================================================================================
3208-00-00
RISK PREMIUM REINSURANCE AGREEMENT
between
USAA LIFE INSURANCE COMPANY
(hereinafter called the "Ceding Company")
San Antonio, Texas, USA
and
RGA REINSURANCE COMPANY
(hereinafter called the "Reinsurer")
St. Louis, Missouri, USA
THIS AGREEMENT IS EFFECTIVE JUNE 1, 1998
================================================================================
TABLE OF CONTENTS
=================
ARTICLE TITLE PAGE
------- ----- ----
I PARTIES TO THE AGREEMENT 3
II COMMENCEMENT, TERMINATION AND CONTINUANCE OF REINSURANCE 3
III SCOPE 4
IV COVERAGE 5
V LIABILITY 6
VI RETENTION AND RECAPTURE 7
VII REINSURANCE PREMIUMS AND ALLOWANCES 7
VIII RESERVES 8
IX TERMINATIONS AND REDUCTIONS 8
X POLICY ALTERATIONS 8
XI POLICY ADMINISTRATION AND PREMIUM ACCOUNTING 9
XII CLAIMS 10
XIII ARBITRATION 11
XIV INSOLVENCY 13
XV RIGHT TO INSPECT 13
XVI UNINTENTIONAL ERRORS, MISUNDERSTANDINGS OR OMISSIONS 13
XVII CHOICE OF LAW, FORUM AND LANGUAGE 14
XVIII ALTERATIONS TO THE AGREEMENT 14
XIX EXECUTION OF THE AGREEMENT 15
SCHEDULES
---------
I REINSURANCE SPECIFICATIONS 16
II RETENTION 20
III BUSINESS COVERED 21
IV REINSURANCE PREMIUMS 22
V LIMITS 27
VI SAMPLE STATEMENT SPECIFICATIONS 28
VII SAMPLE POLICY EXHIBIT 29
VIII DEFINITIONS 30
2
ARTICLE I
PARTIES TO THE AGREEMENT
------------------------
Reinsurance required by the Ceding Company will be assumed by the Reinsurer as
described in the terms of this Agreement.
This is an Agreement solely between the Reinsurer and the Ceding Company. In no
instance will anyone other than the Reinsurer or the Ceding Company have any
rights under this Agreement, and the Ceding Company is and will remain solely
liable to any insured, policyowner, or beneficiary under the Original Policies
reinsured hereunder.
The current general and special policy conditions, the premium schedules, and
underwriting guidelines of the Ceding Company, applying to the business covered
by this Agreement as set out in the Schedules, will form an integral part of
this Agreement. Additions or alterations to any of these conditions or
schedules will be reported to the Reinsurer without delay. In the case of
significant changes, both parties to the Agreement must agree to the new
reinsurance conditions.
ARTICLE II
COMMENCEMENT, TERMINATION AND CONTINUANCE OF REINSURANCE
--------------------------------------------------------
1. AGREEMENT COMMENCEMENT
----------------------
Notwithstanding the date on which this Agreement is signed, this
Agreement will take effect as from the date shown in the attached
Schedule I, and applies to new business taking effect on and after
this date.
2. AGREEMENT TERMINATION
---------------------
This Agreement will be in effect for an indefinite period and may be
terminated as to new reinsurance at any time by either party giving
ninety (90) days written notice of termination. The day the notice is
mailed to the other party's Home Office, or, if the mail is not used,
the day it is delivered to the other party's Home Office or to an
Officer of the other party will be the first day of the ninety (90)
day period.
During the ninety(90) day period, this Agreement will continue to
operate in accordance with its terms.
3. POLICY TERMINATION
------------------
If the Policy is terminated by death, lapse, surrender or otherwise,
the reinsurance will terminate on the same date. If premiums have
been paid on the reinsurance for a period beyond the termination
date, refunds will follow the terms as shown in Schedule I.
If the Policy continues in force without payment of premium during
any days of grace pending its surrender, whether such continuance be
as a result of a Policy provision or a practice of the Ceding
Company, the reinsurance will also continue without payment of
premium and will terminate on the same date as the Ceding Company's
risk terminates.
If the Policy continues in force because of the operation of an
Automatic Premium Loan provision, or other such provision by which
the Ceding Company receives compensation for its risk, then the
reinsurance will also continue and the Ceding Company will pay the
Reinsurer the reinsurance premium for the period to the date of
termination.
3
ARTICLE II
COMMENCEMENT, TERMINATION AND CONTINUANCE OF REINSURANCE (CONTINUED)
--------------------------------------------------------------------
4. CONTINUATION OF REINSURANCE
---------------------------
On termination of this Agreement in accordance with the provisions in
Paragraph two of this Article, the reinsurance ceded will remain in
force subject to the terms and conditions of this Agreement until
their natural expiry.
ARTICLE III
SCOPE
-----
1. RETENTION OF THE CEDING COMPANY
-------------------------------
The type and amount of the Ceding Company's retention on any one life is
as shown in Schedule I. In determining the amounts at risk in each case,
any additional death benefits on the same life (e.g. additional term
insurance or family income benefits) will be taken into account, as will
the amounts at risk under any other existing policies, at the time of
commencement, of the policy ceded under this Agreement.
The Ceding Company may alter its retention in respect of future new
business at any time. The Ceding Company will promptly notify the
Reinsurer of such alteration and its effective date.
2. CURRENCY
--------
All reinsurance to which the provisions of this Agreement apply will be
effected in the same currencies as that expressed in the Original Policies
and as shown in Schedule I.
3. THE REINSURER'S SHARE
---------------------
The Reinsurer's Share is as shown in Schedule I.
4. BASIS OF REINSURANCE
--------------------
Plans of insurance listed in Schedule I will be reinsured on the basis
described in Schedule I, using the rates given in the Rate Table as shown
in Schedule I.
5. REINSURANCE ALLOWANCES
----------------------
The Reinsurer will pay to the Ceding Company the reinsurance allowance,
if any, as shown in Schedule I. If any reinsurance premiums or installments
of reinsurance premiums are returned to the Ceding Company, any
corresponding reinsurance allowance previously credited to the Ceding
Company, will be reimbursed to the Reinsurer.
6. PREMIUM RATE GUARANTEE
----------------------
Premium Rate Guarantees, if any, are as shown in Schedule I.
7. POLICY FEES
-----------
Policy fees, if any, are as shown in Schedule I.
4
ARTICLE III
SCOPE (CONTINUED)
-----------------
8. TAXES
-----
Taxes, if any, are shown in Schedule I.
9. EXPERIENCE REFUND OR PROFIT COMMISSION
--------------------------------------
If an experience refund or profit commission is payable under this
Agreement, the conditions and formula are as shown in Schedule I.
10. EXPENSE OF THE ORIGINAL POLICY
------------------------------
The Ceding Company will bear the expense of all medical examinations,
inspection fees and other charges incurred in connection with the original
policy.
ARTICLE IV
COVERAGE
--------
AUTOMATIC PROVISIONS
--------------------
For each risk on which reinsurance is ceded, the Ceding Company's
retention at the time of issue will take into account both currently
issued and previously issued policies.
The Ceding Company must cede and the Reinsurer must automatically
accept reinsurance, if all of the following conditions are met for
each life:
1. RETENTION
---------
The Ceding Company has retained its limit of retention as
shown in Schedule I; and
2. PLANS AND RIDERS
----------------
The basic plan or supplementary benefit, if any, is shown in
Schedule I; and
3. AUTOMATIC ACCEPTANCE LIMITS
---------------------------
The underwriting class, age, minimum reinsurance amount,
binding amounts and jumbo limits fall within the automatic
limits as shown in Schedule I; and
4. UNDERWRITING
------------
The risk is underwritten according to the Ceding Company's
Standard Guidelines; and
The Ceding Company has never made facultative application
for reinsurance on the same life to the Reinsurer or any
other Reinsurer; and
5. RESIDENCE
---------
The risk is a resident of the Countries, as shown in
Schedule I.
5
ARTICLE IV
COVERAGE (CONTINUED)
--------------------
AUTOMATIC PROVISIONS (CONTINUED)
--------------------------------
If, for a given application, the Ceding Company cannot comply with
the automatic reinsurance conditions described above, or if the
Ceding Company submits the application to other Reinsurers for their
facultative assessment, the Ceding Company can submit this
application to the Reinsurer on a facultative basis.
FACULTATIVE PROVISIONS
----------------------
The Ceding Company will send copies of the original applications, all
medical reports, inspection reports, attending physician's statement,
and any additional information pertinent to the insurability of the
risk to the Reinsurer.
The Ceding Company will also notify the Reinsurer of any underwriting
information requested or received after the initial request for
reinsurance is made. For policies which contain automatic increase
provisions, the Ceding Company will inform the Reinsurer of the
initial and ultimate risk amounts for which reinsurance is being
requested, or in the case of indexed amounts, the basis of the
indexing.
On a timely basis, the Reinsurer will submit a written decision to
the Ceding Company. In no case will the Reinsurer's offer on
facultative submissions be open after 120 days have elapsed from the
date of the Reinsurer's offer to participate in the risk. Acceptance
of the offer and delivery of the policy according to the rules of the
Ceding Company must occur within 120 days of the final reinsurance
offer. Unless the Reinsurer explicitly states in writing that the
final offer is extended, the offer will be automatically withdrawn at
the end of day 120.
The Reinsurer will not be liable for proceeds paid under the Ceding
Company's conditional receipt or temporary insurance agreement for
risks submitted on a facultative basis.
ARTICLE V
LIABILITY
---------
The liability of the Reinsurer for, will commence simultaneously with that of
the Ceding Company and will cease at the same time as the liability of the
Ceding Company ceases.
6
ARTICLE VI
RETENTION AND RECAPTURE
-----------------------
If the Ceding Company changes its limit of retention as shown in Schedule I,
written notice of the change will promptly be given to the Reinsurer. At the
option of the Ceding Company, a corresponding reduction may be made in the
reinsurance in force under this Agreement, on all lives, on which the Ceding
Company has maintained its maximum limit of retention, provided that all
eligible business is reduced on the same basis. The Ceding Company may apply
the new limits of retention to existing reinsurance and reduce and recapture
reinsurance inforce in accordance with the following rules:
1. No recapture will be made unless reinsurance has been in force for the
minimum period shown in Schedule I.
2. Recapture will become effective on the policy anniversary date
following written notification of the Ceding Company's intent to
recapture.
3. No recapture will be made unless the Ceding Company retained its
maximum limit of retention for the plan, age and mortality rating at
the time the policy was issued. No recapture will be allowed in any
class of fully reinsured business or in any classes of risks for which
the Ceding Company established special retention limits less than the
Ceding Company's maximum retention limits for the plan, age, and
mortality rating at the time the policy was issued.
4. If any reinsurance is recaptured, all reinsurance eligible for
recapture, under the provisions of this Article, must be recaptured.
5. If there is reinsurance with other reinsurers on risks eligible for
recapture, the necessary reduction is to be applied to each company
in proportion to the total outstanding reinsurance.
ARTICLE VII
REINSURANCE PREMIUMS AND ALLOWANCES
-----------------------------------
1. LIFE REINSURANCE
----------------
Premiums for Life and Supplemental Benefit reinsurance will be as
shown in Schedule I.
2. SUBSTANDARD PREMIUMS
--------------------
Premiums will be increased by any (flat) extra premium or substandard
premium as shown in Schedule I, charged the insured on the face amount
initially reinsured.
3. JOINT POLICY PREMIUMS
---------------------
In the case of joint policy premiums, if any, the premium rate
payable to the Reinsurer will be as shown in Schedule I.
4. SUPPLEMENTAL BENEFITS
---------------------
The Reinsurer will receive a proportionate share of any premiums for
additional benefits as shown in Schedule I, as well as for any extra
premiums the Ceding Company may collect for the coverage of special
risks (traveling, climate, occupation, etc.). This share will be
based on the ratio between the amount at risk and the total initial
benefits insured and will remain constant throughout the entire
period of premium payment.
7
ARTICLE VIII
RESERVES
--------
Reserve requirements of the Ceding Company, if any, are as shown in Schedule I.
ARTICLE IX
TERMINATIONS AND REDUCTIONS
---------------------------
Terminations or reductions will take place in accordance with the following
rules in order of priority:
1. The Ceding Company must keep its initial or recaptured retention on
the policy.
2. Termination or reduction of a wholly reinsured policy will not affect
other reinsurance inforce.
3. A termination or reduction on a wholly retained case will cause an
equal reduction in existing automatic reinsurance with the oldest
policy being reduced first.
4. A termination or reduction will be made first to reinsurance of
partially reinsured policies with the oldest policy being reduced
first.
5. If the policies are reinsured with multiple reinsurers, the
reinsurance will be reduced by the ratio of the amount of reinsurance
in each company to the total outstanding reinsurance on the risk
involved.
6. When a policy is reinstated, reinsurance will be reinstated as if the
lapse or reduction had not occurred.
ARTICLE X
POLICY ALTERATIONS
------------------
1. REINSTATEMENT
-------------
Any policy originally reinsured in accordance with the terms and
conditions of this Agreement by the Ceding Company may be
automatically reinstated with the Reinsurer as long as the policy is
reinstated in accordance with the terms and rules of the Ceding
Company. Any policy originally reinsured with the Reinsurer on a
facultative basis which has been in a lapsed status for more than
ninety (90) days must be submitted with underwriting requirements
and approved by the Reinsurer before it is reinstated. The Ceding
Company will pay the Reinsurer its share of amounts collected or
charged for the reinstatement of such policies.
2. EXTENDED TERM AND REDUCED PAID-UP ADDITIONS
-------------------------------------------
Changes as a result of extended term or reduced paid-up insurance
will be handled like reductions.
8
ARTICLE X
POLICY ALTERATIONS (CONTINUED)
------------------------------
3. EXCHANGES OR CONVERSIONS
------------------------
An exchange or conversion is a new policy replacing a policy issued
earlier by the Ceding Company or a change in an existing policy that
is issued or made either:
1. Under the terms of the original policy, or,
2. Without the same new underwriting information the Ceding
Company would obtain in the absence of the original policy,
3. Without a suicide exclusion period, or contestable period of
equal duration, to those contained in new issues by the Ceding
Company, or
4. Without the payment of the same allowances in the first year
that the Ceding Company would have paid in the absence of the
original policy.
Exchanges or Conversions will be reinsured under this Agreement only
if the original policy was reinsured with the Reinsurer; the amount
of reinsurance under this Agreement will not exceed the amount of
the reinsurance on the original policy with the Reinsurer immediately
prior to the exchange or conversion. Premiums will be as shown in
Schedule I.
Note: An original date policy Reissue will not be treated as a continuation
of the original policy. It will be treated as a new policy and the
original policy will be treated as Not Taken. All premiums
previously paid to the Reinsurer for the original policy will be
refunded to the Ceding Company. All premiums will be due on
the new policy from the original issue date of the old policy.
Note: Re-Entry, e.g. wholesale replacement and similar programs are not
covered under this Article. If Re-Entry is applicable to this
treaty, then it will be covered in Schedule I.
ARTICLE XI
POLICY ADMINISTRATION AND PREMIUM ACCOUNTING
--------------------------------------------
1. ACCOUNTING PERIOD AND PREMIUM DUE
---------------------------------
The Ceding Company will submit accounts to the Reinsurer, for
reporting new business, alterations, terminations, renewals, claims,
and premium due, as shown in Schedule I.
2. ACCOUNTING ITEMS
----------------
The accounts will contain a list of premiums due for the current
accounting period, explain the reason for each premium payment, show
premium subtotals adequate to use for premium accounting, including
first year and renewal year premiums and allowances. The account
information should provide the ability to evaluate retention limits,
premium calculations and to establish reserves.
3. REINSURANCE ADMINISTRATION REQUIREMENTS
---------------------------------------
Reinsurance Administration Requirements are as shown in Schedule I.
9
ARTICLE XI
POLICY ADMINISTRATION AND PREMIUM ACCOUNTING (CONTINUED)
--------------------------------------------------------
4. PAYMENT OF BALANCES
-------------------
The Ceding Company will pay any balance due the Reinsurer, at the
same time as the account is rendered, but in all cases, by the
Accounting and Premium Due frequency as shown in Schedule I. The
Reinsurer will pay any balance due the Ceding Company, at the same
time as the account is confirmed, however, at the latest, within
thirty (30) days after receipt of the statement of account. Should
the Reinsurer be unable to confirm the account in its entirety, the
confirmed portion of the balance will be paid immediately. As soon as
the account has been fully confirmed, the difference will be paid
immediately by the debtor. All balances not paid within thirty (30)
days of the due date shown on the statement will be in default.
5. BALANCES IN DEFAULT
-------------------
The Reinsurer will have the right to terminate this Agreement, when
balances are in default, by giving ninety (90) days written notice of
termination to the Ceding Company. As of the close of the last day
of this ninety (90) day notice period, the Reinsurer's liability for
all risks reinsured under this Agreement will terminate. The first
day of this ninety (90) day notice of termination, resulting from
default as described in paragraph four of this Agreement, will be the
day the notice is received in the mail by the Ceding Company, or if
the mail is not used, the day it is delivered to the Ceding Company.
If all balances in default are received within the ninety (90) day
time period, the Agreement will remain in effect. The interest
payable on balances in default is stipulated as shown in Schedule I.
6 OFFSET
------
Any amounts due, by either of the parties to this Agreement, whether
they arise out of this Agreement, or out of any other reinsurance
relationship between the parties, may be offset against the claims of
the other party. This right will continue to exist after the
termination of this Agreement, or of any business relationship
between the parties.
7. FLUCTUATIONS IN EXCHANGE RATES
------------------------------
If the premium due periods allowed for the payment of balances are
exceeded by either party, the debtor will bear the currency risk, in
the event of any subsequent alteration in the exchange rate, by more
than five percent, unless the debtor is not responsible for the delay
in payment.
ARTICLE XII
CLAIMS
------
1. NOTICE
------
The Ceding Company will promptly notify the Reinsurer of all claims.
2. PROOFS
------
In every case of loss, copies of the proofs obtained by the Ceding
Company will be taken by the Reinsurer as sufficient. Copies thereof,
together with proof of the amount paid on such claim by the Ceding
Company will be furnished to the Reinsurer when requesting its share
of the claim.
10
ARTICLE XII
CLAIMS (CONTINUED)
------------------
3. PAYMENT OF BENEFITS
-------------------
The Reinsurer will pay its share of all payable claims, however, if the
amount reinsured with the Reinsurer is more than the amount retained by
the Ceding Company and the claim is contestable, all papers in
connection with such claim, including all underwriting and
investigation papers, must be submitted to the Reinsurer for its
recommendation before admission of any liability on the part of the
Ceding Company.
If the amount of insurance changes because of a misstatement of rate
classification, the Reinsurer's share of reinsurance liability will
change proportionately.
4. CONTESTED CLAIMS
----------------
The Ceding Company will notify the Reinsurer of its intention to
contest, compromise, or litigate a claim. Unless it declines to be a
party to such action, the Reinsurer will pay its share of any
settlement up to the maximum that would have been payable under the
specific policy had there been no controversy plus its share of
specific expenses, except as specified below.
5. CLAIMS EXPENSES
---------------
If the Reinsurer declines to be a party to the contest, compromise,
or litigation of a claim, it will pay its full share of the amount
reinsured, as if there had been no contest, compromise, or
litigation, and its proportionate share of covered expenses incurred
to the date, from the date it notifies the Ceding Company it declines
to be a party.
6. EXTRA CONTRACTUAL OBLIGATIONS
-----------------------------
In no event will the following categories of expenses or liabilities
be reimbursed:
a. Routine investigative or administrative expenses;
b. Salaries of employees or other internal expenses of the
Ceding Company or the original issuing companies;
c. Extra contractual damages, including punitive damages and
exemplary damages; or
d. Expenses incurred in connection with a dispute or contest
arising out of conflicting or any other claims of entitlement
to policy proceeds or benefits.
ARTICLE XIII
ARBITRATION
-----------
1. GENERAL
-------
The parties agree to act in all things with the highest good faith.
However, if the parties cannot mutually resolve a dispute or claim,
which arises out of, or in connection with this Agreement, including
formation and validity, and whether arising during, or after the period
of this Agreement, the dispute or claim will be referred to an
arbitration tribunal (a group of three arbitrators), and settled
through arbitration.
11
ARTICLE XIII
ARBITRATION (CONTINUED)
-----------------------
1. GENERAL (CONTINUED)
-------------------
The arbitrators will be individuals, other than from the contracting
companies, including those who have retired, with more than ten (10)
years insurance or reinsurance experience within the industry.
The arbitrators will base their decision on the terms and conditions
of this Agreement plus, as necessary, on the customs and practices of
the insurance and reinsurance industry rather than solely on a strict
interpretation of the applicable law; there will be no appeal from
their decision, and any court having jurisdiction of the subject
matter, and the parties, may reduce that decision to judgment.
2. NOTICE
------
To initiate arbitration, either party will notify the other party by
Certified Mail of its desire to arbitrate, stating the nature of the
dispute and the remedy sought. The party, to which the notice is
sent, will respond to the notification in writing, within ten (10)
days of its receipt.
3. PROCEDURE
---------
Each of the two parties will appoint one arbitrator, and these two
arbitrators will select the third arbitrator. Upon the selection of
the third arbitrator, the arbitration tribunal will be constituted,
and the third arbitrator will act as Chairman of the tribunal.
If either party fails to appoint an arbitrator within sixty (60) days
after the other party has given notice of appointing an arbitrator,
then the Arbitration Association, as shown in Schedule I, will
appoint an arbitrator for the party that has failed to do so.
The party that has failed to appoint an arbitrator will be
responsible for all expenses levied by the Arbitration Association,
for such appointment. Should the two arbitrators be unable to agree
on the choice of the third arbitrator, then the appointment of this
arbitrator is left to the Arbitration Association. Such expense
shall be borne equal by each party to this Agreement.
The tribunal, may in its sole discretion make orders and directions
as it considers to be necessary for the final determination of the
matters in dispute. Such orders and directions may be necessary with
regard to pleadings, discovery, inspection of documents, examination
of witnesses and any other matters relating to the conduct of the
arbitration. The tribunal, will have the widest discretion
permissible under the law, and practice of the place of arbitration,
when making such orders or directions.
4. ARBITRATION COSTS
-----------------
All costs of the arbitration will be determined by the tribunal,
which may take into account the law and practice of the place of
arbitration, and in what manner arbitration costs will be paid, and
by whom.
5. PLACE OF ARBITRATION
--------------------
The place of arbitration is as shown in Schedule I.
6. ARBITRATION SETTLEMENT
----------------------
The award of the tribunal, will be in writing, and binding upon the
consenting parties.
12
ARTICLE XIV
INSOLVENCY
----------
In the event of the insolvency of the Ceding Company, all reinsurance will be
payable directly to the liquidator, receiver, or statutory successor of the
Ceding Company without diminution.
In the event of insolvency of the Ceding Company, the liquidator, receiver, or
statutory successor will immediately give written notice to the Reinsurer of all
pending claims against the Ceding Company on any policies reinsured. While
a claim is pending, the Reinsurer may investigate and interpose, at its own
expense, in the proceedings where the claim is adjudicated, any defense or
defenses which it may deem available to the Ceding Company or its liquidator,
receiver, or statutory successor. The expense incurred by the Reinsurer will be
chargeable, subject to court approval against the Ceding Company as part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Ceding Company solely as a result of the defense
undertaken by the Reinsurer. Where two or more Reinsurers are participating in
the same claim and a majority in interest elect to interpose a defense or
defenses to any such claim, the expense will be apportioned in accordance with
the terms of the reinsurance agreement as though such expense had been incurred
by the Ceding Company.
Any debts or credits, matured or unmatured, liquidated or unliquidated, in favor
of or against, either the Reinsurer or the Ceding Company, with respect to this
Agreement or with respect to any other claim of one party against the other, are
deemed mutual debts or credits, as the case may be, and will be offset, and
only the balance will be allowed or paid.
ARTICLE XV
RIGHT TO INSPECT
----------------
Upon request the Ceding Company will furnish the Reinsurer with detailed
information concerning the risks reinsured under this Agreement. In particular
the Reinsurer will be entitled to request that:
1. Copies of the whole or part of any documents relating to the risks and
their reinsurance be made available to the Reinsurer at its own
expense;
2. During the Ceding Company's normal office hours these documents will be
made available to a representative of the Reinsurer who will be named
in advance; notification of such visits will normally be given two
weeks in advance and even in urgent cases at least forty-eight hours in
advance; and
3. The Reinsurer will have this right of inspection as long as one of the
two parties to this Agreement is claiming from the other.
ARTICLE XVI
UNINTENTIONAL ERRORS, MISUNDERSTANDINGS OR OMISSIONS
----------------------------------------------------
It is expressly understood and agreed that if failure to comply with any terms
of this Agreement is hereby shown to be the result of an unintentional error,
misunderstanding or omission, on the part of either the Ceding Company or the
Reinsurer, both the Ceding Company and the Reinsurer, will be restored to the
position they would have occupied, had no such error, misunderstanding or
omission occurred, subject always to the correction of the error,
misunderstanding or omission.
13
ARTICLE XVII
CHOICE OF LAW, FORUM, AND LANGUAGE
----------------------------------
1. CHOICE OF LAW AND FORUM
-----------------------
This Agreement, will in all respects be governed by, and construed in
accordance with the law and exclusive jurisdiction of the Courts, as
shown in Schedule I.
2. LANGUAGE
--------
The Parties hereto acknowledge and agree that, even though they may
execute this Agreement in both an English version and in another
language, as shown in Schedule I, the version as shown in Schedule I
will control for all legal purposes in the event of any inconsistency
between or disagreement between the two versions.
ARTICLE XVIII
ALTERATIONS TO THE AGREEMENT
----------------------------
This reinsurance Agreement constitutes the entire Agreement between the parties,
with respect to the business being reinsured hereunder, and there are no
understandings between the parties other than as expressed in this Agreement.
Any alterations to the provisions of this Agreement will be made by Amendment,
Addenda or by correspondence attached to the Agreement embodying such
alterations as may be agreed upon and signed by both parties. These documents
will be regarded as part of this Agreement and will be equally binding.
14
================================================================================
ARTICLE XIX
EXECUTION OF THE AGREEMENT
--------------------------
In Witness of the Above,
USAA LIFE INSURANCE COMPANY
Of
San Antonio, Texas, USA
And
RGA REINSURANCE COMPANY
Of
St. Louis, Missouri, USA
Have by Their Respective Officers Executed and Delivered this Agreement
in Duplicate on the Dates Indicated Below:
USAA LIFE INSURANCE COMPANY
BY: ________________________ BY: ________________________
TITLE: ________________________ TITLE: ________________________
DATE: ________________________
RGA REINSURANCE COMPANY
BY: ________________________
TITLE: ________________________
DATE: ________________________
================================================================================
15
SCHEDULE I
REINSURANCE SPECIFICATIONS
--------------------------
--------------------------------------------------------------------------------
COMMENCEMENT, TERMINATION AND CONTINUANCE OF REINSURANCE, ARTICLE II:
--------------------------------------------------------------------------------
1. EFFECTIVE DATE: This Agreement applies to policies with
on and after June 1, 1998.
2. POLICY TERMINATION REFUNDS: Unearned premium will be refunded on lapses,
terminations and death.
--------------------------------------------------------------------------------
SCOPE, ARTICLE III:
--------------------------------------------------------------------------------
1. RETENTION OF THE CEDING COMPANY: See Schedule II, Retention
2. CURRENCY: United States Dollars ("US$")
3. THE REINSURER'S SHARE: First Dollar Quota Share with 10% Retained
4. PLANS OF REINSURANCE: See Schedule III, Business Covered
5. BASIS OF REINSURANCE: Risk Premium Agreement (YRT)
6. REINSURANCE ALLOWANCE: See Schedule IV, Reinsurance Premiums
7. PREMIUM RATE GUARANTEE: See Schedule IV, Reinsurance Premiums
8. POLICY FEES: See Schedule IV, Reinsurance Premiums
9. TAXES:
DAC TAX REGULATIONS
-------------------
The Ceding Company and the Reinsurer hereby agree to the following
pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations
issued December 29, 1992, under Section 848 of the Internal Revenue
Code of 1986, as amended.
1. The term "party" will refer to either the Ceding Company or the
Reinsurer as appropriate.
2. The terms used in this Article are defined by reference to Treasury
Regulation Section 1.848-2 in effect as of December 29, 1992. The
term "net consideration" will refer to net consideration as defined
in Treasury Regulation Section 1.848-2(f).
16
SCHEDULE I
REINSURANCE SPECIFICATIONS (CONTINUED)
--------------------------------------
--------------------------------------------------------------------------------
SCOPE, ARTICLE III (CONTINUED):
--------------------------------------------------------------------------------
3. The party with the net positive consideration for this Agreement
for each taxable year will capitalize specified policy
acquisition expenses with respect to this Agreement without
regard to the general deductions limitation of IRS Section
848(c)(1).
4. The Ceding Company and the Reinsurer agree to exchange information
pertaining to the amount of net consideration under this
Agreement each year to ensure consistency. The Ceding Company
and the Reinsurer also agree to exchange information that may be
otherwise required by the IRS.
5. The Ceding Company will submit a schedule to the Reinsurer by
June 1, of each year of its calculation of the net consideration
for the preceding calendar year. This schedule of calculations
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.
6. The Reinsurer may contest such calculation by providing an
alternative calculation to the Ceding Company. If the Reinsurer
does not so notify the Ceding Company, the Reinsurer will
report the net consideration as determined by the Ceding Company
in the Reinsurer's tax return for the previous calendar year.
7. If the Reinsurer contests the Ceding Company's calculation of the
net consideration, the parties will act in good faith to reach
an agreement as to the correct amount. If the Ceding Company
and the Reinsurer reach agreement on an amount of net
consideration, each party will report such amount in their
respective tax returns for the previous calendar year.
PREMIUM TAX: Premium Tax will not be reimbursed.
EXCISE TAX: Excise Tax is not applicable to this Agreement.
EXPERIENCE REFUND OR PROFIT COMMISSION: See Schedule IV, Reinsurance Premiums
--------------------------------------------------------------------------------
COVERAGE, ARTICLE IV:
--------------------------------------------------------------------------------
1. RETENTION: See Schedule II, Retention
2. PLAN(S) AND RIDER(S): See Schedule III, Business Covered
3. AUTOMATIC ACCEPTANCE LIMITS: See Schedule V, Limits
4. UNDERWRITING CLASS: See Schedule IV, Reinsurance Premiums
5. RESIDENCE: United States, Canada, Puerto Rico, or Guam
--------------------------------------------------------------------------------
RETENTION AND RECAPTURE, ARTICLE VI:
--------------------------------------------------------------------------------
MINIMUM RECAPTURE PERIOD: Ten (10) Years
17
SCHEDULE I
REINSURANCE SPECIFICATIONS (CONTINUED)
--------------------------------------
--------------------------------------------------------------------------------
REINSURANCE PREMIUMS AND ALLOWANCES, ARTICLE VII:
--------------------------------------------------------------------------------
1. LIFE REINSURANCE: See Schedule IV, Reinsurance Premiums
2. SUBSTANDARD PREMIUMS: See Schedule IV, Reinsurance Premiums
3. JOINT POLICY PREMIUMS: See Schedule IV, Reinsurance Premiums
4. SUPPLEMENTARY BENEFITS: See Schedule IV, Reinsurance Premiums
--------------------------------------------------------------------------------
RESERVES, ARTICLE VIII:
--------------------------------------------------------------------------------
The Ceding Company agrees to post on its books any deficiency
reserves on the coverage reinsured under this Agreement.
--------------------------------------------------------------------------------
POLICY ALTERATIONS, ARTICLE X:
--------------------------------------------------------------------------------
1. EXCHANGES OR CONVERSIONS: See Schedule IV, Reinsurance Premiums
2. RE-ENTRY'S: See Schedule IV, Reinsurance Premiums
--------------------------------------------------------------------------------
POLICY ADMINISTRATION AND PREMIUM ACCOUNTING, ARTICLE XI:
--------------------------------------------------------------------------------
1. ACCOUNTING PERIOD AND PREMIUM DUE: Annually in Advance
2. ACCOUNTING ITEMS: See Schedule VI, Sample Statement
Specifications and Schedule VII, Sample
Policy Exhibit
3. REINSURANCE ADMINISTRATION: Self Administration
4. BALANCES IN DEFAULT:
The Reinsurer reserves the right to charge interest at the Prime
Rate plus 2% as stated in the Wall Street Journal on January 1
prior to the due date of the premium when:
Renewal premiums are not paid within sixty (60) days of the due
date.
Premiums for new business are not paid within one hundred
twenty (120) days of the date the policy is issued.
18
SCHEDULE I
REINSURANCE SPECIFICATIONS (CONTINUED)
--------------------------------------
--------------------------------------------------------------------------------
ARBITRATION, ARTICLE XIII:
--------------------------------------------------------------------------------
1. ARBITRATION ASSOCIATION: American Arbitration Association
2. PLACE OF ARBITRATION: St. Louis, Missouri, USA
--------------------------------------------------------------------------------
CHOICE OF LAW, FORUM AND LANGUAGE, ARTICLE XVII:
--------------------------------------------------------------------------------
1. CHOICE OF LAW AND FORUM: Missouri, USA
2. LANGUAGE: English
19
SCHEDULE II
RETENTION
---------
1. Life Insurance:
a. Non-Military Life
$600,000 per life
b. Enlisted Military Personnel On Active Duty
$50,000 per life
c. All Other Military Personnel
Rank Standard and Substandard
---- ------------------------
W0 through 0-3 $250,000
0-4 and above $350,000
2. Disability Waiver of Premium Benefit:
Issue Age Standard and Substandard
--------- ------------------------
15-55 $600,000
3. Accidental Death Benefit:
Not reinsured under this Agreement.
20
SCHEDULE III
BUSINESS COVERED
----------------
June 1, 1998
--------------------------------------------------------------------------------
PLAN(S)
--------------------------------------------------------------------------------
Variable Universal Life
--------------------------------------------------------------------------------
RIDER(S)
--------------------------------------------------------------------------------
Waiver of Monthly Deduction
21
SCHEDULE IV
REINSURANCE PREMIUMS
--------------------
--------------------------------------------------------------------------------
LIFE:
--------------------------------------------------------------------------------
Business Covered, as shown in Schedule III will be reinsured on the yearly
renewable term basis with the Reinsurer participating only in mortality risks
(not cash values, loans, dividends or other features specific to permanent
policies). The mortality risk shall be the net amount at risk on that portion
of the policy which is reinsured with the Reinsurer.
The Life Reinsurance premium rates contained in this Agreement are guaranteed
for one year, and the Reinsurer anticipates continuing to accept premiums on the
basis of these rates indefinitely. If the Reinsurer deems it necessary to
increase rates, such increased rates cannot be higher than the valuation net
premiums for annually renewable term insurance calculated using the minimum
statutory mortality rates and maximum statutory interest rate for each year of
issue.
Reinsurance premiums will be determined according to the amount reinsured with
the Reinsurer per insured life as follows. The life reinsurance premium will be
calculated in the case of life risks, by multiplying the appropriate life
premium rate, from the attached Rate Table labeled below, for the age of the
insured, at the beginning of the policy year, by the amount at risk reinsured
for that policy year, multiplied by the applicable pay percentage as shown
below. The same procedure will apply for single premium policies and
for paid up policies.
PLAN(S) RATE TABLE UNDERWRITING CLASS YEAR 1 YEARS 2 +
------- ---------- ------------------ ------ ---------
Variable Universal Life S-1 Preferred Ultra 0% 32%
Preferred Plus 0% 40%
Preferred 0% 48%
Standard Plus 0% 45%
Standard 0% 63%
All Policy Fees will be retained by the Ceding Company.
--------------------------------------------------------------------------------
SUBSTANDARD PREMIUMS, CONTINUED:
--------------------------------------------------------------------------------
SUBSTANDARD TABLE EXTRA
-----------------------
Premiums will be increased by any (flat) extra premium or substandard
premium charged the insured on the face amount initially reinsured.
For substandard table ratings, premiums will be increased by the
following percent per table:
25%
FLAT EXTRA PREMIUMS
-------------------
The premium will be increased by any flat extra premium charged the
insured on the face amount initially reinsured, less total allowances
as shown below:
First Year Permanent First Year Temporary
-------------------- --------------------
Payable 6 Years or More: Payable 1 - 5 Years: Renewal:
------------------------ -------------------- --------
100% 20% 20%
22
SCHEDULE IV
REINSURANCE PREMIUMS (CONTINUED)
--------------------------------
--------------------------------------------------------------------------------
JOINT POLICY PREMIUMS:
--------------------------------------------------------------------------------
Not applicable under this Agreement.
--------------------------------------------------------------------------------
SUPPLEMENTAL BENEFITS:
--------------------------------------------------------------------------------
WAIVER OF MONTHLY DEDUCTION
---------------------------
The annual premium to be paid to the Reinsurer for
reinsurance of Waiver of Premium benefits will be based on
the appropriate rate from the attached rates tables, less
the applicable allowance as shown below:
RATE TABLE FIRST YEAR ALLOWANCE RENEWAL YEAR ALLOWANCE
---------- -------------------- ----------------------
S-3 100% 20%
--------------------------------------------------------------------------------
RE-ENTRY'S:
--------------------------------------------------------------------------------
Re-Entry's are not covered under this Agreement.
--------------------------------------------------------------------------------
CONVERSIONS OR EXCHANGES:
--------------------------------------------------------------------------------
If any business covered under this Agreement is subsequently converted or
exchanged to any other plan reinsured by the Reinsurer, then such business will
be reinsured at the rates as shown in the Agreement covering the new plan.
Rates and allowances, or pay percentages, applicable to the new plan will be
determined at point in scale based on the original policy that is being
converted or exchanged. If the Agreement including the new rates requires
policy fees, then they will also apply to the new plan.
If any business covered under this Agreement, is subsequently converted or
exchanged to a plan that is not reinsured with the Reinsurer, under a specific
document, then such business will be reinsured with the Reinsurer, at the rates
and policy fees as shown below. Rates will be determined at point in scale,
based on the original policy that is being converted or exchanged.
Rate Table S-2
--------------------------------------------------------------------------------
EXPERIENCE REFUND OR PROFIT COMMISSION:
--------------------------------------------------------------------------------
Experience Refund or Profit Commission is not covered under this
Agreement.
23
SCHEDULE IV
REINSURANCE PREMIUMS
--------------------
--------------------------------------------------------------------------------
RATE SCHEDULE S-1
--------------------------------------------------------------------------------
24
SCHEDULE IV
REINSURANCE PREMIUMS
--------------------
--------------------------------------------------------------------------------
RATE SCHEDULE S-2
--------------------------------------------------------------------------------
25
SCHEDULE IV
REINSURANCE PREMIUMS
--------------------
--------------------------------------------------------------------------------
RATE SCHEDULE S-3
--------------------------------------------------------------------------------
26
SCHEDULE V
LIMITS
------
--------------------------------------------------------------------------------
REINSURER'S SHARE:
--------------------------------------------------------------------------------
20%
--------------------------------------------------------------------------------
MINIMUM REINSURANCE AMOUNT:
--------------------------------------------------------------------------------
$ 10,000
--------------------------------------------------------------------------------
BINDING LIMITS:
--------------------------------------------------------------------------------
MAXIMUM AUTOMATIC BINDING LIMIT:
--------------------------------
Life: $6,600,000
--------------------------------------------------------------------------------
JUMBO LIMIT:
--------------------------------------------------------------------------------
$ 25,000,000
27
SCHEDULE VI
REINSURANCE SPECIFICATIONS
--------------------------
--------------------------------------------------------------------------------
SAMPLE STATEMENT SPECIFICATIONS
--------------------------------------------------------------------------------
The following information should appear on each Statement and Inforce listing:
o Name of the Insured(s)
o Date of Birth of the Insured(s)
o The Issue Age of each Insured(s)
o The Sex of the Insured(s)
o The Insured(s) Country of Residence
o Underwriting Classification (i.e. Preferred, Standard, etc.)
o Smoking Class (i.e. Smoker, Non Smoker, etc.)
o Indication if Business is Facultative or Automatic
o Indication if Business is Risk Premium or Coinsurance
o Policy Number(s)
o Plan Code(s)/Kind Code(s): Cession Series
o Original Face Amount of the Policy(s)
o Amount(s) Ceded to the Reinsurer
o Amount of Premium being Paid; separated for Supplementary
Benefits.
o The Amount of any Reinsurance Premium Allowances
o Any Extra Premiums concerned. Example: $5 / 1000 / 5 YRS
o Effective Date and Duration of any Policy(s) Change, Reissue,
or Termination
28
SCHEDULE VII
REINSURANCE SPECIFICATIONS
--------------------------
--------------------------------------------------------------------------------
SAMPLE POLICY EXHIBIT
--------------------------------------------------------------------------------
POLICY SUMMARY NUMBER OF REINSURANCE
-------------- --------- -----------
CLASSIFICATION POLICIES AMOUNT
-------------- -------- ------
Inforce as of Last Report 878 $410,220,973.00
New Issues 2 $ 516,666.00
Reinstatements 3 $ 483,334.00
Increases $ 500,000.00
Decreases - Still Inforce $ 133,332.00
Rollover - In 0 $ 0.00
Deduct By:
----------
Death 0 $ 0.00
Surrender 1 $ 250,000.00
Lapse 4 $ 1,000,001.00
Conversion - Out 0 $ 0.00
Decreases - Termination 3 $ 299,999.00
Inactive - Pending 0 $ 0.00
Not Taken 0 $ 0.00
Inforce as of Current Report 875 $410,037,641.00
29
SCHEDULE VIII
DEFINITIONS
-----------
ASSUME - To accept or takes over a risk, the converse of cedes.
AUTOMATIC REINSURANCE - A reinsurance agreement under which the Reinsurer is
obligated to accept or assume risks which meet certain specific criteria
based on the Ceding Company's underwriting.
BINDING LIMIT - The amount of risk over the Ceding Company's retention, which
can be ceded automatically if all automatic conditions are met.
CASH VALUE - The amount of money which the policy owner will receive as a refund
if the policy owner cancels the coverage and returns the policy to the company.
CEDE - To transfer an insurance risk from the company originally issuing the
policy to another insurance company known as the Reinsurer.
CEDING COMPANY - A ceding insurer is an insurer which underwrites and issues an
original, principal policy to an insured and contractually transfers (cedes) a
portion of the risk to the Reinsurer. A ceding Reinsurer is a Reinsurer which
transfers (cedes) a portion of the underlying reinsurance to a
retrocessionnaire.
CEDING COMPANY'S PUBLISHED TERM CONVERSION GUIDELINES
CEDING COMPANY'S STANDARD GUIDELINES
CONDITIONAL RECEIPT - A provision included in some life insurance policies
providing coverage from the date of the application to the date at which the
policy is either issued or declined.
EXPERIENCE REFUND OR PROFIT COMMISSION - A provision found in some reinsurance
agreements which provides for profit sharing. Parties agree to a formula for
calculating profit, an allowance for the Reinsurer's expenses, and the Ceding
Company's share of such profit after expenses.
EXTRA CONTRACTUAL OBLIGATIONS (ECO) - A generic term that, when used in a
reinsurance agreement, refers to damages awarded by a court against an insurer
which are outside the provisions of the insurance policy, due to the insurer's
bad faith, fraud or gross negligence in the handling of a claim.
FACULTATIVE - Reinsurance under which the Ceding Company has the option
(faculty) of submitting and the Reinsurer has the option of accepting or
declining individual risks. This Agreement merely reflects how individual
facultative reinsurance will be handled.
FLAT EXTRA PREMIUM - A method for rating substandard risks used when the extra
risk is considered to be constant. The underwriter assesses a specific extra
premium for each $1,000 of insurance. Flat extra ratings usually apply to
applicants in hazardous occupations or avocations, aviation, or with certain
physical impairments of a temporary nature.
INDEXING - The adjustment of the Ceding Company's retention and the reinsurance
limit by a measure of inflation such as the Consumer Price Index.
ORIGINAL POLICY(S) - Insurance contracts between the Original Company and the
Insured(s).
POLICY RESERVE - A liability account that identifies the amount of assets that,
together with the future premiums to be received from inforce policies, is
expected to be sufficient to pay future claims on those inforce policies. Also
called a legal reserve or a statutory reserve.
30
SCHEDULE VIII
DEFINITIONS (CONTINUED)
-----------------------
POOL - A method of allocating reinsurance among several Reinsurers. Using this
method, each Reinsurer receives a specified percentage of each risk ceded into
the pool. A reinsurance pool is a multi-Reinsurer agreement under which each
Reinsurer in the group or pool assumes a specified portion of each risk ceded to
the pool.
PREMIUM - (Written/Unearned/Earned) - Written premium is premium registered on
the books of an insurer or Reinsurer at the time a policy is issued and paid.
Premium for a future exposure period is said to be unearned premium. For an
individual policy, written premium minus unearned premium equals earned
premium. Earned premium is income for the accounting period while unearned
premium will be income in a future accounting period.
PUNITIVE DAMAGES - A term that, when used in reinsurance agreements, refers to
damages awarded by a court against an insured or against an insurer in addition
to compensatory damages. Punitive damages are intended to punish the insured
or the insurer for willful and careless misconduct and to serve as a deterrent.
When the award is against an insurer, it is usually related to the conduct of
the insurer in the handling of a claim.
QUOTA SHARE - A form of reinsurance in which premiums and losses are shared
proportionately between the Ceding Company and the Reinsurer, in which the same
percentage applies to all policies reinsured.
RATE - The premium rate is the amount of premium charged per exposure unit,
e.g. per $1,000.
RECAPTURE - The process by which the Ceding Company recovers the liabilities
transferred to the Reinsurer.
REINSURER - A company which contractually assumes all or part of the Ceding
Company's risk.
RESERVE - See Policy Reserves
RETENTION - The dollar amount or percentage of each loss retained by the Ceding
Company under this reinsurance agreement. The Ceding Company's retention is not
reinsured in any way.
RISK - Insurance on an individual life.
RISK PREMIUM REINSURANCE - Another name for Yearly Renewable Term (YRT)
reinsurance. A form of reinsurance under which the risks, but not the permanent
plan reserves, are transferred to the Reinsurer for a premium that varies each
year with the amount at risk and the ages of the insureds. Under the YRT
method, the Ceding Company will transfer to the Reinsurer the mortality risk on
either a net amount at risk basis or on an approximation of the net amount at
risk basis.
SELF ADMINISTRATION - A reinsurance arrangement where the Ceding Company
provides the Reinsurer with periodic reports for reinsurance ceded giving
premium, inforce, reserve, and any other information required by the Reinsurer
for its financial reports. Self Administration is also known as Bulk or
Bordereaux.
STANDARD GUIDELINES - The underwriting guidelines intended to be applied to all
applications for insurances of the type(s) reinsured under this agreement.
SUBSTANDARD RISKS - Those insureds who, under the terms of the Ceding Company's
standard guidelines, do not meet the criteria for issuance at standard premium
rates.
SUBSTANDARD TABLE EXTRA - Substandard table extra ratings usually apply to
physically impaired lives. The rates will be increased by a factor as shown in
Schedule I for each table of additional mortality.
SUM AT RISK OR NET AMOUNT AT RISK - The excess of the death benefit of a policy
over the policy reserve.
31
SCHEDULE VIII
DEFINITIONS (CONTINUED)
-----------------------
TERMINATION - The formal ending of a reinsurance agreement by its natural
expiry, cancellation or commutation by both parties. Terminations can be
either on a cutoff or runoff basis. Under cutoff provisions, the parties'
obligations are fixed as of the agreed cutoff date. Otherwise, obligations
incurred while the agreement was inforce are run off to their natural
extinction.
YEARLY RENEWABLE TERM - Another name for Risk Premium Reinsurance.
32