COINSURANCE AND SERVICING AGREEMENT
between
SECURITY BENEFIT LIFE INSURANCE COMPANY
Topeka, Kansas
(hereinafter referred to as "Company")
and
LIBERTY NATIONAL LIFE INSURANCE COMPANY
Birmingham, Alabama
(hereinafter referred to as the "Reinsurer")
RECITALS
--------
Company is a life, accident and health insurer domiciled in the State of
Kansas which has a block of individual whole life and term insurance policies in
force, commonly known as the USPA & ▇▇▇ business, more particularly described in
EXHIBIT "A" hereto, hereinafter referred to as the "Policies". Reinsurer is a
-----------
life, accident and health insurer domiciled in the state of Alabama and licensed
to transact such business in all states except New York. Reinsurer desires to
purchase, by way of 100% quota share coinsurance, all of Company's rights in the
Policies and to service and administer the Policies on the terms set forth in
this agreement ("Agreement"). In consideration of these recitals and the mutual
covenants herein set forth, the parties agree as follows:
INDEX
RECITALS ....................................................... (1)
ARTICLE I - REINSURANCE......................................... (2)
Liability Reinsured; Effective Date ........................ (2)
Future Issues .............................................. (2)
Claims ..................................................... (3)
ARTICLE II - COMPUTATION AND PAYMENT OF REINSURANCE
CONSIDERATION ............................................ (3)
Payable to Reinsurer ....................................... (3)
Payable to Company ......................................... (4)
Settlement ................................................. (5)
ARTICLE III - CALCULATION OF RESERVES .......................... (6)
Methods .................................................... (6)
ARTICLE IV - REPRESENTATIONS, WARRANTIES AND COVENANTS OF
REINSURER AND COMPANY .................................... (7)
Inducement ................................................. (7)
Binding Agreement .......................................... (7)
Issuance of Policies ....................................... (7)
Solicitation ............................................... (8)
Financial Information ...................................... (8)
Agent's Compensation ....................................... (8)
ARTICLE V - EXTRA CONTRACTUAL LIABILITY ........................ (9)
Definition ................................................. (9)
Liability of Company ....................................... (9)
Liability of Reinsurer ..................................... (9)
ARTICLE VI - OVERSIGHTS ........................................ (10)
Restoration ................................................ (10)
ARTICLE VII - POLICY CHANGES ................................... (10)
No Changes ................................................. (10)
ARTICLE VIII - RECORDS ......................................... (10)
Records .................................................... (10)
Accounting Data ............................................ (10)
ARTICLE IX - INSPECTION OF RECORDS ............................. (11)
Rights of Reinsurer ........................................ (11)
Annual Statements .......................................... (11)
ARTICLE X - ADMINISTRATIVE AND SERVICING ....................... (12)
Obligation of Reinsurer .................................... (12)
Administrative Office ...................................... (13)
Payment of Claims and Agents' Compensation ................. (13)
Claim Checks ............................................... (13)
Reinsurer Expenses ......................................... (13)
Bank Accounts ............................................... (14)
Books and Records ........................................... (14)
Litigation .................................................. (14)
Regulatory Inquiries and Complaints ......................... (15)
Policyholder Complaints ..................................... (15)
Commencement ................................................ (16)
Assignment/Subcontract ...................................... (16)
Obligations of Company ...................................... (16)
Tax Reporting ............................................... (17)
ARTICLE XI - ARBITRATION ......................................... (17)
Condition Precedent ......................................... (17)
Timing ...................................................... (18)
Expenses .................................................... (18)
Location .................................................... (18)
ARTICLE XII - INSOLVENCY OF COMPANY; ADVERSE
CHANGE IN REINSURER ....................................... (19)
Reinsurer Remains Liable .................................... (19)
Notice ...................................................... (19)
ARTICLE XIII - PARTIES TO AGREEMENT ............................. (20)
No Third Party Beneficiary .................................. (20)
ARTICLE XIV - COVENANT OF COMPANY................................ (20)
No Solicitation.............................................. (20)
ARTICLE XV - OTHER PROVISIONS ................................... (20)
Offset ...................................................... (20)
Amendment ................................................... (21)
Waiver of Breach ........................................... (21)
Notice ...................................................... (21)
Further Assurances........................................... (22)
Successors and Assigns ...................................... (22)
Headings .................................................... (22)
Assignment .................................................. (22)
Duration..................................................... (23)
Confidentiality ............................................. (23)
Reinstatements .............................................. (23)
Existing Reinsurance Coverage ............................... (23)
Integration ................................................. (24)
Counterparts ................................................ (24)
Severability ................................................ (24)
DAC Tax ..................................................... (24)
ARTICLE XVI - TRUST AGREEMENT ................................... (25)
Trust Agreement ............................................. (25)
SIGNATURES ...................................................... (26)
EXHIBIT A - POLICIES REINSURED .................................. (27)
EXHIBIT B - AGENT COMMISSIONS ................................... (28)
COINSURANCE AND SERVICING AGREEMENT
between
SECURITY BENEFIT LIFE INSURANCE COMPANY
Topeka, Kansas
(hereinafter referred to as "Company")
and
LIBERTY NATIONAL LIFE INSURANCE COMPANY
Birmingham, Alabama
(hereinafter referred to as the "Reinsurer")
RECITALS
--------
Company is a life, accident and health insurer domiciled in the State of
Kansas which has a block of individual whole life and term insurance policies in
force, commonly known as the USPA & ▇▇▇ business, more particularly described
in EXHIBIT "A" hereto, hereinafter referred to as the "Policies". Reinsurer is a
-----------
life, accident and health insurer domiciled in the state of Alabama and licensed
to transact such business in all states except New York. Reinsurer desires to
purchase, by way of 100% quota share coinsurance, all of Company's rights in the
Policies and to service and administer the Policies on the terms set forth in
this agreement ("Agreement"). In consideration of these recitals and the mutual
covenants herein set forth, the parties agree as follows:
ARTICLE I - REINSURANCE
-----------------------
1.1 Liability Reinsured; Effective Date. The Company hereby cedes and the
------------------------------------
Reinsurer hereby reinsures on a 100% coinsurance basis, 100% of the Company's
liability on the Policies, which are in force or within the grace period, on the
Effective Date of this Agreement. Within five (5) business days after the
Effective Date, Company shall make available a listing of the Policies, showing
each insured's name, age, policy number, annual premium, valuation basis and
amount of reserves as of the Effective Date. The liability of the Reinsurer
shall commence at 11:59 P.M. on December 31, 1995 (the "Effective Date").
1.2 Future Issues. The reinsurance effected hereby shall cover and include
--------------
future issues that result from term conversions and/or the exercise of options
to purchase additional insurance, and any reinstatement of previously lapsed
policies written on the same form as the Policies. Reinsurer shall have the
right to issue such of Company's policy forms as are necessary to comply with
the requirements of the Policies and any riders thereto concerning any such
future issues which, when issued, shall be part of the Policies reinsured
hereby. In the event Company does not have an approved form of the same type as
those used for the Policies on which a conversion or additional insurance can be
issued, Company will have no liability to Reinsurer. However, in any case where
Company issues a conversion or additional insurance on a policy form not of the
2
same type as those used for the Policies, this reinsurance shall not cover such
policy.
1.3 Claims. Company shall remain liable for all claims where the death or
------
other event giving rise to that claim occurs before the Effective Date.
Reinsurer shall be liable for all claims where the death or other event giving
rise to that claim occurs on or after the Effective Date. For any claim arising
before the Effective Date but not reported until after the Effective Date.
Reinsurer will transfer back to the Company the Net Statutory Liability, less
Ceding Commission applicable to such policy.
ARTICLE II - COMPUTATION AND PAYMENT OF
---------------------------------------
REINSURANCE CONSIDERATION
-------------------------
2.1 Payable to Reinsurer. The Company shall credit the Reinsurer as the
--------------------
reinsurance consideration, the following:
(a) An initial premium equal to the Net Statutory Liability on the
Policies as of the Effective Date. The term "Net Statutory Liability" shall mean
the reserves on the Policies, computed as set forth in Article III, plus (i)
----
gross advance premiums, (ii) the liability for cost of collection in excess of
loading, and (iii) the liability for unearned policy loan interest; less (x)
----
the net due and deferred premium asset, (y) policy loans, and (z) the asset for
agents' balances.
(b) Company shall thereafter pay to Reinsurer 100% of the premium on
the Policies paid on or after the Effective Date for so long as the Policies
stay in force. However, Reinsurer shall be liable to Company for agents'
compensation and premium
3
taxes (with respect to premiums paid after the Effective Date) out of such
premiums received by it. Agents' compensation shall be paid by Reinsurer in the
name of Company in accordance with Reinsurer's normal procedure for paying
agents' compensation as provided in Section 10.3. Within thirty (30) days after
the end of each calendar quarter, Reinsurer shall pay Company a sum equal to 2%
of the premiums received on the Policies for the quarter just ended, which shall
serve as an estimated payment of such premium tax liability on the Policies.
Within 60 days after the end of each calendar year, Company will calculate the
premium taxes actually owed by Company for premiums received on the Policies for
the year then ended, and the parties will settle accounts within sixty (60) days
thereafter. During that period the Reinsurer shall have the right to audit
Companies' premium tax calculation and to verify the premium tax owed by the
Company. If the estimated premium taxes paid by Reinsurer are less than the
actual amount due the several states, Reinsurer shall pay Company the
deficiency. If the estimated amount paid is in excess of the actual amount,
Company will pay the amount of such excess to Reinsurer.
2.2 Payable to Company. Reinsurer will credit Company a ceding commission
------------------
("Ceding Commission") equal to 2.076 times the annual premium in force on the
Policies on the Effective Date. "Annual premium in force" means gross premium
for the annual mode for in force premium paying Policies. In force premium
paying policies shall not include policies which are being
4
continued in force as a result of the exercise of a nonforfeiture option,
premium waiver, automatic premium loan, or policies which are in the course of
death claim settlement.
2.3 Settlement. The parties recognize that calculation of the Net
----------
Statutory Liability and the Ceding Commission cannot be completed until after
the Effective Date. Therefore, it is agreed as follows:
(a) The Net Statutory Liability and Ceding Commission as of the
Effective Date will be estimated by using the amounts reflected on Company's
financial statement as of November 30, 1995, and adjusting such figures based on
one-tenth of the change in the Net Statutory Liability from January through
October. Company shall make such calculation within seven (7) business days
after the date of execution of this Agreement and deliver same to Reinsurer for
review and approval. In the event Company and Reinsurer are unable to agree on
the estimated amount of the Net Statutory Liability and the Ceding Commission by
December 28, 1995, this Agreement will be terminated and the parties will be
relieved from further liability hereunder. However, if the parties agree on such
amounts by December 28, 1995, this Agreement shall be binding and enforceable in
accordance with its terms, and Company shall transfer to the Trustee under that
certain Trust and Security Agreement of even date herewith among Company,
Reinsurer and the Trustee therein, the amount by which the Net Statutory
Liability exceeds the Ceding Commission (as so estimated) no later than 2:00
p.m.,
5
C.S.T. on December 29, 1995. Receipt by the Trustee shall be deemed Receipt by
the Reinsurer.
(b) As soon as practical after the Effective Date, Reinsurer shall
calculate the true amount of Net Statutory Liability and Ceding Commission and
shall notify Company of the results of that calculation. The parties shall make
final settlement within ten (10) days after the date of that notification
provided they agree on said amount. Final settlement shall be by wire transfer
of funds.
(c) In the event that at any time either party discovers an error in the
calculation of either Net Statutory Liability or the Ceding Commission utilized
in arriving at the final settlement pursuant to (b), just above, the other party
shall be notified in writing and the party owing money shall pay the other party
within ten (10) days after the parties have agreed in writing on the nature and
amount of any such error, or if they are unable to agree, such sum, if any, will
be paid within ten (10) days of completion of arbitration.
ARTICLE III - CALCULATION OF RESERVES
-------------------------------------
3.1 Methods. The valuation bases and methods of determining reserves
--------
shall be as provided in the Policy forms (if so provided) and said bases and
methods shall conform to the terms of the insurance laws in the states of
domicile of the company and the Reinsurer.
6
ARTICLE IV - REPRESENTATIONS, WARRANTIES AND COVENANTS
------------------------------------------------------
OF REINSURER AND COMPANY
------------------------
4.1. Inducement. As an inducement to Reinsurer and Company to enter into
-----------
this Agreement, Company and Reinsurer make the representations and warranties
contained in this Article IV, all of which shall survive the Effective Date,
notwithstanding any investigation by Reinsurer and Company.
4.2 Binding Agreement. The execution and delivery of this Agreement have
------------------
been duly approved by the boards of directors of Company and Reinsurer, and
each party has furnished to the other a certified copy of a resolution of its
board of directors approving this Agreement. This Agreement constitutes the
binding and enforceable obligation of the parties in accordance with its terms.
The execution, delivery and performance of this Agreement does not violate or
conflict with any agreement to which Company or Reinsurer is a party or any
rule, judgment, writ or order of any court or other tribunal applicable to
either party.
4.3 Issuance of Policies. All of the Policies were issued on forms approved
---------------------
by the insurance regulatory authority of the state where issued in accordance
with the laws and regulations of said states, by agents who were duly licensed
and appointed by Company, in accordance with Company's underwriting standards
for the Policies, and at the premium rates filed by Company, or if not filed, at
the premium rates reflected by Company's books and records. Company shall bear
the risk of, and shall indemnify and hold Reinsurer harmless from any loss or
liability
7
resulting from errors, conflicts or inconsistencies in the Policy forms,
riders, applications or any other printed material utilized in the solicitation,
underwriting or issuance of the Policies by Company prior to the Effective Date,
including those known to Reinsurer on or before the Effective Date.
4.4 Solicitation. Company is not aware of any breach or violation of
-------------
statutory or common law by its agents in the solicitation of the Policies.
However, notwithstanding such lack of knowledge Company assumes the risk of any
improper acts of Company or its agents in the solicitation or sale of the
Policies, and shall indemnify and hold Reinsurer harmless from any claim, loss
or liability arising from any act or omission of its agents that occurred on or
before the Effective Date in the solicitation of the Policies.
4.5 Financial Information. Company's statutory statements, books and
---------------------
records (including the electronic data on the Policies furnished to Reinsurer),
completely and accurately reflect all relevant information concerning the
Policies, including without limitation, premiums, reserves, amount of insurance
in force, endorsements, options, and agents' compensation, in all material
respects.
4.6 Agent's Compensation. The agent's compensation with respect to the
---------------------
Policies is as set forth in Exhibit "B". Company shall not change such
-----------
compensation or otherwise alter its agreement with the agents concerning the
Policies. Company
8
shall be liable for any bonuses or other agent's compensation accrued on
premiums received before the Effective Date.
ARTICLE V - EXTRA CONTRACTUAL LIABILITY
---------------------------------------
5.1 Definition. The term "Extra Contractual Liability" shall include
----------
liability (a) for exemplary, punitive or other enhanced damages, (b) under any
consumer protection or other enhanced damages, (b) under any consumer protection
or deceptive trade practice law, (c) for violation of the duty of good faith and
fair dealing, or (d) any other liability not expressed in the Policy contract.
5.2 Liability of Company. Company shall be responsible for and shall
--------------------
indemnify and hold Reinsurer harmless from Extra Contractual Liability based on
acts or omissions of Company, its officers, employees, agents, (except any agent
of Company that acts at the direction of Reinsurer) or other representatives,
including, without limitation, liability arising from the advertising,
solicitation, sale or underwriting of the Policies.
5.3 Liability of Reinsurer. Reinsurer shall be responsible for and shall
----------------------
indemnify and hold Company harmless from Extra Contractual Liability based on
acts or omissions of Reinsurer, its officers, employees, agents or other
representatives, including without limitation liability arising from the
settlement of claims by Reinsurer pursuant to this Agreement.
9
ARTICLE VI - OVERSIGHTS
-----------------------
6.1 Restoration. If failure to comply with any terms of this Agreement is
-----------
shown to be unintentional and the result of unintentional oversight on the part
of either the Company or the Reinsurer, both the Company and the Reinsurer shall
be restored to the positions they would have occupied had no such unintentional
oversight occurred.
ARTICLE VII - POLICY CHANGES
----------------------------
7.1 No Changes. Company shall make no changes, other than as permitted by
----------
the Policies or as required by state or federal law, in the Policies, without
Reinsurer's express, written consent. Company shall cooperate with Reinsurer in
making any filings deemed necessary by the Reinsurer. Reinsurer shall bear the
costs incurred or associated with all such filings.
ARTICLE VIII - RECORDS
----------------------
8.1 Records. Concurrent with the commencement of Reinsurer's servicing of
-------
policies, Company shall deliver to Reinsurer all files and records pertaining
to the Policies, including, without limitation, all applications and
underwriting information. The Reinsurer understands and agrees that with the
exception of some claim files, all such records shall be on microfiche or in a
form set forth in Section 4.5 herein.
8.2 Accounting Data. Concurrent with the commencement of Reinsurer's
---------------
servicing of policies, Company shall deliver to Reinsurer all financial and
accounting records pertaining to the Policies, in machine readable format, to
include all information
10
which Reinsurer will need to prepare and file all GAAP and statutory statements,
to calculate Net Statutory Liability and Ceding Commission, and to administer
the Policies. Company represents and warrants that all such information will be
accurate and complete in all material respects.
ARTICLE IX - INSPECTION OF RECORDS
-----------------------------------
9.1 Right of Reinsurer. The Reinsurer or its representatives shall have
------------------
the right at any reasonable time to inspect, at the office of the Company, all
books, records and documents relating to the Policies, either before or after
the Effective Date. If Reinsurer discovers that any of Company's representations
and warranties are incomplete or inaccurate in any material respect, Reinsurer
may terminate this Agreement by giving notice to Company no later than December
28, 1995. The Company shall have the same rights to inspect Reinsurer's books,
records, and documents relating to the Policies at Reinsurer's office, so long
as any of the Policies remain coinsured.
9.2 Annual Statements. Within ten (10) business days after it is filed,
-----------------
the parties shall furnish annually to each other a copy of the Convention Blank
(annual statement) filed with the commissioner of insurance in their respective
states of domicile, or an audited accounting from a certified public accountant,
including a balance sheet and operating statement for the year.
11
ARTICLE X - ADMINISTRATION AND SERVICING
----------------------------------------
10.1 Obligations of Reinsurer. Reinsurer shall be responsible for the
------------------------
administration and servicing of the Policies, including the payment of claims,
but all such administration and servicing shall be done in the name of and on
behalf of Company. The Reinsurer shall provide the Company Quarterly Accounting
Reports, providing Exhibit 8 by reserve basis, a summary of Due and Deferred
Premiums, Premiums received by state, commissions paid to producers, commissions
payable to producers, aggregate claims paid and claims outstanding. The
Reinsurer shall provide the Company Annual Accounting Reports providing, Exhibit
8 by reserve basis, a summary of Due and Deferred premiums, Premiums received by
state, commissions paid to producers, commissions payable to producers, claims
paid by state for the entire year, claims outstanding by state, Page 7 Analysis
of Increase in Reserves, Exhibit of Life Insurance, Policy Exhibits by State and
Schedule T of the NAIC Convention Blank for the Policies reinsured hereunder.
Upon the Company's request, the Reinsurer shall provide sufficient documentation
with regard to paying claims, commissions and renewals. Tax information
reporting pertaining to policy benefits and commissions will be the
responsibility of the party legally obligated to file such tax information
reports. Reinsurer shall furnish such data and information within 30 days after
the end of each calendar quarter and within 30 days after the end of each
calendar year.
12
10.2 Administrative Office. Reinsurer shall establish a Company
----------------------
Administrative Office with separate post office boxes and phone in the name of
Company; all renewal premiums and Claims will be mailed to those addresses and
all forms and correspondence delivered to the policyholders of the Policies will
contain those addresses.
10.3 Payment of Claims and Agents' Compensation. Reinsurer shall process
-------------------------------------------
and pay claims on the Policies on behalf of and in the name of Company, using
the same procedures and standards as it uses with respect to its direct written
business. Before Reinsurer shall deny a claim or seek to rescind a Policy, it
shall give written notice of such fact to Company. If Company does not object in
writing within seven (7) days from receipt of Reinsurer's notice, Reinsurer
shall be free to take such action in the name of Company. If Company gives
written notice to Reinsurer that it objects to Reinsurer's proposed denial or
rescission action, within such period, Company shall pay the claim out of its
own funds, but Reinsurer shall pay Company the reserve less Ceding Commission
for the Policy that is the subject of such claim. Reinsurer shall pay all
agents' compensation with respect to the Policies in the name of Company.
10.4 Claim Checks. All checks in payment of Claims and premium refunds will
-------------
be in the name of Company.
10.5 Reinsurer Expenses. All expenses incurred by Reinsurer in the
-------------------
performance of its duties under this Article X will be paid by Reinsurer.
13
10.6 Bank Accounts. Reinsurer will establish bank accounts in the name of
--------------
Company. Any cash excess or shortage in the bank accounts daily will be
transferred to or from a Reinsurer cash account.
Reinsurer will be responsible for payment of banking fees for these
accounts and for reconciling the accounts on a timely basis. Any loss of funds
with respect to such accounts shall be the responsibility of Reinsurer.
10.7 Books and Records. Reinsurer will keep and maintain full and complete
------------------
books and records, including, but not limited to, premiums and claims, and other
activities using the same standards and procedures as it uses with respect to
such books and records on its direct written business.
10.8 Litigation. Reinsurer will have full and complete control of all
-----------
lawsuits or threats of lawsuits concerning the Policies and may defend and
manage same in the name of and on behalf of Company provided that for all such
matters that involve events transpiring before the Effective Date, Company shall
be kept advised and the parties will cooperate concerning any settlement of such
claims. In any case in which plaintiff is seeking extra contractual damages
pursuant to allegations which may impose liability therefore on Company pursuant
to the provisions of Section 5.2, Company may engage counsel at its expense to
represent its interests in such litigation. Company and Reinsurer will deliver
within five (5) business days copies of all citations,complaints, demand
letters or other notices or
14
threats of litigation which either receives relative to the Policies.
10.9 Regulatory Inquiries and Complaints. Reinsurer and Company each shall
------------------------------------
keep the other informed on a timely basis of any inquiries and complaints
received from any Federal or State governmental agency with respect to the
Policies, the servicing of the Policies, and the reinsurance provided in this
Agreement. It shall be Reinsurer's primary responsibility to respond to such
inquiries and complaints on Company's account, but to the extent either party
feels it is necessary or desirable that Company participate in such response
Company shall do so.
10.10 Policyholder Complaints. Reinsurer shall provide Company on a
------------------------
quarterly basis with a listing of the complaints received from policyholders,
their representatives or any regulatory authority which list shall show
disposition of each complaint.
10.11 Commencement. Reinsurer's obligation to service the Policies shall
-------------
commence as soon as commercially reasonable after the Effective Date but no
later than April 30, 1996, and Company shall provide all administration and
servicing prior to that date. Company shall be compensated by Reinsurer at a
rate of $65,000.00 per month for January and February for its services under
this Subsection payable by Reinsurer within ten (10) business days after billing
by the Company at the end of each month. In the event the transfer is not
completed by February 29, 1996, Reinsurer shall pay an additional $20,000.00 for
15
services performed by Company from March 1, 1996 to April 30, 1996. During the
interim period, Company shall cooperate with Reinsurer in order to provide for a
smooth transition of the servicing of the Policies without interruption or
impairment of service to the insureds, owners, and agents.
10.12 Assignment/Subcontract. Reinsurer may assign its obligations under
-----------------------
this Article X to, or subcontract with, any of its affiliates provided any such
assignee is rated no less than "A" by A.M. Best Company. No other assignment
will be made without Company's prior written consent which shall not be
unreasonably withheld or delayed. However, no such assignment or subcontracting
shall relieve Reinsurer from its obligations to Company.
10.13 Obligations of Company. The parties acknowledge that it is impossible
-----------------------
to detail each and every action which will be required over the course of the
years in servicing and administering the Policies. Therefore, Company agrees to
provide reasonable cooperation to Reinsurer as may be necessary to permit
Reinsurer to service and administer the Policies, including without
limitation, the forwarding of premium payments and correspondence received by
Company relating to the Policies no later than seven (7) business days after,
and to maintain approved policy forms of the same type reinsured necessary to
comply with the exercise of options to purchase additional insurance or other
future issues described in Section 1.2.
16
10.14 Tax Reporting. For calendar years subsequent to 1995, Reinsurer shall
--------------
perform the calculations necessary to make the information filings with the
Internal Revenue Service for holders of Policies who surrender Policies. By
January 10 in each year, commencing in 1997, Reinsurer shall perform the
calculations associated with this function and transmit same to Company. The
information shall include name, address, social security number and amounts to
be included in the various reporting forms. Reinsurer will also withhold any
amounts which are required to be withheld and transfer such withholding amounts
to Company, along with the information necessary to identify each account, in
accordance with the following schedule: withholdings from Monday through
Wednesday shall be wired to permit Company's deposit by Friday, and withholdings
from Thursday through Sunday shall be wired to permit Company's deposit on
Wednesday. Reinsurer shall indemnify and hold Company harmless from all costs
incurred or penalties assessed that are directly caused by erroneous information
provided Company by Reinsurer.
ARTICLE XI - ARBITRATION
------------------------
11.1 Condition Precedent. As a condition precedent to any right of action
--------------------
hereunder, in the event of any dispute or difference of opinion hereafter
arising with respect to this Agreement, it is hereby mutually agreed that such
dispute or difference of opinion shall be submitted to arbitration. One Arbiter
shall be chosen by the company, the other by the
17
Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter
upon arbitration, all of whom shall be active or retired disinterested executive
officers of insurance or reinsurance companies. In the event that either party
should fail to choose an Arbiter within thirty (30) days following a written
request by the other party to do so, the requesting party may choose two
Arbiters who shall in turn choose an Umpire before entering upon arbitration. If
the two Arbiters fail upon the selection of an Umpire within thirty (30) days
following their appointment, each Arbiter shall name three nominees, of whom the
other shall decline two, and the decision shall be made by drawing lots.
11.2 Timing. Each party shall present its case to the Arbiters within
------
thirty (30) days following the date of appointment of the Umpire. The decision
of the Arbiters shall be final and binding on both parties; but failing to
agree, they shall call upon the Umpire and the decision of the majority shall be
final and binding upon both parties.
11.3 Expenses. Each party shall bear the expense of its own Arbiter, and
--------
shall jointly and equally bear with the other the expense of the Umpire and of
the arbitration. In the event that the two Arbiters are chosen by one party, as
above provided, the expense of the Arbiters, the Umpire and the arbitration
shall be equally divided between the two parties.
11.4 Location. Any arbitration proceedings shall take place at Dallas,
--------
Texas.
18
ARTICLE XII - INSOLVENCY OF COMPANY
-----------------------------------
12.1 Reinsurer Remains Liable. In the event of the insolvency of the
------------------------
Company, the liability of the Reinsurer shall continue to be determined by all
of the terms, conditions, and limitations under this Agreement, but the
Reinsurer will make settlement of claims:
(a) Directly to the liquidator, receiver or statutory successor of
said Company; and
(b) Without diminution because of the insolvency of the Company.
12.2 Notice. In the event of the insolvency of the Company, the
------
liquidator, receiver or statutory successor of the Company shall give written
notice to the Reinsurer of the pendency of a claim against the Company in
respect of the business coinsured under this Agreement within a reasonable time
after such claim is filed. The Reinsurer may investigate such claim and
interpose at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses which it may deem available to the Company
or its liquidator, receiver or statutory successor.
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 benefits which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.
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ARTICLE XIII - PARTIES TO AGREEMENT
-----------------------------------
13.1 No Third Party Beneficiary. This is an Agreement for reinsurance
--------------------------
solely between the Company and the Reinsurer. The acceptance of reinsurance
hereunder shall not create any right or legal relation whatever between the
Reinsurer and the insured or the beneficiary under any policy reinsured
hereunder.
ARTICLE XIV - COVENANT OF COMPANY
---------------------------------
14.1 No Solicitation. Company acknowledges that the Ceding Commission to be
---------------
paid by Reinsurer is a good and valuable consideration for its rights in the
Policies, including the right of Reinsurer to benefit from renewal premium on
the Policies, and other "good will" associated with the Policies. Therefore,
Company agrees that it will take no action which would interfere with such
right. Without limiting the generality of the foregoing, Company shall not (a)
solicit or attempt to solicit the owners of the Policies in any manner for the
purpose of replacing or causing the lapse or non-renewal of the Policies, nor
will it permit its agents to engage in any such activity, or (b) furnish to any
third party (other than as required by law) information concerning the Policies,
including without limitation, any information which could be used by such third
party to solicit the owners of the Policies.
ARTICLE XV - OTHER PROVISIONS
-----------------------------
15.1 Offset. Company or Reinsurer may offset any balances, whether on
------
account or premiums, commissions, claims, losses,
20
benefits or any other amounts, due from one party to the other under this
Agreement.
15.2 Amendment. This Agreement may only be amended or modified by written
---------
agreement signed by both parties hereto.
15.3 Waiver of Breach. The failure to exercise or the waiver of any term,
----------------
covenant or condition of this Agreement shall not be deemed a waiver of any
subsequent breach of the same or any other term, covenant or condition herein
contained. No covenant, term or condition of this Agreement shall be deemed to
have been waived unless such waiver be in writing, signed by the party charged
therewith.
15.4 Notice. Any notice, request, instruction or other communication at
------
any time hereunder required or permitted to be given or furnished by either
party hereto to the other shall be deemed sufficiently given or furnished if in
writing and actually delivered to the party to be notified or deposited in the
United States mail in first-class, registered or certified mail, with return
receipt requested, postage prepaid, and addressed to the party to be notified,
as follows:
Company: Security Benefit Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: President
21
Reinsurer: Liberty National Life Insurance Company
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
With Copy To: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
General Counsel
United American Insurance Company
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
or to such other address as shall be furnished in writing by either party to
the other, and shall be deemed to have been given as of the date so delivered or
deposited in the United States mail, as the case may be.
15.5 Further Assurances. Each of the parties hereto shall make, do or
------------------
cause to be done such further acts and execute, acknowledge and deliver such
instruments and documents as the other party may reasonably request or require
to effectuate fully the purposes and intent of this Agreement.
15.6 Successors and Assigns. This Agreement, and the terms, conditions
----------------------
and covenants contained herein, shall be binding upon, and inure to the benefit
of, the parties, their respective successors and assigns.
15.7 Headings. The headings of the several paragraphs contained herein
--------
are for convenience only and do not define, limit or construe the contents of
such paragraphs.
15.8 Assignment. Reinsurer may assign any or all of the Policies to an
----------
affiliate of the Reinsurer without Company's consent as long as such affiliate
is in existence on the
22
Effective Date and is rated not less than "A" by A. M. Best Company. However, as
between Company and Reinsurer, Reinsurer shall not be relieved of its liability
hereunder. No other assignment of the policies or rights under this agreement
may be made by either party without prior written consent of the other, which
consent will not be unreasonably withheld or delayed.
15.9 Duration. This agreement shall survive until the last benefit of the
--------
last policyholder has been settled under the terms of the Policies.
15.10 Confidentiality. Each of the parties shall maintain confidentiality
---------------
of all information related to the policies and all other information denominated
a confidential by the other party provided to it in connection with this
agreement and shall not disclose such information to any third parties without
prior written consent of the other party, except as may be required by law or
regulatory authorities.
15.11 Reinstatements. If a policy reinsured hereunder that was reduced,
--------------
terminated, or lapsed, is reinstated pursuant to a contractual right of the
policyholder, the Reinsurance for such policy under this agreement shall be
reinstated automatically to the amount that would have been in force if the
policy had not been reduced, terminated or lapsed.
15.12 Existing Reinsurance Coverage. Company hereby represents that as to
-----------------------------
the Effective Date, there is no reinsurance coverage in effect on any of the
Policies.
23
15.13 Integration. This Agreement supercedes all prior discussion and
-----------
agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement, including the Exhibits attached hereto and any
other written agreements between the parties, contains the sole and entire
Agreement between the parties with respect to the subject matter hereof.
15.14 Counterparts. This Agreement may be executed simultaneously in any
------------
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
15.15 Severability. In the event that any provision or term of this
------------
Agreement shall be held by any court to be illegal or unenforceable, all of the
other terms and provisions shall remain in full force and effect.
15.16 DAC Tax. Pursuant to IRC Section 848 as added by the Revenue
-------
Reconciliation Act of 1990, Insurance companies are required to capitalize and
amortize specified policy acquisition expenses. The amount capitalized is
determined by proxy based on a percentage of net premiums. Treasury Regulation
Sec. 1.848-2 (g)(8) allows the parties to a reinsurance agreement to elect to
compute the capitalization of specified policy acquisition expenses without
regard to the general deductions limitation. The parties hereto do so elect that
the party with net positive consideration for this Agreement for each taxable
year will capitalize specified policy acquisition expenses with
24
respect to this Agreement without regard to the general deductions limitation of
Section 848 (c)(1) and the parties will exchange information pertaining to the
amount of net consideration with respect to the reinsurance provided under this
Agreement, beginning with tax year 1995 and, each tax year thereafter to ensure
consistency.
ARTICLE XVI - TRUST AGREEMENT
-----------------------------
16.1 Trust Agreement. The Reinsurer and the Company agree that prior to
---------------
any payments being made by either party that are otherwise required by this
Agreement, that a Trust and Security Agreement will be entered into by and among
the Reinsurer, the Company, and a trustee acceptable to both the Reinsurer and
the Company, it being understood and agreed that the Net Statutory Liability
maintained on the Effective Date by the Company for the Policies, without
reduction for any Ceding Commission owed to the Company by the Reinsurer, must
be paid to the Trustee so as to fund said Trust pursuant to the terms of this
Agreement and of said Trust and Security Agreement. In the event said Trust and
Security Agreement is not entered into and so funded as set forth in this
Section 16.1, this Agreement shall become null and void.
25
IN WITNESS WHEREOF, the COMPANY and the Reinsurer have by their respective
officers executed and delivered these presents, in duplicate, as of the
effective date.
SIGNATURES: SECURITY BENEFIT LIFE INSURANCE COMPANY
ATTEST:
/s/ J. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------ ---------------------------------
J. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (name) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (name)
------------------------- ----------------------------
Assistant Secretary (title) President & Chief Executive (title)
------------------------- Officer
----------------------------
LIBERTY NATIONAL LIFE INSURANCE COMPANY
ATTEST:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------------- ---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (name) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ (name)
-------------------------- -----------------------------
Exec. V.P., Gen. Counsel & (title) President (title)
Secretary -----------------------------
--------------------------
26
EXHIBIT "A" - POLICIES REINSURED
The "Policies" include policies solicited by the USPA & ▇▇▇ Agency and
issued on the policy forms listed below. The "Policies" are issued on individual
plans of insurance commonly referred to as "Traditional" Nonparticipating
Insurance and specifically exclude any Participating, Excess Interest, Universal
Life or other similar policies which might have been issued to the customers of
the USPA & ▇▇▇ Agency.
Plan Description Policy Form (1)
---------------- ---------------
Whole Life Insurance Policy 4565 (5-87)
Decreasing Term Insurance Policy 4566 (5-87)
Decreasing Term Insurance Policy 4567 (6-87)
Miscellaneous Riders and
Supplemental Benefits Issued in
Conjunction with the Policies Various
(1) All plans include State Variations with separate Policy Form Numbers.
27
EXHIBIT "B"
28