Exhibit 7(h)
General & Cologne Life Re
AUTOMATIC YEARLY RENEWABLE TERM
REINSURANCE AGREEMENT
AGREEMENT # P226-105
between
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
of
BERWYN, PENNSYLVANIA
and
GENERAL & COLOGNE LIFE RE OF AMERICA
of
STAMFORD, CONNECTICUT
REINSURANCE AGREEMENT
SUMMARY
COMPANY: Provident Mutual Life Insurance Company
Berwyn, Pennsylvania
AGREEMENT NUMBER: P226-105
ACCOUNT NUMBER: 3803
REINSURER: General & Cologne Life Re of America
Stamford, Connecticut
EFFECTIVE DATE: October 1, 2001
PLANS COVERED: See Exhibit A
TYPE OF TREATY: Automatic with Facultative Option YRT
RETENTION: See Exhibit A
BINDING LIMIT: See Exhibit A
QUOTA SHARE: See Exhibit A
PREMIUMS: See Exhibit B
ADMINISTRATIVE BASIS: See Exhibit C
POLICY FEE: No policy fee
PREMIUM TAX: Not reimbursed
MINIMUM CESSION: Amounts of reinsurance less than $25,000 will not be
ceded.
MINIMUM FACULTATIVE
SUBMISSION: Greater of $25,000 or the plan minimum reinsurance
risk per cession.
JUMBO LIMIT: All life insurance in force and applied for with all
companies, shall not be more than $50,000,000.
RECAPTURE: After ten (10) policy years
In the event of any conflict between this Summary Page and the terms and
conditions of the Reinsurance Agreement, the terms and conditions of the
Agreement shall govern.
TABLE OF CONTENTS
PAGE
----
ARTICLE I. PARTIES TO THE AGREEMENT 1
ARTICLE II. AUTOMATIC REINSURANCE 2
A. General Conditions
B. Coverages
C. Ceding upon Maximum Retention
D. Ceding upon Less than Maximum Retention
ARTICLE III. FACULTATIVE REINSURANCE 3
A. Procedure
B. Continuing Notice Obligation
C. Minimum Facultative Submission
ARTICLE IV. LIABILITY 4
A. Automatic Reinsurance
B. Facultative Reinsurance
C. Conditional Receipt
ARTICLE V. REINSURANCE BENEFIT AMOUNTS 5
A. Life
B. Waiver of Premium
ARTICLE VI. REDUCTIONS, TERMINATIONS AND CHANGES 6
A. Reductions and Terminations
B. Increases
C. Nonforfeiture Benefits
D. Reinstatements
ARTICLE VII. CONVERSIONS, EXCHANGES AND REPLACEMENTS 7
A. Conversions
B. Exchanges and Replacements
ARTICLE VIII. PREMIUMS 8
A. Premium Payment
B. Delayed Payment
C. Failure to Pay Premium
D. Premium Rate Guarantee
ARTICLE IX. CLAIMS 9
A. Liability
B. Proof of Loss
C. Settlement
D. Contested Claims
E. Extra-Contractual Damages
F. Misstatement
TABLE OF CONTENTS
PAGE
----
ARTICLE X. RECAPTURE 11
ARTICLE XI. GENERAL PROVISIONS 12
A. Premium Tax
B. Offset
C. Currency
D. Company Data
E. Errors and Omissions
F. Inspection of Records
G. Severability
H. Privacy
ARTICLE XII. DAC TAX 13
ARTICLE XIII. INSOLVENCY 14
ARTICLE XIV. ARBITRATION 15
ARTICLE XV. DURATION OF AGREEMENT 16
ARTICLE XVI. EXECUTION 17
EXHIBIT A. PLANS, RETENTION AND BINDING LIMITS
EXHIBIT B. REINSURANCE PREMIUMS AND ALLOWANCES
EXHIBIT C. REPORTING METHOD
EXHIBIT D. CONVERSION RATES
ARTICLE I
PARTIES TO THE AGREEMENT
This is an agreement for indemnity reinsurance (the "Agreement") solely between
Provident Mutual Life Insurance Company (the "Company") and General & Cologne
Life Re of America, a Connecticut Corporation (the "Reinsurer"). This Agreement
shall be construed in accordance with the laws of the State of Pennsylvania.
This Agreement shall constitute the entire agreement between the parties with
respect to the business reinsured hereunder. There shall be no understanding
between the parties other than that expressed in this Agreement. Any change or
modification to this Agreement shall be null and void unless made by amendment
to this Agreement and signed by both parties.
The acceptance of risks under this Agreement shall create no right or legal
relation whatsoever between the Reinsurer and the insured, owner, or
beneficiary of any insurance policy or other contract of the Company.
11/13/01 1 of 24
ARTICLE II
AUTOMATIC REINSURANCE
A. General Conditions. On or after 12:01 A.M. Eastern Standard Time on the
effective date of this Agreement, as shown in Article XVI, reinsurance
under this Agreement shall be in force and binding on the Reinsurer
provided that the issuance of such insurance by the Company constitutes the
transaction of business in a jurisdiction in which the Company is properly
licensed, the insurance is issued on the lives of residents as described in
Exhibit A. and the reinsurance premiums continue to be paid in accordance
with this Agreement.
B. Coverages. Life insurance and Waiver of Premium Disability benefits for an
amount not greater than the corresponding life insurance are the coverages
reinsured automatically under this Agreement, up to the limits shown in
Exhibit A.
C. Ceding upon Maximum Retention. When the Company retains its maximum limit
of retention with respect to a life, as shown in Exhibit A, the Company
shall cede and the Reinsurer shall automatically accept as reinsurance
under the terms and conditions of this Agreement, liability on individual
life insurance on such life, together with all reinsured supplemental
coverages, provided that the policies are issued directly by the Company on
those plans of insurance shown in Exhibit A and fully underwritten by
employees of the Company in accordance with the Company's usual
underwriting standards and requirements which the Reinsurer has
acknowledged in writing.
Reinsurance shall not be ceded automatically to the Reinsurer on any risk
if:
1. the amount of reinsurance causes the Binding Limit, as shown in
Exhibit A, to be exceeded; or
2. the amount of insurance causes the Jumbo Limit, as shown in Exhibit
A, to be exceeded; or
3. the Company has submitted the risk for facultative underwriting
consideration to any reinsurer, including the Reinsurer, within five
years; or
4. the substandard mortality rating assessed to the risk exceeds Table P
(500%) or its equivalent on an extra premium basis; or
5. the risk at the time of issue exceeds the maximum issue age shown in
Exhibit A.
D. Ceding While Retaining Less Than Full Retention. When the Company retains
or has retained less than its maximum limit of retention on a life and all
other conditions in Section C above are satisfied, the Company may cede
automatically only an amount equal to or less than the amount retained.
11/13/01 2 of 24
ARTICLE III
FACULTATIVE REINSURANCE
A. Procedure. The Company may submit for facultative consideration, any risk
on those plans of insurance shown in Exhibit A by sending the Reinsurer a
reinsurance application form showing details of the risk together with
copies of the original application and all information known to the Company
pertaining to the insurability of the risk. The Reinsurer shall give the
reinsurance application prompt consideration and shall notify the Company
of its decision and risk classification.
After the first premium has been received by the Company on a policy that
has been submitted to and accepted by the Reinsurer on a facultative basis,
the Company shall promptly report placement of the policy to the Reinsurer
in the agreed upon format.
Unless specifically agreed to the contrary, the Reinsurer shall hold its
offer on a pending case open for ninety (90) days, at the end of which
time the Reinsurer shall, in the absence of notification of case status,
routinely close its file and consider the offer to reinsure as formally
withdrawn.
B. Continuing Notice Obligation. Both prior to and subsequent to the
Reinsurer's acceptance of a risk, the Company shall send to the Reinsurer
all information that is related to the insurability of such risk.
C. Minimum Facultative Submission. The minimum facultative submission under
this Agreement shall be as shown in Exhibit A.
11/13/01 3 of 24
ARTICLE IV
LIABILITY
A. Automatic Reinsurance. The liability of the Reinsurer on any automatic
reinsurance covered under this Agreement shall begin and end
simultaneously with that of the Company, subject to the conditions of
Article II.
B. Facultative Reinsurance. The liability of the Reinsurer on any facultative
reinsurance covered under this Agreement shall begin and end simultaneously
with that of the Company provided that the Reinsurer has given the Company
an offer to reinsure the risk, and the Company has indicated acceptance
and acts in accordance with the Reinsurer's offer. The Reinsurer shall
become liable for its share of the risk, provided that the policy has been
delivered according to the usual procedures of the Company and that the
Company has followed its facultative coverage rules for reinsurance
placement.
C. Conditional Receipt. The Reinsurer will accept liability on the Company's
Conditional Receipt or Pre-paid business up to the amount shown in
Exhibit A, provided that all procedures, terms and conditions of the
Company's Conditional Receipt are followed. All Conditional Receipt forms
in use by the Company, as well as any subsequent changes or modifications
must be approved in writing by the Reinsurer.
1. Coverage for Automatic Reinsurance. The Reinsurer's liability on
automatic reinsurance shall begin and end with the Company's
conditional receipt liability.
2. Coverage for Facultative Reinsurance. For those risks submitted
facultatively, conditional receipt liability shall not commence until
the Reinsurer has made an explicit acceptance of the risk.
3. Discrepancy with Conditional Receipt. In the case where the
conditional receipt is given for an amount less than the policy
application, the Reinsurer shall not be liable for more than its
proportionate share of the maximum limit as shown in the Company's
conditional receipt.
11/13/01 4 of 24
ARTICLE V
REINSURANCE BENEFIT AMOUNTS
A. Life. Reinsurance under this Agreement for Life Insurance and Waiver of
Premium Disability Benefit is on a Yearly Renewable Term Reinsurance
basis. The reinsurance benefit shall be determined in the manner described
below, unless otherwise mutually agreed.
1. Cash Value Plans. The net amount at risk of the policy is defined to
be the death minus the terminal reserve. The amount of reinsurance
benefit at each policy is the death benefit of the policy minus the
initial amount retained minus the terminal reserve on the [(portion
of the policy reinsured) or (policy)]. The Company shall notify the
Reinsurer of the Reserve Calculation Method being used. The reinsurer
may interpolate or use reasonable approximations.
2. Universal Life. The net amount at risk is defined to be the death
benefit minus the account value. The amount of reinsurance benefit at
each policy duration is the net amount at risk at each duration
multiplied by the reinsurance proportion "p" where
p = Initial Reinsurance Amount
--------------------------
Policy Death Benefit
3. Level Death Benefit Plans.
The reinsurance benefit for plans with a level death benefit shall be
the death benefit of the policy minus the initial amount retained by
the Company.
4. Decreasing Term Plans.
For decreasing term plans, the reinsurance benefit shall be the
current death benefit of the policy times the reinsurance portion "p".
The reinsurance proportion "p" is calculated at issue as follows:
p = Policy Death Benefit - Amount Retained
--------------------------------------
Policy Death Benefit
For reinsurance of plans with fluctuating net amounts at risk or with
increasing or decreasing death benefits, the reinsurance benefit for the entire
policy year shall be the reinsurance benefit calculated by the Company at the
beginning of each policy year, in accordance with the methods outlined above.
The Reinsurer's liability shall be the amount calculated at the beginning of
each policy year. If there is a change in the policy, the Company shall send
amended reinsurance benefit amounts to the Reinsurer.
B. Disability Waiver of Premium. The Disability Waiver of Premium benefit
amount reinsured shall not be greater than the amount of the corresponding
Life Insurance benefit reinsured. The Disability Waiver benefit amount
reinsured shall, at the Company's option, be supplied to the Reinsurer for
at least ten (10) policy years at a time, or else determined by the
Reinsurer from the Company rate materials in its possession, using any
reasonable approximations that may be necessary.
11/13/01 5 of 24
ARTICLE VI
REDUCTIONS, TERMINATIONS AND CHANGES
Whenever a change is made in the status, plan, amount or other material feature
of a policy reinsured under this Agreement, the Reinsurer shall, upon
notification of the change, provide appropriately adjusted reinsurance
coverage. The Company shall notify the Reinsurer of any such change, not more
than sixty (60) calendar days after its effective date.
A. Reductions and Terminations. In the event of the reduction, lapse or
termination of insurance with the Company on a life, the Company shall
reduce reinsurance proportionately. In the event that there is more than
one reinsurer on the policy being reduced, the reduction in reinsurance
shall be proportionate among the reinsurers. The Reinsurer shall refund
any unearned premiums. However, policy fees, if any, shall be deemed
earned for a policy year if during any portion of such policy year, ceded
insurance is exposed to risk.
B. Increases. If a change results in the amount of insurance being increased,
the increase will be considered new reinsurance under this Agreement and
shall be underwritten by the Company in accordance with its customary
standards and procedures. If the policy were submitted to the Reinsurer
facultatively, increases must be approved by the Reinsurer.
C. Nonforfeiture Benefits. If the original policy lapses and extended term
insurance or reduced paid-up insurance is granted under the terms of the
policy, the Reinsurer, upon notification of such change, will
proportionately adjust the amount of reinsurance and accept appropriately
adjusted reinsurance premiums calculated in the same manner as reinsurance
premiums were calculated on the original policy. However, the Reinsurer
shall not provide coverage for extended term insurance on policies
originally issued at substandard ratings greater than 150% of standard or
the equivalent in flat extra premium unless the Reinsurer specifically
agrees in advance to do so.
D. Reinstatements. If a policy that has lapsed or surrendered is reinstated in
accordance with its terms and in accordance with Company rules and
procedures, the Reinsurer shall, upon notification of reinstatement,
reinstate the pre-existing reinsurance coverage. However, if the policy
were facultatively reinsured with the Reinsurer, approval by the Reinsurer
shall be required prior to the reinstatement of the reinsurance if the
Company retained less than fifty (50) percent of the risk and the policy
has been lapsed for more than ninety (90) calendar days. Upon reinstatement
of the reinsurance coverage, the Company shall pay the reinsurance premiums
which would have accrued had the policy not lapsed, together with interest
at the same rate as the Company receives under its policy.
11/13/01 6 of 24
ARTICLE VII
CONVERSIONS, EXCHANGES AND REPLACEMENTS
A. Conversions. The Reinsurer shall continue to accept reinsurance resulting
from the contractual conversion of any policy reinsured under this Agreement,
in an amount not to exceed the original amount reinsured hereunder.
Reinsurance premiums for such conversions shall be at a point-in-scale basis
from the original issue date at the agreed upon conversion premium rates.
If the conversion results in an increase in risk, the increase shall require
evidence of insurability. Reinsurance premiums for increases shall be
first-year premiums at the agreed upon premium rate.
B. Exchanges and Replacements. The Reinsurer will consider exchanges and
replacements to the plans reinsured under this Agreement. First-year premium
calculations will apply to any policy on which:
1. the Company has obtained complete and current underwriting evidence on
the full amount; and
2. the full normal commissions are paid for the new plan; and
3. the Suicide and Contestable provisions apply as if the policy were
newly issued.
Reinsurance premiums shall be the agreed upon exchange premiums.
11/13/01 7 of 24
ARTICLE VIII
PREMIUMS
A. Premium Payment. Reinsurance premiums for life insurance and waiver of
premium disability benefits shall be the premiums shown in Exhibit B.
Reinsurance premiums are payable in accordance with the method outlined in
Exhibit C.
B. Delayed Payment. Premium balances which remain unpaid for more than sixty
(60) calendar days shall incur interest from the due date, calculated from
that date by using the 13-week Treasury Bill rate reported for the last
working day of the calendar month in the "Money Rates" section of The Wall
Street Journal or comparable publications.
C. Failure to Pay Premiums. The payment of reinsurance premiums shall be a
condition precedent to the liability of the Reinsurer for reinsurance covered
by this Agreement. In the event that reinsurance premiums are not paid when
due, the Reinsurer shall have the right to terminate the reinsurance under
all policies having reinsurance premiums in arrears. If the Reinsurer elects
to exercise its right of termination, it shall give the Company sixty (60)
calendar days written notice of its intention to terminate said reinsurance.
If all reinsurance premiums in arrears, including any which may become in
arrears during the sixty (60) calendar day period, are not paid before the
expiration of said period, the Reinsurer shall be relieved of all liability.
Policies on which reinsurance premiums subsequently fall due will
automatically terminate if reinsurance premiums are not paid. Terminated
reinsurance may be reinstated, subject to approval by the Reinsurer, within
thirty (30) calendar days of the date of termination upon payment of all
reinsurance premiums in arrears. The Reinsurer shall have no liability for
any claims incurred between the date of termination and the date of the
reinstatement of the reinsurance. The right to terminate reinsurance shall
not prejudice the Reinsurer's right to collect premiums for the period
reinsurance was in force prior to the expiration of the sixty (60) calendar
day notice.
D. Premium Rate Guarantee. The Reinsurer anticipates continuing to accept
premiums on the basis of the rates shown in Exhibit B. The Reinsurer reserves
the right to modify the YRT allowances in the event that the Company changes
the rates it charges its policyholders.
11/13/01 8 of 24
ARTICLE IX
CLAIMS
A. Liability. Whenever a claim is made on a policy reinsured under this
Agreement, the Reinsurer shall consider its liability to the Company to be
for the amount of reinsurance for that policy as determined in Article V and
Exhibit A. If the Company has been paying premium to the Reinsurer on an
estimated reinsured net amount at risk, the Reinsurer's claim liability shall
not exceed that amount provided by the Company. The Reinsurer will accept the
good faith decision of the Company in settling a claim and shall pay the
amount of its liability in effect at the time of settlement, including its
proportionate share of any interest paid to the claimant.
If the Company has retained either a) less than its full retention or b)
twenty (20) percent or less of the risk, the Company shall consult with the
Reinsurer before making an admission of liability on any claim on which death
has occurred during the contestable period. If the Company chooses to pay
such a claim that the Reinsurer believes should be contested, then the
dispute may be submitted to arbitration.
B. Proof of Loss. In every case of loss, the Company shall provide the Reinsurer
with copies of all proofs of loss, underwriting papers, investigation reports
and a statement showing the amount paid on the claim by the Company, plus any
information the Reinsurer may reasonably request.
C. Settlement.
1. Life. For Life insurance claims, the Reinsurer shall pay its share of
death benefits in a lump sum regardless of the form of claim settlement
by the Company.
2. Waiver of Premium. For an approved Waiver of Premium benefit claim, the
Reinsurer shall pay its share of the gross premium waived by the
Company, and the Company shall continue to pay the total reinsurance
premium, excluding the corresponding waiver premium. If the policy is
subject to recapture, the reinsurance premium shall be appropriately
adjusted. The Reinsurer may pay Waiver of Premium claims in one (1)
payment per year regardless of the mode of premium payment specified in
the policy.
D. Contested Claims. The Company shall notify the Reinsurer of its intention to
contest or compromise a claim. Unless agreed otherwise, all contestable
claims will be routinely investigated. If the Reinsurer chooses not to
participate in a contested claim, it shall pay its full amount of reinsurance
liability on such claim and shall thereby be relieved of all future liability
with respect to such contested claim.
If the Reinsurer joins the Company in a contest or compromise, the Reinsurer
shall participate in the same proportion that the amount at risk reinsured
with the Reinsurer bears to the total amount at risk to the Company on the
claim and shall
11/13/01 9 of 24
ARTICLE IX
CLAIMS
(continued)
share in the reduction in liability in the same proportion. The Reinsurer
shall pay its share of "routine expenses" which are considered to be
investigative or administrative expenses incurred by the Company that are
customarily incurred with respect to most claims. Participation in "unusual
expenses" shall require written consent by the Reinsurer which consent shall
not be unreasonably withheld. Unusual expenses shall include, but not be
limited to, fees of outside attorneys, investigators or consultants. The
Reinsurer shall not reimburse expenses or compensation of salaried officers
and employees of the Company or expenses incurred by the Company as a result
of a dispute arising out of conflicting claims of entitlement to policy
proceeds or benefits.
E. Extra-Contractual Obligations. The Reinsurer shall not be liable for
punitive, exemplary or any other noncontractual damages assessed against the
Company on the basis of fault or wrongdoing on the part of the Company, its
agents or representatives. However, should the Reinsurer have concurred in
the acts or omissions giving rise to such damages, the Reinsurer will pay its
proportionate share of such damages.
F. Misstatement. In the event of an increase or decrease in the amount of the
Company's liability on a policy reinsured hereunder because of a misstatement
of age, sex, or other risk classification, which is established after the
death of the insured, the Company and the Reinsurer shall share in the change
in amount in proportion to its respective net liability prior to the change.
The reinsurance premium for the policy year of death shall be recalculated on
the basis of the adjusted amount using premiums and reserves at the correct
risk classification, and the adjustment for the difference in reinsurance
premiums shall be made without interest.
11/13/01 10 of 24
ARTICLE X
RECAPTURE
Recapture is not available until the end of the tenth (10th) policy year, and
then must be in conjunction with an increase in the Ceding Company's maximum
schedule of retention. The amount eligible for recapture will be the difference
between the amount originally retained and the amount the Ceding Company would
have retained on the same quota share basis had the new retention schedule been
in effect at the time of issue.
Whenever the Company changes its Policy Size limits of retention, it shall
promptly notify the Reinsurer. If the Company increases its Policy Size
retention limits, it may exercise its right of recapture and reduce the
existing reinsurance by a corresponding amount, in accordance with the
following rules.
A. No reduction shall be made in the reinsurance on any policy unless the
Company retained its maximum Policy Size retention limit for the plan, age
and mortality ratings at the time the policy was issued.
B. The reduction in reinsurance shall be made on the next anniversary of each
policy affected. However, no reduction shall be made until a policy has
been in-force for ten years.
C. The Company shall give the Reinsurer ninety (90) days written notice of
its intention to recapture existing business reinsured under this
Agreement in accordance with its new limits of retention.
D. If any reinsurance is recaptured following a Policy Size retention
increase, all reinsurance which is subject to recapture under these
provisions must be similarly recaptured.
E. If there is reinsurance in other companies on risks eligible for
recapture, the Reinsurer's reduction will be in proportion to its share of
the total reinsurance on the life.
F. In the event that any reinsurance policy affected by recapture is
overlooked, the acceptance by the Reinsurer of reinsurance premiums after
the effective dates of the reductions or cancellations shall not
constitute or determine a liability on the part of the Reinsurer for such
reinsurance, and the Reinsurer shall be liable only for a refund of the
premiums so received, without interest.
G. No reduction may be made in any supplemental benefits reinsured unless the
life reinsurance is also being reduced.
H. If at the time of recapture the risk is an active claim for Waiver of
Premium Disability, the life risk shall be considered subject to
recapture. However, the original disability reinsurance shall remain in
force until such time as the disability claim ceases.
11/13/01 11 of 24
' ARTICLE XI
GENERAL PROVISIONS
A. Premium Tax. The Reinsurer shall not reimburse the Company for premium
taxes on reinsurance premiums.
B. Offset. Upon notice to the other party, the Company or the Reinsurer may
offset any balances due from one party to the other from premiums,
allowances, claims, or any other amounts due under this Agreement.
C. Currency. All payments under this Agreement shall be made in United States
currency.
D. Company Data. The Company agrees to keep the Reinsurer informed of the
identity and terms of its policies, riders and contracts reinsured under
this Agreement, as well as any special programs affecting reinsurance
hereunder, with copies of its application forms, policy forms,
supplementary agreements, rate books, plan codes and all other materials
relevant to the coverages reinsured.
Further, the Company agrees to furnish the Reinsurer with all underwriting
manuals or criteria, requirements, and retention schedules affecting
reinsurance ceded and to keep the Reinsurer fully informed of all
subsequent changes to said materials.
E. Errors and Omissions. Administrative or clerical error or omissions of an
accidental or unintentional nature shall be corrected, and both parties
shall be restored to the positions they would have occupied had no such
error or omission occurred. Errors of judgment are not covered by this
provision.
F. Inspection of Records. The Reinsurer and the Company, or their duly
authorized representatives, shall have the right at any reasonable time to
inspect, at the office of the other, all books and documents relating,
directly or indirectly, to any business reinsured under this Agreement.
G. Severability. If any provision of this Agreement is determined to be
invalid or unenforceable, such determination will not impair or affect the
validity or the enforceability of the remaining provisions of this
Agreement.
▇. ▇▇▇▇▇▇▇. The Reinsurer shall:
(a) abide by and comply with the privacy policies and procedures of the Ceding
Company, as may be amended from time to time, and the privacy standards and
requirements under the ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Financial Services Modernization
Act of 1999, and any state laws implementing the same (collectively,
"GLB"), and any other applicable state or federal law; and
(b) be prohibited from the use or disclosure of non public personal information
(as defined under GLB) of any Customer (as defined under GLB) to anyone,
including affiliated companies, except as necessary to service the
Policies, or as otherwise necessary or required under applicable law.
11/13/01 12 of 24
ARTICLE XII
DAC TAX
The Company and the Reinsurer hereby agree to the following pursuant to Section
1.848-2(g)(8) of the Income Tax Regulations issued December 29, 1992, under
Section 848 of the Internal Revenue Code of 1986, as amended.
A. The term "party" will refer to either the Company or the Reinsurer, as
appropriate.
B. The terms used in this Article are defined by reference to Regulation
Section 1.848-2 in effect as of December 29, 1992.
C. The party with the net positive consideration for this Agreement for each
taxable year will capitalize specified policy acquisition expense with
respect to this Agreement without regard to the general deductions
limitation of Section 848 (c)(1).
D. The Company and the Reinsurer agree to exchange information pertaining to
the amount of the net consideration under this Agreement each year to ensure
consistency or as otherwise required by the Internal Revenue Service.
E. The Company will submit a schedule to the Reinsurer by June 1 of each year
of 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.
▇. The Reinsurer may contest such calculation by providing an alternative
calculation to the Company in writing within thirty (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.
G. If the Reinsurer contests the Company's calculation of the net
consideration, the parties will act in good faith to reach an agreement on
the correct amount within thirty (30) days of the date the Reinsurer submits
its alternative calculation. If the Company and the Reinsurer reach
agreement on an amount of net consideration, each party shall report such
amount in their respective tax returns for the previous calendar year.
11/13/01 13 of 24
ARTICLE XIII
INSOLVENCY
A. Insolvency of the Company. In the event of insolvency of the Company, all
payments due the Company by the Reinsurer shall be payable directly to the
Company, its liquidator, receiver or statutory successor on the basis of the
liability of the Company under the policies reinsured without diminution
because of insolvency of the Company.
In the event of insolvency of the Company, the liquidator, receiver or
statutory successor shall give the Reinsurer written notice of the pendency
of a claim on a policy reinsured within a reasonable time after the claim is
filed in the solvency proceeding. During the pendency of the claim, the
Reinsurer may investigate the claim and, in a proceeding where the claim is
to be adjudicated, the Reinsurer may, at the Reinsurer's own expense,
interpose in the name of the Company (its liquidator, receiver or statutory
successor) any defense or defenses which the Reinsurer may deem available to
the Company or its liquidator, receiver or statutory successor.
Subject to the court approval, the expense thus incurred by the Reinsurer
shall be chargeable against the Company as part of the expense of
liquidation to the extent of the proportionate share of the benefit which
may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer. Where two (2) or more reinsurers participate in the same
claim and a majority in interest elect to interpose a defense to the claim,
the expense shall be apportioned in accordance with the terms of the
reinsurance agreements as if the expense had been incurred by the Company.
B. Insolvency of the Reinsurer. In the event of the insolvency of the
Reinsurer, the Company may retain all or any portion of any amount then due
or which may become due the Reinsurer under this Agreement and use such
amounts for the purposes of paying any and all liabilities of the Reinsurer
incurred under this Agreement. When all such liability hereunder has been
discharged, the Company shall pay the Reinsurer, its successor, or statutory
receiver, the balance of such amounts withheld as may remain.
In the event of the insolvency of the Reinsurer, the Company may, upon
written notice to the Reinsurer, its liquidator, receiver or statutory
successor, recapture, without penalty, the entire amount of reinsurance
under this Agreement.
C. Definition of Insolvency. For purposes of this Agreement, the Company or the
Reinsurer shall be deemed insolvent if:
1. a court order is issued voluntarily or involuntarily placing it into
conservatorship, rehabilitation, receivership, or liquidation, or
appointing a conservator, rehabilitator, receiver or liquidator to take
over its business; or
2. it has filed or consents to the filing of a petition in bankruptcy,
seeks reorganization or an arrangement with creditors or takes advantage
of any bankruptcy, dissolution, liquidation or similar law or statute.
11/13/01 14 of 24
ARTICLE XIV
ARBITRATION
All disputes and differences between the Company and the Reinsurer on which an
amicable understanding cannot be reached shall be resolved by arbitration at a
mutually agreed upon location. The arbitration hearing shall be before a board
of three arbitrators comprised of active or retired officers of life insurance
or reinsurance companies excluding, however, officers and former officers of the
Company and the Reinsurer.
Upon written request of either party sent by registered or certified mail, each
party shall choose an arbitrator and the two (2) chosen shall select a neutral
arbitrator. If either party refuses or neglects to appoint an arbitrator within
sixty (60) days after receipt of the written request for arbitration, the
appointing party may appoint a second arbitrator. The two arbitrators shall have
thirty (30) days to agree on a method for selecting the neutral arbitrator. If
the two arbitrators fail to agree on the selection method of the neutral
arbitrator within thirty (30) days of their appointment, each of the parties to
this Agreement shall name three (3) candidates to serve as the neutral
arbitrator. Beginning with the party who did not initiate arbitration, each
party shall eliminate one candidate from the six (6) listed until one candidate
remains. If this candidate declines to serve as the arbitrator, the candidate
last eliminated will be approached to serve. This process shall be repeated
until a candidate has agreed to serve as the neutral arbitrator.
The selection and naming of all arbitrators shall be conducted in a timely
manner.
The parties hereby waive all objections to the above method of choosing the
arbitrators.
Each party shall submit its case to the arbitrators within thirty (30) calendar
days of the appointment of the neutral arbitrator.
The arbitrators shall have the power to determine all procedural rules of the
arbitration including but not limited to, inspection of documents, examination
of witnesses and any other matter relating to the conduct of the arbitration.
The arbitrators will base their decision on the terms and conditions of this
Agreement and the customs and practices of the insurance and reinsurance
industries rather than on strict interpretation of the law.
The decision of the arbitrators, in writing, will be made by majority rule and
shall be final and binding on both parties. There shall be no appeal from the
decision. Either party to the arbitration may petition any court having
jurisdiction over the parties to reduce the decision to judgment.
The allocation of the costs of arbitration will be made by the arbitrators.
11/13/01 15 of 24
ARTICLE XV
DURATION OF AGREEMENT
This Agreement shall be effective on and after the effective date shown in
Article XVI and shall be unlimited in duration. It may be terminated at any
time, insofar as it pertains to the reinsurance of new business, by either party
giving ninety (90) days written notice of termination to the other. The
Reinsurer shall continue to accept new business during the ninety (90) day
period and shall continue to be liable on all in-force reinsurance granted under
this Agreement until the termination or expiry of the insurance reinsured,
except as provided in Article VIII.C.
11/13/01 16 of 24
ARTICLE XVI
EXECUTION
This Agreement represents the entire contract between the Reinsurer and the
Company and supersedes any prior oral or written agreements.
IN WITNESS WHEREOF, the parties have caused this Agreement # 3803 to be signed
on the dates set forth below with an effective date of October 1, 2001.
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
BY: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
TITLE: Vice President & Actuary
----------------------------------
DATE: 12-26-2001
----------------------------------
ATTEST: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
GENERAL & COLOGNE LIFE RE OF AMERICA
BY: /s/ [Illegible]
----------------------------------
TITLE: SVP
----------------------------------
DATE: 12/17/01
----------------------------------
ATTEST: /s/ [Illegible]
----------------------------------
11/13/01 17 of 24
EXHIBIT A
PLANS, RETENTION AND BINDING LIMITS
1. PLANS REINSURED
---------------
This Agreement covers business written by Provident Mutual Life Insurance
Company and by its subsidiary, Providentmutual Life and Annuity Company of
America. This coverage is known as the Expanded Standard Program.
AUTOMATICALLY AND FACULTATIVELY REINSURE THE FOLLOWING PLANS AND RIDERS:
Plans: Riders:
Options Premier Additional Insurance Benefit
Whole Life II Other Insured Term Rider
Portfolio II Waiver of Premium
Special Term Waiver of Monthly Deductions
ProvFlex UL Change of Insured
Face Amount Increases Long Term Care Acceleration Rider
Accelerated Death Benefit
2. GUIDELINES
----------
Business eligible for the Expanded Standard Program are those that are
medically impaired up to 200% mortality. The underwriting assessment is
arrived at by conventional underwriting practices using the underwriting
manual used by Provident Mutual. Subjective type risks (habits, morals,
financial problems, etc.) and Medical risks involving flat extras are
excluded. No term or survivorship policies are included. No prior
facultative coverage is allowed.
3. RETENTION
---------
A. LIFE
The Company will keep 25% of each case that is issued up to $500,000
subject to its normal retention. If the Company cannot retain its share,
the remaining amount is split equally with the three reinsurers in the
pool.
Maximum Face Amount: $2,000,000
Minimum Issue Amount: Ages 0 - 49 $100,000
50 - 65 $50,000
11/13/01 18 of 24
EXHIBIT A
PLANS, RETENTION AND BINDING LIMITS
(continued)
The limits may be exceeded by as much as $25,000 in order to avoid
reinsurance.
The maximum retention for aviation risks is one-half the normal retention.
▇. ▇▇▇▇▇▇ OF PREMIUM
Same as life
3. AUTOMATIC BINDING LIMITS
Automatic reinsurance coverage shall apply only to residents of the United
States, Puerto Rico, U.S. Virgin Islands and Canada. Automatic binding
authority shall not apply to risks which at the time of issue exceed age 85
or that have a substandard mortality rating greater than Table P (500%) or
its Flat Extra equivalent.
A. LIFE
Pool binding limit is 16 times the Company's retention. Pool Binding is
in excess of the Company's retention.
The Reinsurer's share of the Reinsurance Pool is 25%.
▇. ▇▇▇▇▇▇ OF PREMIUM
Same as life.
4. CONDITIONAL RECEIPT LIMIT
The Reinsurer's proportionate share of the $500,000 maximum conditional
receipt limit.
5. MINIMUM CESSION
Amounts of reinsurance less than $25,000 for all Plans will not be ceded
under this agreement.
6. JUMBO LIMITS
The Company shall not cede automatically to the Reinsurer any risk on an
individual life where the amount of life insurance in force in all
companies plus the amount applied for exceeds the following:
A. LIFE: $50,000,000
B. WAIVER OF PREMIUM: Not to exceed face amounts of $5,000,000.
11/13/01 19 of 24
EXHIBIT B
REINSURANCE PREMIUMS AND ALLOWANCES
Life. Reinsurance premiums shall be the annual premium rate of the 1975 -
1980 Select and Ultimate Mortality Table ANB, for the insured's age and
table rating, multiplied by the following percentages:
First Year Renewals
Nonsmoker 0% 72%
Smoker 0% 144%
Substandard Ratings. Premiums increased by the appropriate % per Table.
Allowances are the same as those for life benefits.
Flat Extras. In the event that a risk is accepted and ceded with a flat extra
premium, the total premium remitted to the Reinsurer shall include the flat
extra premium minus the allowances shown below.
Type of Flat Extra Premium First Year Renewal
Temporary Flat (1-5 years) 10% 10%
Permanent Flat (6 years and greater) 75% 10%
Policy Fees. To be retained by the Company.
Waiver of Premium, Waiver of Monthly Deductions, Long Term Care Acceleration
Benefit, Long Term Care Waiver. Reinsurance premiums shall be 25% of the annual
premiums of the Company in the first policy year and 90% of those premiums in
renewal years.
Conversions. Not Applicable.
11/13/01 20 of 24
EXHIBIT C
REPORTING METHOD
SELF ADMINISTRATION
Reporting Method. As soon as possible after a reinsured policy is placed in
force, the Company shall show it on its reinsurance report giving the details
as described in Exhibit C.1.
Premium Accounting. Reinsurance premiums are payable annually in advance. Within
thirty (30) days after the end of the month, the Company shall send the
Reinsurer a statement showing reinsurance premiums due for that period together
with payment as indicated on the statement.
If an amount is due the Company, the Reinsurer shall remit such amount within a
reasonable time after its receipt of the statement.
To facilitate the processing of reinsurance remittances, please send all
payments to:
General & Cologne Life Re of America
Dept. 0129
PO Box 40000
Hartford, CT 06151-0129
Arrangements can also be made to accommodate the payment of funds by means of
Electronic Funds Transfer or wire transfer.
11/13/01 21 of 24
EXHIBIT C.1.
Self-Administered Bulk Reporting
Bulk Reporting requirements are listed below and attached is a sample of a Self
Administered Reinsurance Summary Reporting Form for requirements 5. Accounting
Information; 6. Reserve Information; and, 7. Policy Exhibit Information.
Report formats may differ in style; however, the required data must be provided
in order to properly administer the business reinsured. The Company shall submit
a copy of its bulk reporting format for review by the Reinsurer prior to the
completion of the formal Agreement.
Each self-administered report should be broken down into the following report
details, with Automatic and Facultative business shown separately for each
detail.
1. NEW BUSINESS
2. FIRST YEAR - OTHER THAN NEW BUSINESS
3. RENEWAL YEAR
4. CHANGES/TERMINATIONS
5. ACCOUNTING INFORMATION
6. RESERVE INFORMATION
7. POLICY EXHIBIT INFORMATION
8. QUARTERLY INFORCE
Below is a brief description of each report detail requested:
1. NEW BUSINESS - New issues* only, first time policy is reported to the
Reinsurer. Policies appear only once in this detail and should include the
following information: policy number, name of insured, D.O.B., age, sex,
policy date, tobacco use, reinsured amount and NAR, table rate, flat extra
rate, and premium.
* Policies which are new, but result from replacements or conversions from
other plans covered under other Agreements with the Reinsurer should be
clearly identified, these policies should not be reported as new issues. The
Reinsurer suggests these policies be identified with a transaction code and
be reported in the "Changes Detail". The original policy date and duration
should also be reported.
Policies previously ceded to the Reinsurer under an individual cession
treaty require special handling. The Reinsurer will continue reinsurance
administration.
2. FIRST YEAR, OTHER THAN NEW BUSINESS - Policies previously reported on the
new business detail, and are still in their first duration or policies
involved in first year premium adjustments.
3. RENEWAL YEAR - All renewal policies.
4. CHANGES/TERMINATIONS - Policies involved in a change during the current
reporting period. Type of change or termination activity must be clearly
identified for each policy.
The Reinsurer suggest separate listings for Terminations/Reinstatements,
Changes, Conversions/Replacements or the use of Transaction/Reason code to
describe activity.
*CONVERSIONS/REPLACEMENTS - The Reinsurer requires the reporting of the
original policy date, as well as the current date of issue. This data is
expected in the "Change Detail" when the conversion is reported and
continued in the "Renewal Detail" as the policy continues to be reported.
11/13/01 22 of 24
5. ACCOUNTING INFORMATION - Premiums summarized for Life, ADB, Waiver, Other by
the following categories:
Automatic/Facultative, First Year/Renewal Year, and Allowances where
applicable.
6. RESERVE INFORMATION - Policy reserves summarized by Amount of Reinsurance by
Life, ADB, Waiver, and Deficiency - for Automatic and Facultative, where
applicable.
7. POLICY EXHIBIT INFORMATION - Summary of the current period's activity and
year-to-date totals. Reporting the number of policies and reinsurance amount.
8. QUARTERLY INFORCE - Quarterly detail report of all policies inforce including
reserve information.
11/13/01 23 of 24
EXHIBIT D
CONVERSION RATES
Not Applicable
11/13/01 24 of 24
