) and shall consist only of
cash (United States legal tender), certificates of deposit (issued by a United
States bank and payable in United States legal tender) and investments of the
types both permitted by M.G.L. c. 175 ("AUTHORIZED INVESTMENTS").
(c) Prior to depositing assets in the Trust Account, the Reinsurer
shall 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
18
trustee upon the direction of the Ceding Company, may whenever necessary
negotiate these assets without consent or signature from the assuming insurer
or any other entity.
(d) The Reinsurer shall maintain Authorized Investments in the
Credit Trust Account with an aggregate fair market value in the amount required
in order for the Ceding Company to receive full financial statement credit for
the reinsurance of the AFLIAC General Account Reserves hereunder less the
aggregate financial statement credit provided by the Funds Withheld Account and
Letter of Credit (the "REQUIRED TRUST AMOUNT"). The amount of security provided
by the Reinsurer shall be adjusted following the end of each Period in
accordance with the related Periodic Report provided by the Ceding Company to
the Reinsurer in accordance with Section 6.1(a).
(i) If the aggregate fair market value of the Authorized
Investments held in the Credit Trust Account at the end of any Period is
less than the Required Trust Amount, the Reinsurer shall, no later than
10 days following the delivery of the related Periodic Report, transfer
additional Authorized Investments to the Credit Trust Account so that the
aggregate fair market value of Authorized Investments held in the Credit
Trust Account is not less than the Required Trust Amount.
(ii) If the aggregate fair market value of the Authorized
Investments in the Credit Trust Account exceeds 102% of the Required
Trust Amount, calculated based on the most recent Periodic Report, then
the Reinsurer shall have the right to seek approval (which shall not be
unreasonably or arbitrarily withheld) from the Ceding Company to withdraw
from the Credit Trust Account all or any part of such excess.
SECTION 4.6. WITHDRAWALS FROM CREDIT TRUST ACCOUNT OR DRAWS UNDER LETTER
OF CREDIT.
(a) The Reinsurer and the Ceding Company agree that the Ceding
Company may withdraw assets in the Credit Trust Account or draw on the Letter
of Credit at any time notwithstanding any other provision of this Agreement.
Such withdrawals or draws shall be used by the Ceding Company, or any successor
in interest of the Ceding Company (which successor includes a court appointed
domiciliary receiver of the Ceding Company, including any conservator,
rehabilitator or liquidator), for the following reasons only:
(i) to pay or reimburse the Ceding Company for the Reinsurer's
share of premiums returned, but not yet recovered from the Reinsurer, to
the owners of the AFLIAC Contracts on account of cancellation of such
contracts;
(ii) to pay or reimburse the Ceding Company for the Reinsurer's
share of surrenders and benefits or losses paid by the Ceding Company,
but not yet recovered from the Reinsurer, under the terms and provisions
of the AFLIAC Contracts;
(iii) to pay or reimburse the Ceding Company for any other amounts
necessary to secure the credit or reduction from liability for
reinsurance taken by the Ceding Company relating to the AFLIAC Contracts;
19
(iv) where the Ceding Company has received notification of
termination of the Credit Trust Account or non-renewal of the Letter of
Credit and where the Reinsurer's obligations with respect to the AFLIAC
Contracts remain unliquidated and undischarged 10 days prior to the
termination date, to withdraw or draw amounts equal to the Reinsurer's
share of liabilities with respect to the AFLIAC Contracts, to the extent
that the liabilities with respect to the AFLIAC Contracts have not yet
been funded by the Reinsurer, and deposit those amounts in a separate
account, in the name of the Ceding Company in any Qualified United States
Financial Institution apart from its general assets, in trust for the
uses and purposes specified in Sections 4.6(a)(i) and (ii) as may remain
executory after withdrawal and for any period after the termination date;
(v) to make payment to the Reinsurer of amounts held in the Credit
Trust Account in excess of the amount necessary to secure the credit or
reduction from liability for the AFLIAC Contracts; and
(vi) to pay or reimburse the Ceding Company for the Reinsurer's
share of any other amounts the Ceding Company claims are due under this
Agreement.
(b) In the event the amount withdrawn by the Ceding Company from
the Credit Trust Account or drawn by the Ceding Company under the Letter of
Credit exceeds the actual amount required under the immediately foregoing
clauses (i), (ii), (iii) and (iv), or in the case of (vi) above any amounts
which are subsequently determined not to be due, the Ceding Company shall
promptly return to the Reinsurer the excess amounts so withdrawn or drawn and,
until such excess amounts are returned to the Reinsurer, such amounts, together
with interest thereon, shall be held by the Ceding Company for the benefit of
the Reinsurer and the Reinsurer shall be entitled to all rights, title and
interest in said amounts. The interest rate applicable to such amounts will be
at a rate equal to the prime rate of interest as stated in the Federal Reserve
Statistical Release H.15. Interest will be earned from the date the amount is
withdrawn or drawn until that amount is repaid. All the foregoing shall be
applied without diminution because of insolvency on the part of the Ceding
Company or the Reinsurer.
SECTION 4.7. PRIORITY OF USE. The parties agree that if an amount is
properly subject to withdrawal by the Ceding Company from the Funds Withheld
Account and by withdrawal from the Credit Trust Account or draw under the
Letter of Credit, such amount shall first be withdrawn from the Funds Withheld
Account and upon, and only upon, exhaustion thereof, withdrawn from the Credit
Trust Account or drawn under the Letter of Credit.
ARTICLE V
PAYMENT AND REINSURANCE ACCOUNTING
SECTION 5.1. ADJUSTMENTS TO PL GENERAL ACCOUNT MODCO AMOUNT. The Ceding
Company shall adjust the PL General Account Modco Amount on a periodic basis,
no less frequently than quarterly, as reflected in the Periodic Report
delivered pursuant to Section 6.1.
SECTION 5.2. ADJUSTMENTS FOR OTHER REINSURANCE. Premium paid or payable
by Ceding Company on any Other Reinsurance Treaties in respect of AFLIAC
Contracts or PL
20
Contracts shall reduce the amount of Reinsurance Premium that would otherwise
be reflected as an increase to the "Settlement Amount" reflected on Exhibit A,
and any benefits or allowances received or receivable under Other Reinsurance
Treaties in respect of AFLIAC Contracts or PL Contracts shall reduce benefits
that would otherwise be reflected as a decrease to the "Settlement Amount"
reflected on Exhibit A.
SECTION 5.3. ADJUSTMENTS TO FUNDS WITHHELD ACCOUNT. The Ceding Company
shall adjust the Funds Withheld Account on a periodic basis, no less frequently
than quarterly, as reflected in the Periodic Report delivered pursuant to
Section 6.1.
SECTION 5.4. SEPARATE ACCOUNTS. The Reinsurer will have no legal or
equitable interest in any Separate Account or any assets held therein arising
solely by virtue of the reinsurance provided pursuant to this Agreement.
ARTICLE VI
REPORTS; SETOFF RIGHTS
SECTION 6.1. PERIODIC REPORTS.
(a) Within 30 calendar days following the end of each Period, the
Ceding Company shall provide the Periodic Report for such Period in the form
set forth in EXHIBIT A. The parties agree that such Periodic Report may contain
adjustments and modifications to previously delivered Periodic Reports in
respect of prior Periods.
(b) The Ceding Company shall provide the Reinsurer with supporting
calculations with respect to the amounts reflected on the Periodic Report as
reasonably requested by the Reinsurer. The Reinsurer and its employees,
advisors and agents shall have a reasonable right to review and discuss the
Periodic Report with employees, accountants and other relevant advisors of the
Ceding Company during normal business hours.
SECTION 6.2. PERIODIC SETTLEMENTS.
(a) If the "Settlement Amount" set forth on the Periodic Report
reflects a net amount due the Reinsurer, then the Ceding Company shall pay to
the Reinsurer such amount. If the "Settlement Amount" set forth on the Periodic
Report reflects a net amount due the Ceding Company, then the Reinsurer shall
pay to the Ceding Company such amount. The "Settlement Amount", in each case,
shall be paid within 10 days of delivery of the Periodic Report; PROVIDED, that
any such payment that would otherwise be due on a day that is not a Business
Day shall be due on the next following Business Day.
(b) All payments due directly to the Reinsurer or the Ceding
Company shall be remitted by wire transfer in immediately available funds.
SECTION 6.3. OFFSETS. Any debits or credits incurred on or after the
Effective Date in favor of or against either the Ceding Company or Reinsurer
with respect to this Agreement shall be setoff, and only the net balance shall
be paid.
21
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 7.1. REPRESENTATIONS AND WARRANTIES OF THE CEDING COMPANY. The
Ceding Company represents and warrants to the Reinsurer as of the date hereof
and, unless otherwise specified in any representation or warranty below, shall
be deemed to have represented and warranted as of the Effective Date, as
follows:
(a) The Ceding Company is a corporation duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and it has the
requisite corporate power and authority to perform its obligations under this
Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by it and, assuming the due authorization, execution and delivery of
this Agreement by the Reinsurer, constitutes a legal, valid and binding
obligation of the Ceding Company, enforceable against the Ceding Company in
accordance with its terms.
(c) The execution and delivery of this Agreement do not, and the
performance by the Ceding Company of its obligation hereunder will not conflict
with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination or cancellation
under, any provision of (i) the articles or certificate of incorporation and
by-laws or comparable organizational documents of the Ceding Company, any
contract, permit, order, judgment or decree to which the Ceding Company is a
party, any order of any governmental agency, authority, entity or
instrumentality ("GOVERNMENTAL ENTITY") or (iv) any applicable law, except for
such violations or defaults which would not reasonably be expected to have a
material adverse effect on the business being reinsured hereunder or the Ceding
Company's ability to satisfy its obligations hereunder.
SECTION 7.2. REPRESENTATIONS AND WARRANTIES OF THE REINSURER. The
Reinsurer represents and warrants to the Ceding Company as of the date hereof
and, unless otherwise specified in any representation or warranty below, shall
be deemed to have represented and warranted as of the Effective Date, as
follows:
(a) The Reinsurer is a corporation duly organized, validly
existing and in good standing (to the extent legally applicable) under the laws
of Bermuda and has requisite corporate power and authority to perform its
obligations under this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by it and, assuming the due authorization, execution and delivery of
this Agreement by the Ceding Company, constitutes a legal, valid and binding
obligation of the Reinsurer, enforceable against the Reinsurer in accordance
with its terms.
(c) The execution and delivery of this Agreement do not, and the
performance by the Reinsurer of its obligation hereunder will not conflict
with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination or cancellation
under, any provision of (i) the articles or certificate of incorporation
22
and bye-laws or comparable organizational documents of the Reinsurer, (ii) any
contract, permit, order, judgment or decree to which the Reinsurer is a party,
(iii) any order of any Governmental Entity or (iv) any applicable law, except
for such violations or defaults which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
Reinsurer's ability to satisfy its obligations hereunder.
ARTICLE VIII
ADMINISTRATION; CHANGES; CREDITING RATES
SECTION 8.1. ADMINISTRATION AND EXPENSE ALLOWANCES.
(a) The Ceding Company and the Reinsurer agree that the AFLIAC
Contracts and PL Contracts will be administered by the Ceding Company in good
faith, and the Ceding Company agrees to perform such administrative services:
(i) consistent with its current practice and (ii) in material compliance with
all applicable law and the requirements of the AFLIAC Contracts, the PL
Contracts, the PL Agreement and the FAFLIC Core Agreement. The Ceding Company
shall have no liability to the Reinsurer for the administration of the AFLIAC
Contracts or the PL Contracts, except for bad faith, gross negligence or an
intentional breach of this Section 8.1(a).
(b) For each Period, the Reinsurer will pay the Ceding Company
with respect to each AFLIAC Contract and PL Contract in force during the
applicable Period, its Quota Share of the Expense Allowance for the Ceding
Company's administration of such AFLIAC Contracts and PL Contracts. For
purposes of this Section 8.1(b), the number of AFLIAC Contracts and PL
Contracts in force during any Period shall be deemed to be the sum of AFLIAC
Contracts and PL Contracts in force on the first day of such Period.
ARTICLE IX
TAXES
SECTION 9.1. TAX STATUS. The Ceding Company represents and warrants that
it is subject to taxation under Subchapter "L" of the Code. The Reinsurer
represents and warrants that it is subject to indirect taxation under the
provisions of Subpart F of Part III of subchapter N of chapter 1 of the Code
("Subpart F").
SECTION 9.2. POLICY ACQUISITION EXPENSES. With respect to this Agreement,
the Ceding Company and the Reinsurer jointly elect pursuant to Section
1.848-2(g) of the Income Tax Regulations issued December 1992 as follows:
(a) For each taxable year, the party with net positive
consideration, as defined in Treasury Regulation 1.848-2, will capitalize
specified policy acquisition expenses with respect to this Agreement without
regard to the general deductions limitation of Section 848(c)(1) of the Code.
Each party filing a Federal income tax return shall attach a schedule to its
federal income tax return for the first taxable year for which this is election
is in effect stating that an election under Treasury Regulations Section
1.848-2(g)(8) has been made for this Agreement.
23
(b) The Reinsurer shall take any positive capitalization amount
into account in determining the amount required to be included in income
pursuant to Subpart F by its "United States shareholders," within the meaning
of Section 951(b) of the Code, as determined by comparing the amount of its
gross income allocable to such United States shareholders for any taxable year
to all of its gross income for such year. The Ceding Company agrees to adjust
its net negative capitalization to be consistent with the proportion determined
pursuant to the preceding sentence.
(c) The Ceding Company will submit a schedule to the Reinsurer by
March 1 of each year of its calculation of the net consideration for the
preceding calendar year. The Reinsurer shall provide data to the Ceding Company
by March 1 of each year which will enable the Ceding Company to calculate the
proportion of the Reinsurer's gross income for the preceding calendar year
income that was required to included in income by its "United States
shareholders" as defined in paragraph (b) above.
(d) This election is effective for 2013 and will remain in effect
for all future taxable years for which this Agreement remains in effect.
SECTION 9.3. EXCISE TAXES. The Ceding Company shall be responsible for
reporting and remitting the tax imposed by Section 4371 of the Code as
indicated on the Periodic Report. The tax imposed by Section 4371 of the Code
shall be borne by the Reinsurer.
ARTICLE X
INSOLVENCY
SECTION 10.1. INSOLVENCY OF CEDING COMPANY.
(a) In the event of the insolvency of the Ceding Company, the
reinsurance shall be payable directly to the Ceding Company, or to its
liquidator, receiver, conservator or statutory successor on the basis of claims
filed and allowed in the liquidation proceeding, without diminution because of
the insolvency of the Ceding Company.
(b) The reinsurance shall be payable by the Reinsurer directly to
the Ceding Company or to its domiciliary liquidator except: (1) where the
contract of insurance or reinsurance specifically provides another payee of
such reinsurance in the event of the insolvency of the Ceding Company or (2)
where the Reinsurer, with the consent of the direct insured(s), has assumed
such policy obligations of the Ceding Company as direct obligations of the
Reinsurer to the payees under such policies and in substitution for the
obligations of the Ceding Company to such payees. Any such payment made by the
Reinsurer in accordance with the foregoing clauses (2) shall discharge the
Reinsurer from its related payment obligation under the subject AFLIAC
Contracts or PL Contracts.
(c) The liquidator, receiver or statutory successor of the Ceding
Company shall give written notice to the Reinsurer of the pendency of each
claim against the Ceding Company with respect to any AFLIAC Liabilities or PL
Liabilities within a reasonable time after each such claim is filed in the
insolvency, liquidation or rehabilitation proceeding. During the
24
pendency of any such claims, the Reinsurer may investigate such claim and
interpose, at its own expense, in the proceeding in which such claim is to be
adjudicated any defense or defenses that the Reinsurer may reasonably deem
available to the Ceding Company or its liquidator, receiver or statutory
successor. Subject to court approval, the expenses incurred in connection
therewith by the Reinsurer shall be chargeable against the Ceding Company as
part of the expense of such insolvency, liquidation or rehabilitation to the
extent of a proportionate share of any benefit that accrues to the Ceding
Company solely as a result of the defense or defenses undertaken by the
Reinsurer.
SECTION 10.2. INSOLVENCY OF REINSURER. In the event of the insolvency,
liquidation or rehabilitation of the Reinsurer, the Ceding Company may provide
the Reinsurer, its receiver, rehabilitator, conservator, liquidator or
statutory successor with written notice of its intent to terminate all
reinsurance in force under this Agreement, regardless of the duration the
reinsurance has been in force or the amount retained by the Ceding Company on
the AFLIAC Contracts or the PL Contracts. The effective date of a termination
due to the insolvency, liquidation or rehabilitation of the Reinsurer is at the
election of the Ceding Company.
ARTICLE XI
ARBITRATION
SECTION 11.1. AGREEMENT TO ARBITRATE. All disputes between the parties
arising out of this Agreement shall be referred to and settled by arbitration
held in accordance with the guidelines set forth in the ▇▇▇▇▇-U.S. PRACTICAL
GUIDE TO REINSURANCE ARBITRATION PROCEDURE (2004) (except for the "STREAMLINED
ARBITRATION PROCEDURES"); PROVIDED, that, notwithstanding anything to the
contrary in the ▇▇▇▇▇-U.S. PRACTICAL GUIDE TO REINSURANCE ARBITRATION
PROCEDURE, the arbitrators to be appointed to the arbitration panel shall be
appointed in accordance with Section 11.3. It is specifically the intent of
both parties that these arbitration provisions will replace any statutory
provision, if any, relating to any arbitration procedures the provisions cover.
SECTION 11.2. INITIATION OF ARBITRATION. Arbitration shall be initiated
by the delivery of a written notice of demand for arbitration by one party to
the other.
SECTION 11.3. APPOINTMENT OF ARBITRATION PANEL. The arbitration panel
shall consist of three members appointed in accordance with the ▇▇▇▇▇-U.S.
NEUTRAL SELECTION PROCEDURE, as then currently in effect (including the
suggested guidelines therein), except that the ▇▇▇▇▇-U.S. Executive Director's
Office shall be requested to provide its initial list of thirty ▇▇▇▇▇-U.S.
Certified Arbitrators exclusively from a pool of arbitrators that shall have no
less than ten years of experience in the insurance or reinsurance industry and
be active or retired officers of life insurance or life reinsurance companies.
SECTION 11.4. LOCATION OF ARBITRATION. The arbitration proceeding shall
take place in Boston, Massachusetts; PROVIDED, that the arbitration panel may,
for the convenience of the parties and without changing the situs of the
arbitration proceeding, take evidence at any place within or without Boston,
Massachusetts.
25
SECTION 11.5. ARBITRATION AWARD. The arbitrators shall not be obligated
to follow judicial formalities or the rules of evidence and shall make their
decisions according to the practice of the reinsurance business. The decision
rendered by a majority of the arbitration panel shall be final and binding on
the parties. Any award of the arbitration panel may be, alternatively or
cumulatively, for money damages, an order requiring the performance of the
obligations under this Agreement, or any other appropriate order or remedy. The
arbitration panel may award interim relief, including pre-award security. The
award shall assign all costs of the arbitration to one or more of the parties
in such proportion as the arbitrators determine on an equitable basis, except
each party shall bear its own attorneys fees, professional fees and expert
witness costs. Judgment upon any award rendered in the arbitration may be
entered in any court having jurisdiction.
SECTION 11.6. WAIVER OF JURY TRIAL. Each of the parties hereto
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or related to this Agreement or the transactions contemplated
hereby.
ARTICLE XII
OVERSIGHTS, ERRORS AND OMISSIONS
Any inadvertent delays, errors or omissions on the part of one
party occurring in connection with its obligations under this Agreement or any
transaction hereunder shall not relieve the other party from any liability
which would have otherwise attached had such delay, error or omission not
occurred.
ARTICLE XIII
TERMINATION
SECTION 13.1. DURATION. This Agreement shall commence on the Effective
Date and continue until the date on which this Agreement is terminated under
Section 13.2, except that under no circumstances shall any termination of this
Agreement relieve either party from liability for any breach of this Agreement
occurring prior to such termination or from its obligations under Section 3.5.
SECTION 13.2. TERMINATION. This Agreement may be terminated by the mutual
written consent of the Reinsurer and the Ceding Company. The Ceding Company
shall not withhold its consent in the event it determines in good faith that
there is no further current or potential future liability of the Reinsurer
hereunder. This Agreement shall terminate automatically with respect to the PL
Contracts if Protective Life Insurance Company recaptures the reinsurance
assumed by the Ceding Company under the PL Agreement.
SECTION 13.3. SETTLEMENT UPON TERMINATION.
(a) Upon the termination of this Agreement in its entirety, the
Ceding Company shall recapture all liabilities previously ceded to the
Reinsurer and, subject to payment by the Reinsurer of any amounts due to the
Ceding Company pursuant to this Section 13.3, the Reinsurer's liability under
this Agreement will terminate (provided that such termination shall
26
not relieve any party of any pre-termination breach of the Agreement). The
Ceding Company shall prepare a Periodic Report for the Period ending on the
date this Agreement is terminated pursuant to Sections 13.2. On the 5th
Business Day following the Periodic Report, (a) the parties shall pay any
amounts due and owing on such Periodic Report, (b) the Ceding Company shall pay
to the Reinsurer the then remaining PL General Account Modco Amount, (c) the
Reinsurer shall transfer to the Ceding Company assets with an aggregate fair
market value, as determined by the Ceding Company, equal to 100% of the amount
representing the Quota Share of the PL General Account Reserves and AFLIAC
General Account Reserves, as determined by the Ceding Company as of the date of
termination, (d) the Ceding Company shall pay to the Reinsurer the then
remaining Funds Withheld Account (or cash or cash equivalents with an equal
market value) and (e) the Reinsurer shall transfer to the Ceding Company
assets with an aggregate fair market value, as determined by the Ceding
Company, equal to (i) 100% of the amount representing the AFLIAC General
Account Reserves, as determined by the Ceding Company as of the date of
termination PLUS (ii) a mutually agreed recapture allowance by the parties,
which may be a positive or negative number. The amounts paid pursuant to clause
(a) through (e) shall be setoff, and only the balance shall be allowed or paid
by the applicable party.
(b) Notwithstanding the foregoing, upon termination of this
Agreement with respect to the PL Contracts pursuant to the last sentence of
Section 13.2, the amounts owed pursuant to this Section 13.3 shall equal the
amounts owed under the PL Agreement in connection with such recapture, and (A)
the Reinsurer shall pay the Ceding Company any amount owed by the Ceding
Company to Protective Life Insurance Company under the PL Agreement in
connection with the recapture of such agreement, if any, and (B) the Ceding
Company shall pay the Reinsurer any amount received by the Ceding Company from
Protective Life Insurance Company under the PL Agreement in connection with the
recapture of such agreement, if any.
ARTICLE XIV
INDEMNIFICATION
SECTION 14.1. REINSURER'S OBLIGATION TO INDEMNIFY. The Reinsurer
hereby indemnifies the Ceding Company and its directors, officers, employees,
Affiliates, successors, permitted assigns, agents and representatives
(collectively, the "CEDING COMPANY INDEMNITEES") from and against and agrees to
hold each of them harmless from any and all claim, damage, loss, liability,
fine and expense (including reasonable attorneys' fees and other expenses of
investigation in connection with any action, suit or proceeding) (each, a
"LOSS") incurred or suffered by the Ceding Company Indemnitees arising out of
or resulting from any breach by the Reinsurer of any representation, warranty
or term of this Agreement.
SECTION 14.2. CEDING COMPANY'S OBLIGATION TO INDEMNIFY. The
Ceding Company hereby indemnifies the Reinsurer and its directors, officers,
employees, Affiliates, successors, permitted assigns, agents and
representatives (collectively the "REINSURER INDEMNITEES") from and against and
agrees to hold each of them harmless from any and all Losses incurred or
suffered by Reinsurer Indemnitees arising out of or resulting from (a) any
breach by the Ceding Company of any representation, warranty or term of this
Agreement or (b) any litigation, claim, examination, investigation or other
proceeding brought by a Person that is neither a party to this
27
Agreement nor an Affiliate of such party, which if brought against the Ceding
Company would be an Extra Contractual Obligation.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1. CURRENCY. All transactions hereunder shall be in United
States currency. Premiums and Reinsured Liabilities expressed in currencies
other than United States currency shall, for the purpose of this Agreement, be
converted into United States dollars at the rates of exchange in effect on the
date on which they are entered in the books of the Ceding Company.
SECTION 15.2. NOTICES. All notices, requests, demands, approvals and
other communications under this Agreement shall be in writing and shall be (i)
delivered personally, (ii) sent by facsimile transmission or (iii) sent by
certified, registered or express mail, postage prepaid. Any such notice or
other communication shall be deemed given: (a) upon actual delivery, if
presented personally, (b) when electronically confirmed, if sent by facsimile
transmission and (c) three Business Days following deposit in the United States
mail, if sent by certified, registered or express mail, postage prepaid, in
each case to the following addresses:
If to the Ceding Company:
Commonwealth Annuity and Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
President and CEO
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice for purposes of this
Section 15.2):
Commonwealth Annuity and Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
General Counsel and Secretary
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Reinsurer:
Commonwealth Annuity and Life Reinsurance Company Limited
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇ ▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇: ▇▇▇▇ ▇▇▇▇▇▇
28
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 15.3. AMENDMENTS; WAIVER.
(a) Any provision of this Agreement may be amended if, but only
if, such amendment is in writing and is signed by each party to this Agreement.
Any change or modification to this Agreement shall be null and void unless made
by an amendment hereto signed by each party to this Agreement.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 15.4. SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided that no party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the consent of each
other party hereto, and that any purported assignment without the consent of
the other party shall be void and of no force or effect.
(b) No provision of this Agreement is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder
SECTION 15.5. DUTY OF COOPERATION. Each party hereto shall cooperate
fully with the other party hereto in all reasonable respects in order to
accomplish the objectives of this Agreement.
SECTION 15.6. SUBMISSION TO JURISDICTION. In the event of the failure of
the Reinsurer to perform its obligations under the terms of this Agreement, the
Reinsurer, at the request of the Ceding Company, shall submit to the
jurisdiction of an alternative dispute resolution panel or any court of
competent jurisdiction in any state of the United States, will comply with all
requirements necessary to give such panel or court jurisdiction, and will abide
by the final decision of such panel or court or of any appellate court in the
event of an appeal of a decision by such panel or court. The Reinsurer hereby
designates the Commissioner of the Massachusetts Division of Insurance or a
designated attorney thereof as its true and lawful attorney upon whom may be
served any lawful process in any action, suit or proceeding instituted by or on
behalf of the Ceding Company. The foregoing provision shall not in any way
conflict with, limit or override the obligations of the parties to submit any
disputes hereunder to arbitration in accordance with Article XI hereof.
SECTION 15.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the Commonwealth of Massachusetts,
without giving effect to the
29
principles of conflicts of law thereof; PROVIDED that any provision of this
Agreement relating to the assets or liabilities of the Reinsurer shall be
governed by and construed in accordance with the laws of Bermuda.
SECTION 15.8. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the business being reinsured
hereunder and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement. There are no understandings between the parties with respect to the
subject matter of this Agreement other than as expressed herein and therein.
SECTION 15.9. SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law or if
determined by a court of competent jurisdiction to be unenforceable, and if the
rights or obligations of the Ceding Company or the Reinsurer under this
Agreement will not be materially and adversely affected thereby, such provision
shall be fully severable, and this Agreement will be construed and enforced as
if such illegal, invalid or unenforceable provision had never comprised a part
of this Agreement, and the remaining provisions of this Agreement shall remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.
SECTION 15.10. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
shall be deemed to have been executed and delivered when each party hereto
shall have received a counterpart hereof signed by the other party hereto and
then become effective upon the Effective Date.
30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives.
COMMONWEALTH ANNUITY AND
LIFE INSRUANCE COMPANY
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
Title: President & CEO
COMMONWEALTH ANNUITY AND LIFE REINSURANCE
COMPANY LIMITED
By:
----------------------------------
Name:
Title:
23834688
[SIGNATURE PAGE - COINSURANCE AND MODCO AGREEMENT - PROTECTIVE AND AFLIAC]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
COMMONWEALTH ANNUITY AND LIFE INSRUANCE COMPANY
By:
------------------------------
Name:
Title:
COMMONWEALTH ANNUITY AND LIFE REINSRUANCE COMPANY
LIMITED
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
23834688
[SIGNATURE PAGE - COINSURANCE AND MODCO AGREEMENT - PROTECTIVE AND AFLIAC]
EXHIBIT A
PERIODIC SETTLEMENT
AFLIAC Contracts PL Contracts
For each Period, the parties will effect a Periodic Settlement as follows:(1)
Reinsurance Premiums
+ Interest and other earnings (including realized gains and losses, and
changes in unrealized gains and losses with respect to derivatives only)
accrued during the Period calculated in accordance with Annex 1A/1B
- AFLIAC Liabilities or PL Liabilities Incurred
- Commission Allowances Incurred
- Expense Allowances Incurred
- Charged Premium Taxes and Assessments
+ Tax benefits for Separate Account Assets
+ Separate Account Fee Income
+ Separate Account Net Contractholder Transfers to/(from) the AFLIAC General
Account or PL General Account
+ Other amounts incurred by the Ceding Company with Protective Life Insurance
Company
AFLIAC Funds Withheld Assets / PL General Account Modco Amount as of the last
day of the Period immediately preceding the most recently ended Period (A) $____(A) $____(A)
AFLIAC Funds Withheld Assets / PL General Account Modco Amount as of the last
day of the most recently ended Period (B) $____(B) $____(B)
Settlement Amount Change: (A) - (B)
Settlement Amount (C) $____(C) $____(C)
-------------------------
(1) Amount to be apportioned based on underlying contracts to which such
amounts relate.
Exh. ▇-▇
▇▇▇▇▇ ▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ INCOME CALCULATION, CEDING COMPANY GENERAL ACCOUNT ASSETS:
Net Investment Income = AFLIAC General Account Reserves End of Prior Period
* ((Ceding Company General Account Assets* Investment Income / SAP Carrying
Value of Ceding Company General Account Assets End of Prior Period) - NII
Reduction**) - Investment Expense Allocated
* CEDING COMPANY GENERAL ACCOUNT ASSETS INVESTMENT INCOME INCLUDES ALL REALIZED
GAINS/LOSSES ON THE ASSETS HELD IN THE GENERAL ACCOUNT OF THE CEDING COMPANY,
EXCLUDING ASSETS HELD IN TRUST FOR THE BENEFIT OF THIRD PARTIES.
**NII REDUCTION EQUALS [0%] PER ANNUM APPLIED BASED ON ACCOUNTING PERIOD.
REALIZED GAINS AND LOSSES, DERIVATIVES:
Realized gains/losses arising from derivatives assigned to hedge liabilities
are included in the periodic cash settlement. A seriatim listing of assigned
derivatives, along with associated realized and unrealized gains / losses, will
be provided.
Annex 1B-1
ANNEX 1B
NET INVESTMENT INCOME CALCULATION, CEDING COMPANY GENERAL ACCOUNT COINSURED
RESERVES*:
Net Investment Income = PL General Account Coinsured Reserves End of Prior
Period
* ((Ceding Company General Account Assets** Investment Income / SAP Carrying
Value of the Ceding Company General Account Assets End of Prior Period) - NII
Reduction**) - Investment Expense Allocated
* PL GENERAL ACCOUNT COINSURED RESERVES INCLUDES ALL ASSETS SUPPORTING THE PL
GENERAL ACCOUNT RESERVES REINSURED BY THE CEDING COMPANY ON A COINSURANCE BASIS
UNDER THE PL AGREEMENT.
** CEDING COMPANY GENERAL ACCOUNT ASSETS INVESTMENT INCOME INCLUDES ALL
REALIZED GAINS/LOSSES ON THE ASSETS HELD IN THE GENERAL ACCOUNT OF THE
CEDING COMPANY, EXCLUDING ASSETS HELD IN TRUST FOR THE BENEFIT OF THIRD
PARTIES.
***NII REDUCTION EQUALS [0%] PER ANNUM APPLIED BASED ON ACCOUNTING PERIOD.
REALIZED GAINS AND LOSSES, DERIVATIVES:
Realized gains/losses arising from derivatives assigned to hedge liabilities
are included in the periodic cash settlement. A seriatim listing of assigned
derivatives, along with associated realized and unrealized gains / losses, will
be provided.
Net investment income with respect to assets supporting the PL General Account
Reserves reinsured by the Ceding Company on a modified coinsurance basis under
the PL Agreement shall equal all Investment Income paid by Protective Life
Insurance Company to the Ceding Company under the PL Agreement in connection
with such assets.
Annex 1B-1
SCHEDULE 1.1A
POLICY FORMS CONSTITUTING AFLIAC CONTRACTS
------------------------------------------------------------------------------------------------------------------
CwA LEGACY 403b HORIZON PROTECTIVE
------------------------------------------------------------------------------------------------------------------
A3001-75 A3038-07 A3040-09 L-8696
(75 series elective pay) (Advantage IV) L-8697
L-8698
(Preferred Plus)
------------------------------------------------------------------------------------------------------------------
A3002-75 A3039-07 L-8613
(75 series elective pay) (Preferred Plus) L-8614
L-8589
(Preferred)
------------------------------------------------------------------------------------------------------------------
A3003-75 L-1600 (9/91)
(75 series elective pay) L-1600 (10/93)
L-1650 (9/91)
L-1650 (10/93)
(Passport)
------------------------------------------------------------------------------------------------------------------
A3004-75 L-1000 (6/93)
(75 series elective pay) (Advantage III)
------------------------------------------------------------------------------------------------------------------
A3005-75 L-5848 (1/82)
(75 Elect Payment Fixed) L-5856 (4/85)
L-5881 (1/82)
L-5882 (1/82)
(Advantage III (KMSA)
------------------------------------------------------------------------------------------------------------------
A3006-75 L-5454 (5/80)
(75 Elect Payment Fixed) (Advantage I (SACA -
Annual))
------------------------------------------------------------------------------------------------------------------
A3007-78 L-5672 (2/81)
(75 Elect Payment Fixed) (Advantage I (SACB -
Quarterly))
------------------------------------------------------------------------------------------------------------------
A3008-78 L-8823
(78 Single Pay Fixed) L-8824
L-8825
(Zurich Archway & ZS4)
------------------------------------------------------------------------------------------------------------------
A3009-78 S-3253
(78 Single Pay Fixed) (Protective RSG Advantage III
(formerly Chase Advantage III))
------------------------------------------------------------------------------------------------------------------
A3010-79 S-3258
(79 Elect Payment Fixed) (Protective FI Variable Annuity
(formerly Chase Variable Annuity
or "the One Variable Annuity")
------------------------------------------------------------------------------------------------------------------
Schedule 1.1A-1
23834688v07
------------------------------------------------------------------------------------------------------------------
CwA LEGACY 403b HORIZON PROTECTIVE
------------------------------------------------------------------------------------------------------------------
A3011-79 S-3257
(79 Elect Payment Fixed) (Protective RSB Preferred Plus
formerly Chase Insurance
Preferred Plus)
------------------------------------------------------------------------------------------------------------------
A3012-79
(78/79 series elective pay)
------------------------------------------------------------------------------------------------------------------
A3013-79
(78/79 series elective pay)
------------------------------------------------------------------------------------------------------------------
A3014-79
(78/79 series single pay)
------------------------------------------------------------------------------------------------------------------
A3015-79
(78/79 series single pay)
------------------------------------------------------------------------------------------------------------------
A3016-84
(Exec ▇▇▇ Single Pay Fixed)
------------------------------------------------------------------------------------------------------------------
A3017-86
Exec ▇▇▇ ▇▇ - Single Pay Fixed
------------------------------------------------------------------------------------------------------------------
A3018-91
(Exec Annuity Plus 91 (3))
------------------------------------------------------------------------------------------------------------------
A3019-92
(Delaware Medallion I)
------------------------------------------------------------------------------------------------------------------
A3020-92
(Select Resource I)
------------------------------------------------------------------------------------------------------------------
A3021-93
(Exec Annuity Plus 93)
------------------------------------------------------------------------------------------------------------------
A3022-93
(Delaware Medallion II)
------------------------------------------------------------------------------------------------------------------
A3023-95
(Pioneer Vision 1)
------------------------------------------------------------------------------------------------------------------
A3025-96
(Advantage, Select Resource II,
Delaware Medallion III, Pioneer
Vision 2, ▇▇▇▇▇▇▇ Gateway Elite)
------------------------------------------------------------------------------------------------------------------
A3026-96
(▇▇▇▇▇▇▇ Gateway Custom)
------------------------------------------------------------------------------------------------------------------
A3027-98
(▇▇▇▇▇▇▇ Advisor, Pioneer
C-Vision, Select Charter)
------------------------------------------------------------------------------------------------------------------
A3028-99
(Delaware Golden
------------------------------------------------------------------------------------------------------------------
Schedule 1.1A-2
------------------------------------------------------------------------------------------------------------------
CwA LEGACY 403b HORIZON PROTECTIVE
------------------------------------------------------------------------------------------------------------------
Medallion, Pioneer
XtraVision, ▇▇▇▇▇▇▇
Gateway Plus, Select
Reward)
------------------------------------------------------------------------------------------------------------------
A3029-99
(Immediate Advantage)
------------------------------------------------------------------------------------------------------------------
A3030-99
(Value Generation and
Directed Advisory
Solutions)
------------------------------------------------------------------------------------------------------------------
A3031-99
(Select Acclaim)
------------------------------------------------------------------------------------------------------------------
A3035-00
(▇▇▇▇▇▇▇ Gateway
Incentive and ▇▇▇▇▇▇▇ SBD
with EDB)
------------------------------------------------------------------------------------------------------------------
A3036-01
(Premier Choice)
------------------------------------------------------------------------------------------------------------------
A3037-02
(Optim-L)
------------------------------------------------------------------------------------------------------------------
A3038-02
(Gateway Plus II)
------------------------------------------------------------------------------------------------------------------
AVA-FP-67
(67 series elective pay)
------------------------------------------------------------------------------------------------------------------
AVA-FP-69
(69 series elective pay)
------------------------------------------------------------------------------------------------------------------
AVA-SP-67
(67 series single pay)
------------------------------------------------------------------------------------------------------------------
AVA-SP-69
(69 series single pay)
------------------------------------------------------------------------------------------------------------------
AVA-ST-67
(67 series stipulated pay)
------------------------------------------------------------------------------------------------------------------
VFR -68
(67 series group elective
(GA))
------------------------------------------------------------------------------------------------------------------
VFS -68
67 series group elective
(GB), Flexible Fixed (84-
92)
------------------------------------------------------------------------------------------------------------------
Colonial AVA (single pay)
------------------------------------------------------------------------------------------------------------------
Schedule 1.1A-3
SCHEDULE 1.1B
ECONOMIC RESERVES FOR AFLIAC GENERAL ACCOUNT RESERVES
Economic Reserves for the Reinsurer's Quota Share of the AFLIAC General Account
Reserves / AFLIAC Contracts will be determined monthly.
The Economic Reserves will include two components:
The Economic Fixed Account Reserves
The Economic GMDB Reserves
For clarity, the Economic Fixed Account Reserves relate to the liabilities
arising from the fixed account of the AFLIAC Contracts. The Economic GMDB
Reserves relate to the liabilities arising from the guaranteed death benefits
and guaranteed living benefits associated with the AFLIAC contracts.
The Economic Fixed Account Reserves will be determined in a manner consistent
with a Gross Premium Valuation (GPV) approach:
Present value of future contract benefits,
PLUS
Present value of future associated expenses,
LESS
Present value of future revenues
The expense and contractholder behavior assumptions used in the determination
of the Economic Fixed Account Reserve will be based on best estimates
including, where appropriate, provisions for potential adverse experience.
These assumptions will be updated annually, taking into account the experience
of the block of policies as well as the Ceding Company's overall experience.
The economic assumptions used in the determination of the Economic Fixed
Account Reserves will be based on a "real world" view of current and future
interest rates. The Economic Fixed Account Reserves will be the maximum gross
premium reserve (as defined above) across a discrete number of defined interest
rate scenarios. The initial set of interest rate scenarios will include the
seven interest rate scenarios required in New York's Regulation 126.
Schedule 1.1B-1
The Economic GMDB Reserves will be determined by a projection of the
appropriate assets and liabilities, where both interest rates and market
returns are varied stochastically across scenarios.
Within each scenario, projected deficiencies will be accumulated as the
sum of:
The prior period's deficiency (initial deficiency = 0)
Plus interest
Plus current period benefits
Plus current period expenses
Less current period revenues
Results for any given scenario will be the greatest present value of
accumulated deficiencies across all years. The result for any given
scenario will be floored at zero.
Where appropriate, the impact of any corresponding ▇▇▇▇▇▇ that support
the liabilities will be included in the above calculations.
These calculations will be done in the aggregate for all variable annuity
liabilities that are ceded to the Reinsurer under this treaty.
The Economic GMDB Reserves will be set at the 70th percentile of the
Conditional Tail Expectation (CTE 70) across all scenario results.
The expense and contractholder behavior assumptions used in the determination
of the Economic GMDB Reserves will be based on best estimates including, where
appropriate, provisions for potential adverse experience. These assumptions
will be updated annually, taking into account the experience of the block of
policies as well as the Ceding Company's overall experience.
The economic assumptions used in the determination of the Economic GMDB
Reserves will be based on a "real world" view of current and future interest
rates and market returns.
On any given valuation date, the Ceding Company has discretion to deem the
Economic Reserve (or any of its components) to be equal to 100% of the AFLIAC
General Account Reserves, as defined Section 1.1(d). In this situation the
Ceding Company will not be required to perform the above calculations.
On an annual basis the Chief Actuary of the Ceding Company will compose an
Actuarial Memorandum supporting the above calculations.
Schedule 1.1B-2
SCHEDULE 1.1C
DESCRIPTION OF SEPARATE ACCOUNTS
-----------------------------------------------------------------------------------------------------------------
CwA LEGACY 403b HORIZON PROTECTIVE
-----------------------------------------------------------------------------------------------------------------
Separate Account VA-K Commonwealth Commonwealth Protective Acquired
Annuity Separate Annuity Separate Variable Annuity Separate
Account A Account A Account (formerly Chase
Variable Annuity Separate
Account)
-----------------------------------------------------------------------------------------------------------------
Commonwealth Select ZILICO Variable Annuity
Separate Account Separate Account
(formerly Allmerica
Select Separate
Account)
-----------------------------------------------------------------------------------------------------------------
Separate Account VA-P ZILICO Variable Annuity
Account C
-----------------------------------------------------------------------------------------------------------------
Separate Account KG ZILICO Variable Annuity
Separate Account -2
-----------------------------------------------------------------------------------------------------------------
Separate Account KGC
-----------------------------------------------------------------------------------------------------------------
Fulcrum Separate
Account
-----------------------------------------------------------------------------------------------------------------
Separate Account VA-A
-----------------------------------------------------------------------------------------------------------------
Separate Account VA-B
-----------------------------------------------------------------------------------------------------------------
Separate Account VA-C
-----------------------------------------------------------------------------------------------------------------
Separate Account VA-G
-----------------------------------------------------------------------------------------------------------------
Separate Account VA-H
-----------------------------------------------------------------------------------------------------------------
Separate Accounts D, E,
and F
-----------------------------------------------------------------------------------------------------------------
Schedule 1.1C-1