EXHIBIT (G)(5)
AUTOMATIC AND FACULTATIVE REINSURANCE AGREEMENT
Between
The United States Life Insurance Company in the City of New York
of
Houston, Texas
Referred to as the COMPANY
and
Generali USA Life Reinsurance Company
of
Kansas City, Missouri
Referred to as the REINSURER
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TABLE OF CONTENTS
Article I Parties to the Agreement
Article II Entire Agreement, Interpretation
Article III Effective Date of the Agreement
Article IV Business Covered
Article V Basis of Reinsurance
Article VI Follow the Fortunes
Article VII Automatic Reinsurance
Article VIII Facultative Reinsurance
Article IX Conditional Receipt Liability
Article X Reinsurance Premiums
Article XI Policy Expenses
Article XII Claims
Article XIII Intentionally Left Blank
Article XIV Offset
Article XV Reductions, Terminations and Reinstatements
Article XVI Recapture for Increase in Retention
Article XVII Method of Recapture for Increase in Retention
Article XVIII Changes to the Reinsured Policy
Article XIX Conversions, Exchanges and Replacements
Article XX DAC Tax
Article XXI Extra Contractual Obligations
Article XXII Errors and Omissions
Article XXIII Governing Law
Article XXIV Arbitration
Article XXV Special Termination or Settlement
Article XXVI Security
Article XXVII Insolvency
Article XXVIII Access to Records
Article XXIX Confidentiality
Article XXX Severability
Article XXXI General Reinsurance Provisions
Article XXXII Execution of Agreement
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EXHIBITS
A Reinsurance Coverage
Part I: Reinsurance Coverage
Part II: Company's Retention
B Reinsurance Rates and Allowances
Part I: Term Plans only
Part II: Permanent plans only
Part III: All Plans
C Reinsurance Reporting Forms and Reinsurance Administration
D Conditional Receipt Liability
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Article I Parties to the Agreement
The Company and the Reinsurer mutually agree to transact reinsurance according
to the terms of this Agreement. This Agreement is for indemnity reinsurance of
mortality risk and related expenses only and the Company and the Reinsurer are
the only parties to the Agreement.
Article II Entire Agreement, Interpretation
A. With respect to the business being reinsured hereunder, (i) this Agreement
constitutes the entire agreement between the parties, and (ii) there are no
understandings or agreements between the parties other than those expressed
in this Agreement. Any change to or modification of this Agreement will be
made by written amendment to this Agreement and signed by the parties
hereto.
B. This Agreement is between sophisticated parties, each of which has reviewed
the Agreement and is fully knowledgeable about its terms and conditions.
The parties therefore agree that this Agreement shall be construed without
regard to the authorship of the language and without any presumption or
rule of construction in favor of either of them.
Article III Effective Date and Duration of the Agreement
This Agreement will go into effect at 12:01 A.M. as of the dates listed in
Exhibit A, Reinsurance Coverage (the "Reinsurance Coverage Effective Date") and
will cover policies effective on and after that date. The Reinsurer agrees to
accept policies backdated up to six months prior to the effective date of the
Agreement. However, the Reinsurer shall not be liable for any claims under such
policies that occur prior to the effective date of this Agreement.
The duration of the agreement will be unlimited. However, the Company or the
Reinsurer may terminate the Agreement for new business at any time by giving
the other ninety (90) days prior written notice. Reinsurance of new business
will continue during the ninety-day notice period. Existing reinsurance will
not be affected by the termination of this Agreement for new business. Existing
reinsurance will remain in force until the termination or expiry of the
underlying policy on which reinsurance is based. However, the Reinsurer will
not be liable for any claims or premiums refunds, which are not reported to the
Reinsurer within one hundred eighty days following the termination or expiry of
the last cession reinsured under this Agreement.
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Article IV Business Covered
The business reinsured hereunder is listed in Exhibit A, Reinsurance Coverage.
Article V Basis of Reinsurance
Life reinsurance under this Agreement will be on the basis shown in Exhibit A,
Reinsurance Coverage, for the net amount at risk on the Reinsurer's portion of
the original policy (the "Reinsured Policy").
The net amount at risk for any policy period will be calculated according to
Exhibit B, Reinsurance Rates and Allowances.
Riders or supplementary benefits ceded with life benefits will be reinsured as
shown in Exhibit A, Reinsurance Coverage. Any differences in the net amount at
risk calculation for these benefits will be shown in Exhibit B, Reinsurance
Rates and Allowances.
Article VI Follow the Fortunes
A. The Reinsurer's liability shall attach simultaneously with that of the
Company and shall be subject in all respects to the same risks, terms,
conditions, interpretations, waivers, modifications, alterations, and
cancellations as the respective insurances (or reinsurances) of the
Company, the true intent of this Agreement being that the Reinsurer shall,
subject to the terms, conditions, and limits of this Agreement, follow the
fortunes of the Company.
B. Nothing in this Agreement shall in any manner create any obligations or
establish any rights against the Reinsurer in favor of any third parties or
any persons not parties to this Agreement.
Article VII Automatic Reinsurance
A. Requirements for Automatic Reinsurance under this Agreement:
1. The Reinsurer will accept automatically reinsurance of life benefits
for the Company's individually underwritten ordinary life policies on
any permanent resident of the United States or Canada, in agreement
with the provisions shown in Exhibit A, Reinsurance Coverage, as long
as the total of the new ultimate amount of life insurance, including
contractual increases, plus the amount already reinsured on the
applicant life under this Agreement and all other reinsurance
agreements between the Reinsurer and the Company, does not exceed the
Reinsurer's Proportionate Automatic Binding Limit set out in Exhibit
A, Reinsurance Coverage. If any portion of the applied for insurance
exceeds the Reinsurer's Proportionate Automatic Binding Limit, the
application shall be subject to facultative submission in accordance
with Article VIII Facultative Reinsurance.
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2. The Reinsurer will also accept automatically reinsurance of riders
and supplementary benefits written with the covered life benefits,
but only to the extent that the riders and supplementary benefits are
specifically shown in Exhibit A, Reinsurance Coverage.
3. The Company has the right to modify its retention limits for new
business shown in Exhibit A, Reinsurance Coverage, Part II at any
time. If the Company's retention limits are reduced as a result of
the modification, the Company will notify the Reinsurer in writing
ninety (90) days before the Company can cede reinsurance on the basis
of the reduced retention limits.
The Reinsurer reserves the right to amend the Automatic Acceptance
Limits shown in Exhibit A, Reinsurance Coverage if the Company
modifies the retention limits. The Reinsurer also reserves the right
to modify the Automatic Acceptance Limits if the Company elects to
participate in another arrangement or arrangements to secure
additional automatic binding capacity.
Changes in the Company's issue limits or underwriting guidelines will
be made available for review by the Reinsurer.
4. The Company has underwritten the policy in material compliance with
the underwriting guidelines and policies that have been adopted by
the Company and are in use on the Reinsurance Coverage date (the
"Underwriting Guidelines"). The Company will notify the Reinsurer
ninety (90) days prior to making any material changes to the
Underwriting Guidelines. Unless specifically included in Exhibit A,
Reinsurance Coverage, any risks falling into a category of special
underwriting programs (e.g., guaranteed issue, simplified
underwriting, internal or external exchanges) shall be excluded from
this Agreement.
B. Automatic reinsurance coverage will not be available in the following
situations:
1. The policy has been submitted on a facultative, facultative
obligatory or initial inquiry basis to the Reinsurer or to any other
reinsurer within the prior five years, unless the reason for the
previous submission was for exceeding Automatic Acceptance Limits or
exceeding Jumbo Limits which no longer apply;
2. The risk is categorized as a "Jumbo Risk." A Jumbo Risk is any risk
that exceeds the Jumbo Limit shown in Exhibit A, Reinsurance
Coverage. The Jumbo Limit is determined by adding the total amount of
life insurance in force in all companies, including all pending
applications, and any amounts to be replaced as stated on a signed
Part I of any application or signed amendment, and increasing ultimate
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amounts on the applicant life in all companies.
3. The policy is part of any special program that the Company offers,
including:
a) Experimental or limited retention programs, including but not
limited to cancer, diabetes, aviation or coronary risks;
b) External replacement and/or conversion programs, including those
with affiliate, other than contractual conversions or exchanges
of the original policy.
4. The Company and its affiliates have retained an amount less than its
stated pool percentage limit.
5. The policy is a result of a conversion from group insurance, unless the
Reinsurer agrees otherwise.
6. The risk is not fully underwritten or any risk where the Company has
not followed its usual underwriting practices.
Article VIII Facultative Reinsurance
If the Company submits a risk not covered automatically under this Agreement
but the policy is one specified under Plans Covered in Exhibit A, Reinsurance
Coverage, or if the Company wishes to obtain the Reinsurer's advice on any
application, the Company may submit and the Reinsurer will consider the risk on
a facultative basis.
The Reinsurer's liability for risks subject to an unconditional facultative
offer will commence at the same time as the Company's liability, provided that:
(i) this Agreement has not been terminated for new business, (ii) the Reinsurer
has made an unconditional facultative offer, (iii) the offer was accepted in a
manner specified in the Agreement, and (iv) the resultant policy was issued.
Upon satisfaction of these conditions such policy becomes a Reinsured Policy.
Submission of Facultative Case. When the Company wishes to submit a risk for
facultative consideration, the Company will send the Reinsurer a reinsurance
application form together with copies of all the information the Company has
regarding the insurability of the risk. The Company will notify the Reinsurer
of any outstanding underwriting requirements at the time of the facultative
submission. Any subsequent information received by the Company that is
pertinent to the risk assessment must be transmitted to the Reinsurer as soon
as practicable. The Reinsurer will review the information and promptly notify
the Company of its decision within three (3) business days.
Acceptance. After the Reinsurer has made an unconditional offer to reinsure a
risk, the Company will confirm its acceptance of the offer in writing, followed
by documentation, on the next scheduled periodic billing report as specified in
Exhibit C, Reinsurance Reporting
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Forms and Reinsurance Administration. Provided, however, that if, prior to
accepting the unconditional offer of the reinsurer to cover a facultative risk,
the Company receives subsequent information, prior to policy issue, which is
material to the risk and which has not been considered by the Reinsurer in its
offer, the offer will be deemed withdrawn until the Reinsurer has reissued the
offer after receipt of the new information.
Expiration of Reinsurer's offer. Except as may otherwise be specified in the
Reinsurer's offer of facultative coverage, the Company's confirmation must be
made no later than one hundred twenty (120) days measured from the date of the
offer.
The Reinsurer's offer may remain open beyond the termination date shown in its
acceptance if the Company gives the Reinsurer a written request for an
extension and the Reinsurer gives the Company its written approval of the
request, which shall not be unreasonably withheld.
Applicability. Except as specifically provided in this Agreement, policies that
are reinsured pursuant to this Facultative Reinsurance Article are Reinsured
Policies and therefore subject to all other provisions of this Agreement.
Article IX Conditional Receipt Liability
The Reinsurer's liability for losses under the terms of a Conditional Receipt
is shown in Exhibit D, Conditional Receipt Liability.
Article X Reinsurance Premiums
The Reinsurance Premiums that the Company will pay the Reinsurer for business
covered under this Agreement are shown in Exhibit B and tables attached
thereto. The reinsurance premium payable for any cession for any accounting
period will be calculated on the basis of the net amount at risk reinsured as
of that period.
A. Rate Guarantee.
1. The reinsurance premiums in Exhibit B, Rates and Allowances, (and all
rate tables attached hereto) are guaranteed for one year. Although the
Reinsurer anticipates continuing to accept reinsurance at these rates,
the Reinsurer has the right to increase these rates by giving the
Company at least ninety (90) days advance written notice stating both
the rate increase date and the percentage rate increase. The percentage
rate increase will apply to each policy on the anniversary date
following the effective date of the increase. The increased rates may
not exceed the valuation net premium for annually renewable term
insurance calculated using the applicable statutory mortality table and
the maximum statutory interest rate for each year.
2. Any such increase will only be implemented pursuant to a uniform
increase in reinsurance premium rates for the Reinsurer's YRT business
for its entire portfolio of
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in force permanent life reinsurance assumed from all insurers having
the following characteristics: reinsurance became effective on new
policies issued after the effective date of this Agreement; the
Reinsurer has the right to raise reinsurance premium rates; the
policies were issued during the time period between the effective and
termination dates of this Agreement; policies were underwritten on a
fully underwritten basis; the policies are term, universal or variable
universal life, as appropriate, with comparable underwriting classes.
3. In addition, if the Reinsurer increases the rates, the Company has the
right (but not the obligation) to recapture, in its entirety, all of
the reinsured business for which the Reinsurer increases the
reinsurance premiums. Recapture shall be on the next policy anniversary
of each policy. The Company must notify the Reinsurer of its intention
to recapture within ninety (90) days after its receipt of the written
notice of the rate increase. In such circumstances, the Reinsurer will
refund any unearned premium minus the amount of any unearned allowances.
4. Additional Requirements Applicable to Permanent Plans: If the reason
for such rate increase is due to mortality only on any business ceded
hereunder, the Company will notify the Reinsurer of its intent to
increase rates charged to policyowners. The Reinsurer may increase its
rates on a consistent basis. Any increase in current reinsurance
premium rates will apply as of the date that the Company's rate
increase becomes effective.
5. Deficiency Reserves: The Company and the Reinsurer agree that the terms
of this reinsurance have been determined on the mutual assumption that
Reinsurer will not be required to hold any amount of U.S. "statutory
deficiency reserves" for the business ceded hereunder by virtue of the
assurances provided in Sections (1), (2), (3) and (4) above. Should
this language prove insufficient and the Reinsurer is or may be
required to establish or maintain any such deficiency reserve amounts
for the business ceded hereunder by an insurance regulatory authority,
upon the receipt of Reinsurer's written notice to the Company thereof,
Paragraph A will be automatically amended to delete Section (2) above
without any further formalities or actions. For purposes of clarity,
this agreement is premised upon it not causing the Reinsurer to hold
deficiency reserves. Should Section 2 of Paragraph A be deleted as
provided above, the parties will make a good faith effort to revise
Paragraph A of this article so that the Reinsurer will not be required
to hold deficiency reserves while maintaining the spirit of the
provision.
B. Payment. Reinsurance premiums for a Reinsured Policy are payable annually in
advance with payment coming due for the next year upon a Reinsured Policy's
anniversary date (the
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"Premium Period"). Each calendar month the Company will calculate the amount of
reinsurance premium due, based upon the respective Reinsured Policy's Premium
Period and, within thirty (30) days after the end of each month (the "Company
Remittance Date"), will send the Reinsurer a statement (the "Admin Report")
that contains the information specified in Exhibit C, showing reinsurance
premiums (less any allowances) due for that period.
1. If an amount is due the Reinsurer, the Company will remit that amount
together with the statement.
2. If an amount is due the Company, the Reinsurer shall either contest
that amount or remit such amount within thirty (30) days of receipt of
the statement (the "Reinsurer Remittance Date"). If the Reinsurer
contests, the parties will diligently work to resolve but after fifteen
(15) business days that effort is unsuccessful, they will resolve it by
means of the dispute resolution provisions in Article XXIV.
C. Interest. Premium balances that remain unpaid for more than thirty (30) days
after the Company Remittance Date or the Reinsurer Remittance Date will incur
interest from such remittance date until the date paid in accordance with the
provisions of Article XXXI Section ▇.
▇. In the event that reinsurance premiums are not paid in full within
forty-five (45) days of the Company Remittance Date, the Reinsurer will have
the right to terminate the reinsurance for all Reinsured Policies having
reinsurance premiums in arrears. If the Reinsurer elects to exercise its right
of termination, it will give the Company thirty (30) days prior written notice
of its intention. Such notice will be sent by certified mail.
1. If all reinsurance premiums in arrears, including any that become in
arrears during the notice period, are not paid before the expiration of
the notice period, the Agreement will be terminated and the Reinsurer
will be relieved of all liability for those policies as of the last
date to which premiums were due. Subsequently, reinsurance coverage for
all remaining Reinsured Policies will automatically terminate on the
last date to which premiums have been paid.
2. The right to terminate reinsurance will not prejudice the Reinsurer's
right to collect premiums for the period during which reinsurance was
in force prior to the termination.
E. Reinsurance terminated pursuant to Section D of this Article may be
reinstated within thirty (30) days of the date of termination, and upon payment
of all reinsurance premiums in arrears including any interest accrued thereon.
a) The Reinsurer will have no liability for any claims incurred and
reported between the date of termination and the date of the
reinstatement of the reinsurance.
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F. The Company shall not force termination under the provisions of this Article
solely to avoid the provisions regarding recapture in Article XVI, or to
transfer the Reinsured Policies to another reinsurer.
G. Premium Adjustments. If the Company overpays a reinsurance premium and the
Reinsurer accepts the overpayment, the Reinsurer's acceptance will not
constitute or create a reinsurance liability or increase in any existing
reinsurance liability. Instead, the Reinsurer will be liable to the Company for
a credit in the amount of the overpayment. If a Reinsured Policy terminates,
the Reinsurer will refund the excess reinsurance premium. This refund will be
on a prorated basis without interest from the date of termination of the policy
to the date to which a reinsurance premium has been paid unless the Reinsurer
fails to reimburse the Company within thirty (30) days of billing.
Article XI Policy Expenses
The Company will bear the expenses of all medical examinations, inspection fees
and other charges incurred in connection with policy issues, reinstatements or
re-entries.
Article XII Claims
A. Claims defined. Claims covered under this Agreement include only "Death
Claims" which: (i) are for the share of the risk reinsured by the
Reinsurer; (ii) arise out of the death of the Reinsured Policy's named
insured; and (iii) are based upon the contractual benefits specified in the
Reinsured Policy including any applicable riders and supplementary benefits
that are reinsured, as more fully specified in Exhibit A. The Reinsurer
shall also pay its proportionate share of interest imposed automatically by
statute without regard to fault and investigative.
B. Notice. The Company shall strive to give Reinsurer written notice within
ninety (90) days of submission to the Ceding Company of any Death Claim.
C. Claim Documentation. When submitting a Death Claim for payment, the Company
will provide Generali USA with an electronic (imaged) file of claim
documentation ("Claim Proofs") which shall include: (i) a copy of the proof
of payment by the Company, (ii) copy of the claimant's statement, and
(iii) a copy of the insured's death certificate. In addition, for
contestable claims where the Reinsurer's share exceeds $150,000, the
Company will send to Generali USA a copy of relevant non-privileged claim
related documents and information (including the underwriting and claim
files). Where the Reinsurer's share is less than $150,000, the Reinsurer
may request copies of non-privileged claim related documents and such
request will not be unreasonably denied, but Reinsurer shall reimburse the
Company for the time and expense of providing such copies.
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D. Claims Payment. As soon as the Reinsurer receives the specified Claim
Proofs and any other information requested pursuant to section C. above,
the Reinsurer will promptly pay its share of the benefits reinsured under
this Agreement. After thirty (30) days from the date the Reinsurer receives
all required Claim Proofs, if the Reinsurer's share of death benefits
remains unpaid to the Company, and the claim is not subject to a good faith
dispute by the Reinsurer, the unpaid claim balances will be subject to
interest as defined in Article XXXI Section J. The payment of death
benefits by the Reinsurer will be in one lump sum regardless of the mode of
settlement under the Reinsured Policy. The Reinsurer will also pay its
share of the interest on the death proceeds through the date of settlement
that the Company is required to pay, whether required by law or under the
terms of the policy.
E. Claims Settlement by the Company, and Claims Expenses. The Company alone
and at its full discretion shall adjust, settle or compromise all Death
Claims. All such settlements, compromises, and adjustments related to the
Death Claims shall be binding on the Reinsurer in proportion to its
participation. The Company shall likewise at its sole discretion commence,
continue, defend, compromise, settle or withdraw from actions, suits or
proceedings and generally do all such matters and things relating to any
claim or loss as in its judgment may be beneficial or expedient, and all
payments. The Reinsurer will pay its share of reasonable claim
investigation and legal expenses connected with the investigation,
litigation or settlement of contractual liability. The Reinsurer will not
be liable for any routine investigative or administrative claim expenses
(such as compensation of salaried employees) or for any expenses incurred
in connection with conflicting claims of entitlement to Reinsured Policy
benefits that the Company admits are payable. The Reinsurer shall share
proportionately from all contractual liability reductions of losses by
compromise or otherwise.
F. Contested Claims.
For purposes of applying this Section F, where there is a denial of a Death
Claim by the Company, a "contest" comes into existence at the point that a
claimant objects, verbally or otherwise, to the Company's action. The
Company will notify the Reinsurer promptly of its intention to investigate,
contest, compromise, or litigate any claim involving a Reinsured Policy
(hereinafter a "Contested Claim"). If the Reinsurer's portion of a
Contested Claim exceeds $150,000, the Company will provide the Reinsurer
relevant non-privileged claim-related relevant information and documents,
including the underwriting and claim files and pleadings against it in
response to denial of the claim, as such become available, pertaining to
Contested Claims and will promptly report any developments during the
Reinsurer's review. If the Reinsurer:
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1) Does not accept participation in the contest, compromise or litigation,
the Reinsurer will pay the Company its full share of the reinsurance
benefit, and will not share in any subsequent reduction or increase in
liability or in any subsequent expenses incurred by the Company; or
2) Accepts participation in the compromise, litigation or contest of the
claim and the Contested Claim results in a reduction or increase in
liability, the Reinsurer will share in any reduction or increase in
proportion to its share of the risk on the Contested Claim in
accordance with Section E of Article XII. Claim investigation expenses
do not include expenses incurred by the Company as a result of a
dispute or contest arising out of conflicting claims of entitlement to
policy proceeds or benefits.
If the Company returns premiums to the policy owner or beneficiary as a
result of misrepresentation, the Reinsurer will refund net reinsurance
premiums received on that policy to the Company, without interest.
Article XIII Intentionally left blank.
Article XIV Offset
Each party hereto shall have, and may exercise at any time and from time to
time, the right to offset any undisputed balance or balances, whether on
account of premiums or on account of losses or otherwise, due from such party
to the other party hereto under this Agreement or under any other reinsurance
agreement heretofore or hereafter entered into by and between them, and may
offset the same against any undisputed balance or balances due to the former
from the latter under the same or any other reinsurance agreement between them,
and the party asserting the right of offset shall have and may exercise such
right whether the undisputed balance or balances due to such party from the
other are on account of premiums or on account of losses or otherwise and
regardless of the capacity, whether as assuming insurer or as ceding insurer,
in which each party acted under the Agreement or, if more than one, the
different agreements involved; provided, however, that, in the event of the
insolvency of a party hereto, offsets shall only be allowed in accordance with
applicable law or regulation.
Article XV Reductions, Terminations, and Reinstatements
A. Reductions and Terminations. If any part of a Reinsured Policy is reduced or
terminated, the amount of reinsurance will also be reduced or terminated to the
extent that the Company will continue to maintain its appropriate retention
limit as shown in Exhibit A. The Company will not be required to assume amounts
in excess of the retention limit that was in force when
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the affected policy or policies were issued.
If a Reinsured Policy lapses or is terminated, the reinsurance will also
terminate. The reinsured amount on the life with all reinsurers must be
reduced, effective on the same date, by the amount required such that the
Company maintains the same amount as retained prior to a reduction, termination
or lapse. The reinsurance reduction will apply first to the policy or policies
being reduced and then, on a chronological basis, to other reinsured policies
on the life, beginning with the oldest policy. If a fully retained policy on a
life that is reinsured under this Agreement is terminated or reduced, the
Company will reduce the existing reinsurance on that life by a corresponding
amount, with the reinsurance on the oldest policy being reduced first. If the
amount of reduction exceeds the risk amount reinsured, the reinsurance on the
policy or policies will be terminate.
B. Reinstatements. If the Company reinstates a policy, in accordance with
then-current Reinstatement Policies, and the policy was originally
automatically ceded to the Reinsurer, coverage for such policy under this
Agreement shall be automatically reinstated. The Company will need the
Reinsurer's prior review and approval for reinstatement of any facultative
reinsurance where the reinstatement of the policy is not legally or
contractually required. The Company will send the Reinsurer prompt written
notice of its intention to reinstate the policy along with copies of the
reinstatement papers required by the Company's standard rules and procedures.
The reinsurance will be reinstated at the same time as the policy, subject to
the Reinsurer's written approval of the reinstatement. The Company will notify
the Reinsurer of all reinstatements via reporting required in Exhibit C,
Reinsurance Reporting Forms and Reinsurance Administration. Reinsurance
premiums for the interval during which the policy was lapsed will be paid to
the Reinsurer on the same basis as the Company charged the policyowner for the
reinstatement.
The Company will notify the Reinsurer of all reinstatements on its periodic
statement of account, and the Company will pay all reinsurance payments due
from the date of reinstatement to the date of the current statement of account.
Thereafter, reinsurance payments will be in accordance with Exhibit C,
Reinsurance Reporting Forms and Reinsurance Administration.
Article XVI Recapture for Increase in Retention
If the Company increases its retention limits or its quota share percentage
shown in Exhibit A, the Company, upon prior written notice of its intended date
of commencement of recapture, may make a corresponding reduction in eligible
reinsurance cessions provided the increase in retention is prospective only,
and policies have been in force for the greater of the duration in Exhibit A or
the end of the level term period. The recapture period will always be measured
from the original policy issue date. For converted policies the recapture
period will be
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measured from the issue date of the original policy.
Article XVII Method of Recapture for Increase in Retention
The Company will give the Reinsurer notice pursuant to Article XVI, above. When
the Company has given the Reinsurer written notice of its intent to recapture
and the date that the recapture will begin, all of the following shall occur:
a) All eligible policies will be recaptured;
b) Reinsurance will be reduced on the next anniversary date of each
eligible policy;
c) Reinsurance on each eligible policy will be reduced by an amount
that will increase the retention or quota share percentage to the
current limit set forth in Exhibit A.
If the Company increases its retention shown in Exhibit A, the
percentage of the risk reinsured will reduce proportionately.
d) If there is reinsurance in force in other companies on any one
insured life, the reduction of the reinsurance in force on a
Reinsured Policy under this Agreement will be in the same
proportion that the amount reinsured bears to the total
reinsurance on the life;
e) If at the time of recapture the insured is disabled and premiums
are being waived under any type of disability Benefit Rider, only
the life benefit will be recaptured. The reinsured portion of the
Disability Benefit rider will remain in force until the policy is
returned to premium-paying status, at which time it will be
eligible for recapture.
f) If any Reinsured Policy is recaptured in accordance with this
Article, all similarly situated Reinsured Policies eligible for
recapture under the provisions of this Article must be recaptured
up to the Company's new maximum retention limits. Such recapture
must be done in a consistent manner and the Company must increase
its retention on each reinsured life that subsequently becomes
eligible for recapture. The Company may not revoke its election to
recapture for policies becoming eligible at future anniversaries.
g) No recapture will be permitted if the Company has either obtained
or increased stop loss reinsurance coverage other than catastrophe
coverage, as the rationale for the increase in retention limits.
h) At the time of recapture, the Reinsurer will refund unearned
premiums.
If the Company omits or overlooks the recapture of any eligible policy or
policies, the Reinsurer's acceptance of reinsurance payments after the date the
recapture would have taken
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place will not cause the Reinsurer to be liable for the amount of the risk that
would have been recaptured. The Reinsurer will be liable only for a refund of
reinsurance payments received, without interest.
Article XVIII Changes to the Reinsured Policy
A. All changes. If a material change is made to the Reinsured Policy, the
reinsurance will change accordingly. The Company will give the Reinsurer
monthly written notification of the material change, including details and
the effective date of the change.
B. Increases. If the net amount at risk increases because of a change in the
Reinsured Policy, the Company will send the Reinsurer notice of the change
in plan. For any contractual increases, reinsurance premiums will be on a
point-in-scale basis from the original issue age of the policy. For
policies reinsured on a facultative basis, the Company shall provide copies
of any new underwriting papers and, unless otherwise agreed by the parties,
reinsurance will be limited to the ultimate amount shown in the Reinsurer's
facultative offer.
C. Extended Term and Reduced Paid-Up Insurance. If any Reinsured Policy
converts to Extended Term Insurance or Reduced Paid-Up Insurance, the net
amount at risk reinsured will be adjusted as appropriate and reinsurance
will be continued in accordance with the provisions of the underlying
policy. Reinsurance payments for the adjusted policy will be calculated on
the basis of the original issue age of the insured and the duration of the
original policy at the time the adjustment became effective, i.e.
point-in-scale basis.
Article XIX Conversions, Exchanges and Replacements
A. Conversions. If a Reinsured Policy is contractually converted (i.e. not an
exchange or replacement), the policy arising from the conversion will be
reinsured hereunder, except that conversion from single life products into a
joint-last-survivor product will not be reinsured hereunder. The amount to be
reinsured will be determined on the same basis as used for the original policy
but will not exceed the amount reinsured as of the date of conversion unless
mutually agreed otherwise.
The converted policy will be reinsured on a YRT basis. The YRT rate will be
based on the issue age and duration of the original Policy (point-in-scale).
The rates are shown in Exhibit B, Rates and Allowances.
B. Exchanges and Replacements.
1. To be eligible for reinsurance under this Agreement, a policy
resulting from an internal exchange or replacement (an "Exchanged
Policy") must be underwritten by the Company in accordance with the
portions of its Underwriting Guidelines
16
applicable to exchanges and replacements. An Exchanged Policy may be
covered under this Agreement as follows:
a. If the Company's guidelines would consider an Exchanged Policy to
be "new business" and the Exchanged Policy uses an underlying
policy form, then it may be submitted as "new business" if it
meets the following criteria:
i) the Company has obtained complete and current underwriting
evidence on the full ultimate amount;
ii) the full normal commissions are paid for the new plan; and
iii)the Suicide and Contestable provisions apply as if the policy
were newly issued.
b. Notwithstanding the foregoing, exchanges from single life products into
a joint-last-survivor product will not be reinsured hereunder.
2. If the Company's guidelines do not treat the policy as new business and
the replacement utilizes an underlying policy, the Exchanged Policy will
continue to be ceded to the Reinsurer on a "point-in-scale" basis utilizing
the YRT Rates shown in Exhibit B (the rates will be based on the original
issue age, underwriting class and duration since the issuance of the
original policy).
3. If the Company's guidelines do not treat the policy as new business and
the replacement does not utilize an underlying policy, no coverage is
available under this Agreement.
4. The Reinsurer's approval to exchange or replace the policy will be
required if the original policy was reinsured on a facultative basis.
Article XX DAC Tax
The Company and the Reinsurer hereby enter into an election under Treasury
Regulations Section 1.848-2(g) (8) whereby:
a. For each taxable year under this Agreement, the party with the net positive
consideration, as defined in the regulations promulgated under Treasury
Code Section 848, will capitalize specified policy acquisition expenses
with respect to this Agreement without regard to general deductions
limitation of Section 848 (c) (1);
b. The Company and the Reinsurer agree to exchange information pertaining to
the net consideration under this Agreement each year to ensure consistency
or as otherwise required by the Internal Revenue Service;
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c. The Company will submit to the Reinsurer by May 1 of each year its
calculation of the net consideration for the preceding calendar year. This
schedule of calculations will be accompanied by a statement signed by an
officer of the Company stating that the Company will report such net
consideration in its tax return for the preceding calendar year;
d. The Reinsurer may contest such calculation by providing an alternative
calculation to the Company in writing within 30 days of the Reinsurer's
receipt of the Company's calculation. If the Reinsurer does not so notify
the Company, the Reinsurer will report the net consideration as determined
by the Company in the Reinsurer's tax return for the previous calendar year;
e. If the Reinsurer contests the Company's calculation of the net
consideration, the parties will act in good faith to reach an agreement as
to the correct amount within 30 days of the date the Reinsurer submits its
alternative calculation. If the Company and the Reinsurer reach agreement
on the net amount of consideration, each party will report such amount in
their respective tax returns for the previous calendar year.
Both Company and Reinsurer represent and warrant that they are subject to U.S.
taxation under either Subchapter L of Chapter 1, or Subpart F of Subchapter N
of Chapter 1 of the Internal Revenue Code of 1986, as amended.
Article XXI Extra Contractual Obligations
Extra-Contractual Liability. In no event shall the Reinsurer have any liability
for any punitive, exemplary, extra-contractual or similar damages, fines or
penalties which are assessed against the Company as a result of acts, omissions
or course of conduct committed by the Company. The parties recognize that
circumstances may arise in which the Reinsurer's conduct will require the
Reinsurer to share proportionately in punitive and compensatory damages
awarded, to the extent permitted by law. The parties agree that for this to
occur, the Reinsurer must have expressly agreed to, or otherwise expressly
ratified, in writing the conduct that gives rise to the extracontractual
liability.
Article XXII Errors and Omissions
A. This provision will apply only to oversights, misunderstandings or clerical
errors relating to the administration of reinsurance covered by this
Agreement and not to the administration of the insurance provided by the
Company to its insureds.
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B. Any inadvertent delay, omission or error shall not relieve either party
hereto from any liability which would attach to it hereunder if such delay,
omission or error had not been made, provided such delay, omission or error
is rectified immediately upon discovery. Upon discovery, the administrative
error will be promptly corrected so that both parties are restored to the
position they would have occupied had the delay, omission or error not
occurred, including the effect of the time value of money. Should it not be
possible to restore both parties to such a position, the party responsible
for the administrative oversight, misunderstanding or clerical error will
be responsible for any resulting liabilities and expenses. Correction of
any administrative errors shall be accomplished so as to not prejudice any
of the parties' other rights or remedies under this Agreement.
C. If the Company has failed to cede reinsurance as provided for under this
Agreement, or failed to comply with reporting requirements with respect to
business ceded hereunder, the Reinsurer may require the Company to audit
its records for similar errors and to undertake reasonable curative actions
as may be required to avoid similar errors in the future. Failing curative
response within a reasonable time period, not to exceed [sixty (60)] days,
the Reinsurer reserves the right to limit its liability to such Reinsured
Policies as have been properly and correctly reported. Neither party may
withhold undisputed payments or balances during this conduct of this audit
process. Any needed adjustments will be made once such audits have been
completed.
D. Notwithstanding the above, this clause will not alleviate the Company from
its obligation to provide materially complete and accurate Risk and Pricing
Information and to comply with its standard Underwriting and Claims
Guidelines as previously agreed with the Reinsurer.
Article XXIII Governing Law
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York, without regard for its conflicts of laws principles.
Article XXIV Arbitration
A. Any and all disputes or differences arising out of this Agreement,
including its formation and validity, shall be submitted to binding
arbitration. Any arbitration shall be based upon the Procedures for the
Resolution of U.S. Insurance and Reinsurance Disputes dated September 1999
(the "Procedures"), as supplemented by the paragraphs below.
B. The Panel shall consist of three disinterested arbitrators, one to be
appointed by the
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Petitioner, one to be appointed by the Respondent and the third to be
appointed by the two Party-appointed arbitrators. The third arbitrator
shall serve as the umpire, who shall be neutral. The arbitrators and umpire
shall be persons who are current or former officers or executives of an
insurer or reinsurer. Within thirty days of the commencement of the
arbitration proceeding, each Party shall provide the other Party with the
identification of its Party-appointed arbitrator, his or her address
(including telephone, fax and e-mail information), and provide a copy of
the arbitrator's curriculum vitae. If either Party fails to appoint an
arbitrator within that thirty-day period, the non-defaulting Party will
appoint an arbitrator to act as the Party-appointed arbitrator for the
defaulting Party. The umpire shall be appointed by the two Party-appointed
arbitrators as soon as practical (but no later than 30 days) after the
appointment of the second arbitrator. The Party-appointed arbitrators may
consult, in confidence, with the Party who appointed them concerning the
appointment of the umpire.
C. Where the two Party-appointed arbitrators have failed to reach agreement on
an umpire within the time specified in paragraph B, each Party shall
propose to the other in writing, within 7 days thereafter, eight umpire
candidates from the ARIASU.S. Certified Arbitrators List in effect at the
time of the commencement of the arbitration. The umpire will then be
selected in accordance with 6.7(b)-(e) of the Procedures. (Unless the
Parties agree otherwise, the ARIASU.S. Umpire Questionnaire Form in effect
at the time of the commencement of the arbitration shall be used.)
D. The arbitration shall take place in New York, New York.
E. Unless prohibited by law, the Supreme Court of the State and County of
New York and the United States District Court for the Southern District of
New York shall have exclusive jurisdiction over any and all court
proceedings that either Party may initiate in connection with the
arbitration, including proceedings to compel, stay, or enjoin arbitration
or to confirm, vacate, modify, or correct an Arbitration Award.
F. For purposes of this Article, the terms "Arbitration Award,"
"Disinterested," "Notice of Arbitration," "Panel," "Party" (or "Parties"),
"Petitioner," "Respondent," and "Response" shall have the meanings set
forth in article 2 of the Procedures (Definitions).
G. Regardless of any other provisions in the Procedures, the arbitrators are
not empowered to render a decision that would incorporate a remedy whose
scope or nature is materially beyond that which is contemplated by the
Agreement. For purposes of clarity, this provision would require the
utilization of the Agreement's interest formula if the award included an
award of interest. Finally, the arbitrators are specifically precluded from
incorporating in any award extracontractual damages of any type including
punitive or consequential damages.
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H. In the event of any conflict between the Procedures and this Article, this
Article, and not the Procedures, will control.
I. This Article shall survive the expiration or termination of this Agreement.
Article XXV Special Termination or Settlement
A. Within one hundred and twenty (120) days of the occurrence of any of the
following events (the "Triggering Event"), either party may terminate this
Agreement for new business upon fifteen (15) days' notice:
(i) the other party should at any time (whether voluntarily or otherwise)
become insolvent, or become the subject of any liquidation,
rehabilitation, receivership, supervision, conservation, or bankruptcy
action or proceeding (whether judicial or otherwise) or of a proposed
scheme of arrangement; or
(ii)Total Adjusted Capital dropping below 2.5 times Authorized Control
Level RBC (as defined in the NAIC Risk Based Capital for Insurers Model
Act),
B. Termination under part A of this section shall be effected by written
notice. In such notice, the Company will elect whether the termination
shall be on a "Run-Off" basis or a "Clean-Cut" basis.
(i) If the Company elects Run-Off, the Agreement will continue in force but
the period that premiums will be paid will shift to monthly (i.e., 1/12
of an annual premium will be due each month for all reinsured policies)
and will be paid "in arrears" (i.e., the premiums due for month 1 will
be paid in month 2).
(ii)If the Company elects Clean-Cut, a "Recapture Fee" will be calculated
by the Reinsurer and paid by the Company as of the effective date of
Recapture. The notice shall specify the proposed date of recapture
which shall be no later than one hundred twenty (120) days from
Triggering Event (inclusive of day upon which the Triggering Event
occurs).
(a) The Company will pay a "Recapture Fee" calculated for each
recaptured policy as follows:
(2nd YP/LT) x (LT - EPY)
2nd YP = 2nd year premium
LT = Level Term Period
EPY = number of policy years elapsed, up to a maximum of 30
(b) The payment of the Recapture Fee shall act as a full and final
commutation and mutual release of all respective rights,
obligations and liabilities under this Agreement. The Reinsurer
will remain liable in respect of the affected cessions up
21
to the effective date of Recapture but will not be liable
thereafter.
(c) In the event of any conflict between this Article and any other
Article of this Agreement, the terms of this Article will control.
Article XXVI Security
A. If Company is unable to take statutory reserve credit for the reinsurance
provided under this Agreement, the Parties will take commercially
reasonable efforts to obtain such credit for the Company in the Company's
state of domicile and accordance with such state's then applicable
regulatory provisions.
B. If the Company loses statutory reserve credit in part or in total due to a
failure by the Reinsurer to maintain in effect a required license or
accreditation in the Company's state of domicile which was in place at
commencement and which is not cured within 45 days of notice of such loss
of reserve credit, then the Reinsurer will take commercially reasonable
efforts to obtain such credit for the Company. If collateral security is
required, the Reinsurer will establish and maintain collateral permitting
the Company to receive statutory reserve credit in its state of domicile
for reinsurance provided under this Agreement so long as such collateral is
needed for reserve credit. The cost of establishing and maintaining the
collateral will be borne solely by the Reinsurer.
C. If the Company loses statutory reserve credit in part or in total due to a
change in law or regulation (or a change in the interpretation or
application of existing law or regulation by a regulator) which is not
cured within 120 days of notice of the loss of reserve credit, then the
Parties will take commercially reasonable efforts to obtain such credit for
the Company. If collateral security is required, the Reinsurer will
establish and maintain collateral as set forth above, however, the cost of
establishing and maintaining the collateral will be shared equally by the
Company and the Reinsurer.
D. If, after the above remedies are attempted, the Company cannot take
statutory reserve credit for the reinsurance provided under this Agreement,
the Company shall have the right to immediately recapture the business
ceded under this Agreement without application of any recapture fee.
E. This Article shall survive the termination of this Agreement for new
business.
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Article XXVII Insolvency
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company, or to its liquidator, receiver,
conservator or statutory successor immediately upon demand on the basis of
the liability of the Company without diminution because of the insolvency
of the Company or because the liquidator, receiver, conservator or
statutory successor of the Company has failed to pay all or a portion of
any claim. It is agreed, however, that the liquidator, receiver,
conservator or statutory successor of the Company shall give written notice
to the Reinsurer of the pendency of a claim against the Company which would
involve a possible liability on the part of the Reinsurer, indicating the
policy or bond reinsured, within a reasonable time after such claim is
filed in the conservation or liquidation proceeding or in the receivership.
It is further agreed that during the pendency of such claim the Reinsurer
may investigate such claim and interpose, at their own expense, in the
proceeding where such claim is to be adjudicated, any defense or defenses
that they may deem available to the Company or its liquidator, receiver,
conservator, or statutory successor. The expense thus incurred by the
Reinsurer shall be chargeable, subject to the approval of the Court,
against the Company as part of the expense of conservation or liquidation
to the extent of a pro rata share of the benefit which may accrue to the
Company solely as a result of the defense undertaken by the Reinsurer.
Article XXVIII Access to Records
The Reinsurer, or its duly authorized representative, shall have free access at
all reasonable times during and after the currency of this agreement, to books
and records maintained by any of the division, department and branch offices of
the Company which are involved in the subject matter of this Agreement and
which pertain to the reinsurance provided hereunder and all claims made in
connection therewith. Reinsurer shall also have the right to copy such records
at the Reinsurer's expense. Notwithstanding the provisions of the preceding
sentence, if undisputed balances due from the Reinsurer under this Agreement
have not been paid for the two most recent reported calendar quarters, the
Reinsurer shall not have access to any of the Company's records relating to
this Agreement without the specific consent of the Company.
Article XXIX Confidentiality
All terms and conditions of this Agreement, all materials provided by the
Company to the Reinsurer in connection with this Agreement, and, unless
otherwise in the possession of the Reinsurer on a non-confidential basis, all
information contained in such materials (collectively, "Confidential
Information") shall be kept confidential by the Reinsurer, unless the
disclosure is required pursuant to process of law, or the disclosure is to the
Reinsurer's
23
affiliates, retrocessionaires, legal counsel, financial auditors, or governing
regulatory authorities.
If the Reinsurer is required to disclose any Confidential Information pursuant
to process of law, it shall give prompt written notice to the Company so that
the Company may seek a protective order or otherwise object to the disclosure.
Disclosure or use of Confidential Information for any purpose beyond the scope
of this Agreement is expressly forbidden without the prior written consent of
the Company.
This Article shall survive the expiration or termination of this Agreement.
Article XXX Severability
If any provision of this Agreement shall be rendered illegal or unenforceable
by the laws, regulations or public policy of any jurisdiction, such provision
shall be considered void in such jurisdiction, but this shall not affect the
validity or enforceability of any other provision of this Agreement or the
enforceability of such provision in any other jurisdiction.
Article XXXI. General Reinsurance Provisions
A. OFAC. The Company represents that it is, and shall use best efforts to
continue to be, in compliance with all laws, regulations, judicial and
administrative orders applicable to the business reinsured under this
Agreement (collectively "Laws"), including, but not limited to, sanctions
laws administered by the U.S. Treasury Department's Office of Foreign
Assets Control ("OFAC"), as such laws may be amended from time to time.
Neither the Company nor the Reinsurer shall be required to take any action
under this Agreement that would result in it being in violation of said
laws, including, but not limited to, making any payments in violation of
the law. Should either party discover or otherwise become aware that a
reinsurance transaction has been entered into or a payment has been made in
violation of the law, the party who first becomes aware of the violation of
the law shall notify the other party and the parties shall cooperate in
order to take all necessary corrective actions.
The parties agree that to the extent that such policies can be rescinded,
such transaction shall be null, void and of no effect from its inception,
to the same extent as if the transaction had never been entered into and
each party will be restored to the position it would have occupied if the
violation had not occurred, including the return of any payments received,
unless prohibited by law.
B. Dividends, Cash Values. The Reinsurer will not reimburse the Company for
its proportionate share of the dividends or cash values paid by the Company
to policyholders.
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C. Premium Tax. The Reinsurer shall not reimburse the Company for premium
taxes on reinsurance premiums.
D. Notices: All notices, requests, instructions, demands, consents and other
communications required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given on the date delivered
by hand or by courier service such as Federal Express, or by other
messenger (or, if delivery is refused, upon presentment) , or upon delivery
by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses:
If to the Company:
American General Life Companies
▇▇▇▇ ▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: Reinsurance Dept.
If to the Reinsurer:
Generali USA Life Reassurance Company
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Treaty Department
E. Non-Waiver of Rights. No waiver by any party of any default by any other
party in the performance of any promise, term or condition of this
Agreement shall be construed to be a waiver by such party of any other or
subsequent default in performance of the same or any other promise, term or
condition of this Agreement. No prior transactions or dealings between any
of the parties shall be deemed to establish any custom or usage waiving or
modifying any provisions hereof for any future transactions or dealings.
The failure of any party to enforce any part of this Agreement shall not
constitute a waiver by such party of its right to do so, nor shall it be
deemed to be an act of ratification or consent.
F. Currency. All payments under this agreement shall be made in the official
currency of the United States of America.
G. Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of, or to
affect the meaning, construction or interpretation of, this Agreement.
Unless otherwise expressly provided, the word "including" does not limit
the preceding words or terms.
25
H. Counterparts. This Agreement may be executed simultaneously in multiple
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same document.
I. Assignment. All the terms of this Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, whether so expressed or not; however, no
party hereto shall assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of the other party
hereto.
J. Interest. If, under the terms of this Agreement, interest is accrued on
amounts due either party, such interest will be calculated using the "Three
Month Treasury ▇▇▇▇ Rate" as reported in the Wall Street Journal on the
first "business day" on or after a payment became due.
26
Article XXXII Execution of the Agreement
In witness whereof, the Company and the Reinsurer have caused this Agreement to
be executed in duplicate at the dates and places shown below, by their
respective officers duly authorized to do so.
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
------------------------------------- -------------------------------------
Signature Date of Signature
-------------------------------------
Title
------------------------------------- -------------------------------------
Signature Date of Signature
-------------------------------------
Title
GENERALI USA LIFE REINSURANCE COMPANY
------------------------------------- -------------------------------------
Signature Date of Signature
-------------------------------------
Title
------------------------------------- -------------------------------------
Signature Date of Signature
-------------------------------------
Title
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