1
COINSURANCE AGREEMENT
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
OF DELAWARE
AND
PEOPLES SECURITY LIFE INSURANCE COMPANY
OF
NORTH CAROLINA
JUNE 30, 1995
1
2
--------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
Section 1. Definitions 3
Section 2. Reinsurance Coverage 5
Section 3. Representations and Warranties of the Company 6
Section 4. Representations and Warranties of the Reinsurer 7
Section 5. Conditions Precedent 7
Section 6. Payments by the Company 8
Section 7. Payments by the Reinsurer 9
Section 8. Expenses and Adjustments 9
Section 9. Payment Settlement Procedures and Reports 10
Section 10. Administration of Policies 11
Section 11. Notice and Settlement of Claims 12
Section 12. Interest Rate Committee 12
Section 13. Policy Changes and New Policy Forms 13
Section 14. Oversights 13
Section 15. Tax Matters 13
Section 16. Audit of Records and Procedures 14
Section 17. Arbitration 14
Section 18. Special Provisions 15
Section 19. Insolvency 15
Section 20. Offset 16
Section 21. Parties to Agreement 16
Section 22. Effective Date and Closing Date 16
Section 23. Entire Agreement 16
Section 24. Recapture of Reinsurance 17
Section 25. Termination 17
Section 26. Marketing Materials 18
Section 27. Severability of Provisions 18
Section 28. Counterparts 18
Section 29. Amendments 18
Section 30. No Waiver 18
Section 31. Confidentiality 18
Section 32. Governing Law 19
2
3
6/6/95
--------------------------------------------------------------------------------
TABLE OF CONTENTS - Continued
PAGE
----
Schedules
---------
Schedule A List of Policies Included 20
Schedule B Reinsured Policies 21
Schedule C Reimbursement of Costs
Schedule D Licenses - The Company
Schedule E Approvals - The Company
Schedule F Licenses - The Reinsurer
Schedule G Approvals - The Reinsurer
Schedule H Initial Consideration
Schedule I Transfer Adjustments
Schedule J Daily Cash Settlement Procedure
3
4
COINSURANCE AGREEMENT
Between
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
of
Delaware
hereinafter referred to as "the Company"
and
PEOPLES SECURITY LIFE INSURANCE COMPANY
of
North Carolina
hereinafter referred to as "the Reinsurer"
This Agreement, executed this 30th day of June, 1995 between the Company and The
Reinsurer as follows:
SECTION 1. - DEFINITIONS
"ACCOUNTING PERIOD": As provided in Section 9 hereof.
"AFFILIATES": Respectively, any Person which directly or indirectly
controls, or is under common control with, the Company, or any Person which
directly or indirectly controls, or is under common control with, or is
controlled by, the Reinsurer.
"BENEFIT PAYMENTS": Proceeds payable under a Reinsured Policy arising from:
annuitization; death of a Policy owner or annuitant; full or partial
withdrawal of amounts held in a Policy; or the maturity of a Policy. All
such proceeds are net of surrender charges, market value adjustments and
Premium Taxes recovered.
"BUSINESS DAY": Any references to Business Day in this Agreement will mean
the days during which the Company is open for business.
"CLOSING DATE": As provided in Section 22 hereof.
4
5
"EFFECTIVE DATE": As provided in Section 22 hereof.
"EXPERIENCE REFUND": Any amount due from the Reinsurer to the Company in
excess of those provided for in Section 7 of this Agreement which is based
solely on the experience of the Reinsured Policies.
"GOVERNMENTAL AUTHORITY": Any nation or government, and province, state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial (including an arbitrator), regulatory or administrative
functions of or pertaining to government.
"INITIAL CONSIDERATION": The payment required by Section 6(a).
"MATERIAL ADVERSE EFFECT": In the case of either the Company or the Reinsurer,
as appropriate, a material adverse effect on (1) its Property, business,
operations, financial condition, liabilities or capitalization, individually or
together with their respective Affiliates taken as whole; (2) its ability to
perform its obligations under this Agreement; or (3) the validity or
enforceability of this Agreement.
"PERSON": Any natural person, corporation, partnership, business trust, limited
liability company, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or any other entity, whether acting in an
individual, fiduciary or other capacity.
"POLICY OR POLICIES": Fixed annuity contracts and variable annuity contracts
issued by the Company and covered by the terms of this Agreement as listed in
Schedule A..
"PREMIUM TAXES": State taxes levied as a percent of gross premiums received,
gross premium receipts, premiums collected, premiums collected or contracted
for, new renewal premiums, or premiums written.
"PROMOTIONAL BONUS": Those portions of new money interest rates, renewal
interest rates, settlement option rates, and annuity purchase rates for
Reinsured Policies designated by the Company that exceed the Reinsurer's
Supportable Rate.
"PROPERTY": Any right or interest in or to property of any kind whatsoever,
whether real, personal or mixed, and whether tangible or intangible.
"REINSURANCE PREMIUMS": The premiums received by the Company with respect to
Reinsured Policies after the Effective Date and prior to termination of this
Agreement.
"REINSURED POLICY OR POLICIES": The quota share percentage of the portion
of Policies as defined in Schedule B.
"REINSURED POLICY EXPENSE ALLOWANCE": Reimbursement of costs related to
Reinsured Policies as set forth in Schedule C.
5
6
"REINSURER'S SUPPORTABLE RATE": New money interest rates, renewal interest
rates, settlement option rates, and annuity purchase rates for Reinsured
Policies agreed upon by a majority of the Reinsurer appointed membership of the
Interest Rate Committee provided in Section 12.
"REQUIREMENTS OF LAW": As to any Person, the certificate of limited partnership,
partnership agreement, charter and by-laws, or other organizational or governing
documents as such Person, and any treaty, constitution, law, rule, order,
regulation, statute, ordinance, code, decree, or determination of any
Governmental Authority, in each case applicable to, binding upon or affecting
any such Person or any of its Property or to which such Person or any of its
Property is subject.
"UNUSUAL EXPENSES OF LAW": As provided in Section 8 hereof.
SECTION 2. - REINSURANCE COVERAGE
(a) On the basis hereinafter stated, the Company's liability under the Policies
listed in Schedule A shall be reinsured with the Reinsurer automatically for
those portions of Policies as set forth in Schedule B.
(b) The liability of the Reinsurer for Policies shall begin simultaneously with
that of the Company but not prior to the Effective Date of this Agreement. In no
event shall reinsurance under this Agreement be in force and binding unless and
until the issuance and delivery of Policies underlying such reinsurance
constituted the doing of business in a state of the United States or the
District of Columbia in which the Company was properly licensed in good
standing.
(c) Reinsurance hereunder shall be coinsurance and shall follow the Policy
forms of the Company.
(d) The reinsurance under this Agreement with respect to any Policy shall be
maintained in force without reduction so long as and to the extent that the
liability of the Company under such Policy reinsured hereunder remains in force
without reduction, unless such reinsurance is terminated or reduced as provided
herein.
(e) Except as otherwise provided in this Agreement, the reinsurance provided
hereunder is subject to the same limitations and conditions to which the
Policies reinsured under this Agreement are subject.
(f) The Company shall notify the Reinsurer immediately, in writing, of any and
all investigations of the Company or its directors, principal officers or
shareholders conducted by a Governmental Authority.
6
7
SECTION 3. - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Reinsurer that:
(I) The Company has furnished the Reinsurer with copies of all forms,
applications, rates, and values with respect to the Policies and shall keep the
Reinsurer informed with respect to any changes or modifications to such forms,
applications, rates or values in accordance with Section 14 herein.
(II) The Company's authority to conduct an insurance business is in good
standing in all jurisdictions identified on Schedule D for the lines of business
identified therein and that it has not been placed in, nor does it have any
reason to believe that it is about to be placed in supervision, rehabilitation,
receivership, suspension or liquidation by any insurance department.
(III) The Company (1) is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, (2) has all
necessary corporate power and authority to entitle it to use its name, to own,
lease or otherwise hold its properties and assets, to carry on its business as
currently conducted, to perform its obligations, and (3) is in compliance with
all Requirements of Law, except to the extent that the failure to comply
therewith could not reasonably be expected to have a Material Adverse Effect.
(IV) The Company has full corporate power and authority to execute,
deliver and perform its obligations under this Agreement, and has taken all
necessary corporate and other action to authorize the ceding of the Policies
under the terms of this Agreement. Except as shall have been obtained and set
forth on Schedule E, no consent or approval of any Person, no waiver of any
right of distraint or other similar right, and no consent, license, approval,
authorization or declaration of, filing with or other act by or in respect of
any Governmental Authority, was, is or will be required in connection with the
fulfillment of the Company's duties under this Agreement.
(V) This Agreement has been duly executed and delivered by the Company and
constitutes the valid and legally binding obligation of the Company, enforceable
in accordance with its terms.
(VI) The Policies are in compliance with all applicable Requirements of
Law and are on forms approved in all material respects by the appropriate
Governmental Authorities except to the extent that failure to be in compliance
therewith does not have a Material Adverse Effect.
(VII) There are no material misrepresentations or omissions contained in
the information provided to the Reinsurer prior to the date of this Agreement.
7
8
SECTION 4. - REPRESENTATIONS AND WARRANTIES OF THE REINSURER
The Reinsurer hereby represents and warrants to the Company that:
(I) The Reinsurer's authority to conduct an insurance business is in good
standing in all jurisdictions identified on Schedule F for the lines of business
identified therein and that it has not been placed in, nor does it have any
reason to believe that it is about to be placed in supervision, rehabilitation,
receivership, suspension or liquidation by any insurance department.
(II) The Reinsurer (1) is a corporation duly organized, validly existing
and in good standing under the laws of the State of North Carolina, (2) has all
necessary corporate power and authority to entitle it to use its name, to own,
lease or otherwise hold its properties and assets, to carry on its business as
currently conducted, to perform its obligations, and (3) is in compliance with
all Requirements of Law, except to the extent that the failure to comply
therewith could not reasonably be expected to have a Material Adverse Effect.
(III) The Reinsurer has full corporate power and authority to execute,
deliver and perform its obligations under this Agreement, and has taken all
necessary corporate and other action to authorize the reinsurance of the
Policies under the terms of this Agreement. Except as shall have been obtained
and set forth on Schedule G, no consent or approval of any Person, no waiver of
any right of distraint or other similar right, and no consent, license,
approval, authorization or declaration of, filing with or other act by or in
respect of any Governmental Authority, was, is or will be required in connection
with the fulfillment of the Reinsurer's obligations under this Agreement.
(IV) This Agreement has been duly executed and delivered by the Reinsurer
and constitutes the valid and legally binding obligation of the Reinsurer,
enforceable in accordance with its terms.
(V) There are no material misrepresentations or omissions contained in the
information provided to the Company prior to the date of this Agreement.
SECTION 5. - CONDITIONS PRECEDENT
(a) The obligations of the Company and the Reinsurer hereunder are expressly
subject to the approvals of the insurance commissioners, directors, or
superintendents, as the case may be, of the insurance departments necessary for
the consummation of the reinsurance contemplated by this Agreement, and such
approvals shall be in full force and effect, and shall not impose upon either
the Company or the Reinsurer any material conditions or other requirements that
would impose upon either party any material additional costs.
(b) The obligations of the Reinsurer hereunder are expressly subject to the
Reinsurer not having discovered prior to the Closing Date material errors,
omissions or liabilities previously
8
9
undisclosed to it in the due diligence investigation and documentation furnished
to the Reinsurer by the Company prior to the date hereof.
(c) The obligations of the Company hereunder are expressly subject to the
Company not having discovered prior to the Closing Date material errors,
omissions or liabilities previously undisclosed to it in the due diligence
investigation and documentation furnished to the Company by the Reinsurer prior
to the date hereof.
SECTION 6. - PAYMENTS BY THE COMPANY
(a) Initial Consideration
To effect reinsurance with respect to Policies in force on the Effective
Date, the Company shall pay to the Reinsurer in cash or other assets having a
fair market value acceptable to the Reinsurer an Initial Consideration
determined in accordance with Schedule H.
(b) Payment of Reinsurance Premiums
To effect or continue reinsurance with respect to Policies in force on or
after the Effective Date and prior to the termination of this Agreement, the
Company shall pay to the Reinsurer the Reinsurance Premiums.
(c) Promotional Bonus
The Company will pay the Reinsurer the cost assessed to the Company under
Section 18.
(d) Adjustments on Transfers
The Company will pay to the Reinsurer any amounts transferred to Reinsured
Policies, after the Effective Date, that were not previously Reinsured Policies,
less any transfer adjustments as determined in accordance with Schedule I.
(e) Payment Procedures
All amounts payable by the Company to the Reinsurer under this Section
will be made in accordance with the terms and procedures set forth in Section 9
for payments required by this Agreement.
9
10
SECTION 7. - PAYMENTS BY THE REINSURER
(a) Benefits Payments
Benefit Payments will first be paid by the Company and the Reinsurer will
thereafter reimburse the Company for such Benefit Payments.
(b) Reinsured Policy Expense Allowances
The Reinsurer shall pay the Company the full amount of the Reinsured
Policy Expense Allowances as specified in Schedule C.
(c) Premium Taxes
The Reinsurer will reimburse the Company for Premium Taxes incurred by the
Company with respect to the Reinsured Policies.
(d) Policy Loans
Loans on Policies will be paid by the Company to Contract owners and the
Reinsurer shall fund the Company for any such loans with respect to the
Reinsured Policies and the Company shall pay the Reinsurer interest and
principal with respect to such loans as such amounts are remitted by the Policy
owner.
(e) Adjustments on Transfers
The Reinsurer will pay to the Company any amounts transferred after the
Effective Date that were not previously Reinsured Policies to Reinsured
Policies, less any transfer adjustments as determined in accordance with
Schedule H.
(f) Payment Procedures
All amounts payable by the Reinsurer to the Company under this Section
will be made in accordance with the terms and procedures set forth in Section 9
for payments required by this Agreement.
SECTION 8. - EXPENSES AND ADJUSTMENTS
(a) The Reinsurer shall bear no part of the expenses incurred in connection with
the Policies reinsured hereunder, except as otherwise provided in this
Agreement.
10
11
(b) Any Unusual Expenses incurred by the Company in defending or investigating a
claim for Benefit Payments or in rescinding a Policy reinsured hereunder shall
be participated in by the Reinsurer in the same proportion as the Reinsured
Policy bears to the total liability under such Policy.
(c) For purposes of this Agreement, it is agreed that penalties, attorney's
fees, and interest that are imposed automatically by statute and that arise
solely out of a judgment rendered against the Company in a suit for Benefit
Payments shall be considered Unusual Expenses.
(d) The Reinsurer shall not pay the Company an Experience Refund under this
Agreement.
(e) In no event, however, shall the following categories of expenses or
liabilities be considered for purposes of this Agreement as Unusual Expenses:
(1) routine investigative or administrative expenses;
(2) expenses, fees, settlements or judgments arising out of or in
connection with claims of entitlement to Benefit Payments which the Company
admits are payable;
(3) expenses, fees, settlements or judgments arising out of or in
connection with claims against the Company for punitive or exemplary damages;
and
(4) expenses, fees, settlements or judgments arising out of or in
connection with claims made against the Company and based on alleged or actual
bad faith, failure to exercise good faith, or tortious conduct.
(f) In the event that the coverage provided by Reinsured Policies is increased
or reduced because of a misstatement of age or sex, the reinsurance hereunder
shall increase or reduce proportionately.
SECTION 9. - PAYMENT SETTLEMENT PROCEDURES AND REPORTS
(a) Initial Consideration
The Company will pay an estimated Initial Consideration to the Reinsurer
on the Closing Date in the amount of $_________. Within forty-five (45) days
after the Closing Date, the Reinsurer will make a final calculation of the
Initial Consideration in accordance with Schedule H. Within five (5) Business
Days following delivery of the final calculation by the Reinsurer to the
Company, the Reinsurer or the Company, as the case may be, will pay to the other
any amount required to adjust the estimated Initial Consideration to the final
calculation.
11
12
(b) Daily Cash Settlement
The Company and the Reinsurer will establish and maintain a daily cash
settlement procedure in accordance with the principles set forth in Schedule J,
using approximations where required, to cover substantially all of the amounts
due under this Agreement. The daily cash settlement procedures may be amended as
agreed by the parties to help minimize the amount of net settlements due at the
end of each Accounting Period.
(c) Payments Due
Except as otherwise specifically provided herein, all amounts due to be
paid to either the Reinsurer or the Company shall be determined daily on a net
basis. If such amounts cannot be determined on any day on an exact basis, such
payments will be paid on an estimated basis and any final adjustments are to be
made within fifteen (15) days after each Accounting Period as defined in
subsection (d) below.
(d) Accounting Period
The Accounting Period for this Agreement shall be a calendar month. The
Company and the Reinsurer shall each reconcile the reinsurance transactions and
payments contemplated by this Agreement in accordance with Schedule I at the end
of each Accounting Period.
(e) Reports
The Reports prescribed in Schedule I will be provided by the Company to
the Reinsurer within fifteen (15) days of the end of each Accounting Period.
SECTION 10. - ADMINISTRATION OF POLICIES
(a) The Company will have the ultimate authority for the administration of the
Policies. Notwithstanding the foregoing, the Company will administer the
Policies pursuant to servicing standards mutually agreed upon by the Company and
the Reinsurer, and in no event shall the Company administer the Policies in any
manner that is not in accordance with all Requirements of Law and with standard
industry custom, except to the extent that the failure to be in accordance with
such Requirements of Law and standard industry custom would not have a Material
Adverse Effect.
(b) The Company will indemnify and hold harmless the Reinsurer, its officers,
directors, employees, and agents (each as "Indemnified Party") from, and shall
reimburse as Indemnified Party for, all loss arising out of any claim against
such Indemnified Party arising out of any action or failure to act by the
Company or its representatives in respect of the administration of the Policies.
For purposes of this subsection, "loss" shall include all fees, costs,
penalties, judgments and expenses of any kind reasonably incurred by an
Indemnified Party in investigating, preparing for, defending against or taking
any other action with respect to a threatened or asserted claim.
12
13
SECTION 11. - NOTICE AND SETTLEMENT OF CLAIMS
(a) The Company will promptly notify the Reinsurer in writing after receipt of
any information regarding a claim for Benefits Payments and the institution of
any legal proceeding in respect of such claim. The Reinsurer will be furnished
copies of any proofs or other documents bearing on such claim or proceeding upon
request.
(b) The Company will promptly notify the Reinsurer in writing or its intention
to contest any claims for Benefits Payments. The Reinsurer will accept the good
faith decision of the Company in settling any claim for Benefits Payments and
shall pay its share of net reinsurance liability upon receiving proper evidence
of the Company's having settled with the claimant. In no event will the
Reinsurer be required to reimburse the Company for any Benefits Payments greater
than those guaranteed by the Policies.
(c) If the Company should contest any claim or proceeding and the amount of net
liability thereby be reduced, or if at any time the Company should recover
monies from any third party in connection with or arising out of any claim
reinsured by the Reinsurer, the Reinsurer's liability hereunder shall be reduced
accordingly.
(d) Notwithstanding the foregoing, the Reinsurer shall have the right to consult
with the Company in respect of the handling of any claim and, at its own
expense, shall have the right to participate in the defense of any claim.
SECTION 12. - INTEREST RATE COMMITTEE
An Interest Rate Committee will be established by the Reinsurer and the
Company. The Committee members will be selected from the Reinsurer's and the
Company's then-current employees or their respective affiliates' employees.
There will be an equal number of members appointed to the Committee by each of
the Reinsurer and the Company and total membership will not exceed six (6)
individuals.
The Committee will be authorized to determine interest rate crediting
methodologies and to recommend new money interest rates, renewal interest rates,
settlement option rates, and annuity purchase rates for the Policies. Such
methodologies and rates will be based on indices, or other information relevant
to the appropriate maturities of the Policies. The Company has the right to
approve or reject all rates recommended by the Committee. Any Promotional Bonus
will be subject to the terms of Section 18.
The Committee will establish the procedures for its operations including,
but not limited to, determining the frequency of meetings, frequency of interest
rate reviews, maintenance of minutes for meetings of the Committee, and notice
requirements for any unscheduled meetings. Meetings will generally be conducted
by teleconference. A quorum for any meetings of the
13
14
Committee will be at least one representative from each of the Company and the
Reinsurer. Members in attendance may cast the votes of those absent members from
their respective group.
SECTION 13. - POLICY CHANGES AND NEW POLICY FORMS
(a) If any change is made with respect to any Policies, including but not
limited to changes in the terms and conditions of a Policy issued by the
Company, or a change in the method used to calculate the reserves on a Policy,
and such change affects Reinsured Policies, the Company will notify the
Reinsurer promptly in writing of such change.
(b) For purposes of this Agreement, any of the types of changes described in
subsection (a) above will be deemed to be the issuance of a new policy form by
the Company and policies issued by the Company on such new policy form will not
automatically be considered Policies subject to this Agreement. The Reinsurer,
in its full and unfettered discretion, will decide whether the policies
utilizing the new policy form will be Policies subject to this Agreement and the
Company shall be bound by the Reinsurer's decision. The Reinsurer shall inform
the Company whether the Reinsurer wishes to include policies utilizing the new
policy form as Policies subject to this Agreement within 30 days of the notice
provided to the Reinsurer by the Company pursuant to Section 13(a) hereof.
SECTION 14. - OVERSIGHTS
If either the Company or the Reinsurer shall unintentionally perform an
obligation incorrectly or fail to perform an obligation under this Agreement or
perform an obligation incorrectly, such error or omission shall be corrected as
soon as reasonably possible after its discovery and both the Company and the
Reinsurer will be restored to the positions they would have been in had no such
error or omission occurred. For purposes of this Agreement, errors and omissions
are defined as clerical mistakes made inadvertently and exclude errors of
judgment and all other forms of errors or omissions.
SECTION 15. - TAX MATTERS
(a) Pursuant to IRC Section 848, insurance companies are required to capitalize
and amortize specified policy acquisition expenses. The amount capitalized is
determined by proxy based on a percentage of "reinsurance premiums" as defined
by the IRS regulations relating to IRC Section 848. At the Reinsurer's request,
the Company will reimburse the Reinsurer for any positive timing cost to the
Reinsurer which results from the application of IRC Section 848 to the Policies
reinsured under this Agreement and which the Reinsurer considers material. At
the Company's request, the Reinsurer will reimburse the Company for the absolute
value of any negative timing cost to the Company which results from the
application of IRC Section 848 to the Policies reinsured under this Agreement
and which the Company considers material.
14
15
(b) The Company and the Reinsurer agree that the party with net positive
consideration under this Agreement will capitalize specified Policy acquisition
expenses with respect to the Policies reinsured under this Agreement without
regard to the general deductions limitation of IRC Section 848(c)(1). The
Company and the Reinsurer will exchange information pertaining to the amount of
net cash consideration under this Agreement each year to ensure consistency. The
Company will submit a schedule to the Reinsurer by May 1 of each year showing
its calculation of the net consideration for the preceding taxable year. The
Reinsurer may contest the calculation in writing within thirty (30) days of
receipt of the Company's schedule. Any difference will be resolved between the
parties so that consistent amounts are reported on the respective tax returns
for the preceding taxable year. This election to capitalize specified Policy
acquisition expenses without regard to the general deductions limitation is
effective for all taxable years during which this Agreement remains in effect.
SECTION 16. - AUDIT OF RECORDS AND PROCEDURES
(a) The Reinsurer and the Company each shall have the right during normal
business hours and at reasonable intervals, to audit, at the office of the
other, all records and procedures relating to reinsurance under this Agreement.
Books and records shall be maintained in accordance with prudent standards of
insurance company record keeping and must be retained for a period of at least
seven (7) years from the date of creation.
SECTION 17. - ARBITRATION
(a) It is the intention of the parties that the customs and usages of the
business of reinsurance shall be given full effect in the interpretation of this
Agreement. The parties shall act in all things with the highest good faith. A
dispute or difference between the parties with respect to the operation or
interpretation of this Agreement on which an amicable understanding cannot be
reached, including but not limited to claims for recission of the Agreement,
shall be decided by arbitration. The arbitrators are empowered to decide all
questions or issues and shall be free to reach their decisions from the
standpoint of equity and customary practices of the insurance and reinsurance
industry rather than from that of strict law.
(b) To initiate arbitration, a party shall send by certified mail, return
receipt requested, to the other party's home office a notice demanding
arbitration. The notice shall include the issues for decision and the remedies
sought. The party receiving the notice shall thereafter have thirty days within
which to respond in writing.
(c) There shall be three arbitrators who shall be active or retired officers of
0life insurance companies other than the contracting companies or their
affiliates. Each of the contracting companies shall appoint one of the
arbitrators and these two arbitrators shall select the third. In the event that
either contracting company should fail to choose an arbitrator within thirty
days after the response to the demand for arbitration, the other contracting
company may choose two arbitrators, who shall in turn choose a third arbitrator
before entering arbitration. If the two
15
16
arbitrators are unable to agree upon the selection of a third arbitrator within
thirty days following their appointment, each arbitrator shall nominate three
candidates within ten days thereafter, two of whom the other shall decline and
the decision shall be made by drawing lots.
(d) The decision in writing of any two arbitrators when filed with the parties
hereof, shall be final and binding on both parties. Judgment may be entered upon
the final decision of the arbitrators in any court having competent
jurisdiction. Each party shall bear the expense of its own arbitrator, and with
the other party shall bear equally the expense of the third arbitrator and of
the arbitration.
(e) In the event of arbitration, the arbitration hearing shall take place in
Boston, Massachusetts, unless another location is agreed to in writing by both
the Company and the Reinsurer.
(f) This Section 17 constitutes a separate and independent agreement between the
Company and the Reinsurer and shall remain in force even after termination of
this Agreement and even if the Agreement is found wholly or partially void or is
disputed. The arbitrators shall decide upon the validity of this Agreement and,
in case of its invalidity, upon any dispute between the parties.
SECTION 18. - SPECIAL PROVISIONS
Promotional Bonus
On a case by case basis, the Reinsurer will determine the extent to which
it will share in the costs, if any, associated with a Promotional Bonus. If a
Promotional Bonus is offered by the Company without the Reinsurer's prior
written approval and agreement to share the cost of such Promotional Bonus, then
the Company shall be assessed the full amount of costs associated with the
Promotional Bonus.
SECTION 19. - INSOLVENCY
(a) In the event of the insolvency of the Company, all reinsurance shall be
payable directly to the liquidator, receiver, or statutory successor of the
Company, without diminution or increase because of the insolvency of the
Company.
(b) 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 Reinsured Policy within a reasonable time after such claim is filed
in the insolvency proceeding. During the pendency of any such claim, the
Reinsurer may investigate such claim and interpose in the name of the Company
(its liquidator, receiver or statutory successor), but at its own expense, in
the proceeding where such claim is to be adjudicated any defense or defenses
which the Reinsurer may deem available to the Company or its liquidator,
receiver or statutory successor.
16
17
(c) The expense thus incurred by the Reinsurer shall be chargeable, subject to
court approval, against the Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer. Where two or more
reinsurers are participating in the same claim and a majority in interest elect
to interpose a defense or defenses to any such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expenses had been incurred by the Company.
SECTION 20. - OFFSET
Any debts or credits, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or where incurred, in favor of or against either
the Company or the Reinsurer with respect to this Agreement or with respect to
any other claim of one party against the other under this Agreement or any other
Agreement between the parties are deemed mutual debts or credits, as the case
may be, and shall be set off dollar for dollar, and only the balance shall be
allowed or paid, regardless of the solvency of either party.
SECTION 21. - PARTIES TO AGREEMENT
(a) This is an Agreement for coinsurance solely between the Company and the
Reinsurer. The acceptance of reinsurance hereunder shall not create any right or
legal relation whatsoever between the Reinsurer and the insured or the
beneficiary under any Policy, and the Company shall be and remain solely liable
to such insured or beneficiary under any such Policy.
(b) This Agreement may not be assigned by either party without the prior written
approval of the other party. However, the Reinsurer reserves the right to
retrocede the reinsurance assumed under this Agreement to one or more of its
affiliated insurance companies. Except for the foregoing, the Reinsurer shall
not retrocede the Policies reinsured hereunder without the prior written
authorization by the Company.
SECTION 22. - EFFECTIVE DATE AND CLOSING DATE
(a) The Effective Date for the reinsurance provided under this Agreement shall
be June 30, 1995. The Closing Date for payment of the Initial Consideration will
be July 5, 1995.
SECTION 23. - ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Company and
the Reinsurer with respect to the risks reinsured hereunder and there are no
understandings between the parties other than as expressed in this Agreement.
17
18
SECTION 24. - RECAPTURE OF REINSURANCE
(a) The Reinsurer, or any of its affiliates to whom the Reinsurer has retroceded
any of the Policies reinsured herein, shall permit the Company to recapture the
Policies reinsured hereunder, at fair market value, based on procedures outlined
in Schedule H, without any penalty, if the Reinsurer's risk-based capital ratio
as defined in the National Association of Insurance Commissioners "Risk-Based
Capital for Life and/or Health Insurers Model Act", falls below 150% of the
"Company Action Level" at the end of any calendar quarter and remains below such
level at the end of the next two calendar quarters. The recapture shall commence
at the end of the calendar quarter during which 30 days notice is given to the
Reinsurer by the Company of the Company's intent to recapture. The initial
recapture shall relate to no more than 33 1/3% of the Policies reinsured in the
hereunder, with the remainder of the recapture, in substantially equal amounts,
to occur over a period not to exceed more than 36 months thereafter.
(b) The Reinsurer shall provide the Company with its annual risk-based capital
report and shall furnish estimated proforma risk-based capital calculations for
the quarters ending March 31, June 30, and September 30 of each year.
(c) The Policies recaptured pursuant to subsection (a) above will thereafter be
held at the Company's own risk and the Reinsurer's obligations with respect to
such Policies shall cease to exist.
SECTION 25. - TERMINATION
(a) This Agreement may be terminated at any time by either the Reinsurer or the
Company upon ninety (90) days written notice with respect to reinsurance of
Policies not yet placed in force.
(b) At the end of any Accounting Period, this Agreement shall automatically
terminate if none of the Policies reinsured hereunder are in force.
(c) The Reinsurer may terminate this Agreement upon thirty (30) days written
notice to the Company so long as such notice has been received by the Company
within five (5) days after the Reinsurer has been notified by the Company of the
closing of a transaction whereby a party unaffiliated with the Reinsurer or the
Company acquires, directly or indirectly, either (i) 10% or more of the voting
equity securities of the Company or any options or rights to subscribe to 10% or
more of such voting equity securities or other securities or instruments which
may be converted into voting equity securities of the Company or (ii) by
contract or otherwise, the power to direct or cause the direction of the
management and policies of the Company.
(d) Upon an event specified in subsection (c) above, the Reinsurer shall
transfer to the Company a total amount, in cash or assets having a fair market
value acceptable to the Company, equal to the net consideration with respect to
the Reinsured Policies in effect as of the effective
18
19
date of such termination, calculated in a manner consistent with the pricing
mechanism utilized in determining the initial net reinsurance premium, less an
early termination allowance to the Reinsurer of 0.5% (50 basis points) of such
amount.
(e) The failure to make payments in accordance with Section 9 shall permit the
aggrieved party to terminate this Agreement with respect to all Policies
following thirty (30) days written notice to the party in default provided the
party in default has not cured such default within that notice period.
SECTION 26. - MARKETING MATERIALS
No marketing materials, prospectuses, broker communications or other
communications of the Company or the Reinsurer which refer to the other party
hereto shall be distributed in any manner without the prior approval of such
other party.
SECTION 27. - SEVERABILITY OF PROVISIONS
If any provision of this Agreement is declared null and void by any
Government Authority, each party will have the right to terminate this Agreement
upon five (5) days written notice to the other party. Upon such termination, the
transfer of funds described in Section 25(d) herein shall occur.
SECTION 28. - COUNTERPARTS
This Agreement may be executed in several counterparts and each shall have
the same force and effect as an original.
SECTION 29. - AMENDMENTS
Any amendment, alteration, modification, variation or addition to this
Agreement shall only be valid if in writing and executed by both parties hereto.
SECTION 30. - NO WAIVER
The failure of any party to enforce at any time any of the provisions of
this Agreement shall in no way be construed to be a waiver of such provisions,
nor in any way to affect the validity of this Agreement, or any part thereof, or
the rights of any party to thereafter enforce each and every provision.
19
20
SECTION 31. - CONFIDENTIALITY
The Reinsurer or the Company, as the case may be, will handle confidential
information received from the other party in accordance with standards of care
and confidentiality that it applies to its own records, trade secrets and
proprietary information.
SECTION 32. - GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware.
IN WITNESS WHEREOF, NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY and PEOPLES
SECURITY LIFE INSURANCE COMPANY have by their respective officers executed this
Agreement in duplicate on the date first mentioned above.
NORTH AMERICAN SECURITY LIFE PEOPLES SECURITY LIFE
INSURANCE COMPANY INSURANCE COMPANY
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------- -----------------------------------
By By
Vice President, Treasurer & CFO Second Vice President - Investments
------------------------------- ------------------------------------
Title Title
▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
By
Vice President & Chief Actuary
-------------------------------
Title
Date July 5, 1995
20
21
SCHEDULES
21
22
NORTH AMERICAN SECURITY LIFE
COINSURANCE AGREEMENT
SCHEDULE A
THE REINSURED NORTH AMERICAN SECURITY LIFE (NASL) PRODUCTS UNDER THIS AGREEMENT
ARE LISTED BELOW.
STANDARD
POLICY FORM CODE* PRODUCT ADMINISTRATIVE CODE
----------------- ---------------------------
DEFERRED ANNUITIES AND ANNUITIZATIONS WITH FIXED PAYOUT OPTIONS
NASL
Venture Fixed Annuity
204-FA VEN 4
Venture Variable Annuity (Annuitizations with fixed payout options only)
200-VA VEN 1
203-VA VEN 3
Venture Variable Annuities - Fixed Options
207.VFA VEN 7
207.VFA OWN 7
VFA.CONT, VFA.CERT VEN 8
207.VFA VEN 17
VFA.CONT,VFA.CERT VEN 18
VENTURE.001, VENTURE.005 VEN 20
VENTURE.001, VENTURE.005 VEN 21
VENTURE.003, VENTURE.004 VEN 22
VENTURE.003, VENTURE.004 VEN 23
Venture Vision Product - Fixed Options
VEN 10 VIS 5
VISION.001 VIS 25
Venture Group Unallocated Annuities - Fixed Options only
All Product Administrative
UGA codes starting with "G"
IMMEDIATE PAYOUT ANNUITIES (FIXED OPTIONS ONLY)
NASL
206-IA VEN 6 Fixed Immediate
*Slight variations to the identified policy form codes may exist by state.
23
NORTH AMERICAN SECURITY LIFE
COINSURANCE AGREEMENT
SCHEDULE B
THE REINSURED NORTH AMERICAN SECURITY LIFE (NASL) RELATED PRODUCT COINSURANCE
PERCENTAGES ARE LISTED BELOW. THIS AGREEMENT COVERS THE FIXED ACCOUNT OPTIONS IN
BOTH THE ACCUMULATION (DEFERRED ) AND PAYOUT PHASES OF THESE CONTRAST. THE LOAN
COLLATERAL ACCOUNT UNDER A CONTRACT SHALL BE INCLUDED AS A FIXED ACCOUNT OPTION.
COINSURANCE
PRODUCT ADMINISTRATIVE CODE PERCENTAGE
--------------------------- ----------
DEFERRED ANNUITIES AND ANNUITIZATIONS WITH FIXED PAYOUT OPTIONS
NASL
Venture Fixed Annuity
VEN 4 100%
Venture Variable Annuity (Annuitizations with fixed payout options only)
VEN 1 100%
VEN 3 100%
Venture Variable Annuities - Fixed Options
VEN 7 100%
OWN 7 100%
VEN 8 100%
VEN 17 100%
VEN 18 100%
VEN 20 100%
VEN 21 100%
VEN 22 100%
VEN 23 100%
Venture Vision Product - Fixed Options
VIS 5 100%
VIS 25 100%
Venture Group Unallocated Annuities - Fixed Options only
All Product Administrative
codes starting with "G" 100%
IMMEDIATE PAYOUT ANNUITIES (FIXED OPTIONS ONLY)
NASL
VEN 6 Fixed Immediate 100%
24
NORTH AMERICAN SECURITY LIFE
COINSURANCE AGREEMENT
SCHEDULE C
The expense reimbursements to be paid by the Reinsurer to the Company will
include a compensation allowance, issue allowance, maintenance allowance and
premium taxes paid. On any of the contracts below where no commission is paid,
the compensation allowance shall be zero.
COMPENSATION ALLOWANCE
---------------------------------------------------------------------------------------------------------------------------------
CHARGEBACK
PRODUCT DESCRIPTION NEW BUSINESS TRAILER/RENEWAL COMMISSION (SEE NOTE 2)
------------------------------------- ----------------- -------------------------------------------------------- ------------
% of
(Note 1) Fixed
Issue Issue % of Account
Products Date Age Premium Payable Value Payable Received
---------------------------------------------------------------------------------------------------------------------------------
Venture Fixed 4 All All 5.25% Monthly 3% of 5 yr Payable based on account value upon renewal See Note 2
(204-FA) renewal into the 5 year fixed option.
amount
---------------------------------------------------------------------------------------------------------------------------------
Venture Fixed All All 5.25% Monthly N/A N/A See Note 2
Immediate 6 (206-IA)
---------------------------------------------------------------------------------------------------------------------------------
Venture 7, 8 Since Less 7% Daily .25% For new policy, beginning the first calendar See Note 2
(207-VFA, VFA.Cont, 7/1/91 than quarter subsequent to the 5th contract
VFA.Cert) 81* anniversary. For additions, beginning at the
later of 18 months after the premium
addition, or the first calendar quarter
subsequent to the 5th contract anniversary.
---------------------------------------------------------------------------------------------------------------------------------
Venture 7, 8 Since 81-85* 4.5% Daily .25% For new policy, beginning the first calendar See Note 2
(207-VFA, VFA.Cont, 7/1/91 quarter subsequent to the 5th contract
VFA.Cert) anniversary. For additions, beginning at the
later of 18 months after the premium
addition, or the first calendar quarter
subsequent to the 5th contract anniversary.
---------------------------------------------------------------------------------------------------------------------------------
Venture 7-Option A Since Less 7% Daily .25% Trail payable first calendar quarter 18 See Note 2
(207-VFA) 7/1/91 than months following issuance/additions.
81*
---------------------------------------------------------------------------------------------------------------------------------
Venture 7-Option A Since 81-85* 4.5% Daily .25% Trail payable first calendar quarter 18 See Note 2
(207-VFA) 7/1/91 months following issuance/additions.
---------------------------------------------------------------------------------------------------------------------------------
Venture 7-Option B Since Less 7% Daily .25% For new policy, beginning the first calendar See Note 2
(207-VFA) 7/1/91 than quarter subsequent to the 5th contract
81* anniversary. For additions, beginning at the
later of 18 months after the premium addition,
or the first calendar quarter subsequent to
the 5th contract anniversary.
---------------------------------------------------------------------------------------------------------------------------------
Venture 7-Option B Since 81-85* 4.5% Daily .25% For new policy, beginning the first calendar See Note 2
(207-VFA) 7/1/91 quarter subsequent to the 5th contract
anniversary. For additions, beginning at the
later of 18 months after the premium addition,
or the first calendar quarter subsequent to
the 5th contract anniversary.
---------------------------------------------------------------------------------------------------------------------------------
Venture 17, 18 Since Less 8% Daily N/A N/A See Note 2
(207-VFA, VFA.Cert, 10/1/94 than
VFA.Cont.) 81*
---------------------------------------------------------------------------------------------------------------------------------
Venture 17, 18 Since 81-85* 5% Daily N/A N/A See Note 2
(207-VFA, VFA.Cert, 10/1/94
VFA.Cont.)
---------------------------------------------------------------------------------------------------------------------------------
25
NORTH AMERICAN SECURITY LIFE
COINSURANCE AGREEMENT
SCHEDULE C, CONTINUED
COMPENSATION ALLOWANCE, continued
---------------------------------------------------------------------------------------------------------------------------------
CHARGEBACK
PRODUCT DESCRIPTION NEW BUSINESS TRAILER/RENEWAL COMMISSION (SEE NOTE 2)
------------------------------------- ----------------- -------------------------------------------------------- ------------
% of
(Note 1) Fixed
Issue Issue % of Account
Products Date Age Premium Payable Value Payable Received
---------------------------------------------------------------------------------------------------------------------------------
Venture 20, 22 All Less 7% Daily .25% For new policy, beginning the first See Note 2
(Venture.001, than calendar quarter subsequent to the
Venture.003 86** 5th contract anniversary. For additions,
Venture.004 beginning at the later of 18 months
Venture.005) after the premium addition, or the
first calendar quarter subsequent to
the 5th contract anniversary.
---------------------------------------------------------------------------------------------------------------------------------
Venture 20, 22 All 86-90** 4.5% Daily .25% For new policy, beginning the first See Note 2
(Venture.001, calendar quarter subsequent to the
Venture.003 5th contract anniversary. For additions,
Venture.004 beginning at the later of 18 months
Venture.005) after the premium addition, or the
first calendar quarter subsequent to
the 5th contract anniversary.
---------------------------------------------------------------------------------------------------------------------------------
Venture 21, 23 All Less 8% Daily N/A N/A See Note 2
(Venture.001, than
Venture.003 86**
Venture.004
Venture.005)
---------------------------------------------------------------------------------------------------------------------------------
Venture 21, 23 All 86-90** 5% Daily N/A N/A See Note 2
(Venture.001,
Venture.003
Venture.004
Venture.005)
---------------------------------------------------------------------------------------------------------------------------------
Vision 5, 25 All All 3.5% Daily .5% For new policy, beginning the first See Note 2
(Ven 10 and calendar quarter subsequent to the
Vision.001) 5th contract anniversary. For additions,
beginning at the later of 18 months
after the premium addition, or the
first calendar quarter subsequent to
the 5th contract anniversary.
---------------------------------------------------------------------------------------------------------------------------------
Venture Group All All 7.25% Daily ▇/▇ ▇/▇ ▇▇▇ ▇▇▇▇ ▇
▇▇▇▇▇▇ (▇▇▇)
---------------------------------------------------------------------------------------------------------------------------------
Venture Group All All 6.25% Daily ▇/▇ ▇/▇ ▇▇▇ ▇▇▇▇ ▇
▇▇▇▇▇▇ (▇▇▇)
---------------------------------------------------------------------------------------------------------------------------------
Venture Group All All 5.00% Daily .20% Quarterly, beginning the first See Note 2
G140P3 (UGA) calendar quarter subsequent to the
premium addition.
---------------------------------------------------------------------------------------------------------------------------------
Venture Group All All 3.50% Daily .40% Quarterly, beginning the first See Note 2
G140P4 (UGA) calendar quarter subsequent to the
premium addition.
---------------------------------------------------------------------------------------------------------------------------------
Venture Group All All .50% Daily 1.00% Quarterly, beginning the first See Note 2
G140P5 (UGA) calendar quarter subsequent to the
premium addition.
---------------------------------------------------------------------------------------------------------------------------------
NOTE 1:
Premium includes initial and additional deposits received and invested in the
fixed fund options. Premium does not include exchanges.
26
NOTE 2:
The Reinsurer is entitled to all directly related reinsured fixed
option/product commission chargebacks, payable monthly, provided that the
allowances have been paid by the Reinsurer.
* Issue age of annuitant
** Issue age of owner
27
NORTH AMERICAN SECURITY LIFE
COINSURANCE AGREEMENT
SCHEDULE C, CONTINUED
ISSUE ALLOWANCE
FOR CONTRACTS INCLUDED UNDER THIS REINSURANCE AGREEMENT:
-$50 per contract issued, prorated to fixed initial premium as a percentage of
total premium indexed at 4% per annum, payable daily based upon an estimate;
actual calculation performed at month end and settled monthly.
-0.23% *** of fixed initial premium per contract issued, payable daily and the
allowance will reduce to .20% if the state of Pennsylvania repeals the current
2.00% front end premium tax assessed to non-qualified deferred annuities.
MAINTENANCE ALLOWANCE
FOR CONTRACTS INCLUDED UNDER THIS REINSURANCE AGREEMENT:
-$30 per deferred contract in force, prorated to fixed account value as a
percentage of total account value. For fixed immediate payout annuities and
annuitizations $30 per contract in force prorated based upon fixed option
payment to total payment. Payable at month end.
-0.15% (annualized) of fixed account value at month end for deferred contracts
in force .15% (annualized) of statutory reserves at month end for fixed
immediate payout annuities and annualization. Payable daily based upon an
estimate; actual calculation performed and settled monthly.
PREMIUM TAXES
Premium taxes will be paid in accordance with Section 7(c) of this reinsurance
agreement according to the following table:
--------------------------------------------------------------------------------
STATES QUALIFIED PREMIUM NON-QUALIFIED PREMIUM
--------------------------------------------------------------------------------
California 0.50% 2.35%
--------------------------------------------------------------------------------
District of Columbia 2.25% 2.25%
--------------------------------------------------------------------------------
Kansas 0.00% 2.00%
--------------------------------------------------------------------------------
Kentucky 2.00% 2.00%
--------------------------------------------------------------------------------
Maine 0.00% 2.00%
--------------------------------------------------------------------------------
Nevada 0.00% 3.50%
--------------------------------------------------------------------------------
Pennsylvania 0.00% 2.00%
--------------------------------------------------------------------------------
Puerto Rico 1.00% 1.00%
--------------------------------------------------------------------------------
South Dakota 0.00% 1.25%
--------------------------------------------------------------------------------
Texas 0.04% 0.04%
--------------------------------------------------------------------------------
West Virginia 1.00% 1.00%
--------------------------------------------------------------------------------
Wyoming 0.00% 1.00%
--------------------------------------------------------------------------------
NOTE: THE PREMIUM TAX RATES ABOVE ARE CURRENT RATES IN PLACE AT THE EFFECTIVE
DATE OF THE COINSURANCE AGREEMENT. PREMIUM TAX RATES UNDER THIS AGREEMENT WILL
CHANGE AS INDIVIDUAL STATES REVISE THEIR PREMIUM TAX RATES.
**REFLECTS A .03% FINANCE ALLOWANCE TO COVER FINANCING OF FRONT END PREMIUM
TAXES ON NON-QUALIFIED DEFERRED REINSURED CONTRACTS IN PENNSYLVANIA SD AND WY.
28
SCHEDULE D
Insurance Licenses
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
EXPIRATION
DATE OF
STATE: CERTIFICATE: COVERAGE:
------ ------------ ---------
Alabama Permanent Life, Disability and Annuities and Variable Authority
Alaska Permanent Life (includes Annuities and Disability), Variable Annuities and Variable Life
Arizona Permanent Life (includes Annuities), Disability and Variable Authority
Arkansas Permanent Life, (includes Annuities) Disability, Variable Annuities and Variable Life
California Permanent Life (includes Annuities), Disability and Variable Annuities
Colorado Permanent Life, Annuities, Health and Accident, Credit Life, Credit Accident & Health, Group Life,
Variable Annuities, Variable Life
Connecticut 5/95 Life, (includes Annuities) Variable Annuities, Reinsurance and Variable Life
D.C. 5/1/95 Life, Annuities (individual, group and variable), and Group Life
Delaware Permanent Life (includes Annuities), Health, Credit life, Credit Health, Variable Annuities and
Variable Life
Florida Permanent Life, Annuities, Group Life and Variable Annuities
Georgia 6/30/95 Life (includes Annuities), Health and Accident and Variable Authority
Hawaii Permanent Life (includes Annuities) and Variable Authority
Idaho Permanent Life (includes Annuities and Disability) and Variable Authority
Illinois 7/95 Life (includes Annuities), Accident and Health and Variable Products
Indiana Permanent Life, Annuities, Variable Annuities and Variable Life
Iowa 6/95 Life (includes Annuities, Variable Life, Variable Annuities, and Credit Life),
Individual Accident, Individual Accident and Health,
Group Accident and Health, Individual Hospital and Medical Expenses
Kansas Permanent Life (includes Annuities) and Variable Authority
Kentucky Permanent Life, Annuities and Variable Authority
Louisiana Permanent Life (includes Annuities), Health, Accident and Variable Authority
Maine None
Maryland 6/30/95 Life (includes Annuities), Health, Variable Annuities and Variable Life
Massachusetts 6/30/95 Life (includes Annuities), Health, Accident and Variable Annuities
Michigan Permanent Life (includes Annuities), Disability and Variable Annuities
Minnesota 6/1/95 Life, Annuities and Variable Contracts
Mississippi 1/1/95 Life (includes Annuities), Variable Contracts
Missouri Permanent Life (includes Annuities) and Variable Contracts
Montana Permanent Life (includes Annuities), Disability and Variable Annuities
Nebraska 4/95 Life (includes Annuities), Health, Accident, Variable Annuities and Variable Life
Nevada Permanent Life (including Variable Annuities and Variable Life)
New Hampshire None
New Jersey 5/1/95 Life, Health, Annuities and Variable Contracts
New Mexico Permanent Life (includes Annuities), Health and Variable Annuities
North Carolina 6/30/95 Life, Annuities (includes Variable Annuities)
North Dakota Permanent Life and Annuities, Health, Accident, Variable Annuities and Variable Life
Ohio 7/1/95 Life, Accident, Health, Disability, Annuities and Variable authority
Oklahoma 2/28/95 Life (includes Annuities), Health and Accident, Variable Annuities and Variable Life
Oregon Permanent Life (includes Annuities), Health and Variable products authority
Pennsylvania 3/31/95 Life, Annuities, Variable Life and Variable Annuities
Puerto Rico 6/30/95 Life (includes Annuities), Disability and Variable Annuities
Rhode Island None
South Carolina Permanent Life (includes Annuities), Accident and Health and Variable Contracts
South Dakota Permanent Life (includes Annuities), Variable Annuities and Variable Life
Tennessee Permanent Life (includes Annuities) and Variable Contracts
Texas Permanent Life (includes Annuities), Variable Life, Accident and Health, Variable Annuities
Utah 3/1/95 Life, Disability, Annuities, Variable Life and Variable Annuities
Vermont None
Virginia 6/30/95 Life, Individual Accident & Health, Annuities, Credit Life, Credit Accident and Health,
Variable Life and Variable Annuities
Washington Permanent Life (includes Annuities), Variable Life and Variable Annuities
West Virginia 5/31/95 Life (includes Annuities and Disability), Variable authority
Wisconsin Permanent Life and Annuities, Disability, Variable Life and Variable Annuities
Wyoming Permanent Life (includes Annuities) and Variable Contracts
29
SCHEDULE E
Delaware Department of Insurance
30
SCHEDULE F
PEOPLES SECURITY LIFE INSURANCE COMPANY
JURISDICTIONS AND LINES OF BUSINESS THEREIN
STATE Line of Business
--------------------------------------------------------------------------------
Connecticut Life Nonparticipating
--------------------------------------------------------------------------------
Delaware Life, including Annuities; Accident & Health
--------------------------------------------------------------------------------
DC Individual Life; Group Life; Individual Accident & Health;
Group Accident & Health; Individual Annuities; Group
Annuities; Group Credit Life
--------------------------------------------------------------------------------
Florida Life; Group Life & Annuities; Accident & Health
--------------------------------------------------------------------------------
Georgia Life; Accident & Sickness
--------------------------------------------------------------------------------
Illinois Life; Accident & Health
--------------------------------------------------------------------------------
Indiana Life; Accident & Health, Annuities
--------------------------------------------------------------------------------
Kentucky Life; Accident & Health, Annuities
--------------------------------------------------------------------------------
Maryland Life including Annuities; Accident & Health (except variable
life and variable annuities)
--------------------------------------------------------------------------------
Massachusetts Life; Accident & Health
--------------------------------------------------------------------------------
Michigan Life
--------------------------------------------------------------------------------
Missouri Life; Annuities
--------------------------------------------------------------------------------
New Hampshire Life; Accident & Health
--------------------------------------------------------------------------------
New Jersey Life; Accident & Health; Annuities; Nonparticipating
insurance only
--------------------------------------------------------------------------------
North Carolina Life, including Industrial Sick Benefit
insurance; Accident & Health, including
Hospitalization Cancellable, Noncancellable,
Credit small loans, and Credit other than
small loans; Annuities (excluding variable
annuities)
--------------------------------------------------------------------------------
Ohio Life; Accident, Sickness, Disability; Annuities
--------------------------------------------------------------------------------
Pennsylvania Life and Annuities; Accident & Health
--------------------------------------------------------------------------------
Rhode Island Life; Accident & Health and Annuities
--------------------------------------------------------------------------------
South Carolina Life; Accident & Health
--------------------------------------------------------------------------------
Tennessee Life; Accident & Health
--------------------------------------------------------------------------------
Texas Life; Accident & Health
--------------------------------------------------------------------------------
Vermont Life including Industrial Sick Benefit
insurance; Annuities (excluding variable
annuities); Accident & Health, including
Hospitalization Cancellable, Noncancellable,
Credit small loans, and Credit other than
small loans; Annuities
--------------------------------------------------------------------------------
Virginia Life; Industrial Life, Credit Life; Accident & Sickness;
Annuities
--------------------------------------------------------------------------------
West Virginia Life; Accident & Sickness
--------------------------------------------------------------------------------
31
SCHEDULE G
COINSURANCE AGREEMENT
NONE
32
SCHEDULE H
IMMEDIATE ANNUITIES
POLICIES INFORCE 5/31/95 NON NY DEFERRED SETTLEMENT OPTIONS TOTAL
------------------------ --------------- ------------------ -----
Statutory reserves less loans $698,296,474 $ 15,320,440 $713,616,914
Tax reserves less loans $694,497,351 $ 15,147,319 $709,644,670
Ceding Commission % of 2.544%
AV less loan balance
Account value less loans $718,858,636 N/A $718,858,636
Loan balance $ 2,737,275
Total AV $721,595,911 N/A
Consideration excluding loan $700,443,710 $ 15,404,817 $715,848,527
Loan Balance $ 2,737,275 $ 2,737,275
Net consideration $703,180,985 $ 15,404,817 $718,585,802
ADJUSTMENTS
June 1995 net activity $ 2,019,472 N/A $ 2,019,472
------------ ------------ ------------
Estimated initial Consideration $705,200,457 $ 15,404,817 $720,605,274
33
NASL INFORCE PRICING MEMORANDUM
PRICING ASSUMPTIONS (DEFERRED CONTRACTS)
MODELING METHODOLOGY
Each Venture product's fixed option was modeled separately and broken
out by remaining guarantee period and issue date (equal to the start of
the guarantee period). For example an inforce cell contains the 6 year
fixed option in the Venture 7 product that is part of a variable
contract issued in 1991 with 2 years remaining in the guarantee period
in 1995. Each inforce cell will then carry its unique credited rate
guaranteed for the remaining guarantee period.
After the "stub" period, i.e. the remaining guarantee period, the
renewal credited rate is 235 bps below the appropriate investment yield
for each renewing inforce cell.
The ceding commission payable is equal to the present value of
"distributable profits" (statutory profit after target surplus and
after tax over 15 years) discounted at 12% divided by 65% (100%
marginal income tax rate).
TRANSFERS
Since the funds in each issue date and guarantee period cell consist of
funds from transfers and new business, a prorata portion of the inforce
cell attributable to transfers was adjusted. The initial ceding
commission payable on the inforce cell assumes the funds consist solely
of money from new business. The adjustment is equal the present value
of future profits that are lost due to the shorter expected life of
transferred funds.
POLICY LOANS
Policy loans were modeled in aggregate. The average policy is 1.5
years old at loan inception; the average loan is 2 years old.
The outstanding loan balance was assumed to receive 100 bps. [200 bps
gross - 19 bps O/H + default - 17 bps allowance to NASL - 64 bps
required return]. Existing loans repay uniformly over the next three
years. Repayed amounts receive the PV of future profits from the
transfer schedule adjusted for interest and persistency. Surrender
charges were included based on pricing lapse rates. Non-performing
loans were treated as an increase in the partial free withdrawal rate.
LAPSES
The Company's lapse assumptions were used for all the fixed options.
These assumptions represent lapses out of the entire contract and hence
an implicit assumption is made that the transfer adjustments will make
Reinsurer whole on transfers out of the fixed options to the variable
funds.
Listed on the next page are the lapse rates FOR ALL THE FIXED OPTIONS
in Ven20 and Ven22 which are the new generation 7 yr surrender charge
products with trailer compensation starting at the end of the fifth
policy year. Variations include a 35% shock lapse (vs 25%) after the
end of the surrender charge period for products without trailer
compensation. Shock lapses and out-of-surrender-period lapses occur in
the seventh policy year for the old generation six year surrender
charge period products versus the eighth policy year in the new
generation products.
34
-------------------------------------------------------------
YEAR LAPSE % YEAR LAPSE %
-------------------------------------------------------------
1 1.0 9 11.0
-------------------------------------------------------------
2 2.5 10 12.0
-------------------------------------------------------------
3 3.0 11 13.0
-------------------------------------------------------------
4 4.0 12 14.0
-------------------------------------------------------------
5 5.0 13 15.0
-------------------------------------------------------------
6 6.0 14 16.0
-------------------------------------------------------------
7 7.0 + 25.0 15 17.0
-------------------------------------------------------------
8 10.0 16+ 100.00
-------------------------------------------------------------
EXPENSES
Expenses include allowances to the Company and the Reinsurer's allocation of
overhead and investment expenses and also allowances for default.
--------------------------------------------------------------------------------
EXPENSES AMOUNTS (ANNUALLY)
--------------------------------------------------------------------------------
Maintenance Allowance $30 per contract prorated by
fixed funds divided by total
funds * + .15% of account value
--------------------------------------------------------------------------------
Overhead, Investment Exp, .36% of account value
Default Allowance
--------------------------------------------------------------------------------
* Note that the Reinsurer will also be receiving a prorata portion of the
$30 policy fee and hence this should net out to zero for policies less than
$100,000
ANNUITIZATIONS
Annuitizations are modeled as excess surrenders. This will slightly
understate the profitability of the product but the impact should be
minimal. Upon annuitizations Reinsurer will receive a load that covers
future maintenance expenses as well as any unamortized Deferred Acquisition
Cost.
35
This means that the pricing of the deferred contract should be
neutral with respect to annuitizations.
PARTIAL FREE WITHDRAWALS
Outlined on the next page are the percent of account values that are withdrawn
free of surrender charges:
36
---------------------------------------------
YEAR PERCENTAGE
---------------------------------------------
1 1.00
---------------------------------------------
2 1.50
---------------------------------------------
3 2.00
---------------------------------------------
4 2.50
---------------------------------------------
5 3.00
---------------------------------------------
6 3.50
---------------------------------------------
7 4.00 if SC applies
---------------------------------------------
8+ N/A
---------------------------------------------
MISCELLANEOUS
--------------------------------------------------------------------------------
PRICING HORIZON 15 years
--------------------------------------------------------------------------------
AVERAGE POLICY SIZE $35,000
--------------------------------------------------------------------------------
AVERAGE ISSUE AGE 65
--------------------------------------------------------------------------------
REQUIRED CAPITAL (TARGET SURPLUS) 5.5% for all fixed options
--------------------------------------------------------------------------------
MARGINAL INCOME TAX RATE 35%
--------------------------------------------------------------------------------
DAC TAX CAPITALIZATION 1.75% of Non-Qualified Premium
--------------------------------------------------------------------------------
MORTALITY 75-80 basic Male ALB
--------------------------------------------------------------------------------
STATUTORY AND TAX RESERVING
Commissioners Annuity Reserving & Valuation Model is used according to
these assumptions:
Plan Type - B for 3,5,6 and 7 year options and C for the 1
year option. Method - Issue year
37
The assumptions explicitly used in modeling is a Statutory Valuation rate
of 6.75% for the 3,5,6 and 7 year options and 6% for the 1 year option. The
Tax Valuation rate used is 6.99% and these rates are valid for 1995. This
will have to be changed to price business in 1996 and future years.
INVESTMENT SPREAD AND YIELDS
Investments are in semiannual coupon bearing bonds with maturities equal to
the liability guarantee periods (i.e. bonds maturing in 2 years for the 3
yr fixed option with a remaining guarantee period of 2 years). This gives
Reinsurer a slight negative duration mismatch since the liabilities act
more like zero coupon bonds but for withdrawals and deaths during the
guarantee period.
Investment yields for these bond are equal to the June 29, 1995 Treasury
yields plus 117 BPS (e.g. the 2 yr bond will have an investment yield equal
to the 2 yr Treasury plus 117 bps). Interest rates are assumed to stay
level for the duration of the pricing period of 15 years.
PRICING ASSUMPTIONS (IMMEDIATE AND SETTLEMENT ANNUITY CONTRACTS)
--------------------------------------------------------------------------------
REQUIRED CAPITAL 5.25%
--------------------------------------------------------------------------------
AVERAGE POLICY SIZE $20,000
--------------------------------------------------------------------------------
AGE Actual Age at Effective Date
--------------------------------------------------------------------------------
MORTALITY TABLE 1983 IAM with Mortality Improvement
Projection (Scale H)
--------------------------------------------------------------------------------
OTHERS Same as Those Used to Price Deferred
Contracts
--------------------------------------------------------------------------------
METHOD OF CALCULATING INTEREST RATES USED TO DISCOUNT PROJECTED BENEFIT PAYMENTS
The Treasury yield curve as of June 29, 1995 is converted to an
"implied strip curve" (yield curve for zero coupon bonds). This
Treasury strip curve is then converted to an investment strip curve by
adding 117 bps across all maturities.
The rates used to discount the projected benefit payments (annual
payments) are then equal to the investment strip curve less 130 bps
(expense allowances etc.). Benefit payments beyond the 30th year are
present valued back to the 30th year using a 4% rate and are then
discounted using the 30th year discount rate.
38
SCHEDULE I
TRANSFER OF ADJUSTMENTS
THIS SCHEDULE WAS DEVELOPED ON THE ASSUMPTION THE COMPANY'S ANNUITY BUSINESS
REINSURED HEREUNDER IS PREDOMINATELY SINGLE PREMIUM. IF FUTURE BUSINESS IS NOT
CONSISTENT WITH THIS ASSUMPTION, THEN THIS SCHEDULE WILL BE REVISED SO THAT THE
TABLES BELOW ARE APPLIED ON A DEPOSIT YEAR BASIS RATHER THAN A POLICY YEAR
BASIS.
I. THE FOLLOWING WILL BE APPLICABLE FOR ALL PRODUCT ADMINISTRATIVE CODES OTHER
THAN VEN7, VEN8, VEN17, VEN18, VEN20, VEN21, VEN22, VEN23, VIS5 AND VIS25.
In the event that the amount of reinsurance with respect to a particular
Policy under this Agreement increases due to a transfer of amounts from the
Separate Account to the Fixed Account, then the Company will pay to the
Reinsurer the aggregate of such amounts, less transfer adjustments equal to
(i) times (ii) where:
(i) equals the initial acquisition allowance attributable to the
transferred amount into the Fixed Account;
(ii)equals the transfer adjustment factors below:
In the event that the amount of reinsurance with respect to a particular
Policy under this Agreement decreases due to a transfer of amounts from the
Fixed Account to the Separate Account, then the Reinsurer will pay to the
Company the aggregate of such amounts, less transfer adjustments equal to
(i) times (ii) where:
(i) equals the initial acquisition allowance attributable to the
transferred amount into the Separate Account;
(ii)equals the transfer adjustment factors below:
--------------------------------------------------------------------------------
POLICY DURATION TRANSFER ADJUSTMENT FACTORS
(YEARS) AS A PERCENTAGE OF
INITIAL ACQUISITION ALLOWANCE*
--------------------------------------------------------------------------------
1 98
--------------------------------------------------------------------------------
2 89
--------------------------------------------------------------------------------
3 80
--------------------------------------------------------------------------------
4 71
--------------------------------------------------------------------------------
5 62
--------------------------------------------------------------------------------
6 52
--------------------------------------------------------------------------------
7 44
--------------------------------------------------------------------------------
8 37
--------------------------------------------------------------------------------
9 32
--------------------------------------------------------------------------------
10 27
--------------------------------------------------------------------------------
11 22
--------------------------------------------------------------------------------
12 18
--------------------------------------------------------------------------------
13 15
--------------------------------------------------------------------------------
14 12
--------------------------------------------------------------------------------
15 9
--------------------------------------------------------------------------------
16+ 6
--------------------------------------------------------------------------------
39
II. THE FOLLOWING WILL BE APPLICABLE FOR PRODUCT ADMINISTRATIVE CODES VEN7,
VEN8, VEN17, VEN18, VEN20, VEN21, VEN22, VEN23, VIS5, AND VIS25, FOR ISSUE
AGES WHERE FULL COMPENSATION ALLOWANCES ARE PAYABLE.
In the event that the amount of reinsurance with respect to a particular
Policy under this Agreement increases due to a transfer of amounts from the
Separate Account to the Fixed Account, then the Company will pay to the
Reinsurer the aggregate of such amounts, less transfer adjustments equal to
(i) times (ii) where:
(i) equals the account value transferred into the Fixed Account;
(ii)equals the transfer adjustment factors below:
In the event that the amount of reinsurance with respect to a particular
Policy under this Agreement decreases due to a transfer of amounts from the
Fixed Account to the Separate Account, then the Reinsurer will pay to the
Company the aggregate of such amounts, less transfer adjustments equal to
(i) times (ii) where:
(i) equals the account value transferee into the Separate Account;
(ii)equals the transfer adjustment factors below:
-------------------------------------------------------------------------------
TRANSFER ADJUSTMENT FACTORS
BY PRODUCT ADMINISTRATIVE CODE
POLICY DURATION AS A PERCENTAGE OF ACCOUNT VALUE TRANSFERRED*
(YEARS)
--------------------------------------------------------------------------------
VEN7 VEN17 VEN20 VEN21 VIS5
VEN8 VEN18 VEN22 VEN23 VIS25
--------------------------------------------------------------------------------
1 7.2 8.1 7.2 8.1 3.4
--------------------------------------------------------------------------------
2 6.4 7.2 6.4 7.2 2.6
--------------------------------------------------------------------------------
3 5.7 6.2 5.6 6.3 2.1
--------------------------------------------------------------------------------
4 5.0 5.3 5.0 5.5 2.2
--------------------------------------------------------------------------------
5 4.4 4.5 4.4 4.7 2.1
--------------------------------------------------------------------------------
6 3.8 3.7 3.8 4.0 2.0
--------------------------------------------------------------------------------
7 4.3 5.1 3.2 3.3 2.0
--------------------------------------------------------------------------------
8 4.1 4.9 3.7 4.6 2.0
--------------------------------------------------------------------------------
9 3.8 4.6 3.6 4.4 2.0
--------------------------------------------------------------------------------
10 3.6 4.3 3.3 4.1 2.0
--------------------------------------------------------------------------------
11 3.3 4.0 3.1 3.8 2.0
--------------------------------------------------------------------------------
12 3.1 3.7 2.9 3.5 2.0
--------------------------------------------------------------------------------
13 2.8 3.4 2.7 3.3 2.0
--------------------------------------------------------------------------------
14 2.6 3.1 2.4 3.0 2.0
--------------------------------------------------------------------------------
15 2.4 2.8 2.2 2.7 2.0
--------------------------------------------------------------------------------
16 2.1 2.5 2.0 2.4 2.0
--------------------------------------------------------------------------------
17 2.0 2.2 2.0 2.1 2.0
--------------------------------------------------------------------------------
18+ 2.0 2.0 2.0 2.0 2.0
--------------------------------------------------------------------------------
40
III. THE FOLLOWING WILL BE APPLICABLE FOR PRODUCT ADMINISTRATIVE CODES VEN7,
VEN8, VEN17, VEN18, VEN20, VEN21, VEN22, AND VEN23, FOR ISSUE AGES
WHERE REDUCED COMPENSATION ALLOWANCES ARE PAYABLE.
In the event that the amount of reinsurance with respect to a
particular Policy under this Agreement increases due to a transfer of
amounts from the Separate Account to the Fixed Account, then the
Company will pay to the Reinsurer the aggregate of such amounts, less
transfer adjustments equal to (i) times (ii) where:
(i) equals the account value transferred into the Fixed Account;
(ii)equals the transfer adjustment factors below:
In the event that the amount of reinsurance with respect to a
particular Policy under this Agreement decreases due to a transfer of
amounts from the Fixed Account to the Separate Account, then the
Reinsurer will pay to the Company the aggregate of such amounts, less
transfer adjustments equal to (i) times (ii) where:
(i) equals the account value transferred into the Separate Account;
(ii)equals the transfer adjustment factors below:
================================================================================
TRANSFER ADJUSTMENT FACTORS
BY PRODUCT ADMINISTRATIVE CODE
POLICY DURATION AS A PERCENTAGE OF ACCOUNT VALUE TRANSFERRED*
(YEARS)
------------ ------------ ------------ ------------
VEN7 VEN17 VEN20 VEN21
VEN8 VEN18 VEN22 VEN23
--------------------- ------------ ------------ ------------ ------------
1 4.7 5.2 4.8 5.3
--------------------- ------------ ------------ ------------ ------------
2 4.1 4.5 4.5 5.0
--------------------- ------------ ------------ ------------ ------------
3 3.6 3.9 4.1 4.5
--------------------- ------------ ------------ ------------ ------------
4 3.0 3.2 3.5 3.9
--------------------- ------------ ------------ ------------ ------------
5 2.5 2.6 2.8 3.1
--------------------- ------------ ------------ ------------ ------------
6 2.0 2.0 2.0 2.2
--------------------- ------------ ------------ ------------ ------------
7 1.5 1.5 1.2 1.2
--------------------- ------------ ------------ ------------ ------------
8+ 1.0 1.0 1.0 1.0
================================================================================
*The Transfer Adjustment will be zero where no compensation is paid.
41
COINSURANCE AGREEMENT
SCHEDULE J
The following reports and data feeds are to be provided by the Company to the
Reinsurer. The data contents will only include information related to the
reinsured business.
I. DAILY REPORTS
- Daily cash settlement statement (Schedule K) by 4:00p.m. on the
following business day.
II. MONTH END REPORTS AND DATA FEEDS(1)
A. By the third business day after month end
- Liability database reserve feed(2)
- Annuitized census data feed(3)
- Liability database and accounting activity data feeds(4)
- Policy loan progressions, reports and reconciliations
B. By the fourth business day after month end
- Month end ceding statement data feed (Schedule L)
- Exhibits and supporting data for the computation of the Policy
Expense Allowances (as defined in Schedule C) and the Adjustments
on Transfers (as defined in Schedule I).
- Statutory reserve summary by product and by company
- Progression of Deferred Account Values/Annuitized Reserves by
product and by company showing specific transactions (month only
and year to date).
------------------------
(1) Based upon technology and business reporting needs, the content, format, and
interim report/file substitutes will be negotiated as needed by appropriate
Accounting and Valuation staff of the Reinsurer and the Company.
(2) At a minimum, they will contain the following Company information on a
policy level basis: For the deferred business: (a) ending account value, by fund
option, duration and interest rate; (b) surrender charges; (c) owner and
annuitant age and (d) plan code.
(3) For the annuitized business: ending policy census data including annuity
option; annuitant date of birth, rated age, and sex; annuity payment frequency,
amount, option, and date of first and last payments; cost of living adjustments;
pricing date; issue date; unloaded net premium and expense loads; state; and
reserve valuation modes and rates.
(4) At a minimum, they will contain the following Company information on a
policy level basis for both deferred and annuitized business: ceding statement
activity for the period for each plan code segregated by qualified vs.
nonqualified, individual vs. group and by state.
42
SCHEDULE K: DAILY CASH SETTLEMENT INFORMATION
Company
---------------------------
for Activity of:
------------------
DAILY MONTH TO QUARTER YEAR TO
ACTIVITY DATE TO DATE DATE
-------- ---- ------- ----
DEFERRED ACTIVITY ONLY
(1) NEW POLICY PREMIUM
(2) TRANSFERS/EXCHANGE FROM VARIABLE
(A) TRANSFERS FROM VARIABLE TO FIXED
(B) PRODUCT EXCHANGES FROM VARIABLE TO FIXED
(C) TOTAL TRANSFERS IN [(2A) +(2B)]
(3) TOTAL INFLOW TO FIXED [(1) + (2C)]
(4) PARTIAL WITHDRAWALS (INCLUDING SWIP'S)
(5) FULL TERMINATIONS (ACCOUNT VALUE ONLY)
(6) TRANSFERS/EXCHANGES FROM FIXED
(A) TRANSFERS FROM FIXED TO VARIABLE
(B) PRODUCT EXCHANGES FROM FIXED TO VARIABLE
(C) TOTAL TRANSFERS OUT [(6A + 6B)]
(7) DEATH BENEFIT (ACCOUNT VALUE ONLY)
(8) MARKET VALUE ADJUSTMENTS COLLECTED
(9) SURRENDER CHARGES COLLECTED
(10) TOTAL OUTFLOW FROM FIXED
[(4) + (5) + (6C) +(7) - (8) - (9)]
(11) NET FIXED CASHFLOW [(3) - (10)]
(12) ALLOWANCES
(A) COMMISSIONS PAID (SEE SCHEDULE)
(B) ISSUE EXPENSES [.38% X (1)] (EST.)
(C) MAINTENANCE EXPENSES [$5,000 PER DAY] (EST.)
(D) TRANSFER SETTLEMENT [.05 X ((2C)-(6C))] (EST.)
(E) TOTAL ALLOWANCES [12A) + (12B) + (12C) + (12D)]
(13) CASH DUE TO (FROM) PSI [(11)-(12E)]
PREPARED BY:
---------------------------
APPROVED BY:
---------------------------
DATE PREPARED:
-------------------------
43
SCHEDULE L: MONTHLY CASH SETTLEMENT INFORMATION
Company
---------------------------
for Activity of:
------------------
MONTH TO QUARTER YEAR TO
DATE TO DATE DATE
---- ------- ----
A) DEFERRED ACTIVITY
1) NEW POLICY PREMIUM
2) TRANSFERS/EXCHANGES FROM VARIABLE
(A) TRANSFERS FROM VARIABLE TO FIXED
(B) PRODUCT EXCHANGES FROM VARIABLE TO FIXED
(C) TOTAL TRANSFERS IN [(2A) + (2B)]
3) TOTAL INFLOW TO FIXED [(1) + (2C)]
4) PARTIAL WITHDRAWALS (INCLUDING SWIP'S)
5) FULL TERMINATIONS (ACCOUNT VALUE ONLY)
6) TRANSFERS/EXCHANGES FROM FIXED
(A) TRANSFERS FROM FIXED TO VARIABLE
(B) PRODUCT EXCHANGES FROM FIXED TO VARIABLE
(C) TOTAL TRANSFERS OUT [(6A) + (6B)]
7) DEATH BENEFIT (ACCOUNT VALUE ONLY)
8) MARKET VALUE ADJUSTMENTS
(A) COLLECTED
(B) WAIVED
(C) TOTAL [(6A) + (6B)]
9) SURRENDER CHARGES
(A) COLLECTED ON WITHDRAWAL
(B) COLLECTED ON DEATH
(C) WAIVED
(D) TOTAL [(9A) + (9B) + (9C)]
10) TOTAL OUTFLOW FROM FIXED [(4) + (5) +(6C) +(7) - (8C) - (9D)]
11) NET FIXED DEFERRED CASHFLOW [(8) - (10)]
44
(B) PAYOUT ACTIVITY
MONTH TO QUARTER YEAR TO
DATE TO DATE DATE
---- ------- ----
(1) ANNUITIZED FUNDS (ACCOUNT VALUE)
(A) IMMEDIATE ANNUITY PREMIUM
(B) VARIABLE TO FIXED ANNUITIZATIONS
(C) FIXED TO VARIABLE ANNUITIZATIONS
(D) TOTAL ANNUITIZED FUNDS [(1A) + (1B) - (1C)]
(2) PREMIUM TAXES (BACK & FRONT-END)
(A) IMMEDIATE ANNUITY
(B) VAR/FIXED SETTLEMENT ANNUITY
(C) FIXED/FIXED SETTLEMENT ANNUITY
(D) TOTAL [(2A) + (2B) + (2C)]
(3) BENEFIT PAYMENTS
(A) IMMEDIATE ANNUITY - REGULAR
(B) IMMEDIATE ANNUITY - COMMUTED (DEATHS)
(C) SETTLEMENT ANNUITY - REGULAR
(D) SETTLEMENT ANNUITY - COMMUTED (DEATHS)
TOTAL BENEFITS [3A) + (3B) + (3C) + (3D)]
(4) NET PAYOUT ANNUITY ACTIVITY [(1D) - (2D) - (3E)]
45
(C) ALLOWANCES
MONTH TO QUARTER YEAR TO
DATE TO DATE DATE
---- ------- ----
(1) AGENT COMPENSATION
(A) COMMISSIONS PAID (SEE SCHEDULE)
(B) COMMISSIONS CHARGED-BACK (SEE SCHEDULE)
(C) RENEWAL COMM. ADJ. (SEE SCHEDULE)
(D) HIGH AGE ADJ. (SEE SCHEDULE)
(E) TRAILS PAID (SEE SCHEDULE)
(F) TOTAL COMPENSATION [(1A) - (1B) + (1C) - (1D) + (1E)]
(2) ISSUE EXPENSES (SEE SCHEDULE)
(3) MAINTENANCE EXPENSES (SEE SCHEDULE)
(4) TRANSFER ALLOWANCE ON NET FUND TRANSFERS TO FIXED
(INCLUDING LOANS - SEE SCHEDULE)
(5) TRANSFER ALLOWANCE ON NET PRODUCT EXCHANGES TO FIXED
(SEE SCHEDULE)
(6) PREMIUM TAX REIMBURSEMENT
(7) TOTAL ALLOWANCES [(1F) + (2) + (3) + (4) + (5) + (6)]
(D) OTHER ACTIVITY
(1) EXCESS INTEREST CREDITED
(2) POLICY LOANS
(A) LOAN PRINCIPAL PAID BACK TO FIXED
(B) LOAN INTEREST PAID BACK TO FIXED
(C) NEW LOANS FROM FIXED
(D) INTEREST ON VARIABLE PAYBACKS
(E) INTEREST CAPITALIZED ON VARIABLE LOANS
(F) INT. CREDITED ON LOANS FROM VAR.
(G) REDUCTION DUE FIXED & VARIABLE DECREMENTS (ASSET FUND)
(H) NET LOAN CASHFLOW [(2A) + (2B) - (2C) + (2D) + (2E) - (2F) + (2G)]
(3) TOTAL OTHER ACTIVITY [(1) + (2H)]
(E) CASH DUE TO (FROM) PSI [(A11) + (B4) - (C7) + (D3)]
(F) CASH PAID TO (FROM) PSI DURING MONTH
(G) MONTHLY TRUE-UP [(E) - (F)]
46
(H) SUMMARY RECONCILIATION OF DAILY AND MONTHLY DEFERRED ANNUITY ACTIVITY
(1) TRUE-UP OF DAILY ITEMS (MONTHLY DEFERRED ANNUITY AND
ALLOWANCES) [(A1) +(A2C) - (A4) -(A5) - (A6C) - (A7) + (A8A) +
(A9A)
-(C1A) - (C2) - C3) - (C4)-C5)]
(2) CASH PAID TO (FROM ) PSI DURING MONTH
(3) DIFFERENCE [(H1) - (H2)]*
(I) ITEMIZED RECONCILIATION OF DAILY AND MONTHLY DEFERRED ANNUITY ACTIVITY
(I) (II)
CUMULATIVE MONTHLY
DAILY TRUE-UP
----- -------
(1) TRANSFERS/EXCHANGES FROM VARIABLE
(A) TRANSFERS FROM VARIABLE TO FIXED
(B) PRODUCT EXCHANGES FROM VARIABLE TO FIXED
(C) TOTAL TRANSFERS IN [(1A) + (1B)]
(2) TRANSFERS/EXCHANGE FROM FIXED
(A) TRANSFERS FROM FIXED TO VARIABLE
(B) PRODUCT EXCHANGES FROM FIXED TO VARIABLE
(C) TOTAL TRANSFERS OUT [(2A) + (2B)]
(3) ALLOWANCES
(A) COMMISSIONS PAID
(B) ISSUE EXPENSES
(C) MAINTENANCE EXPENSES
(D) TRANSFER SETTLEMENT
(E) TOTAL
(4) TOTAL [I1) - (I2) - (I3)]
(5) VARIANCES*
(LINE 4 COLUMN (I) LESS COLUMN (II)
PREPARED BY:
-------------------------------
APPROVED BY:
-------------------------------
DATE PREPARED:
-----------------------------
*SEE ATTACHED EXPLANATION IF THESE ITEMS ARE NOT EQUAL
47
Company
---------------------------
for Activity of:
------------------
MONTH TO QUARTER YEAR TO
DATE TO DATE DATE
---- ------- ----
(1) FIXED TO FIXED TRANSFERS/EXCHANGES
(A) TRANSFERS FROM FIXED TO FIXED
(B) PRODUCT EXCHANGES FROM FIXED TO FIXED
(C) FIXED/FIXED ANNUITIZATIONS (ACCOUNT VALUE)
(2) ADMIN FEES COLLECTED
(3) DEFERRED ANNUITY INTEREST CREDITED
(4) NUMBER OF POLICIES IN FORCE
(A) DEFERRED
(B) PAYOUT
(5) FIXED PREMIUMS IN SUSPENSE (DETAIL ATTACHED)
(6) FIXED ACCOUNT CLAIMS NOT YET PROCESSED
(7) POLICY LOAN RECONCILIATION - COLLATERAL ACCOUNT
(A) COLLATERAL ACCOUNT AT BEG. OF PERIOD
(B) NEW LOANS TAKEN
(C) REDUCTION DUE TO SURRENDER
(D) REDUCTION DUE TO MATURITY
(E) REDUCTION DUE TO ANNUITIZATION
(F) REDUCTION DUE TO DEATH
(G) PRINCIPAL REPAID
(H) INTEREST CREDITED TO COLLATERAL ACCOUNT
(I) INTEREST CAPITALIZED DUE NON-PAYMENT
(J) COLLATERAL ACCOUNT AT END OF PERIOD
[(7A) + (7B) - (7C) - (7D) - (7E) - (7F) - (7G) -
(7H) + (7I)] (K) CHANGE TO COLLATERAL ACCOUNT [(7J) - (7A)] (L)
INTEREST EXPENSE ACCRUED BUT NOT CREDITED TO COLLATERAL FUND
(8) POLICY LOAN RECONCILIATION - ASSET FUND
(A) ASSET FUND AT BEG. OF PERIOD
(B) NEW LOANS TAKEN
(C) REDUCTION DUE TO SURRENDER
(D) REDUCTION DU TO MATURITY
(E) REDUCTION DUE TO ANNUITIZATION
(F) REDUCTION DUE TO DEATH
(G) PRINCIPAL REPAID
(H) INTEREST CAPITALIZED
(I) ASSET FUND END OF PERIOD
[(7A) + (7B) - (7C) - (7D) - (7E) - (7F) - (7G) + (7H)]
(J) INT. INC. ACCRUED BUT NOT CAP. ON ASSET FUND
PREPARED BY:
-------------------------------
APPROVED BY:
-------------------------------
DATE PREPARED:
-----------------------------
48
SCHEDULE M
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
COINSURANCE AGREEMENT
The reinsured, North American Security Life Insurance Company ("NASL"),
will achieve the service standards set forth below when dealing with Reinsured
Portions of Policies reinsured under this Agreement.
NASL will:
1) Answer telephones within 30 seconds of the call being received during
Business Days;
2) Issue new Policies within 2 full Business Days of all requirements needed
to issue a Policy having been received by NASL at its office in Boston,
Massachusetts;
3) Complete processing of Policy terminations and withdrawals within 2 full
Business Days of all requirements needed for such transactions having been
received by NASL at its office in Boston, Massachusetts;
4) Complete processing of all non-financial Policy changes within 5 full
Business Days of all requirements needed for such transactions having been
received by NASL at its office in Boston, Massachusetts; and
5) Send Letters of Acceptance regarding 1035 exchanges within 5 full Business
Days of receipt by NASL at its office in Boston, Massachusetts.
6) Release commission payments to Broker Dealers within 2 full Business Days
of receipt of Commission Statements/Checks by NASL at its office in Boston,
Massachusetts.
NASL will meet the above standards, on average, 90% of the time.
In any event, NASL will employ service standards for the Reinsured Portions at
least at the same target level as those used for the Policies in their entirety.
Target is defined in the NASL Incentive Pay Plan for Annuity Customer Service.
In the event targets are revised, NASL will notify Peoples in writing within 30
days of any such revisions becoming effective.