Automatic Reinsurance Agreement
(No. 2477-1)
Between
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
of Worcester, Massachusetts
(REINSURED REFERRED TO AS YOU, YOUR)
and
TRANSAMERICA OCCIDENTAL
LIFE INSURANCE COMPANY
of Los Angeles, California
(REINSURER REFERRED TO AS WE, US, OUR)
Effective April 1, 1996
CONTENTS
ARTICLES
I Basic of Reinsurance 1
II Liability 2
III Notification of Reinsurance 2
IV Plans of Reinsurance 2
V Reinsurance Premiums 3
VI Premium Accounting 3
VII Oversights 4
VIII Reductions, Terminations and Changes 5
IX Increase In Retention 6
X Reinstatement 6
XI Expenses 6
XII Claims 6
XIII Inspection of Records 8
XIV Insolvency 8
XV Arbitration 9
XVI Parties to Agreement 9
XVII DAC Tax - Section 1.848-2(g)(8) Election 10
XVIII Duration of Agreement 11
SCHEDULES
A Specifications
B Benefits
C Definitions
EXHIBITS
I Retention Limits
II Reinsurance Premiums
ALL SCHEDULES AND EXHIBITS ATTACHED WILL BE CONSIDERED PART OF THIS AGREEMENT.
ARTICLE I
BASIS OF REINSURANCE
Reinsurance under this Agreement must be life insurance as stated in Schedule A.
You must automatically reinsure the life insurance for the plans as stated in
Schedule A.
1. REQUIREMENTS FOR AUTOMATIC REINSURANCE:
A. The individual risk must be a resident of the United States.
B. The maximum issue age on any risk will be age 80.
C. The mortality rating on each individual risk must not exceed Table 16,
Table P, 500% or its equivalent on a flat extra premium basis.
D. The maximum amount of insurance issued and applied for in all
companies on each risk must not exceed the jumbo limits as stated in
Schedule A.
E. The maximum amounts of insurance to be reinsured on a life must not
exceed the automatic binding limits as stated in Schedule A.
ARTICLE II
LIABILITY
1. Our liability for automatic reinsurance will begin simultaneously with
your liability.
2. Our liability for reinsurance on the individual risk will terminate
when your liability terminates.
3. The initial and subsequent reinsurance premiums must be received by us
on a timely basis for us to maintain our liability of each individual
risk.
ARTICLE III
NOTIFICATION OF REINSURANCE
You will inform us of any reinsurance by submitting a monthly accounting
statement as described in Article VI.
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ARTICLE IV
PLANS OF REINSURANCE
1. Life reinsurance will be on the basis as stated in Schedule B.
2. When requested, you must furnish us with a copy of each policy, rider, rate
book, and cash value table which applies to the life insurance reinsured.
ARTICLE V
REINSURANCE PREMIUMS
1. Life Reinsurance Premiums.
A. Life Reinsurance Premiums Paid on a Yearly Renewable Term Basis.
The life reinsurance premium on the net amount at risk will be
determined from Exhibit II.
B. Deficiency Reserves of the Yearly Renewable Term Premiums.
We anticipate that the premium rates in Exhibit II will be continued
indefinitely for all of the life reinsurance to which such rates will
apply.
However, because of technical questions in some states regarding
deficiency reserves, if any one or more of such premium rates for any
policy year or years after the first will be less than the net premium
rate or rates based on the 1980 CSO Table for the applicable mortality
rating with interest at the rate specified in the Standard Valuation
Law, then, in that event, only the latter rate will be guaranteed by
us.
ARTICLE VI
PREMIUM ACCOUNTING
1. Payment of Reinsurance Premiums
A. The reinsurance premiums will be paid to us on the basis stated
in Exhibit II.
B. Within thirty days after the close of each month, you will send
us a copy of a statement listing first year and renewal
reinsurance premiums less refunds and allowances (dividends and
cash values, if applicable) and any other data mutually agreed
upon by both parties.
C. If the net reinsurance premium balance is payable to us, you must
include this payment with your statement. If the net reinsurance
premium balance is not received by us or a statement is not
prepared and sent to us within thirty days after the close of the
month, the reinsurance premiums for all of the reinsurance risks
listed on the statement will be delinquent.
2
D. If the net reinsurance premium balance is payable to you, we must
remit our payment to you within thirty days after receiving your
statement.
2. Termination Because of Non-Payment of Premium.
When reinsurance premiums are delinquent, we have the right to
terminate the reinsurance risks on the statement by giving you thirty
days' written notice. As of the close of this thirty-day period, all
of our liability will terminate for:
A. The risks described in the preceding sentence and
B. The risks where the reinsurance premiums became delinquent during
the thirty-day period.
Regardless of these terminations, you will continue to be liable to us
for all unpaid reinsurance premiums earned by us.
3. Reinstatement of a Delinquent Statement.
You may reinstate the terminated risks within sixty days after the
effective date of termination by paying the unpaid reinsurance
premiums for the risks in force prior to the termination. However, we
will not be liable for any claim incurred between the date of
termination and reinstatement. The effective date of reinstatement
will be the day we receive the required back premiums.
4. Currency.
The reinsurance premiums and benefits payable under this Agreement
will be payable in the lawful money of the United States.
5. Within sixty days after the close of the calendar year, you will send
us an inforce listing of all policies reinsured under this Agreement.
ARTICLE VII
OVERSIGHTS
1. If there is an unintentional oversight or misunderstanding in the
administration of this Agreement by either company, it can be
corrected provided the correction takes place promptly after the time
the oversight or misunderstanding is first discovered. Both companies
will be restored to the position they would have occupied had the
oversight or misunderstanding not occurred. Interest at a rate to be
determined annually will be payable on any premiums due as a result of
the oversight or misunderstanding.
3
ARTICLE VIII
REDUCTIONS TERMINATIONS AND CHANGES
1. If there is a contractual or non-contractual replacement or change in the
insurance reinsured under this Agreement where fully underwriting evidence
according to your regular underwriting rules is not required, the insurance
will continue to be reinsured with us under this Agreement.
2. If the insurance reinsured under this Agreement increases, the increase
will not be reinsured under this Agreement.
3. If the insurance reinsured under this Agreement is reduced, the reinsurance
for the individual risk involved will be reduced by the same amount on the
effective date of reduction. If an individual life is shared by more than
one reinsurer, our share of the decrease will be the same percentage as our
initial reinsurance on the individual risk.
4. If any portion of the total insurance retained by you on an individual life
reduces or terminates, any reinsurance under this Agreement based on the
same life will also be reduced or terminated. You will reduce your
reinsurance by applying the retention limits which were in effect at the
time the policy was issued. You will not be required to retain an amount in
excess of your regular retention limit for the age, mortality rating and
risk classification at the time of issue for any policy on which
reinsurance is being reduced.
You must first reduce the reinsurance of the insurance which has the same
mortality rating as the terminated insurance. If further reduction is
required, the reinsurance to be terminated or reduced will be determined by
chronological order in which the reinsurance was first reinsured.
5. If the insurance for a risk is shared by more than one reinsurer, our
percentage of the increased or reduced reinsurance will be the same as our
initial percentage of reinsurance of the individual risk.
6. If insurance reinsured under this Agreement is terminated, the reinsurance
for the individual risk involved will be terminated on the effective date
of termination.
7. We will refund to you all unearned reinsurance premiums arising from
reductions, terminations and changes as described in this Article.
8. Changes as a result of extended term or reduced paid-up will be handled as
reductions.
ARTICLE IX
INCREASE IN RETENTION
1. If you should increase the retention limits as listed in Exhibit I, prompt
written notice of the increase must be given to us.
2. The option of recapturing the reinsurance is not available under this
Agreement when your retention limit increases.
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ARTICLE X
REINSTATEMENT
1. If insurance lapses for nonpayment of premium and is reinstated under your
terms and rules, the reinsurance will be reinstated by us. You must pay us
all back reinsurance premiums in the same manner as you received insurance
premiums under your policy.
ARTICLE XI
EXPENSES
1. You must pay the expense of all medical examinations, inspection fees and
other charges in connection with the issuance of the insurance.
ARTICLE XII
CLAIMS
1. Our liability for the insurance benefits reinsured under this Agreement
will be the same as your liability for such benefits. All reinsurance claim
settlements will be subject to the terms and conditions of the particular
contract under which you are liable.
2. When you are advised of a claim, you must promptly notify us.
3. If a claim is made under incontestable insurance reinsured under this
Agreement and if you retained fifty percent or more of the insurance at the
time of issue, we will abide the issue as it is settled by you. When you
request payment of the reinsurance proceeds, you must deliver a copy of the
proof of death and the claimant's statement to us.
4. If a claim is made under either (a) incontestable insurance and if you
retained less than fifty percent of the insurance at the time of issue, or
(b) contestable insurance reinsured under this Agreement, you must submit a
copy of all papers connected with the claim to us. After reviewing all the
claim papers, we will give our opinion as to how we would handle the claim
had it been ours. We must give our opinion within ten working days after we
receive a copy of all papers connected with the claim. If we do not respond
within this ten-day period, it will be presumed we are agreeable to the
payment of the claim. However, given your relationship with our claimant,
you are not obligated to follow our opinion.
5. Payment of reinsurance proceeds will be made in a single sum regardless of
your mode of settlement.
6. A. You must promptly notify us of your intent to contest insurance
reinsured under this Agreement or to assert defenses to a claim for
such insurance. If your contest of such insurance results in the
reduction of your liability, we will share in this reduction. Our
percentage of the reduction will be our net amount of risk on the
individual life as it relates to your total net amount at risk on the
date of the death of the insured.
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B. If we should decline to participate in the contest or assertion of
defenses, we will then release all of our liability by paying you the
full amount of reinsurance and not sharing in any subsequent reduction
in liability.
7. If the amount of insurance provided by the policy or policies reinsured
under this Agreement is increased or reduced because of a misstatement of
age or sex established after the death of the insured, we will share with
you in this increase or reduction. Our share of this increase or reduction
will be the percentage that our net liability relates to your total net
liability and that of other reinsurers immediately prior to this increase
or reduction. In the case of reinsurance on the yearly renewable term
basis, our reinsurance will be calculated from the inception date of the
policy on the adjusted amounts using the premiums and reserves applicable
to the correct age or sex. Any adjustment in reinsurance premiums will be
made without interest.
8. You must pay the routine expenses incurred in connection with settling
claims. These expenses may include compensation of agents and employees and
the cost of routine investigations.
9. We will share with you all expenses that are not routine. Expenses that are
not routine are those directly incurred in connection with the contest or
the possibility of a contest of insurance or the assertion of defenses.
These expenses will be shared in proportion to the net sum at risk for both
of us. However, if we have released our liability under Section 6 of this
Article, we will not share in any expenses incurred after our date of
release.
10. In the case of a claim described under:
A. Section 3 of this Article, in no event will we have any liability for
any Extra-Contractual Damages which are rendered against you as a
result of acts, omissions or course of conduct committed by you in
connection with the insurance reinsured under this Agreement.
B. Section 4 of this Article and if you followed our opinion, we
recognize that circumstances may arise under which we, in equity,
should share, to the extent permitted by law, in paying certain
assessed damages. Such circumstances are difficult to define in
advance, but involve those situations in which we were an active party
in the act, omission or course of conduct which ultimately resulted in
the assessment of such damages. The extent of such sharing is
dependent on good faith assessment of culpability in each case, but
all factors being equal, the division of any such assessment would be
in proportion to what impact our opinion had on such damages.
ARTICLE XIII
INSPECTION OF RECORDS
1. We will have the right, at any reasonable time, to inspect your books and
documents which relate to your reinsurance under this Agreement.
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ARTICLE XIV
INSOLVENCY
1. If you become insolvent, all of the reinsurance due you will be paid
immediately upon demand directly to your liquidator (receiver or statutory
successor), without decrease.
2. If you become insolvent, the liquidator will give us written notice of a
pending claim against you for insurance reinsured under this Agreement
within a reasonable time after the claim is filed in the insolvency
proceeding. During the insolvency proceedings where the claim is to be
settled, we may investigate this pending claim and mediate in your or your
liquidator's name, but at our own expense, with any defense or defenses
which we may believe available to you or your liquidator.
3. The expenses incurred by us will be chargeable, subject to court approval,
against you as part of the expense of liquidation. The benefit which you
may accumulate solely as a result of the defense undertaken by us will be
shared proportionately. Where two or more reinsurers are involved in the
same claim and a majority in interest elect to mediate a defense or
defenses to this claim, the expense will be shared as though such expense
had been incurred by you.
ARTICLE XV
ARBITRATION
1. Any controversy or claim arising out of or relating to this Agreement will
be settled by arbitration.
2. There must be three arbitrators who will be officers of life insurance
companies other than the contracting companies or their subsidiaries or
affiliates. Each of the contracting companies will appoint one of the
arbitrators and these two arbitrators will select the third.
In the event either contracting company is unable to choose an arbitrator
within thirty days after the other contracting company has given written
notice of its arbitrator appointment, the contracting company which has
given written notice may choose two arbitrators who shall in turn choose a
third arbitrator before entering arbitration. If the two arbitrators are
unable to agree upon the selection of a third arbitrator within thirty days
following their appointment, the president of the American Arbitration
Association will appoint the third arbitrator.
3. With regard to (2) above, arbitration must be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association
which will be in effect on the date of delivery of demand for arbitration.
4. Each contracting company must pay part of the arbitration expenses as
allocated by the arbitrators.
5. The award made by the arbitrators will be final, and judgment may be
entered upon it in any court having jurisdiction.
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ARTICLE XVI
PARTIES TO AGREEMENT
1. This is an Agreement solely between you and us. There will be no legal
relationship between us and any person having an interest of any kind in
any of your insurance.
ARTICLE XVII
DAC TAX
SECTION 1.848-2(g)(8) ELECTION
If applicable, both of us agree to the following pursuant to Section
1.848-2(g)(8) of the Income Tax Regulations issued December 1992, under Section
848 of the Internal Revenue Code of 1986, as amended. This election will be
effective for all subsequent taxable years for which this Agreement remains in
effect.
1. The term "party" will refer to either you or us as appropriate.
2. The terms used in this Article are defined by reference to Regulation
Section 1.848-2 in effect December 1992.
3. The party with the net positive consideration for this Agreement for each
taxable year will capitalize specified policy acquisition expenses with
respect to this Agreement without regard to the general deductions
limitation of Section 848(c)(1).
4. Both of us agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency or as
otherwise required by the Internal Revenue Service.
5. You will submit a schedule to us by May 1 of each year of your calculation
of the net consideration for the preceding calendar year. This schedule of
calculations will be accompanied by a statement signed by one of your
officers stating that you will report such net consideration in your tax
return for the preceding calendar year.
6. We may contest such calculation by providing an alternative calculation to
you in writing within 30 days of our receipt of your calculation. If we do
not so notify you, we will report the net consideration as determined by
you in our tax return for the previous calendar year.
7. If we contest your calculation of the net consideration, both of us will
act in good faith to reach an agreement as to the correct amount within
thirty (30) days of the date we submit our alternative calculation. If both
of us reach agreement on an amount of net consideration, each of us will
report such amount in their respective tax returns for the previous
calendar year.
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ARTICLE XVIII
DURATION OF AGREEMENT
1. This Agreement may be terminated at any time by either company giving
ninety days' written notice of termination. The day the notice is deposited
in the mail addressed to the Home Office or to an Officer of either company
will be the first day of the ninety-day period.
2. During the ninety-day period, this Agreement will continue to be in force.
3. After termination, we will both be liable for all reinsurance which becomes
effective prior to termination of this Agreement.
Executed in duplicate by Executed in duplicate by
FIRST ALLMERICA FINANCIAL TRANSAMERICA OCCIDENTAL
LIFE INSURANCE COMPANY LIFE INSURANCE COMPANY
at Worcester, Massachusetts, at Charlotte, North Carolina,
On January 27, 1997 on October 10, 1996
-------------------------- -----------------------------
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. By: /s/
------------------------- -----------------------------
Title: AVP & Actuary Second Vice President
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/
----------------------- -----------------------------
Title: VP & Actuary Second Vice President
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FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
(No. 2477-1)
EFFECTIVE APRIL 1, 1996
SCHEDULE A
SPECIFICATIONS
- TYPE OF BUSINESS Life insurance assumed by you from
Allmerica Financial Life Insurance and
Annuity Company
- PLANS OF INSURANCE Universal Life Policies converted from
Transamerica Term Policies.
- BASIS OF REINSURANCE 100% First Dollar Quota Share
- JUMBO LIMIT $35,000,000
- BINDING LIMIT $20,000,000
- MINIMUM AUTOMATIC AMOUNT AT
ISSUE OF UNIVERSAL LIFE POLICY $50,001
- MINIMUM AMOUNT AT RENEWAL OF
UNIVERSAL LIFE POLICY $25,001
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
(No. 2477-1)
EFFECTIVE APRIL 1, 1996
SCHEDULE B
BENEFITS
1. LIFE Life reinsurance will be on the yearly
renewable term basis as described below.
UNIVERSAL LIFE PLANS - Our first year net
amount at risk will be the face amount of the
term policy that is being converted. In
renewal years, our net amount at risk will be
the insurance face amount, less the account
or cash value at the end of the prior policy
term.
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
(No. 2477-1)
EFFECTIVE APRIL 1, 1996
SCHEDULE C
DEFINITIONS
1. AUTOMATIC Insurance which must be ceded by the
Reinsured in accordance with the terms of the
Agreement and must be accepted by the
Reinsurer.
2. EXCESS The Reinsurer agrees to reimburse the
Reinsured for all losses or a large portion
of the losses over the Reinsured's retention.
The Reinsurer becomes involved in a loss only
after the loss has exceeded the Reinsured's
retention.
3. FACULTATIVE Insurance which the Reinsured has the option
to cede and the Reinsurer has the option to
accept or decline individual risks. The
agreement merely reflects how individual
facultative reinsurance shall be handled.
4. INITIAL The smallest amount of reinsurance permitted
MINIMUM AMOUNT at the inception of the reinsurance
transaction.
5. LIFE PREMIUMS COINSURANCE - The Reinsured pays a
proportionate part of the premiums it
receives to the Reinsurer. In return, the
Reinsurer agrees to pay a proportionate part
of the claim and participate in all other
policy benefits explicitly stated in the
agreement.
YEARLY RENEWABLE TERM (YRT) - Under the YRT
method, the Reinsured transfers to the
Reinsurer the mortality risk on either a net
amount at risk basis or on an approximation
of the net amount at risk basis.
AGGREGATE - The rates do not differentiate
between smoker and nonsmoker.
FLAT EXTRA - Flat extra ratings usually apply
to applicants in hazardous occupations or
avocations or with certain physical
impairments of a temporary nature.
SUBSTANDARD TABLE EXTRA - Substandard table
extra ratings usually apply to physically
impaired lives.
6. POLICY DATE The effective date shown on the actual
policy.
7. POOL An organization of insurers or reinsurers
through which particular types of risks are
underwritten with premiums, losses and
expenses shared in agreed amounts.
8. QUOTA SHARE A form of reinsurance indemnifying the
Reinsured against a fixed percentage of loss
on each risk covered in the Agreement.
9. REINSURED (YOU, YOUR) A company which transfers all or part of the
insurance it has written to another company.
10. REINSURER (WE, US, OUR) A company which assumes all or part of the
insurance written by another company.
11. REPLACEMENT CONTRACTUAL - An option provided in the
policy which allows for replacement of one
policy for another without evidence of
insurability.
NON-CONTRACTUAL - An option not provided in
the policy. However, replacement of one
policy for another must be with new evidence
of insurability.
12. RETENTION The amount of insurance which the Reinsured
keeps for its own account and does not
reinsure in any way.
13. RETOCESSION A form of reinsurance agreement which enables
the Reinsurer to cede all or part of the
reinsurance it has assumed from another
Reinsurer.
14. RETROCESSIONAIRE The reinsurance company which accepts a
retrocession from another company.
15. RISK Insurance on an individual life.
16. SUBSEQUENT The smallest amount of reinsurance permitted
MINIMUM AMOUNT after the inception of the reinsurance
transaction.
17. LEAD REINSURER Company assigned by the Reinsured.
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
(No. 2477-1)
EFFECTIVE APRIL 1, 1996
EXHIBIT I
YOUR RETENTION LIMITS
1. LIFE:
STANDARD RISKS,
SPECIAL CLASSES A THROUGH SPECIAL CLASSES, J, L, & P,
H AND FLAT EXTRAS OF AND FLAT EXTRAS OF
AGES $20.00 OR LESS $20.01 AND OVER
---- ------------------------- ---------------------------
0 $ 500,000 $ 250,000
1-60 2,000,000 1,000,000
61-70 1,000,000 500,000
71-80 $ 500,000 250,000
Note: The above maximum limits are also the maximums on any one life for
all plans and riders combined.
2. AVIATION:
Any situation involving aviation will use a $500,000 retention.
3. WAIVER OF PREMIUM DISABILITY & ACCIDENTAL DEATH BENEFITS
Fully retained
Note: Any Other Insured Rider or Children's Insurance Rider attached to any
of the Plans of Insurance on Schedule A will not be reinsured under this
reinsurance agreement.
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
(No. 2477-1)
EFFECTIVE APRIL 1, 1996
EXHIBIT II
INSTRUCTIONS FOR THE PREMIUMS PER $1,000 OF REINSURANCE
1. Reinsurance premiums under this Agreement will be payable on the annual
basis regardless of how you receive premiums from your insured.
2. STANDARD AND SUBSTANDARD The reinsurance premiums will be the rates
TABLE EXTRA PREMIUMS attached to this Exhibit less the following
discounts.
NONSMOKER SMOKER
--------- ------
First Year 100% 100%
Years 2-10 50% 50%
Years 11 + 30% 30%
The substandard table extra premium will be
an additional 25% per table rating of the
rates set forth in this Exhibit, less the
allowances/discounts stated above.
3. FLAT EXTRA PREMIUMS The flat extra premium will be the annual
flat extra premium which you charge your
insured on that amount of the insurance
reinsured less the following allowances.
TERMS OF YOUR FIRST RENEWAL
FLAT EXTRA PREMIUM YEAR YEAR
------------------ ----- -------
More than 5 years 85% 15%
5 years or less 15% 15%
4. EXCHANGES Exchanges shall be considered as a
continuation of the original insurance.
Future premiums will be calculated on a
point-in-scale basis using the applicable
rates in the Agreement.
5. PREMIUM TAX We will reimburse you for any premium taxes
which you will be required to pay but which
we will not be required to pay on the
reinsurance premiums payable under this
Agreement.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(4 PAGES OMMITTED)