Reinsurance Agreement # 7275-1 This Automatic Self Administered Individual YRT Reinsurance Agreement Effective October 16, 2001 (hereinafter referred to as the “Agreement” is made between National Life Insurance Company of Montpelier, Vermont...

This Agreement is solely between the Company and the Reinsurer. The acceptance of risks under this Agreement will create no right or legal relation between the Reinsurer and the insured, owner, or beneficiary of any insurance policy or other contract of the Company.

This Agreement will be binding upon the parties hereto and their respective successors and assigns.

Each policy covered under this Agreement must provide for the maximum normal periods of suicide and contestability protection permitted in the state in which the policy is executed.

The relevant terms and conditions of this Agreement will apply to those facultative offers made by the Reinsurer which are accepted by the Company.

2

If any risk is submitted to more than one reinsurer for consideration, the Allocation Rules for placement of facultative cases as referenced in Exhibit A-1 will apply.

3

However, for facultative reinsurance, the Reinsurer’s liability will not commence until the Reinsurer’s facultative offer has been accepted by the Company; and then is limited to the company’s usual cash-with-application procedures, which provide temporary coverage up to the limits shown in Exhibit A-1.

4

The Company will not force termination under the provisions of this Article solely to avoid the recapture requirements of this Agreement or to transfer the Reinsured Policies to another reinsurer.

5

If the policy arising from a conversion is reinsured with the Reinsurer under this Agreement but was previously reinsured with another reinsurer or fully retained by the Company, the First Dollar Quota share specified in Exhibit A of this Agreement shall apply to the converted policy, and the reinsurance rates set out in Exhibit C-I at the issue age and duration of the original policy will be used.

If the plan, the amount of reinsurance or the premiums of a Reinsured Policy are changed, the Company will promptly inform the Reinsurer.

6

Whenever a Reinsured Policy is changed and the Company's underwriting rules do not require that full evidence be obtained, the reinsurance will remain in effect with the Reinsurer. The suicide, contestability and recapture periods applicable to the original Reinsured Policy will apply to the reissued Reinsured Policy and the duration will be measured from the effective date of the original Reinsured Policy.

Whenever a Reinsured Policy is changed and the Company's underwriting rules require that full evidence be obtained, the change will be subject to the Reinsurer's approval, if:

The amount of any non-contractual increase will be subject to the terms stated in Exhibit C.

The Company will report the details of all changes according to the terms outlined in Exhibit F, Reinsurance Reports.

For changes not covered under this Agreement, which affect the terms of any Reinsured Policy, the Company must obtain the Reinsurer’s approval before such changes become effective.

The reduction will first apply to any reinsurance on the policy being reduced and then if applicable in a chronological order according to policy date ("first in, first out") to any reinsurance on the other policies in force on the life. However, the Company will not be required to assume a risk for an amount in excess of its regular retention for the age at issue and the mortality rating of the policy under which reinsurance is being terminated.

If the reinsurance for a policy has been placed with more than one reinsurer, the reduction will be applied to all reinsurers pro rata to the amounts originally reinsured with each reinsurer.

7

When a policy lapses, the corresponding Reinsured Policy will be terminated effective the same date.

Unless specified otherwise in this Agreement, if a policy fully retained by the Company lapses, the terms under the preceding Reductions clause would apply.

If a policy lapses and extended term insurance is elected under the terms of the policy, the corresponding Reinsured Policy will continue on the same basis as the original policy until the expiry of the extended term period.

If a policy lapses and reduced paid-up insurance is elected under the terms of the policy, the amount of the corresponding Reinsured Policy will be reduced according to the terms under the preceding Reductions clause.

If the Company allows the policy to remain in force under its automatic premium loan or no-lapse guarantee rider regulations, the reinsurance will continue unchanged and in force as long as such regulations remain in effect, except as provided for otherwise in this Agreement.

The Reinsurer does not participate in policy loans or other forms of indebtedness on policies reinsured under this Agreement. Therefore, policy loans do not affect the amount of reinsurance.

If a policy reinsured on an automatic basis is reinstated in accordance with its terms or the rules of the Company the Reinsurer will, upon notification of reinstatement , reinstate the Reinsured Policy automatically. The Reinsurer's approval is required only for the reinstatement of a facultative policy when the Company's regular reinstatement rules indicate that more evidence than a Statement of Good Health is required.

The Company’s liability with respect to the premiums in arrears is set out in Exhibit F.

The Company will not submit a policy to the Reinsurer unless the amount of the policy to be reinsured exceeds the Minimum Initial Reinsurance Limit specified in Exhibit C. The Reinsured Policy will be cancelled when its net amount at risk becomes less than the Minimum Final Reinsurance Limit set out in Exhibit C.

If the Company changes its retention limits, it will provide the Reinsurer with written notice of the new retention limits and the effective date.

A change to the Company's Retention Limits in Exhibit D will not affect the Reinsured Policies in force at the time of such a change except as specifically provided for elsewhere in this Agreement. Furthermore, such a change will not affect the Automatic Acceptance Limits in Exhibit E unless mutually agreed by the Company and the Reinsurer. 

8

In applying its increased Retention Limits to Reinsured Policies, the age and mortality rating at the time of issue will be used to determine the amount of the Company's increased retention.

Recapture as provided herein is optional with the Company, but if any Reinsured Policy is recaptured, all Reinsured Policies eligible for recapture under the provisions of this Article must be recaptured. If there is reinsurance in other companies on risks eligible for recapture, the necessary reduction is to be applied pro rata to the total outstanding reinsurance.

The amount of reinsurance eligible for recapture is based on the reinsurance net amount at risk as of the date of recapture.

The Company may not revoke its election to recapture for Reinsured Policies becoming eligible at future anniversaries.

No recapture of Reinsured Policies will occur if the Company has either obtained or increased stop loss reinsurance coverage as justification for the increase in retention.

If there is a Waiver of Premium (W.P.) claim in effect when recapture takes place, the W.P. claim will stay in effect and the Reinsurer will continue to pay its share of the W.P. claim until it terminates. The Reinsurer will not be liable for any other benefits, including the basic life risk, which are eligible for recapture. All such eligible benefits will be recaptured as if there was no W.P. claim.

9

The Company will notify the Reinsurer as soon as reasonably possible after the Company receives a claim on a Reinsured Policy. Copies of all claims papers will be sent promptly by the Company to the Reinsurer. The settlement made by the Company will be binding on the Reinsurer. However, for claims made during the contestable period or in any case where the total amount of reinsurance ceded to the Reinsurer exceeds $1,000,000, or if the Company retained less than, or none of, its usual retention on the policy, then the Company will seek the Reinsurer's recommendation before conceding liability or making settlement to the claimant.

The Company will provide the Reinsurer with all further reports and papers required by the Reinsurer for its consideration of the claim.

Provided there is no existing breach of this Agreement by the Company, the Reinsurer will be liable to the Company for the benefits reinsured and the reinsurance will not exceed the Company's contractual liability under the terms of its policies less the amount retained. The payment of death claims by the Reinsurer will be in one lump sum regardless of the mode of settlement under the original policy. The Reinsurer's share of interest, which is based on the death proceeds paid by the Company, will be payable in addition to the death claim settlement.

For a waiver claim, the Company will continue to pay premiums for reinsurance except the premium for disability reinsurance. The Reinsurer will pay its proportionate share of the gross premium waived by the Company on the original policy, including its share of the premiums for benefits that remain in effect during disability.

For claims on the Accelerated Benefits Rider (ABR) reinsured under this Agreement, the benefit amount payable by the Reinsurer will be calculated by multiplying the total accelerated death benefit rider payout by the ratio of the reinsured net amount at risk to the face amount. For claims on the Accelerated Care Rider (ACR), refer to “Reinsurance Treatment of the Accelerated Care Rider (ACR) on UL/VUL Policies” following the ACR Product Specifications set out in Exhibit A-1.

11

The Company will notify the Reinsurer of its intention to contest, compromise or litigate a claim involving a Reinsured Policy. The Company will also provide the Reinsurer prompt notice of any legal proceedings initiated against the Company in response to its denial of a claim on a reinsured policy. Should any claim be settled on a reduced compromise basis, or should a contested claim be settled for a reduced sum, the Company and the Reinsurer will participate in such reductions in proportion to their respective liabilities under the policy or policies reinsured.

The Reinsurer may pay its share of the death benefit if it does not deem it advisable to contest the claim.

The Reinsurer will pay its share of reasonable investigation and legal expenses incurred in adjudicating or litigating the claim. The Reinsurer will not be liable for any portion of any routine investigative or administrative expenses incidental to the settlement of claims (such as compensation of salaried employees) which are incurred by the Company; nor for any expenses incurred in connection with a dispute or contest arising out of conflicting claims of entitlement to policy proceeds or benefits that the Company admits are payable.

In the event that the Reinsurer pays its share of the death benefit of a policy for which the Company is contesting the claim, the Reinsurer will not be liable for any subsequent expenses incurred by the Company.

Extra Contractual Obligations are obligations outside of the contractual obligations and include but are not limited to punitive damages, bad faith damages, compensatory damages, and other damages or statutory penalties which may arise from the willful and/or negligent acts or omissions by the Company.

The Reinsurer is not liable for Extra Contractual Obligations unless it concurred in writing and in advance with the actions of the Company which ultimately led to the imposition of the Extra Contractual Obligations. In such situations, the Company and the Reinsurer will share in Extra Contractual Obligations, in equitable proportions, but all factors being equal, the division of any such assessments would be in proportion to the total risk accepted by each party for the plan of insurance involved.

Notwithstanding anything stated herein, this Agreement will not apply to any Extra Contractual Obligations incurred by the Company as a result of any negligence, fraud or wrong doing by any employee or officer of the Company or an agent representing the Company.

12

In the event of an increase or reduction in the amount payable under a policy due to a misstatement in age or sex, the proportionate liabilities under this Agreement will be the basis for determining each party's share of any increase or reduction. The Reinsured Policy will be rewritten from commencement on the basis of the adjusted amounts using premiums and amounts at risk for the correct ages and sex, and the proper adjustment for the difference in reinsurance premiums, without interest, will be made.

Any unintentional or accidental failure to comply with the terms of this Agreement which can be shown to be the result of an oversight, misunderstanding or clerical error, by either the Company or the Reinsurer, will not be deemed to be a breach of this Agreement. Upon discovery, the error will be corrected so that both parties are restored to the position they would have occupied had the oversight, misunderstanding or clerical error not occurred, including the effect of the time value of money. Should it not be possible to restore both parties to such a position, the party responsible for the oversight, misunderstanding or clerical error will be responsible for any resulting liabilities and expenses.

This provision will apply only to oversights, misunderstandings or clerical errors relating to the administration of reinsurance covered by this Agreement and not to the administration of the insurance provided by the Company to its insured.

The Reinsurer will not provide reinsurance for policies that do not satisfy the terms of this Agreement, nor will the Reinsurer be responsible for negligent or deliberate acts or for repetitive errors in administration by the Company.

If either party discovers that the Company has failed to cede reinsurance as provided for under this Agreement, or failed to comply with reporting requirements, the Reinsurer may require the Company to audit it records for similar errors, and to take the actions necessary to avoid similar errors in the future. If the Reinsurer receives no evidence that the Company has taken action to remedy such a situation, the Reinsurer reserves the right to limit its liability to correctly reported policies only.

Any negligent or deliberate acts or omissions by the Company regarding the insurance or reinsurance provided are the responsibility of the Company and its liability insurer, if any, but not that of the Reinsurer.

If either the Company or the Reinsurer has given written notification of a dispute to the other party, then within 15 days of such notification both parties must designate an officer of their respective companies to attempt to resolve the dispute. The officers will meet at a mutually agreeable location as soon as possible and as often as necessary, in order to gather and furnish the other with all appropriate and relevant information concerning the dispute. The officers will discuss the problem and will negotiate in good faith without the necessity of any formal arbitration proceedings. During the negotiation process, all reasonable requests made by one officer to the other for information will be honored. The specific format for such discussions will be decided by the designated officers. 

13

If these officers are unable to resolve the dispute within 30 days of their first meeting, the dispute will be submitted to formal arbitration, unless the parities agree in writing to extend the negotiation period for an additional 30 days.

If the Company and Reinsurer are unable to mutually resolve a dispute or controversy relating to policies covered under this Agreement or the breach thereof, the matter will be referred to arbitration.

To initiate arbitration, either the Company or the Reinsurer will notify the other party in writing of its desire to arbitrate, stating the nature of its dispute and the remedy sought. There will be three arbitrators selected who will be officers of Life Insurance Companies or Life Reinsurance Companies excluding officers of the parties to this Agreement, their affiliates or subsidiaries or past employees of any of these entities. The arbitrators who will regard this Agreement from the standpoint of practical business as well as the law, are empowered to determine the interpretation of the treaty obligation.

Each party will appoint one arbitrator and these two arbitrators will select a third arbitrator within 2 weeks of the appointment of the second. If either party refuses or neglects to appoint an arbitrator within 60 days after receipt of the written request for arbitration, the other party may appoint a second arbitrator. Should the two arbitrators not agree on the choice of the third, then each party will name four candidates to serve as the arbitrator. Beginning with the party who did not initiate arbitration, each party will eliminate one candidate from the eight listed until one candidate remains. If this candidate declines to serve as the arbitrator, the candidate last eliminated will be approached to serve. This process will be repeated until a candidate has agreed to serve as the third arbitrator.

The place of meeting of the arbitrators will be decided by a majority vote of the arbitrators. The written decision of a majority of the arbitrators will be final and binding on both parties and their respective successors and assigns.

The arbitrators will render a decision within 4 months of the appointment of the third arbitrator, unless both parties agree otherwise. In the event no decision is rendered within 4 months, new arbitrators will be selected as above. There will be no appeal from the decision. Either party to the arbitration may petition any court having jurisdiction over the parties to reduce the decision to judgment. Alternatively, if both parties consent, any controversy may be settled by arbitration in accordance with the rules of the American Arbitration Association.

Unless the Arbitrators decide otherwise, each party will bear the expense of its own arbitration, including its appointed arbitrator and any outside attorney and witness fees. The parties will jointly and equally bear the expense of the third arbitrator and other costs of the arbitration.

14

In the event of the insolvency of the Company, all reinsurance made, ceded, renewed or otherwise becoming effective under this Agreement will be payable by the Reinsurer directly to the Company or to its Authorized Representative, on the basis of the liability of the Company under the Reinsured Policies without diminution because of the insolvency of the Company.

The Reinsurer will be liable only for the amounts reinsured and will not be or become liable for any amounts or reserves to be held by the Company on policies reinsured under this Agreement. The Authorized Representative will give written notice to the Reinsurer of all pending claims against the Company on any policies reinsured within a reasonable time after such claims are filed in the insolvency proceedings. While a claim is pending, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceedings where the claim is to be adjudicated, any defense or defenses which it may deem available to the Company or the Authorized Representative.

The expense incurred by the Reinsurer will be chargeable, subject to court approval, against the Company as part of the expense of conservation or 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 involved in the same claim and a majority in interest elect to interpose a defense to such claim, the expense will be apportioned in accordance with the terms of the Agreement as though such expense had been incurred by the Company.

15

The term "net consideration" will refer to the net consideration as defined in Regulation Section 1.848-2(f).

The method and timing of the exchange of this information is set out in Exhibit G.

The Company and the Reinsurer will report the amount of net consideration in their respective federal income tax returns for the previous calendar year.

The Company and the Reinsurer will also attach a schedule to their respective federal income tax returns which identifies the Agreement as a reinsurance agreement for which the DAC Tax Election under Regulation Section 1.848.2 (g) (8) has been made.

This DAC Tax Election will be effective for all years for which this Agreement remains in effect.

The Company and the Reinsurer represent and warrant that they are subject to U.S. taxation under either the provisions of subchapter L of Chapter 1 or the provisions of subpart F of subchapter N of Chapter 1 of the Internal Revenue Code of 1986, as amended.

Apart from any taxes, allowances, refunds, and expenses specifically referred to elsewhere in this Agreement, no taxes, allowances, or proportion of any expense will be paid by the Reinsurer to the Company in respect of any Reinsured Policy.

17

This Agreement constitutes the entire agreement between the parties with respect to the business reinsured hereunder. There are no understandings between the Company and the Reinsurer other than as expressed in this Agreement.

Any alteration to this Agreement will be null and void unless made by written amendment, attached to the Agreement and signed by both parties.

The Reinsurer, or its duly appointed representatives, will have access to the records of the Company concerning the business reinsured hereunder for the purpose of inspecting, auditing and photocopying those records. Such access will be provided at the office of the Company and will be during reasonable business hours.

Provided there is business in force under this Agreement, the Reinsurer's right of access as specified above will survive the term of the Agreement.

All matters with respect to this Agreement require the utmost good faith of both parties.

Each party represents and warrants to the other party that it is solvent on a statutory basis in all states in which it does business or is licensed. Each party will promptly notify the other if it is subsequently financially impaired.

The Reinsurer has entered into this Agreement in reliance upon the Company's representations and warranties. The Company affirms that it has and will continue to disclose all matters material to this Agreement. Examples of such matters are a change in underwriting or issue practices or philosophy, a change in underwriting or claims management personnel, or a change in the Company's ownership or control.

The Company affirms that the underwriting, administration and claims practices it employs are consistent with the customary and usual practices of the insurance industry as a whole. Should the Company engage in exceptional or uncustomary practices, it will inform the Reinsurer of such action and obtain its written consent before assigning any liability to the Reinsurer with respect to any policies covered under this Agreement.

18

The parties intend that the Company will receive full statutory reserve credit for the Reinsured Policies in its state of domicile. The parties agree to make all reasonable efforts to ensure that this is accomplished.

19

9.

For policies with insureds aged 0-19, the Standard Non-Smoker class will apply.

Table 4 Program

For Navitrak policies without a No-Lapse Guarantee Rider issued under the Table 4 program, the reinsurance rates equal 120% of Schedule A as described above. For Navitrak policies with a No-Lapse Guarantee Rider, the reinsurance rates equal 120% of Schedule A plus the difference between Schedule A and Schedule B.

Increases in the amount at risk due to Cost of Living Rider increases or fluctuations in the amount at risk caused by the normal workings of the cash value fund in Universal Life type plans will be shared by the Company and the Reinsurer using the same retention method as for the base policy.

The Reinsurer reserves the right to increase the reinsurance rates at any time for new business by giving the Company at least 90 days written notice to this effect.

In the event that the Reinsurer deems it necessary to renegotiate the reinsurance rates, it is understood that such revisions will be in correlation to changes made by the Company.

The Reinsurer will provide the Cedant with at least 30 days notice of its intention to revise the terms of the Agreement. If the revised inforce rate exceeds 125% of the then-existing rates, the Cedant reserves the right to terminate the Agreement for inforce policies.

Mortality coverage on policies on a first dollar quota share basis will not be eligible for recapture due to an increase in retention.

No recapture charges will be applicable to either party for termination or recapture of the No Lapse Guarantee Rider under this Agreement.

Reinsured Policies may be eligible for recapture due to an increase in reinsurance premium rates in accordance with items Nos. 7 & 8 above.

If the Reinsurer becomes insolvent, the Reinsured Policies may be recaptured.

The Reinsurer will automatically accept the First Dollar Quota Share of each policy, as specified in Exhibit A, up to the following maximum limits on a per life basis. These limits apply to all plans except those issued under the Table 4 Program.

The Reinsurer will automatically accept the First Dollar Quota Share of each policy, as specified in Exhibit A, up to the following maximum limit on a per life basis.

Underwriting Risk Classification (including
table rating and flat extra amount & applicable
number of years)

Reserve
Amount ($)

Reserve
Amount ($)

The Company will submit a Schedule to the Reinsurer by May 1, of each year, of its calculation of the net consideration (as referred to in Article 12) for the preceding calendar year.

2.

The Reinsurer, in turn, will complete the Schedule by indicating acceptance of the Company’s calculations of the net consideration or by noting any discrepancies. The Reinsurer will return the completed Schedule to the Company by June 1, of each year.

3.

If there are any discrepancies between the Company’s and the Reinsurer’s calculation of the net consideration, the parties will act in good faith to resolve the discrepancies by July 1, of each year.

Basis:

Note: Table 4 Asset Builder business issued under SBA221-97

For policies with insureds aged 0-19, the Standard Non-Smoker class will apply.

On Flat Extra Premiums