EXECUTION VERSION
COINSURANCE AND MODIFIED COINSURANCE AGREEMENT
by and between
COMMONWEALTH ANNUITY AND LIFE INSURANCE COMPANY
(the "CEDING COMPANY")
and
ARROW CAPITAL REINSURANCE COMPANY, LIMITED,
acting on behalf, and for the benefit, of the SEGREGATED ACCOUNT 2009-001
(the "REINSURER")
Dated December 24, 2009
TABLE OF CONTENTS
PAGE
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ARTICLE I DEFINITIONS AND INTERPRETATION 1
Section 1.1. Definitions 1
Section 1.2. Interpretation 5
ARTICLE II FORMATION OF THE SEGREGATED ACCOUNT; EFFECTIVE DATE 6
Section 2.1. Formation of the Segregated Account 6
Section 2.2. Effective Date 6
ARTICLE III BUSINESS REINSURED; PRE-EXISTING REINSURANCE
TREATIES; INFORMATION; GUARANTY FUND ASSESSMENTS 6
Section 3.1. Coinsurance 6
Section 3.2. Modified Coinsurance 7
Section 3.3. Follow the Fortunes 7
Section 3.4. Information; Audits 8
Section 3.5. Confidential Information 8
Section 3.6. Pre-Existing Reinsurance Treaties 9
Section 3.7. Premium Taxes and Guaranty Fund Assessments 9
ARTICLE IV CREDIT FOR REINSURANCE FOR GENERAL ACCOUNT LIABILITIES 10
Section 4.1. Modco; Modco Deposit 10
Section 4.2. Credit For Reinsurance 10
Section 4.3. Letter of Credit 10
Section 4.4. Trust Agreement 11
Section 4.5. Withdrawals from Trust Account or Draws under
Letter of Credit 12
Section 4.6. Priority of Use 13
ARTICLE V PAYMENT AND REINSURANCE ACCOUNTING 13
Section 5.1. Establishment of the Modco Deposit 13
Section 5.2. Adjustments to Modco Deposit 13
Section 5.3. Separate Accounts 14
ARTICLE VI REPORTS; SETOFF RIGHTS 14
Section 6.1. Monthly Reports 14
Section 6.2. Periodic Settlements 14
Section 6.3. Offsets 14
ARTICLE VII REPRESENTATIONS, WARRANTIES AND COVENANTS 15
Section 7.1. Representations and Warranties of the Ceding Company 15
Section 7.2. Representations and Warranties of the Reinsurer 15
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Section 7.3. Maintenance of the Segregated Account 16
Section 7.4. No Recourse 16
Section 7.5. Permitted Distributions from Segregated Account 16
Section 7.6. Segregated Account Further Agreements 16
ARTICLE VIII ADMINISTRATION; CHANGES; CREDITING RATES 17
Section 8.1. Administration and Expense Allowances 17
ARTICLE IX TAXES 17
Section 9.1. Tax Status of Reinsurer 17
Section 9.2. Policy Acquisition Expenses 17
ARTICLE X INSOLVENCY 18
Section 10.1. Insolvency of Ceding Company 18
Section 10.2. Insolvency of Reinsurer 19
ARTICLE XI ARBITRATION 19
Section 11.1. Agreement to Arbitrate 19
Section 11.2. Initiation of Arbitration 19
Section 11.3. Appointment of Arbitration Panel 19
Section 11.4. Location of Arbitration 19
Section 11.5. Arbitration Award 20
Section 11.6. Waiver of Jury Trial 20
ARTICLE XII OVERSIGHTS, ERRORS AND OMISSIONS 20
ARTICLE XIII TERMINATION 20
Section 13.1. Duration 20
Section 13.2. Termination 20
Section 13.3. Termination by the Ceding Company 21
Section 13.4. Settlement Upon Termination 21
ARTICLE XIV INDEMNIFICATION 21
Section 14.1. Reinsurer's Obligation to Indemnify 21
Section 14.2. Ceding Company's Obligation to Indemnify 21
ARTICLE XV MISCELLANEOUS 22
Section 15.1. Currency 22
Section 15.2. Notices 22
Section 15.3. Amendments; Waiver 23
Section 15.4. Successors and Assigns; Third Party Beneficiaries 23
Section 15.5. Duty of Cooperation 23
Section 15.6. Submission to Jurisdiction 23
Section 15.7. Governing Law 24
Section 15.8. Entire Agreement 24
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Section 15.9. Severability 24
Section 15.10. Counterparts 24
INDEX OF SCHEDULES
Schedule 1.1A - Description of Separate Accounts
Schedule 1.1B - Policy Forms Constituting the Subject Contracts
Schedule 7.5 - Qualifying Distributions
INDEX OF EXHIBITS
Exhibit A - Form of Monthly Report
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COINSURANCE AND MODIFIED COINSURANCE AGREEMENT
This Coinsurance and Modified Coinsurance Agreement (together with the
Schedules and Exhibits hereto, this "AGREEMENT"), dated as of December 24,
2009, is made by and between COMMONWEALTH ANNUITY AND LIFE INSURANCE
COMPANY, a life insurance company domiciled in the Commonwealth of
Massachusetts (together with its successors and assigns, the "CEDING
COMPANY"), and ARROW CAPITAL REINSURANCE COMPANY, LIMITED, a reinsurance
company domiciled in Bermuda, acting on behalf, and for the benefit, of the
SEGREGATED ACCOUNT 2009-001 (together with its successors and assigns, the
"REINSURER").
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS. The following terms, when used in this Agreement,
shall have the meanings set forth in this Section 1.1. The terms defined below
shall be deemed to refer to the singular or plural, as the context requires.
(a) "AFFILIATE" of any Person means another Person that directly or
indirectly controls, is controlled by, or is under common control with, such
first Person, where "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management policies of a
Person, whether through the ownership of voting securities, by contract, as
trustee or executor, or otherwise (except as a result of an office or other
official position).
(b) "AGREEMENT" shall have the meaning set forth in the recitals.
(c) "ANNUAL ADMINISTRATION FEE" means $100.00 as of the Effective
Date, which amount shall be increased on each anniversary of the Effective Date
by the corresponding increase, if any, in the Consumer Price Index for all Urban
Consumers (CPI- U) "All Items - Unadjusted 12 mos. ended" as compiled by the
United States Department of Labor, or such other index as agreed upon by the
parties hereto.
(d) "ARROW" means Arrow Capital Reinsurance Company, Limited.
(e) "ASSUMED MODCO LIABILITIES" means the liabilities and obligations
assumed by the Ceding Company under the PL Modco Agreement.
(f) "BAP" means, with respect to the Reinsurer, the accounting
principles prescribed or permitted by the Bermuda Monetary Authority.
(g) "BUSINESS DAY" means a Monday, Tuesday, Wednesday, Thursday, or
Friday on which banking institutions in Bermuda or the Commonwealth of
Massachusetts are not obligated by applicable law to close.
(h) "CEDING COMPANY" shall have the meaning set forth in the preamble.
(i) "CEDING COMPANY INDEMNITEES" shall have the meaning set forth in
Section 14.1.
(j) "CHARGED ASSESSMENTS" shall have the meaning set forth in Section
3.7.
(k) "CODE" means the Internal Revenue Code of 1986, as from time to
time amended.
(l) "EFFECTIVE DATE" means 11:59 p.m. (Eastern Time) on December 31,
2009.
(m) "EXTRA CONTRACTUAL OBLIGATIONS" means all liabilities, obligations
and expenses relating to the Subject Contracts (other than those arising under
the express terms and conditions, and within the limits, of the Subject
Contracts), whether to contractholders, certificate holders, sponsors, insureds,
producers, agents, brokers, Governmental Entities or any other Person, which
shall include (A) any liability for damages or claims in excess of applicable
policy limits, (B) any liability for statutory or regulatory fines, damages,
penalties, forfeitures or similar charges of a penal or disciplinary nature, (C)
any payment to the Internal Revenue Service or any other Person resulting from
or attributable to any act or omission of the Ceding Company (including errors
of product design, language, or administration, or inaccurate or incomplete data
maintained in books and records) resulting in non-compliance of any Subject
Contract with the requirements of the Code and (D) any liability for punitive,
consequential, tort, bad faith, exemplary, special, treble or any other form of
extra contractual damages which arises from any act, error or omission, whether
or not intentional, in bad faith or otherwise, including any act, error or
omission relating to (1) the form, marketing, underwriting, production,
issuance, cancellation or administration of the Subject Contracts, (2) the
investigation, defense, trial, settlement or handling of claims, benefits,
distributions, disbursements or any other payments arising out of or relating to
the Subject Contracts or (3) the payment of claims, benefits, distributions,
disbursements or any other amounts due or alleged to be due under or in
connection with the Subject Contracts.
(n) "FAFLIC" means First Allmerica Financial Life Insurance Company.
(o) "FAFLIC CORE AGREEMENT" means the Core Coinsurance Agreement dated
December 30, 2005 between FAFLIC and the Ceding Company, as may be amended from
time to time.
(p) "GENERAL ACCOUNT" means with respect to the Ceding Company all
assets of the Ceding Company, other than assets in separate accounts maintained
by the Ceding Company, as determined in accordance with SAP.
(q) "GENERAL ACCOUNT EXPENSE ALLOWANCE" means, as to any Monthly
Period, an amount equal to the Reinsurer's Quota Share of (i) as respects any
assumed Subject Contracts, the amount of expense, acquisition or similar
allowances payable by the Ceding Company in such Monthly Period under the terms
of the applicable assumed reinsurance agreement and (ii) as respects any direct
Subject Contracts, the amount of commissions due from the Ceding Company with
respect thereto in such Monthly Period, in each case which amounts are not
Separate Account Liabilities.
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(r) "GENERAL ACCOUNT LIABILITIES" means all liabilities and
obligations of the Ceding Company based upon or arising out of the express
written terms of the Subject Contracts other than Separate Account Liabilities,
after deduction for any cessions under the Pre-Existing Reinsurance Treaties,
but excluding any Extra Contractual Obligations (unless assumed by the Ceding
Company pursuant to the terms of the FAFLIC Core Agreement).
(s) "GENERAL ACCOUNT MODCO RESERVES" shall mean, as of a date, that
portion of the General Account Reserves equal to the reserves the Ceding Company
is required to maintain in respect of the Quota Share of the General Account
Liabilities ceded to Reinsurer hereunder as determined by the Ceding Company in
accordance with Actuarial Guidelines 33, 34 and 39 (as in effect on the date
hereof), including any interest maintenance reserve, and, for the avoidance of
doubt, without regard to Actuarial Guideline 43.
(t) "GENERAL ACCOUNT REINSURANCE PREMIUM" means the Reinsurer's Quota
Share of policyholder premiums and considerations received under the Subject
Contracts to the extent allocated to the General Account.
(u) "GENERAL ACCOUNT REMAINDER RESERVES" shall mean, as of a date,
General Account Reserves less General Account Modco Reserves, but shall in no
event be less than zero.
(v) "GENERAL ACCOUNT RESERVES" means, as of a date, the amount of
reserves as of such date corresponding to the General Account Liabilities, such
amount as determined by the Ceding Company in accordance with SAP, including any
interest maintenance reserve.
(w) "GOVERNMENTAL ENTITIES" shall have the meaning set forth in
Section 7.1(c).
(x) "INITIAL MODCO AMOUNT" shall have the meaning set forth in Section
4.1(a).
(y) "LOSS" shall have the meaning set forth in Section 14.1.
(z) "MODCO ASSETS" shall have the meaning set forth in Section 4.1(b).
(aa) "MODCO DEPOSIT" shall have the meaning set forth in Section
4.1(a).
(bb) "MONTHLY PERIOD" means a calendar month, commencing on the first
day of a month to and including the final day of such month. Notwithstanding
anything to the contrary, the first Monthly Period shall commence on the
Effective Date and end on, and include, January 31, 2010.
(cc) "MONTHLY REPORT" shall mean the report substantially in the form
set forth on EXHIBIT A.
(dd) "PL CONTRACTS" means the variable annuity contracts, the
liabilities and obligations under which were assumed on a modified coinsurance
basis by the Ceding Company pursuant to the PL Modco Agreement.
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(ee) "PL MODCO AGREEMENT" means the Modco Agreement, dated July 3,
2006, between Chase Insurance Life & Annuity Company and the Ceding Company
(f/k/a Allmerica Financial Life Insurance and Annuity Company), as amended
November 20, 2007 and as further amended from time to time.
(ff) "PL MODCO SETTLEMENT AMOUNT" means the "Calculated Amount" which
is determined in accordance with Exhibit L of the PL Modco Agreement as paid to
the Ceding Company or paid by the Ceding Company, as the case may be, in respect
of the periodic settlements required under the PL Modco Agreement.
(gg) "PERSON" means an individual, corporation, partnership, joint
venture, association, limited liability company, trust, unincorporated
organization, governmental entity, or other entity.
(hh) "PRIVATE ACT" means the Arrow Reinsurance Company, Limited ▇▇▇
▇▇▇▇, under which the Reinsurer is a Sponsored Entity pursuant to Section 7 of
the Private Act.
(ii) "PRE-EXISTING REINSURANCE TREATIES" means all reinsurance
agreements (other than this Agreement) under which any Subject Contracts are
reinsured for the benefit of the Ceding Company as such reinsurance agreements
may be terminated, non-renewed, renewed or replaced in accordance with Section
3.6.
(jj) "QUALIFIED UNITED STATES FINANCIAL INSTITUTION" shall have the
meaning set forth in Massachusetts Insurance Code Section 175:20A(3) or any
applicable successor provision.
(kk) "QUOTA SHARE" means one hundred percent (100%).
(ll) "REINSURED LIABILITIES" means the General Account Liabilities,
the Separate Account Liabilities and the Assumed Modco Liabilities.
(mm) "REINSURER" shall have the meaning set forth in the preamble.
(nn) "REINSURER INDEMNITEES" shall have the meaning set forth in
Section 14.2.
(oo) "SAP" means, with respect to the Ceding Company, the statutory
accounting principles and practices prescribed or permitted by the domiciliary
state of the Ceding Company at the time of determination, applied in a manner
consistent with the historical reporting of the Ceding Company (modified to the
extent required by any changes in applicable law or statutory accounting
principles).
(pp) "SEGREGATED ACCOUNT" means Arrow's Segregated Account 2009-001.
(qq) "SEPARATE ACCOUNTS" means the separate accounts established by
the Ceding Company and listed on SCHEDULE 1.1A.
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(rr) "SEPARATE ACCOUNT CHARGES" means amounts withdrawn from Separate
Accounts to pay to the General Account fees and expenses under the Subject
Contracts, including but not limited to "m and e" charges, administrative fees,
revenue sharing fees, 12b-1 fees and other fees due and payable thereunder.
(ss) "SEPARATE ACCOUNT LIABILITIES" means (i) the liabilities and
obligations of the Ceding Company equal to the account values of the Separate
Accounts and (ii) the separate account liabilities ceded by FAFLIC to the Ceding
Company on a modified coinsurance basis pursuant to the FAFLIC Core Agreement.
(tt) "SEPARATE ACCOUNT NET TRANSFER" means, in respect of a specified
period, the Reinsurer's Quota Share of (i) the aggregate account value
transferred from the Separate Accounts to the Subject Contractholders' General
Account MINUS (ii) the aggregate account value transferred from the Subject
Contractholders' General Account to the Separate Accounts.
(uu) "SETTLEMENT DATE" means a date within ten (10) Business Days
following transmittal of a Monthly Report.
(vv) "SUBJECT CONTRACTHOLDERS' GENERAL ACCOUNT" means that portion of
funds under Subject Contracts invested in the General Account.
(ww) "SUBJECT CONTRACTS" means the variable annuity contracts
(including any riders and endorsements) which (i) have been issued on the policy
forms listed on SCHEDULE 1.1B on or before the Effective Date, (ii) are issued
by the Ceding Company following the Effective Date (x) on the policy forms
listed on SCHEDULE 1.1B and (y) pursuant to the underwriting standards,
procedures and guidelines in effect as of the Effective Date, with such changes
thereto as are consented to by the Reinsurer (such consent not to be
unreasonably withheld, delayed or conditioned) or (iii) have been ceded as of
the Effective Date, or are ceded following the Effective Date, to the Ceding
Company pursuant to the FAFLIC Core Agreement. Subject Contracts do not include
PL Contracts.
(xx) "TRUST AGREEMENT" means the Trust Agreement dated as of December
23, 2009 by and among the Reinsurer, as grantor, the Ceding Company, as
beneficiary, and The Bank of New York Mellon, as trustee.
SECTION 1.2. INTERPRETATION.
(a) When a reference is made in this Agreement to an Article, Section,
Exhibit or Schedule, such reference shall be to an Article or Section of,
Exhibit or a Schedule to, this Agreement unless otherwise indicated. The Article
and Section headings and table of contents contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement unless expressly stated
otherwise herein. The definitions contained in this Agreement are applicable to
the
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singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such term. Any statute defined or
referred to herein or in any agreement or instrument that is referred to herein
means such statute as from time to time amended, modified or supplemented,
including successor statutes. References to a Person are also to its successors
and permitted assigns.
(b) The parties have participated jointly in the negotiation and
drafting of this Agreement; consequently, in the event an ambiguity or question
of intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the parties thereto, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
ARTICLE II
FORMATION OF THE SEGREGATED ACCOUNT;
EFFECTIVE DATE
SECTION 2.1. FORMATION OF THE SEGREGATED ACCOUNT.
(a) The Segregated Account is hereby deemed to be established pursuant
to the Private Act.
(b) This agreement shall be designated as a Policy for the purposes of
the Private Act and shall be treated as an insurance contract for the purposes
of the Insurance ▇▇▇ ▇▇▇▇ of Bermuda.
SECTION 2.2. EFFECTIVE DATE.
This Agreement shall become effective on the Effective Date and shall
remain in force unless modified by mutual agreement or terminated as provided
for in ARTICLE XIII hereof.
ARTICLE III
BUSINESS REINSURED; PRE-EXISTING REINSURANCE TREATIES;
INFORMATION; GUARANTY FUND ASSESSMENTS
SECTION 3.1. COINSURANCE.
(a) GENERAL ACCOUNT LIABILITIES GIVING RISE TO GENERAL ACCOUNT
REMAINDER RESERVES UNDER EXISTING SUBJECT CONTRACTS. As of the Effective Date,
the Ceding Company hereby agrees to cede on an indemnity coinsurance basis to
the Reinsurer, and the Reinsurer hereby accepts and agrees to reinsure and
indemnify the Ceding Company for, the Quota Share of all General Account
Liabilities giving rise to the General Account Remainder Reserves under Subject
Contracts written on or before the Effective Date.
(b) GENERAL ACCOUNT LIABILITIES GIVING RISE TO GENERAL ACCOUNT
REMAINDER RESERVES UNDER NEW SUBJECT CONTRACTS. After the Effective Date, the
Ceding Company will automatically cede on an indemnity coinsurance basis to the
Reinsurer, and the Reinsurer will automatically accept and agree to reinsurer
and indemnify the Ceding Company for, the Quota
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Share of all General Account Liabilities giving rise to the General Account
Remainder Reserves under Subject Contracts written after the Effective Date.
SECTION 3.2. MODIFIED COINSURANCE.
(a) GENERAL ACCOUNT LIABILITIES GIVING RISE TO GENERAL ACCOUNT MODCO
RESERVES UNDER EXISTING SUBJECT CONTRACTS. As of the Effective Date, the Ceding
Company hereby agrees to cede on a modified coinsurance basis to the Reinsurer,
and the Reinsurer hereby accepts and agrees to reinsure and indemnify the Ceding
Company for, the Quota Share of all General Account Liabilities giving rise to
General Account Modco Reserves under Subject Contracts written on or before the
Effective Date.
(b) GENERAL ACCOUNT LIABILITIES GIVING RISE TO GENERAL ACCOUNT MODCO
RESERVES UNDER NEW SUBJECT CONTRACTS. After the Effective Date, the Ceding
Company will automatically cede on a modified coinsurance basis to the
Reinsurer, and the Reinsurer will automatically accept and agree to reinsure and
indemnify the Ceding Company for, the Quota Share of all General Account
Liabilities giving rise to General Account Modco Reserves under Subject
Contracts written after the Effective Date.
(c) SEPARATE ACCOUNT LIABILITIES UNDER EXISTING SUBJECT CONTRACTS. As
of the Effective Date, the Ceding Company hereby agrees to cede on a modified
coinsurance basis to the Reinsurer, and the Reinsurer hereby accepts and agrees
to reinsure and indemnify the Ceding Company for, the Quota Share of all
Separate Account Liabilities under Subject Contracts written on or before the
Effective Date.
(d) SEPARATE ACCOUNT LIABILITIES UNDER NEW SUBJECT CONTRACTS. After
the Effective Date, the Ceding Company will automatically cede on a modified
coinsurance basis to the Reinsurer, and the Reinsurer will automatically accept
and agree to reinsure and indemnify the Ceding Company for, the Quota Share of
all Separate Account Liabilities under Subject Contracts written after the
Effective Date.
(e) ASSUMED MODCO LIABILITIES. As of the Effective Date, the Ceding
Company hereby agrees to cede on a modified coinsurance basis to the Reinsurer,
and the Reinsurer hereby accepts and agrees to reinsure and indemnify the Ceding
Company for, the Quota Share of all Assumed Modco Liabilities.
SECTION 3.3. FOLLOW THE FORTUNES.
The Reinsurer's liability under this Agreement shall commence on the
Effective Date, and all reinsurance with respect to which the Reinsurer shall be
liable by virtue of this Agreement shall be subject in all respects to the same
risks, terms, rates, conditions, interpretations, assessments, waivers,
proportion of premiums paid to, and reinsurance recoveries benefiting, the
Ceding Company, the true intent of this Agreement being that the Reinsurer shall
follow the fortunes of the Ceding Company with respect to the Reinsured
Liabilities, and the Reinsurer shall be bound, without limitation, by all
payments and settlements that constitute Reinsured Liabilities entered into by
the Ceding Company as the administrator of the Subject Contracts and the PL
Contracts on and after the Effective Date.
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SECTION 3.4. INFORMATION; AUDITS.
(a) The Ceding Company shall provide to the Reinsurer all material
information available to it relating to the Reinsured Liabilities and, the
Reinsurer agrees to keep such information confidential in accordance with
Section 3.5 hereof. Notwithstanding the foregoing, the Ceding Company shall not
be required to share any information with the Reinsurer to the extent that (x)
the Ceding Company is subject to a confidentiality agreement with respect to
such information, or (y) the Ceding Company is prohibited from sharing such
information with the Reinsurer pursuant to any applicable law relating to the
privacy of non-public personal information or otherwise. Failure to provide any
such information, or include any claim, policy form or other information
relating to the Reinsured Liabilities, shall not affect the reinsurance coverage
provided for by this Agreement. The Reinsurer shall be responsible for any
out-of-pocket costs, expenses and payments (including, without limitation, any
fees required in seeking a waiver of confidentiality) in connection with
obtaining and providing any such material information or seeking a waiver of any
confidentiality pursuant to this Section 3.4(a).
(b) The Reinsurer, or its duly authorized legal, accounting, and
actuarial representatives, shall have access, at reasonable times and upon
reasonable notice during the term of this Agreement, to books and records
maintained by the Ceding Company which pertain to the reinsurance provided under
this Agreement and the employees, accountants and other relevant advisors of the
Ceding Company. The Reinsurer shall bear its own expenses in connection with
such access and shall promptly reimburse the Ceding Company for any
out-of-pocket expenses incurred by the Ceding Company in connection with such
access by the Reinsurer and its representatives.
SECTION 3.5. CONFIDENTIAL INFORMATION.
Each of the Ceding Company and the Reinsurer hereby agree to hold
confidential and not disclose any client or proprietary information (each as
described in the succeeding paragraph) of the other party, except as set forth
in this Agreement, unless otherwise agreed to in writing. The foregoing
limitation shall not apply to proprietary information to the extent such
proprietary information otherwise becomes publicly available, or the disclosure
(i) has been mandated by law, or (ii) is duly required by external auditors.
Client information includes medical, financial and other personal
information about proposed, current and former policyowners, insureds,
applicants, and beneficiaries of Subject Contracts or PL Contracts. Proprietary
information includes but is not limited to underwriting manuals and guidelines,
applications and contract forms and premium rates and allowances of the
Reinsurer and the Ceding Company. In addition, the Ceding Company and the
Reinsurer will comply with relevant privacy legislation. Notwithstanding any
provision herein to the contrary, the confidentiality provisions of this
Agreement shall survive the termination hereof.
Notwithstanding any other provision of this agreement to the contrary,
information concerning the PL Contracts shall be subject to, and disclosure
thereof to the Reinsurer shall be restricted by, the provisions concerning
confidentiality set forth in the PL Modco Agreement. Notwithstanding any other
provision of this agreement or the PL Modco
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Agreement to the contrary, each of the parties hereto may disclose to any person
the tax structure and tax treatment of this Agreement.
SECTION 3.6. PRE-EXISTING REINSURANCE TREATIES.
(a) The collectibility of reinsurance under the Pre-Existing
Reinsurance Treaties with respect to the Subject Contracts from reinsurers of
the Ceding Company shall be at the risk of and for the account of the Ceding
Company.
(b) The Reinsurer acknowledges and agrees that the Ceding Company may
terminate, recapture or non-renew any Pre-Existing Reinsurance Treaty without
the consent of the Reinsurer. From and after the date of any such termination,
recapture or non-renewal, the Reinsurer shall be liable for, and receive the
benefits relating to, the Quota Share of increases to the Reinsured Liabilities
related to such termination, recapture or non-renewal.
(c) The Reinsurer acknowledges and agrees that the Ceding Company may
renew, amend or replace any Pre-Existing Reinsurance Treaty without the consent
of the Reinsurer.
SECTION 3.7. PREMIUM TAXES AND GUARANTY FUND ASSESSMENTS.
The Ceding Company will pay (or will cause to be paid) all premium
taxes (or other taxes imposed in lieu thereof) ("PREMIUM TAXES") and guaranty
fund assessments ("ASSESSMENTS") (whether incurred prior to, on or after the
Effective Date) related to the Subject Contracts. The Reinsurer shall reimburse
the Ceding Company for the Quota Share of any and all Premium Taxes and
Assessments other than fees characterized as "Class A" or "administrative" fees
("CHARGED ASSESSMENTS") paid by the Ceding Company on premiums received by the
Ceding Company on or after the Effective Date on the Subject Contracts to the
extent allocated to the General Account. The Ceding Company shall include the
amount of such Premium Tax and Charged Assessments for which it seeks
reimbursement following the end of each Monthly Period on the Monthly Report for
such Monthly Period. The Ceding Company shall also deliver to the Reinsurer
Premium Tax and Charged Assessment information reasonably necessary for the
Reinsurer to evaluate the correctness of the calculation thereof. The Reinsurer
shall pay to the Ceding Company the amount of Premium Tax and Charged Assessment
due as part of the monthly settlement. The Ceding Company shall notify the
Reinsurer as soon as possible upon the commencement of an audit or other
proceeding that may give rise to a reimbursement obligation under this Section
3.7. The Ceding Company shall not settle or compromise a claim that may give
rise to a reimbursement obligation under this Section 3.7 without the
Reinsurer's consent. To the extent that the Ceding Company shall obtain a refund
or receive credit or any other benefit in respect of all or any part of any
Charged Assessment or Premium Taxes that were the subject of reimbursement
pursuant to this Section 3.7, Company shall promptly pay to the Reinsurer the
amount of such refund, credit or other benefit.
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ARTICLE IV
CREDIT FOR REINSURANCE FOR GENERAL ACCOUNT LIABILITIES
SECTION 4.1. MODCO; MODCO DEPOSIT.
(a) As of the Effective Date, the Ceding Company will establish a
modified coinsurance deposit (the "MODCO DEPOSIT") consisting of identified
assets in its General Account (which assets shall include any ▇▇▇▇▇▇ established
by the Ceding Company in connection with General Account Liabilities) with
aggregate SAP carrying value equal to the General Account Modco Reserves (the
"INITIAL MODCO AMOUNT"). The Modco Deposit will be maintained and controlled by
the Ceding Company and will not be transferred to the Reinsurer.
(b) The Initial Modco Amount shall increase or decrease at the end of
each calendar month based on the monthly settlement, as provided in Section 5.2.
The assets constituting the Modco Deposit (the "MODCO ASSETS") shall be valued
according to their SAP carrying value. The Modco Deposit shall remain in effect
for as long as Reinsurer has outstanding obligations due under this Agreement or
until terminated by mutual agreement. The Modco Assets shall be unencumbered and
shall be subject to withdrawal solely by, and under the exclusive control of,
the Ceding Company.
SECTION 4.2. CREDIT FOR REINSURANCE.
In order to provide Ceding Company with financial statement credit for
the reinsurance of the General Account Remainder Reserves ceded hereunder on its
statutory financial statement filed in its state of domicile and all other
states where it must file statutory statements, the Reinsurer, at its option,
shall either (i) have in place as of the Effective Date for the exclusive
benefit of the Ceding Company, a clean, irrevocable, unconditional and evergreen
Letter of Credit (the "LETTER OF CREDIT") with term of at least one year, issued
or confirmed by a Qualified United States Financial Institution or (ii) create,
as grantor, as of the Effective Date for the exclusive benefit of the Ceding
Company, an account (the "TRUST ACCOUNT") with a trustee that is a Qualified
United States Financial Institution, naming the Ceding Company as sole
beneficiary thereof. Reinsurer shall ensure that the Trust Account or Letter of
Credit, as applicable, is maintained in force while there remain General Account
Remainder Reserves ceded under this Agreement. The Reinsurer may, by giving at
least 90 days prior written notice to the Ceding Company, elect to switch the
method for providing financial statement credit to the Ceding Company from the
Trust Account to the Letter of Credit, or vice versa.
SECTION 4.3. LETTER OF CREDIT.
If the Reinsurer elects to provide the Ceding Company a Letter of
Credit pursuant to Section 4.2, the Ceding Company and the Reinsurer agree as
follows:
(a) The amount of the Letter of Credit will equal or exceed the
General Account Remainder Reserves.
(b) The Letter of Credit will provide for automatic extension of the
Letter of Credit without amendment for one year from the date of expiration of
said letter or any future expiration date unless thirty (30) days prior to any
expiration the issuing bank shall notify the
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Ceding Company by registered mail or courier service that the issuing bank
elects not to consider the Letter of Credit renewed for any additional period.
(c) The Letter of Credit may be drawn upon by the Ceding Company at
any time notwithstanding any other provision of this Agreement.
(d) If the Monthly Report prepared in accordance with Section 6.1(a)
in respect of the last month of any calendar quarter reflects that the
Reinsurer's Quota Share of General Account Remainder Reserves exceeds the
balance of the Letter of Credit as of the report date, the Reinsurer shall,
within 30 days after receipt of notice of such excess, secure delivery to the
Ceding Company of an amendment of the Letter of Credit increasing the amount of
credit by the amount of such difference. If such Monthly Report reflects,
however, that the Reinsurer's Quota Share of General Account Remainder Reserves
is less than the balance of the Letter of Credit as of the report date, the
Ceding Company shall, within 30 days after receipt of written request from the
Reinsurer, release such excess credit by agreeing to secure an amendment to the
Letter of Credit reducing the amount of credit available by the amount of such
excess credit.
SECTION 4.4. TRUST AGREEMENT.
If the Reinsurer elects to provide the Ceding Company a Trust Account
pursuant to Section 4.2, the Ceding Company and the Reinsurer agree as follows:
(a) The Reinsurer shall deposit in the Trust Account, Authorized
Investments (as defined below) with a then current fair market value equal to
the General Account Remainder Reserves, and the trustee shall hold assets in the
Trust Account for the benefit of the Ceding Company pursuant to the terms of the
Trust Agreement. The Trust Account shall be established and maintained in
compliance with all requirements of M.G.L. c. 175 or any successor provision and
all other applicable laws governing the Ceding Company's right to take financial
statement credit for the reinsurance under this agreement, including, without
limitation, 211 CMR 130.09 and 130.10 of the Code of Massachusetts Regulations
for the Commonwealth of Massachusetts.
(b) The assets deposited in the Trust Account shall be valued
according to their fair market value as of the date as of which such assets are
required to be valued under Section 4.4(d) and shall consist only of cash
(United States legal tender), certificates of deposit (issued by a United States
bank and payable in United States legal tender) and investments of the types
both permitted by M.G.L. c. 175 and as specified in paragraphs (1), (2), (3),
(8) and (10) of New York Insurance Law Section 1404(a), provided that such
investments are issued by an institution that is not controlling, controlled by,
or under common control with either the Grantor or the Beneficiary ("AUTHORIZED
INVESTMENTS").
(c) Prior to depositing assets in the Trust Account, the Reinsurer
shall execute assignments or endorsements in blank, or transfer legal title to
the trustee of all shares, obligations or any other assets requiring
assignments, in order that the Ceding Company, or the trustee upon the direction
of the Ceding Company, may whenever necessary negotiate these assets without
consent or signature from the assuming insurer or any other entity.
(d) The Reinsurer shall maintain Authorized Investments in the Trust
Account with an aggregate fair market value at least equal to the General
Account Remainder Reserves.
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The amount of security provided by the Reinsurer shall be adjusted following the
end of each calendar quarter in accordance with the related Monthly Report in
respect of the last month of such calendar quarter provided by the Ceding
Company to the Reinsurer in accordance with Section 6.1(a).
(i) If the aggregate fair market value of the Authorized
Investments held in the Trust Account at the end of any calendar quarter is
less than the General Account Remainder Reserves, the Reinsurer shall, no
later than ten (10) days following the delivery of the related Monthly
Report in respect of the last month of such calendar quarter, transfer
additional Authorized Investments to the Trust Account so that the
aggregate fair market value of Authorized Investments held in the Trust
Account is not less than the General Account Remainder Reserves.
(ii) If the aggregate fair market value of the Authorized
Investments in the Trust Account exceeds 102% of the General Account
Remainder Reserves, calculated based on the Monthly Report in respect of
the last month of the most recent calendar quarter, then the Reinsurer
shall have the right to seek approval (which shall not be unreasonably or
arbitrarily withheld) from the Ceding Company to withdraw from the Trust
Account all or any part of such excess.
SECTION 4.5. WITHDRAWALS FROM TRUST ACCOUNT OR DRAWS UNDER LETTER OF
CREDIT.
(a) The Reinsurer and the Ceding Company agree that the Ceding Company
may withdraw assets in the Trust Account or draw on the Letter of Credit at any
time notwithstanding any other provision of this Agreement. Such withdrawals or
draws shall be used by the Ceding Company, or any successor in interest of the
Ceding Company (which successor includes a court appointed domiciliary receiver
of the Ceding Company, including any conservator, rehabilitator or liquidator),
for the following reasons only:
(i) to pay or reimburse the Ceding Company for the Reinsurer's
share of premiums returned, but not yet recovered from the Reinsurer, to
the owners of the Subject Contracts on account of cancellation of such
contracts;
(ii) to pay or reimburse the Ceding Company for the Reinsurer's
share of surrenders and benefits or losses paid by the Ceding Company, but
not yet recovered from the Reinsurer, under the terms and provisions of the
Subject Contracts;
(iii) to pay or reimburse the Ceding Company for any other
amounts necessary to secure the credit or reduction from liability for
reinsurance taken by the Ceding Company relating to the Subject Contracts;
(iv) where the Ceding Company has received notification of
termination of the Trust Account or non-renewal of the Letter of Credit and
where the Reinsurer's obligations with respect to the Subject Contracts
remain unliquidated and undischarged ten (10) days prior to the termination
date, to withdraw or draw amounts equal to the Reinsurer's share of
liabilities with respect to the Subject Contracts, to the extent that the
liabilities with respect to the Subject Contracts have not yet been funded
by the Reinsurer, and deposit those amounts in a separate account, in the
name of the
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Ceding Company in any Qualified United States Financial Institution apart
from its general assets, in trust for the uses and purposes specified in
Sections 4.5(a)(i) and (ii) as may remain executory after withdrawal and
for any period after the termination date;
(v) to make payment to the Reinsurer of amounts held in the Trust
Account in excess of the amount necessary to secure the credit or reduction
from liability for the Subject Contracts; and
(vi) to pay or reimburse the Ceding Company for the Reinsurer's
share of any other amounts the Ceding Company claims are due under this
Agreement.
(b) In the event the amount withdrawn by the Ceding Company from the
Trust Account or drawn by the Ceding Company under the Letter of Credit exceeds
the actual amount required under the immediately foregoing clauses (i), (ii),
(iii) and (iv), or in the case of (vi) above any amounts which are subsequently
determined not to be due, the Ceding Company shall promptly return to the
Reinsurer the excess amounts so withdrawn or drawn and, until such excess
amounts are returned to the Reinsurer, such amounts, together with interest
thereon, shall be held by the Ceding Company for the benefit of the Reinsurer
and the Reinsurer shall be entitled to all rights, title and interest in said
amounts. The interest rate applicable to such amounts will be at a rate equal to
the prime rate of interest as stated in the Federal Reserve Statistical Release
H.15. Interest will be earned from the date the amount is withdrawn or drawn
until that amount is repaid. All the foregoing shall be applied without
diminution because of insolvency on the part of the Ceding Company or the
Reinsurer.
SECTION 4.6. PRIORITY OF USE. The parties agree that if an amount is
properly subject to withdrawal by the Ceding Company from the Modco Deposit and
by withdrawal from the Trust Account or draw under the Letter of Credit, such
amount shall first be withdrawn from the Modco Deposit and upon, and only upon,
exhaustion thereof, withdrawn from the Trust Account or drawn under the Letter
of Credit.
ARTICLE V
PAYMENT AND REINSURANCE ACCOUNTING
SECTION 5.1. ESTABLISHMENT OF THE MODCO DEPOSIT. On the Effective Date, the
Ceding Company shall establish the Modco Deposit as set forth in Section 4.1.
SECTION 5.2. ADJUSTMENTS TO MODCO DEPOSIT.
(a) The Ceding Company shall adjust the Modco Deposit on a monthly
basis, as reflected in the Monthly Report delivered pursuant to Section 6.1.
(b) Premium paid or payable by Ceding Company on any Pre-Existing
Reinsurance Treaties in respect of Subject Contracts to the extent allocated to
the General Account shall reduce the amount of General Account Reinsurance
Premium that would otherwise be reflected as an increase to the "Monthly Modco
Settlement Amount" reflected on EXHIBIT A, and any benefits or allowances
received or receivable under Pre-Existing Reinsurance Treaties in respect of
Subject Contracts to the extent allocated to the General Account shall
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reduce benefits that would otherwise be reflected as a decrease to the "Monthly
Modco Settlement Amount" reflected on EXHIBIT A.
SECTION 5.3. SEPARATE ACCOUNTS.
The Reinsurer will have no legal or equitable interest in any Separate
Account or any assets held therein arising solely by virtue of the reinsurance
provided pursuant to this Agreement.
ARTICLE VI
REPORTS; SETOFF RIGHTS
SECTION 6.1. MONTHLY REPORTS.
(a) Within thirty (30) calendar days following the end of each Monthly
Period, the Ceding Company shall provide the Monthly Report for such Monthly
Period in the form set forth in EXHIBIT A.
(b) The Ceding Company shall provide the Reinsurer with supporting
calculations with respect to the amounts reflected on the Monthly Report as
reasonably requested by the Reinsurer. The Reinsurer and its employees, advisors
and agents shall have a reasonable right to review and discuss the Monthly
Report with employees, accountants and other relevant advisors of the Ceding
Company during normal business hours.
SECTION 6.2. PERIODIC SETTLEMENTS.
(a) If the "Monthly Aggregate Settlement Amount" set forth on the
Monthly Report reflects a net amount due the Reinsurer, then the Ceding Company
shall pay to the Reinsurer such amount. If the "Monthly Aggregate Settlement
Amount" set forth on the Monthly Report reflects a net amount due the Ceding
Company, then the Reinsurer shall pay to the Ceding Company such amount. The
"Monthly Aggregate Settlement Amount", in each case, shall be paid within ten
(10) days of delivery of the Monthly Report; PROVIDED, that any such payment
that would otherwise be due on a day that is not a Business Day shall be due on
the next following Business Day.
(b) All payments due directly to the Reinsurer or the Ceding Company
shall be remitted by wire transfer in immediately available funds.
SECTION 6.3. OFFSETS.
Any debts or credits incurred on or after the Effective Date in favor
of or against either the Ceding Company or Reinsurer with respect to this
Agreement shall be setoff, and only the net balance shall be paid.
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ARTICLE VII
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 7.1. REPRESENTATIONS AND WARRANTIES OF THE CEDING COMPANY.
The Ceding Company represents and warrants to the Reinsurer as of the
date hereof and, unless otherwise specified in any representation or warranty
below, shall be deemed to have represented and warranted as of the Effective
Date, as follows:
(a) The Ceding Company is a corporation duly organized and validly
existing under the laws of the Commonwealth of Massachusetts and it has the
requisite corporate power and authority to perform its obligations under this
Agreement.
(b) This Agreement has been duly authorized, executed and delivered by
it and, assuming the due authorization, execution and delivery of this Agreement
by the Reinsurer, constitutes a legal, valid and binding obligation of the
Ceding Company, enforceable against the Ceding Company in accordance with its
terms.
(c) The execution and delivery of this Agreement do not, and the
performance by the Ceding Company of its obligation hereunder will not conflict
with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination or cancellation
under, any provision of (i) the articles or certificate of incorporation and
by-laws or comparable organizational documents of the Ceding Company, (ii) any
contract, permit, order, judgment or decree to which the Ceding Company is a
party, (iii) any order of any governmental agency, authority, entity or
instrumentality ("GOVERNMENTAL ENTITY") or (iv) any applicable law, except for
such violations or defaults which would not reasonably be expected to have a
material adverse effect on the business being reinsured hereunder or the Ceding
Company's ability to satisfy its obligations hereunder.
SECTION 7.2. REPRESENTATIONS AND WARRANTIES OF THE REINSURER.
The Reinsurer represents and warrants to the Ceding Company as of the
date hereof and, unless otherwise specified in any representation or warranty
below, shall be deemed to have represented and warranted as of the Effective
Date, as follows:
(a) Arrow is a corporation duly organized, validly existing and in
good standing (to the extent legally applicable) under the laws of Bermuda and
has the requisite corporate power and authority to perform its obligations under
this Agreement. The Segregated Account has been established pursuant to the
Private Act and this Agreement.
(b) This Agreement has been duly authorized, executed and delivered by
it and, assuming the due authorization, execution and delivery of this Agreement
by the Ceding Company, constitutes a legal, valid and binding obligation of the
Reinsurer, enforceable against the Reinsurer in accordance with its terms.
(c) The execution and delivery of this Agreement do not, and the
performance by the Reinsurer of its obligation hereunder will not conflict with,
or result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of
15
termination or cancellation under, any provision of (i) the articles or
certificate of incorporation and bye-laws or comparable organizational documents
of Arrow or the Reinsurer, (ii) any contract, permit, order, judgment or decree
to which Arrow or the Reinsurer is a party, (iii) any order of any Governmental
Entity or (iv) any applicable law, except for such violations or defaults which
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the Reinsurer's ability to satisfy its obligations
hereunder.
SECTION 7.3. MAINTENANCE OF THE SEGREGATED ACCOUNT.
Arrow shall maintain the Segregated Account pursuant to the Private
Act and this Agreement and shall allocate and direct to the Segregated Account
such assets and property whatsoever and howsoever arising related to this
Agreement with the effect that such assets and property should be legally
segregated in accordance with the terms of the Private Act from (A) the general
assets and property of Arrow, and (B) the assets and property of any other
segregated account of Arrow.
SECTION 7.4. NO RECOURSE.
Other than the Modco Assets, the assets in the Trust Account and the
assets and property in the Segregated Account, the Ceding Company shall not have
any recourse, direct or indirect, with respect to the obligations of the
Reinsurer or Arrow under this Agreement or any certificate or other writing
delivered in connection herewith, against Arrow or any of its assets or
property.
SECTION 7.5. PERMITTED DISTRIBUTIONS FROM SEGREGATED ACCOUNT.
For as long the Reinsurer has outstanding obligations due under this
Agreement, Arrow shall not, and shall not cause or permit the Segregated Account
to, pay or distribute assets of the Segregated Account other than a payment or
distribution (i) made to or for the benefit of the Ceding Company under the
terms of this Agreement, (ii) made with the express written consent of the
Ceding Company (which consent may be withheld for any reason) or (iii) which is
a Qualifying Distribution. A "QUALIFYING DISTRIBUTION" is a distribution or
payment of assets from the Segregated Account to Arrow (or another segregated
account of Arrow) in an amount equal to or less than the excess, if any, of (A)
the surplus in the Segregated Account determined in accordance with BAP OVER (B)
the amount reflected on SCHEDULE 7.5 hereto in respect of the applicable
calendar year; PROVIDED that (x) the Reinsurer is not in breach of any of its
obligations under this Agreement or the Trust Agreement at the time such
distribution or payment is made and (y) making such payment or distribution will
not result in a breach by Reinsurer of any of its obligations under this
Agreement or the Trust Agreement, or in a violation by the Reinsurer of
applicable law.
SECTION 7.6. SEGREGATED ACCOUNT FURTHER AGREEMENTS.
The Reinsurer, either individually or on behalf, and for the benefit,
of the Segregated Account, shall not at any time, without the prior written
approval of the Ceding Company or unless expressly permitted by this Agreement:
(A) enter into any agreements or contracts with respect to the Segregated
Account other than this Agreement, the Trust Agreement and agreements entered
into with respect to the Letter of Credit or (B) amend, rescind, terminate
16
or waive any rights under, or consent to the assignment of, this Agreement, the
Trust Agreement or any agreement entered into with respect to the Letter of
Credit.
ARTICLE VIII
ADMINISTRATION; CHANGES; CREDITING RATES
SECTION 8.1. ADMINISTRATION AND EXPENSE ALLOWANCES.
(a) The Ceding Company and the Reinsurer agree that the Subject
Contracts and PL Contracts will be administered by the Ceding Company in good
faith, and the Ceding Company agrees to perform such administrative services:
(i) consistent with its current practice and (ii) in material compliance with
all applicable law and the requirements of the Subject Contracts, the PL
Contracts, the PL Modco Agreement and the FAFLIC Core Agreement. The Ceding
Company shall have no liability to the Reinsurer for the administration of the
Subject Contracts or the PL Contracts, except for bad faith, gross negligence or
an intentional breach of this Section 8.1(a).
(b) For each calendar month, the Reinsurer will pay the Ceding Company
with respect to each Subject Contract and each PL Contract in force during the
applicable calendar month, its Quota Share of one twelfth (pro rated with
respect to any partial Monthly Periods) of the Annual Administration Fee for the
Ceding Company's administration of such Subject Contracts and PL Contracts. For
purposes of this Section 8.1(b), the number of Subject Contracts and PL
Contracts in force during any calendar month shall be deemed to be the sum of
Subject Contracts and PL Contracts in force on the first day of such calendar
month.
ARTICLE IX
TAXES
SECTION 9.1. TAX STATUS OF REINSURER.
Reinsurer represents and warrants that it is treated as a United
States Person within the meaning of section 7701(a)(30) of the Code and is
subject to United States taxation under Subchapter L of the Code.
SECTION 9.2. POLICY ACQUISITION EXPENSES.
The parties hereto jointly elect under Treasury Regulations Section
1.848-2(g)(8) as follows:
(a) For each taxable year, the party with net positive consideration,
as defined in Treasury Regulations Section 1.848-2, will capitalize specified
policy acquisition expenses with respect to this Agreement without regard to the
general deductions limitation of Section 848(c)(1) of the Code. Each party shall
attach a schedule to its federal income tax return for the first taxable year
for which this election is in effect stating that an election under Treasury
Regulations Section 1.848-2(g)(8) has been made for this Agreement.
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(b) The parties agree to exchange information about the amount of net
consideration for all reinsurance agreements in force between them to ensure
consistency for purposes of computing specified policy acquisition expenses.
(c) The Ceding Company will submit a schedule to the Reinsurer by
March 1 of each year of its calculation of the net consideration for the
preceding calendar year, which upon written request of the Reinsurer will be
accompanied by a statement signed by an officer of the Ceding Company stating
that the Ceding Company will report such net consideration in its tax return for
the preceding calendar year.
(d) This election is effective for the taxable year of each party that
includes the Effective Date and will remain in effect for all future taxable
years for which this Agreement remains in effect.
ARTICLE X
INSOLVENCY
SECTION 10.1. INSOLVENCY OF CEDING COMPANY.
(a) In the event of the insolvency of the Ceding Company, the
reinsurance shall be payable directly to the Ceding Company, or to its
liquidator, receiver, conservator or statutory successor on the basis of claims
filed and allowed in the liquidation proceeding, without diminution because of
the insolvency of the Ceding Company.
(b) The reinsurance shall be payable by the Reinsurer directly to the
Ceding Company or to its domiciliary liquidator except: (1) where the contract
of insurance or reinsurance specifically provides another payee of such
reinsurance in the event of the insolvency of the Ceding Company or (2) where
the Reinsurer, with the consent of the direct insured(s), has assumed such
policy obligations of the Ceding Company as direct obligations of the Reinsurer
to the payees under such policies and in substitution for the obligations of the
Ceding Company to such payees. Any such payment made by the Reinsurer in
accordance with the foregoing clauses (2) shall discharge the Reinsurer from its
related payment obligation under the subject Ceded Policy.
(c) The liquidator, receiver or statutory successor of the Ceding
Company shall give written notice to the Reinsurer of the pendency of each claim
against the Ceding Company with respect to such Reinsured Liabilities within a
reasonable time after each such claim is filed in the insolvency, liquidation or
rehabilitation proceeding. During the pendency of any such claims, the Reinsurer
may investigate such claim and interpose, at its own expense, in the proceeding
in which such claim is to be adjudicated any defense or defenses that the
Reinsurer may reasonably deem available to the Ceding Company or its liquidator,
receiver or statutory successor. Subject to court approval, the expenses
incurred in connection therewith by the Reinsurer shall be chargeable against
the Ceding Company as part of the expense of such insolvency, liquidation or
rehabilitation to the extent of a proportionate share of any benefit that
accrues to the Ceding Company solely as a result of the defense or defenses
undertaken by the Reinsurer.
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SECTION 10.2. INSOLVENCY OF REINSURER.
In the event of the insolvency, liquidation or rehabilitation of Arrow
or the Segregated Account, the Ceding Company may provide the Reinsurer, its
receiver, rehabilitator, conservator, liquidator or statutory successor with
written notice of its intent to terminate all reinsurance in force under this
Agreement, regardless of the duration the reinsurance has been in force or the
amount retained by the Ceding Company on the Subject Contracts or the PL
Contracts. The effective date of a termination due to the insolvency,
liquidation or rehabilitation of Arrow or the Segregated Account is at the
election of the Ceding Company.
ARTICLE XI
ARBITRATION
SECTION 11.1. AGREEMENT TO ARBITRATE.
All disputes between the parties arising out of this Agreement shall
be referred to and settled by arbitration held in accordance with the guidelines
set forth in the ▇▇▇▇▇-U.S. PRACTICAL GUIDE TO REINSURANCE ARBITRATION PROCEDURE
(2004) (except for the "STREAMLINED ARBITRATION PROCEDURES"); PROVIDED, that,
notwithstanding anything to the contrary in the ▇▇▇▇▇-U.S. PRACTICAL GUIDE TO
REINSURANCE ARBITRATION PROCEDURE, the arbitrators to be appointed to the
arbitration panel shall be appointed in accordance with Section 11.3. It is
specifically the intent of both parties that these arbitration provisions will
replace any statutory provision, if any, relating to any arbitration procedures
the provisions cover.
SECTION 11.2. INITIATION OF ARBITRATION.
Arbitration shall be initiated by the delivery of a written notice of
demand for arbitration by one party to the other.
SECTION 11.3. APPOINTMENT OF ARBITRATION PANEL.
The arbitration panel shall consist of three members appointed in
accordance with the ▇▇▇▇▇-U.S. NEUTRAL SELECTION PROCEDURE, as then currently in
effect (including the suggested guidelines therein), except that the ▇▇▇▇▇-U.S.
Executive Director's Office shall be requested to provide its initial list of
thirty ▇▇▇▇▇-U.S. Certified Arbitrators exclusively from a pool of arbitrators
that shall have no less than ten years of experience in the insurance or
reinsurance industry and be active or retired officers of life insurance or life
reinsurance companies.
SECTION 11.4. LOCATION OF ARBITRATION.
The arbitration proceeding shall take place in Boston, Massachusetts;
PROVIDED, that the arbitration panel may, for the convenience of the parties and
without changing the situs of the arbitration proceeding, take evidence at any
place within or without Boston, Massachusetts.
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SECTION 11.5. ARBITRATION AWARD.
The arbitrators shall not be obligated to follow judicial formalities
or the rules of evidence and shall make their decisions according to the
practice of the reinsurance business. The decision rendered by a majority of the
arbitration panel shall be final and binding on the parties. Any award of the
arbitration panel may be, alternatively or cumulatively, for money damages, an
order requiring the performance of the obligations under this Agreement, or any
other appropriate order or remedy. The arbitration panel may award interim
relief, including pre-award security. The award shall assign all costs of the
arbitration to one or more of the parties in such proportion as the arbitrators
determine on an equitable basis, except each party shall bear its own attorneys
fees, professional fees and expert witness costs. Judgment upon any award
rendered in the arbitration may be entered in any court having jurisdiction.
SECTION 11.6. WAIVER OF JURY TRIAL.
Each of the parties hereto irrevocably waives any and all right to
trial by jury in any legal proceeding arising out of or related to this
Agreement or the transactions contemplated hereby.
ARTICLE XII
OVERSIGHTS, ERRORS AND OMISSIONS
Any inadvertent delays, errors or omissions on the part of one party
occurring in connection with its obligations under this Agreement or any
transaction hereunder shall not relieve the other party from any liability which
would have otherwise attached had such delay, error or omission not occurred.
ARTICLE XIII
TERMINATION
SECTION 13.1. DURATION.
This Agreement shall commence on the Effective Date and continue until
the date on which this Agreement is terminated under Section 13.2 or Section
13.3, except that under no circumstances shall any termination of this Agreement
relieve either party from liability for any breach of this Agreement occurring
prior to such termination or from its obligations under Section 3.5.
SECTION 13.2. TERMINATION.
This Agreement may be terminated by the mutual written consent of the
Reinsurer and the Ceding Company. The Ceding Company shall not withhold its
consent in the event it determines in good faith that there is no further
current or potential future liability of the Reinsurer hereunder.
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SECTION 13.3. TERMINATION BY THE CEDING COMPANY.
The Ceding Company, in its sole discretion, shall have the option to
terminate this Agreement upon thirty (30) days' prior written notice to the
Reinsurer.
SECTION 13.4. SETTLEMENT UPON TERMINATION.
Upon the termination of this Agreement, the Ceding Company shall
recapture all liabilities previously ceded to the Reinsurer and, subject to
payment by the Reinsurer of any amounts due to the Ceding Company pursuant to
this Section 13.4, the Reinsurer's liability under this Agreement will
terminate (provided that such termination shall not relieve any party of any
pre-termination breach of the Agreement). The Ceding Company shall prepare a
Monthly Report for the period commencing on the first day of the then-current
calendar month and ending on the date this Agreement is terminated pursuant
to Sections 13.2 or 13.3, as applicable. On the fifth (5th) Business Day
following the Monthly Report, (a) the parties shall pay any amounts due and
owing on such Monthly Report, (b) the Ceding Company shall pay to the
Reinsurer the then remaining Modco Deposit and (c) the Reinsurer shall
transfer to the Ceding Company assets with an aggregate fair market value, as
determined by the Ceding Company, equal to one-hundred percent (100%) of the
amount representing the Quota Share of the General Account Modco Reserves, as
determined by the Ceding Company as of the date of termination. The amounts
paid pursuant to clause (a), (b) and (c) shall be setoff, and only the
balance shall be allowed or paid by the applicable party.
ARTICLE XIV
INDEMNIFICATION
SECTION 14.1. REINSURER'S OBLIGATION TO INDEMNIFY.
The Reinsurer hereby indemnifies the Ceding Company and its directors,
officers, employees, Affiliates, successors, permitted assigns, agents and
representatives (collectively, the "CEDING COMPANY INDEMNITEES") from and
against and agrees to hold each of them harmless from any and all claim, damage,
loss, liability, fine and expense (including reasonable attorneys' fees and
other expenses of investigation in connection with any action, suit or
proceeding) (each, a "LOSS") incurred or suffered by the Ceding Company
Indemnitees arising out of or resulting from any breach by the Reinsurer of any
representation, warranty or term of this Agreement.
SECTION 14.2. CEDING COMPANY'S OBLIGATION TO INDEMNIFY.
The Ceding Company hereby indemnifies the Reinsurer and its directors,
officers, employees, Affiliates, successors, permitted assigns, agents and
representatives (collectively the "REINSURER INDEMNITEES") from and against and
agrees to hold each of them harmless from any and all Losses incurred or
suffered by Reinsurer Indemnitees arising out of or resulting from (a) any
breach by the Ceding Company of any representation, warranty or term of this
Agreement or (b) any litigation, claim, examination, investigation or other
proceeding brought by a Person that is neither a party to this Agreement nor an
Affiliate of such party, which if brought against the Ceding Company would be an
Extra Contractual Obligation.
21
ARTICLE XV
MISCELLANEOUS
SECTION 15.1. CURRENCY.
All transactions hereunder shall be in United States currency.
Premiums and Reinsured Liabilities expressed in currencies other than United
States currency shall, for the purpose of this Agreement, be converted into
United States dollars at the rates of exchange in effect on the date on which
they are entered in the books of the Ceding Company.
SECTION 15.2. NOTICES.
All notices, requests, demands, approvals and other communications
under this Agreement shall be in writing and shall be (i) delivered personally,
(ii) sent by facsimile transmission or (iii) sent by certified, registered or
express mail, postage prepaid. Any such notice or other communication shall be
deemed given: (a) upon actual delivery, if presented personally, (b) when
electronically confirmed, if sent by facsimile transmission and (c) three (3)
Business Days following deposit in the United States mail, if sent by certified,
registered or express mail, postage prepaid, in each case to the following
addresses:
If to the Ceding Company:
Commonwealth Annuity and Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
President and CEO
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice for purposes of this
Section 15.2):
Commonwealth Annuity and Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
General Counsel and Secretary
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
22
If to Reinsurer:
Arrow Capital Reinsurance Company, Limited
(for Segregated Account 2009-001)
Swan Building, 2nd Floor
26 Victoria Street ▇▇▇▇▇▇▇▇ ▇▇ 12, Bermuda
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇,
President
Telephone No.: ▇-▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇-▇▇▇-▇▇▇-▇▇▇▇
SECTION 15.3. AMENDMENTS; WAIVER.
(a) Any provision of this Agreement may be amended if, but only if,
such amendment is in writing and is signed by each party to this Agreement. Any
change or modification to this Agreement shall be null and void unless made by
an amendment hereto signed by each party to this Agreement.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 15.4. SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided that no party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the consent of each
other party hereto, and that any purported assignment without the consent of the
other party shall be void and of no force or effect.
(b) No provision of this Agreement is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder
SECTION 15.5. DUTY OF COOPERATION.
Each party hereto shall cooperate fully with the other party hereto in
all reasonable respects in order to accomplish the objectives of this Agreement.
SECTION 15.6. SUBMISSION TO JURISDICTION.
In the event of the failure of the Reinsurer to perform its
obligations under the terms of this Agreement, the Reinsurer, at the request of
the Ceding Company, shall submit to the jurisdiction of an alternative dispute
resolution panel or any court of competent jurisdiction in any state of the
United States, will comply with all requirements necessary to give such panel or
court jurisdiction, and will abide by the final decision of such panel or court
or of any appellate court in the event of an appeal of a decision by such panel
or court. The Reinsurer hereby
23
designates the Commissioner of the Massachusetts Division of Insurance or a
designated attorney thereof as its true and lawful attorney upon whom may be
served any lawful process in any action, suit or proceeding instituted by or on
behalf of the Ceding Company. The foregoing provision shall not in any way
conflict with, limit or override the obligations of the parties to submit any
disputes hereunder to arbitration in accordance with Article XI hereof.
SECTION 15.7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the law of the Commonwealth of Massachusetts, without giving effect to the
principles of conflicts of law thereof, except in relation to matters concerning
the establishment and validity of the Segregated Account or the interpretation
of the Private Act, which shall be governed by Bermuda law.
SECTION 15.8. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties
with respect to the business being reinsured hereunder and supersedes all prior
agreements and understandings, both oral and written, between the parties with
respect to the subject matter of this Agreement. There are no understandings
between the parties with respect to the subject matter of this Agreement other
than as expressed herein and therein.
SECTION 15.9. SEVERABILITY.
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under any present or future law or if determined by a court of
competent jurisdiction to be unenforceable, and if the rights or obligations of
the Ceding Company or the Reinsurer under this Agreement will not be materially
and adversely affected thereby, such provision shall be fully severable, and
this Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of this Agreement shall remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom.
SECTION 15.10. COUNTERPARTS.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall be deemed to have
been executed and delivered when each party hereto shall have received a
counterpart hereof signed by the other party hereto and then become effective
upon the Effective Date.
24
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers, as of the Effective
Date.
COMMONWEALTH ANNUITY AND LIFE INSURANCE COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
ARROW CAPITAL REINSURANCE COMPANY, LIMITED
ACTING ON BEHALF, AND FOR THE BENEFIT, OF THE
SEGREGATED ACCOUNT 2009-001
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
EXHIBIT A
MONTHLY SETTLEMENT
For each Monthly Period, the parties will effect a Monthly Settlement as
follows:
STATEMENT OF THE MONTHLY MODCO SETTLEMENT AMOUNT
General Account Modco Reserves as of
the last day of the Monthly Period
immediately preceding the most
recently ended Monthly Period (A) $ (A)
--------
General Account Modco Reserves as of
the last day of the most recently ended
Monthly Period (B) (B)
Monthly General Account Reserve --------
Change: (A) - (B) $
+ General Account Reinsurance Premium -------
collected during month, adjusted in
accordance with Section 5.2(b)
-------
+/- Separate Account Net Transfer made
during month
-------
+ Interest and other earnings (including
realized gains and losses, and changes
in unrealized gains and losses with
respect to derivatives only) accrued on
the Modco Assets during month
-------
- General Account Expense Allowance
accrued during month ( )
------
+ Quota Share of Separate Account
Charges collected during month
-------
- Quota Share of Premium Taxes and
Charged Assessments paid during
month ( )
------
- Quota Share of 1/12 Annual
Administration Fees with respect to
Subject Contracts ( )
------
- Quota Share of General Account
Liabilities paid during month,
adjusted in accordance with Section
5.2(b) ( )
------
Monthly Modco Settlement Amount: (C) $ (C)
------
▇▇▇. ▇-▇
▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇ MODCO CONTRACTS
PL Modco Settlement Amount paid
during month:
(Paid by the Ceding Company to PL)/
Paid to the Ceding Company by PL $
-------
- Quota Share of 1/12 Annual
Administration Fees with respect to
PL Contracts ($ )
------
Total Settlement with respect to PL
Contracts (D) $ (D)
------
STATEMENT OF MONTHLY SETTLEMENT
Monthly Aggregate Settlement Amount
(E) = (C) + (D) $ (E)
------
"MONTHLY AGGREGATE SETTLEMENT AMOUNT" (E) is payable to the Reinsurer if
positive and, if negative, the absolute value is payable to the Ceding Company.
Exh. A-2
SCHEDULE 1.1A
DESCRIPTION OF SEPARATE ACCOUNTS
CwA LEGACY 403b HORIZON PROTECTIVE
------------------------ ---------------- ------------ -------------------------
Separate Account VA-K Commonwealth Commonwealth Protective Acquired
Annuity Separate Annuity Variable Annuity Separate
Account A Separate Account (formerly Chase
Account A Variable Annuity Separate
Account)
Commonwealth Annuity KILICO Variable Annuity
Select Separate Account Separate Account
(formerly Allmerica
Select Separate Account)
Separate Account VA-P KILICO Variable Annuity
Account C
Separate Account KG KILICO Variable Annuity
Separate Account -2
Separate Account KGC
Fulcrum Separate
Account
Separate Account VA-A
Separate Account VA-B
Separate Account VA-C
Separate Account VA-G
Separate Account VA-H
Separate Accounts D, E,
and F
Schedule 1.1A-1
SCHEDULE 1.1B
POLICY FORMS CONSTITUTING SUBJECT CONTRACTS
CwA LEGACY 403b HORIZON PROTECTIVE
------------------------ ---------------- -------- ------------------------------
A3001-75 A3038-07 A3040-09 L-8696
(75 series elective pay) (Advantage IV) L-8697
L-8698
(Preferred Plus)
A3002-75 A3039-07 L-8613
(75 series elective pay) (Preferred Plus) L-8614
L-8589
(Preferred)
A3003-75 L-1600 (9/91)
(75 series elective pay) L-1600 (10/93)
L-1650 (9/91)
L-1650 (10/93)
(Passport)
A3004-75 L-1000 (6/93)
(75 series elective pay) (Advantage III)
A3005-75 L-5848 (1/82)
(75 Elect Payment Fixed) L-5856 (4/85)
L-5881 (1/82)
L-5882 (1/82)
(Advantage III (KMSA)
A3006-75 L-5454 (5/80)
(75 Elect Payment Fixed) (Advantage I (SACA -
Annual))
A3007-78 L-5672 (2/81)
(75 Elect Payment Fixed) (Advantage I (SACB -
Quarterly))
A3008-78 L-8823
(78 Single Pay Fixed) L-8824
L-8825
(Zurich Archway & ZS4)
A3009-78 S-3253
(78 Single Pay Fixed) (Protective RSG Advantage III
(formerly Chase Advantage
III))
A3010-79 S-3258
(79 Elect Payment Fixed) (Protective FI Variable
Annuity (formerly Chase
Variable Annuity or "the One
Variable Annuity")
A3011-79 S-3257
(79 Elect Payment Fixed) (Protective RSB Preferred Plus
Schedule 1.1B-1
CwA LEGACY 403b HORIZON PROTECTIVE
------------------------ ---------------- -------- -------------------------
(formerly Chase Insurance
Preferred Plus)
A3012-79
(78/79 series elective pay)
A3013-79
(78/79 series elective pay)
A3014-79
(78/79 series single pay)
A3015-79
(78/79 series single pay)
A3016-84
(Exec ▇▇▇ Single Pay
Fixed)
A3017-86
Exec ▇▇▇ ▇▇ - Single Pay
Fixed
A3018-91
(Exec Annuity Plus 91 (3))
A3019-92
(Delaware Medallion I)
A3020-92
(Select Resource I)
A3021-93
(Exec Annuity Plus 93)
A3022-93
(Delaware Medallion II)
A3023-95
(Pioneer Vision 1)
A3025-96
(Advantage, Select
Resource II, Delaware
Medallion III, Pioneer
Vision ▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇)
▇▇▇▇▇-▇▇
(▇▇▇▇▇▇▇ Gateway
Custom)
A3027-98
(▇▇▇▇▇▇▇ Advisor, Pioneer
C-Vision, Select Charter)
A3028-99
(Delaware Golden
Medallion, Pioneer
XtraVision, ▇▇▇▇▇▇▇
Schedule 1.1B-2
CwA LEGACY 403b HORIZON PROTECTIVE
------------------------ ---------------- -------- -------------------------
Gateway Plus, Select
Reward)
A3029-99
(Immediate Advantage)
A3030-99
(Value Generation and
Directed Advisory
Solutions)
A3031-99
(Select Acclaim)
A3035-00
(▇▇▇▇▇▇▇ Gateway
Incentive and ▇▇▇▇▇▇▇
SBD with EDB)
A3036-01
(Premier Choice)
A3037-02
(Optim-L)
A3038-02
(Gateway Plus II)
AVA-FP-67
(67 series elective pay)
AVA-FP-69
(69 series elective pay)
AVA-SP-67
(67 series single pay)
AVA-SP-69
(69 series single pay)
AVA-ST-67
(67 series stipulated pay)
VFR - 68
(67 series group elective
(GA))
VFS -68
67 series group elective
(GB), Flexible Fixed (84-
92)
Colonial AVA (single pay)
Schedule 1.1B-3
SCHEDULE 7.5
Qualifying Distributions
YEAR TOTAL ECONOMIC CAPITAL
---- ----------------------
2010 53
2011 46
2012 40
2013 35
2014 31
2015 27
2016 23
2017 20
2018 18
2019 16
2020 14
2021 12
2022 11
2023 9
2024 8
2025 7
2026 6
2027 5
2028 5
2029 4
Schedule 7.5-1