AUTOMATIC AND FACULTATIVE MODIFIED COINSURANCE AGREEMENT EFFECTIVE December 15, 2003 PRUCO LIFE INSURANCE COMPANY (hereinafter referred to as "THE COMPANY")
AUTOMATIC AND FACULTATIVE
MODIFIED COINSURANCE AGREEMENT
EFFECTIVE December 15, 2003
PRUCO LIFE INSURANCE COMPANY
(hereinafter referred to as "THE COMPANY")
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
And
M LIFE INSURANCE COMPANY
(dba M Financial Re)
(hereinafter referred to as "THE REINSURER")
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Table of Contents
PREAMBLE 5
1. PARTIES TO THE AGREEMENT......................................................................... 6
2........EFFECTIVE DATE OF THE AGREEMENT.................................................................. 6
3........SCOPE OF THE AGREEMENT........................................................................... 6
4........POLICIES AND RISKS REINSURED UNDER THE AGREEMENT................................................. 6
5........DURATION OF THE AGREEMENT........................................................................ 6
6........BASIS OF REINSURANCE............................................................................. 6
7........AUTOMATIC REINSURANCE............................................................................ 7
a. CONVENTIONAL UNDERWRITING........................................................................ 7
b. RESIDENCE AND TRAVEL............................................................................. 7
c. OCCUPATION....................................................................................... 7
d. AUTOMATIC ACCEPTANCE LIMIT....................................................................... 7
e. JUMBO LIMIT...................................................................................... 7
f. MINIMUM CESSION.................................................................................. 7
g. FACULTATIVE QUOTES............................................................................... 7
8........PORTIONS REINSURED AND RETAINED UNDER AUTOMATIC REINSURANCE...................................... 7
9........FACULTATIVE REINSURANCE.......................................................................... 7
10.......COMMENCEMENT OF REINSURANCE COVERAGE............................................................. 8
a. AUTOMATIC REINSURANCE............................................................................ 8
b. FACULTATIVE REINSURANCE.......................................................................... 8
c. PRE-ISSUE COVERAGE............................................................................... 8
11 PREMIUMS AND CONSIDERATIONS PAYABLE BY THE COMPANY............................................... 8
a. REINSURANCE PREMIUMS............................................................................. 8
b. CONSIDERATION FOR DECREASE IN MODIFIED
COINSURANCE RESERVE..................................................................... 9
c. CONSIDERATION FOR NET INVESTMENT INCOME.......................................................... 9
12. RETURN OF PREMIUMS AND CONSIDERATIONS PAYABLE
BY THE REINSURER................................................................................. 9
a. INCREASE IN THE MODIFIED COINSURANCE RESERVE..................................................... 9
b. ALLOWANCE FOR COMMISSIONS........................................................................ 9
c. ADMINISTRATION EXPENSE ALLOWANCE................................................................. 9
d. ALLOWANCE FOR PREMIUM TAXES...................................................................... 9
13 BENEFITS......................................................................................... 10
a. NOTICE........................................................................................... 10
b. LIABILITY........................................................................................ 10
c. PAYMENT.......................................................................................... 10
▇. ▇▇▇▇▇▇▇▇▇▇▇ AND CONTESTED CLAIMS................................................................. 10
e. CLAIM EXPENSES................................................................................... 10
f. EXTRACONTRACTUAL DAMAGES......................................................................... 11
14.......MISREPRESSENTATION AND SUICIDE................................................................... 11
15.......MODIFIED COINSURANCE RESERVES.................................................................... 11
16.......QUARTERLY ACCOUNTING REPORTS..................................................................... 11
17.......QUARTERLY CASH FLOW SETTLEMENTS.................................................................. 12
18. ESTIMATES AND DELAYS............................................................................. 12
19. ANNUAL ACCOUNTING REPORTS AND TAX SETTLEMENTS.................................................... 13
20. DAC TAX AGREEMENT................................................................................ 13
21. OFFSET TO PAYMENTS............................................................................... 14
22. POLICY CHANGES................................................................................... 14
a. NOTICE........................................................................................... 14
b. INCREASES........................................................................................ 14
c. REDUCTION OR TERMINATION......................................................................... 14
d. PLAN CHANGES..................................................................................... 14
23.......REINSTATEMENTS................................................................................... 14
a. AUTOMATIC REINSTATEMENT.......................................................................... 14
b. FACULTATIVE REINSTATEMENT........................................................................ 14
24.......RECAPTURE........................................................................................ 15
25.......TERMINATION OF REINSURANCE BY THE REINSURER...................................................... 15
26.......SPECIAL ACCOUNTING AND SETTLEMENT................................................................ 16
27.......ERRORS AND OMISSIONS............................................................................. 18
28.......INSOLVENCY....................................................................................... 18
29.......ARBITRATION...................................................................................... 19
a. GENERAL.......................................................................................... 19
b. NOTICE............................................................................................19
c. PROCEDURE........................................................................................ 19
d. COSTS............................................................................................ 19
30.......REPRESENTATIONS AND WARRANTIES................................................................... 19
31.......GOOD FAITH....................................................................................... 20
32.......COVENANTS........................................................................................ 20
33.......MATERIAL BREACH.................................................................................. 20
34.......FACILITY OF REINSURANCE.......................................................................... 21
35.......REINSURANCE ADMINISTRATION....................................................................... 21
36.......AUDIT............................................................................................ 21
37.......GOVERNING LAW.................................................................................... 21
38.......NONWAIVER........................................................................................ 21
39.......COUNTERPARTS..................................................................................... 21
40.......SEVERABILITY..................................................................................... 21
41.......CONFIDENTIALITY.................................................................................. 22
42.......FINANCIAL REPORTS................................................................................ 23
43.......SURVIVAL......................................................................................... 23
44.......SERVICE OF SUIT.................................................................................. 23
45.......NOTICES.......................................................................................... 23
46.......ASSIGNMENT....................................................................................... 23
Schedules Attached
A........Reinsurance Coverage
B........Notices
C-1......Company Expense Allowances
D........Investment Income Calculation
E........Facultative Reinsurance Application Form
F........Facultative Reinsurance Notification Form
G........Reinsurance Carrier Fact Sheet
AUTOMATIC AND FACULTATIVE MODIFIED COINSURANCE AGREEMENT
PREAMBLE
Pruco Life Insurance Company ("THE COMPANY") issues life insurance policies known as M Premier VUL ("MPVUL"), as more fully
described in the attached Schedule A. With respect to up to 50% of the risk, THE COMPANY is participating in a reinsurance program
comprised of several reinsurance agreements. These agreements include the following:
o This Automatic and Facultative Modified Coinsurance Agreement ("Agreement") between THE COMPANY and M Life Insurance Company
("THE REINSURER").
o One or more Automatic and Facultative Yearly Renewable Term Reinsurance Agreements ("YRT Agreements") between THE COMPANY
and various reinsurers.
In the context of the above reinsurance program, the reinsurance provided under the Automatic and Facultative YRT Agreements is known
as "THIRD-PARTY REINSURANCE", and the various reinsurers are known as "THIRD-PARTY REINSURERS".
The risk transferred under the THIRD-PARTY REINSURANCE Agreements is a portion of the mortality risk for the policies reinsured under
this Agreement. Said portion of the mortality risk is described in the THIRD-PARTY REINSURANCE Agreements. This Agreement covers
all significant risks other than the portion of the mortality risk covered under the THIRD-PARTY REINSURANCE Agreements. The portion
of the mortality risk assumed by THE REINSURER under this Agreement will not exceed THE REINSURER's retention limit.
With respect to the remaining 50% of the risk, THE COMPANY will retain at least 10% of the policy risk amount on each policy up to
its retention limit. THE COMPANY will cede up to 40% of the policy risk amount through one or more Automatic and Facultative YRT
Agreements between THE COMPANY and various reinsurers.
This Agreement and the THIRD-PARTY REINSURANCE agreements shall operate independently of one another, except where specifically
indicated in this agreement.
..................
1. PARTIES TO THE AGREEMENT
This Agreement is solely between THE REINSURER and THE COMPANY, a life insurance company domiciled in Arizona. There is no
third party beneficiary to this Agreement. Reinsurance under this Agreement will not create any right or legal relationship
between THE REINSURER and any other person, for example, any insured, policyowner, agent, beneficiary, or assignee. THE
COMPANY agrees that it will not make THE REINSURER a party to any litigation between any such third party and THE COMPANY.
THE COMPANY will not use or disclose THE REINSURER's name with regard to THE COMPANY's agreements or transactions with these
third parties unless THE REINSURER gives prior written approval for the use or disclosure of its name or unless THE COMPANY
is compelled by law to do so.
The terms of this Agreement are binding upon the parties, their representatives, successors, and assigns. The parties to
this Agreement are bound by ongoing and continuing obligations and liabilities until the later of (1) when this Agreement
terminates and (2) when the underlying policies are no longer in force. This Agreement shall not be bifurcated, partially
assigned, or partially assumed without the consent of the parties.
2. EFFECTIVE DATE OF THE AGREEMENT
This Agreement will incept on the date hereof, to be effective as of 12:01 A.M., December 15, 2003 and will cover policies
effective on and after that date. In addition, THE REINSURER agrees to accept reinsurance coverage for policies backdated
to save age up to six months prior to the effective date of this Agreement. The reinsurance coverage for any backdated
policies will be effective as of the policy effective date.
3. SCOPE OF THE AGREEMENT
The text of this Agreement and all Exhibits, Schedules and Amendments are considered to be the entire agreement between the
parties. There are no other understandings or agreements between the parties regarding the policies reinsured other than as
expressed in this Agreement. The parties may make changes or additions to this Agreement, but they will not be considered
to be in effect unless they are made by means of a written amendment that has been signed and dated by both parties.
4. POLICIES AND RISKS REINSURED UNDER THE AGREEMENT
THE REINSURER agrees to indemnify by means of indemnity reinsurance, and THE COMPANY agrees to reinsure with THE REINSURER,
according to the terms and conditions hereof, the portion of the policies on an automatic and facultative basis as described
and defined in Schedule A, which are placed in force while this Agreement is in effect. The intent of this Agreement is to
pass all of the underlying risks associated with such portion of the original policies, including the investment risk, to
THE REINSURER without necessitating THE COMPANY to transfer the assets or their cash equivalents to THE REINSURER.
5. DURATION OF THE AGREEMENT
The duration of this Agreement will be unlimited. However, either party may terminate the Agreement for new business at any
time by giving the other a 90-day prior written notice. THE REINSURER will continue to accept new reinsurance during the
90-day period.
Existing reinsurance will not be affected by the termination of this Agreement with respect to new reinsurance. Existing
reinsurance will remain in force until the termination or expiry of the underlying policies on which the reinsurance is
based and THE REINSURER fulfills all of its obligations under this Agreement, provided that THE COMPANY continues to pay
reinsurance premiums as described in Section 11. However, existing reinsurance may be terminated in accordance with the
recapture provision described in Section 24.
6. BASIS OF REINSURANCE
Reinsurance under this Agreement will be on the Modified Coinsurance (Modco) basis.
7. AUTOMATIC REINSURANCE
THE REINSURER agrees to automatically accept contractual risks on the life insurance plans shown in Schedule A, subject to
the following requirements:
a. CONVENTIONAL UNDERWRITING. Automatic reinsurance applies only to insurance applications underwritten by THE COMPANY
according to THE COMPANY's conventional underwriting and issue rules and practices. Upon request, THE COMPANY shall
provide THE REINSURER with a copy of its current underwriting and issue practices and guidelines.
From time to time, it may be appropriate for THE COMPANY or THE REINSURER to request of the other party changes in the
underwriting practices. The party requesting the change must provide a 120-day advance written notice to the other
party before the effective date of such change. Recognition of reinsurance premium rates related to these changes must
be determined within the 120-day period. If the underwriting change or rate change is unacceptable to either party,
this Agreement may be unilaterally terminated for acceptance of new business with a 90-day written termination notice to
the other party.
b. RESIDENCE AND TRAVEL. To be eligible for automatic reinsurance, each insured must either be a resident of the United States
or Canada at the time of issue or be a resident of another country that meets THE COMPANY's special underwriting
requirements pertaining to foreign residence. However, automatic reinsurance will not be available if the conditions
stated in either Foreign Travel Exclusions or Foreign Residence Exclusions in Schedule A apply.
c. OCCUPATION. To be eligible for automatic reinsurance, the insured must not be employed in an occupation as shown in the
Occupation Exclusion List in Schedule A.
d. AUTOMATIC ACCEPTANCE LIMIT. For any policy to be reinsured under automatic reinsurance, the face amount shall not exceed
the Automatic Acceptance Limit as shown in Schedule A.
e. JUMBO LIMIT. For any policy to be reinsured under automatic reinsurance, the total amount of insurance in force and applied
for in all companies shall not exceed the Jumbo Limit as shown in Schedule A.
f. MINIMUM CESSION. The minimum amount of reinsurance per cession that THE REINSURER will accept is shown in Schedule A.
g. FACULTATIVE QUOTES. The risk shall not have been submitted on a facultative basis to any reinsurer other than a THIRD-PARTY
REINSURER as described in the Preamble.
8. PORTIONS REINSURED AND RETAINED UNDER AUTOMATIC REINSURANCE
a. AUTOMATIC PORTION REINSURED. For any policy reinsured under automatic reinsurance, the portion reinsured is shown in
Schedule A.
b. AUTOMATIC PORTION RETAINED. THE COMPANY will retain, and not otherwise reinsure, an amount of insurance on each life equal
to its retention shown in Schedule A.
9. FACULTATIVE REINSURANCE
THE COMPANY may apply for facultative reinsurance with THE REINSURER on a risk if the automatic reinsurance terms are not
met or if the terms are met and it prefers to apply for facultative reinsurance. To obtain a facultative reinsurance quote,
THE COMPANY must submit the following:
a. A form substantially similar to the "Application for Reinsurance" form shown in Schedule E.
b. Copies of the original insurance application, medical examiner's reports, financial information, and all other papers and
information obtained by THE COMPANY regarding the insurability of the risk.
After receipt of THE COMPANY's application, THE REINSURER will promptly examine the material and notify THE COMPANY either
of the terms and conditions of THE REINSURER's offer for facultative reinsurance or that no offer will be made. THE
REINSURER's offer expires 120 days after the offer is made unless the written offer specifically states otherwise. If THE
COMPANY accepts THE REINSURER's offer, then THE COMPANY will make a dated notation of its acceptance in its underwriting
file and mail as soon as possible a formal reinsurance cession to THE REINSURER using a form substantially similar to the
Notification of Reinsurance form shown in Schedule F. If THE COMPANY does not accept THE REINSURER's offer, then THE
COMPANY will notify THE REINSURER in writing as soon as possible.
10. COMMENCEMENT OF REINSURANCE COVERAGE
Commencement of THE REINSURER's reinsurance coverage on any policy or pre-issue risk under this Agreement is described below.
a. AUTOMATIC REINSURANCE. THE REINSURER's reinsurance coverage for any policy that is ceded automatically under this Agreement
will begin and end simultaneously with THE COMPANY's contractual liability for the policy reinsured.
In addition, THE REINSURER will be liable for benefits paid under THE COMPANY's conditional receipt or temporary
insurance agreement if all of the conditions for automatic reinsurance coverage under Section 7 of this Agreement are
met. THE REINSURER's liability for such benefits will be on the same basis as its liability for death claim benefits
described in Section 13. THE REINSURER's liability under THE COMPANY's conditional receipt or temporary insurance
agreement is limited to the lesser of (1) THE REINSURER's reinsured portion of the face amount of the policy and (2)
$500,000.
b. FACULTATIVE REINSURANCE. THE REINSURER's reinsurance coverage for any policy that is ceded facultatively under this
Agreement shall begin when THE COMPANY accepts THE REINSURER's offer by making a dated notation of its acceptance in its
underwriting file.
In addition, THE REINSURER will be liable for benefits paid under THE COMPANY's conditional receipt or temporary
insurance agreement if all of the conditions for facultative reinsurance coverage under Section 9 of this Agreement are
met. THE REINSURER's liability for such benefits will be on the same basis as its liability for death claim benefits
described in Section 13. THE REINSURER's liability under THE COMPANY's conditional receipt or temporary insurance
agreement is limited to the lesser of (1) THE REINSURER's reinsured portion of the face amount of the policy and (2) the
portion of $1,000,000 that is derived as the amount of capacity reserved by THE COMPANY from THE REINSURER divided by
the sum of the total amount of capacity reserved by THE COMPANY from all reinsurers and the amount to be retained by THE
COMPANY.
c. PRE-ISSUE COVERAGE. The pre-issue coverage for benefits paid under THE COMPANY's conditional receipt or temporary insurance
agreement will be effective once all initial medical exams and tests have been completed. The pre-issue liability
applies only once on any given life at one time no matter how many conditional receipts or temporary insurance
agreements are in effect. After a policy has been issued, no reinsurance benefits are payable under this pre-issue
coverage provision.
11. PREMIUMS AND CONSIDERATIONS PAYABLE BY THE COMPANY
a. REINSURANCE PREMIUMS. To place new policies for reinsurance hereunder, or to continue the reinsurance of policies
already reinsured hereunder, THE COMPANY shall pay THE REINSURER a reinsurance premium. The reinsurance premium shall
be paid for each and every accounting period (as described in Section 17 of this Agreement) for the duration of this
Agreement, on all policies in force at the beginning of the accounting period plus those that became in force during
such accounting period under this Agreement. The reinsurance premium will equal the premium actually collected by THE
COMPANY, for such then current accounting period, on the portion of the policies reinsured hereunder. The reinsurance
premium will be reduced by any premiums paid to any THIRD-PARTY REINSURER covering any part of THE REINSURER's portion
of the policies reinsured hereunder. The reinsurance premium will be increased by any return of premiums paid from the
THIRD-PARTY REINSURER covering any part of THE REINSURER's portion of the policies reinsured hereunder.
b. CONSIDERATION FOR DECREASE IN MODIFIED COINSURANCE RESERVE. THE COMPANY shall pay to THE REINSURER, for each and every
accounting period for the duration of this Agreement, the amount by which the modified coinsurance reserve as defined in
Section 15, in the aggregate, on the portion of the policies reinsured hereunder, has declined since the beginning of
such then current accounting period, if any. The amount of such decrease for such then current accounting period shall
be determined by subtracting the amount of the Modco reserve on the portion of the policies reinsured hereunder as of
the end of the current accounting period, from the amount of the Modco reserve on the portion of the policies reinsured
hereunder as of the end of the immediately preceding accounting period. Should such calculation result in a positive
number, this shall be the amount of decrease for the current accounting period. Should the result of such calculation
result in a negative result, the amount of decrease for the current accounting period shall be zero or none.
c. CONSIDERATION FOR NET INVESTMENT INCOME. THE REINSURER is obligated, in accordance with Section 11 a., to return all or
a portion of the reinsurance premium to THE COMPANY as a Modco adjustment. Under coinsurance, THE REINSURER would have
retained all of such money for its own account and enjoyed the investment income thereon to help defray the liabilities
of the reinsured policies. However, under Modco, THE REINSURER has allowed THE COMPANY to retain such assets.
Therefore, THE COMPANY agrees to remit, for each and every accounting period for the duration of this Agreement, as part
of the settlements to THE REINSURER, any positive investment income on such assets, as provided for in Schedule D
attached hereto, and by this reference made a part hereof. However, in the event that such investment income is
negative, THE REINSURER shall pay THE COMPANY the negative investment income on such assets. Furthermore, the parties
hereto agree that retention of the assets by THE COMPANY is not intended to in any way diminish or dilute the investment
risk transferred to THE REINSURER through the calculation of the investment income amount in Schedule D.
12. RETURN OF PREMIUMS AND CONSIDERATIONS PAYABLE BY THE REINSURER
a. INCREASE IN THE MODIFIED COINSURANCE RESERVE. THE REINSURER shall pay to THE COMPANY, for each and every accounting
period for the duration of this Agreement, the amount by which the Modco reserve as defined in Section 15, in the
aggregate, on the portion of the policies reinsured hereunder, has increased since the beginning of such then current
accounting period, if any. The amount of such increase for such then current accounting period shall be determined by
subtracting the amount of the Modco reserve on the portion of the policies reinsured hereunder as of the beginning of
the then current accounting period from the amount of the Modco reserve on the portion of the policies reinsured
hereunder as of the end of the then current accounting period. Should such calculation result in a positive number,
this shall be the amount of increase for the current accounting period. Should the result of such calculation result in
a negative amount, the amount of increase for the current accounting period shall be zero or none.
b. SALES EXPENSE ALLOWANCE. THE REINSURER shall reimburse THE COMPANY for a sales expense allowance comprised of
compensation to the producers, overrides and overhead, as defined in Schedule C-1, for such then current accounting
period on the portion of the policies eligible for commissions and reinsured hereunder for each and every accounting
period for the duration of this Agreement. However, any increase in the dollar amount of compensation or reimbursement
in any producer or agency contract will be reimbursable under this Agreement only with the express written consent of
THE REINSURER. THE REINSURER agrees to not unreasonably withhold such consent.
c. ADMINISTRATION EXPENSE ALLOWANCE. THE REINSURER shall reimburse THE COMPANY for the expenses THE COMPANY incurs from the
issuance and administration costs on the portion of the policies reinsured hereunder. Such amounts shall be as defined
in Schedule C-1.
d. ALLOWANCE FOR PREMIUM TAXES. THE REINSURER shall reimburse THE COMPANY for all state and local premium taxes and
retaliatory taxes payable by THE COMPANY for the portion of the policies reinsured hereunder for each and every
accounting period for the duration of this Agreement. For each policy reinsured under this Agreement, the amount of
premium taxes to be reimbursed shall equal the Reinsurance Premiums for such then current accounting period as defined
in Section 11 a. above multiplied by the tax rate for the insured's state of residence. Such tax rates are included in
a table referred to by THE COMPANY as "Statutory State Premium Tax Rates." THE COMPANY shall update this table from
time to time as state premium tax rates change. For each policy reinsured under this Agreement, the amount of
retaliatory taxes to be reimbursed shall equal the Reinsurance Premiums for such then current accounting period as
defined in Section 11 a. above multiplied by the excess of tax rate in the State of Arizona over the tax rate for the
policyowner's state of residence.
Furthermore, THE REINSURER shall reimburse THE COMPANY for any additional premium taxes or retaliatory taxes payable by
THE COMPANY as a result of any state premium tax audits. If, any such audit results in a reimbursement of premium taxes
or retaliatory taxes to THE COMPANY, then THE COMPANY will reimburse THE REINSURER for any such amounts. In addition,
THE COMPANY will reimburse THE REINSURER for any additional premium taxes or retaliatory taxes payable by THE REINSURER
as a result of any state premium tax audits.
13. BENEFITS
a. NOTICE. THE COMPANY will provide THE REINSURER with notification of claims reported. In addition, THE COMPANY will provide
THE REINSURER with a notification of each claim incurred within the first two policy years (individually, a "Contestable
claim" and collectively "Contestable Claims") on policies reinsured where THE REINSURER'S net amount at risk is greater
than or equal to $100,000, along with all relevant information including, but not limited to, claim proofs.
For all other claims, after THE COMPANY has received all proper claim proofs and paid the claim, THE COMPANY will send
THE REINSURER an itemized statement of amounts due THE COMPANY along with all relevant information with respect to the
claim, including the claim proofs. However, claim proofs will not be required by THE REINSURER if THE REINSURER's net
amount at risk is less than or equal to $100,000 and THE COMPANY has paid the claim in full. In such cases, THE COMPANY
will provide THE REINSURER with the cause of death.
b. LIABILITY. THE REINSURER will accept the decision of THE COMPANY on payment of a death claim benefit or surrender benefit
("benefits") on a policy reinsured hereunder. For death claims, THE COMPANY will use its normal and customary claim
adjudication procedures, as updated from time to time.
c. PAYMENT. THE REINSURER will pay its proportionate share of such death claim benefit or surrender benefit in a lump sum to
THE COMPANY without regard to the form of settlement of THE COMPANY. THE REINSURER will pay its proportionate share for
all death claims authorized by THE COMPANY.
In addition, THE REINSURER will pay its share of any death claims reported for the first time during the then current
accounting period and not yet paid. In the event that such an unpaid claim is not authorized for payment by THE
COMPANY, THE COMPANY will refund the payment made by THE REINSURER.
The term "death claim benefit" shall mean all death claim payments made by THE COMPANY on the portion of the policies
reinsured hereunder less any benefits payable to THE COMPANY from any THIRD-PARTY REINSURANCE covering any part of THE
REINSURER's portion of the policies reinsured hereunder. The term "surrender benefit" shall mean all payments of
surrender values made by THE COMPANY on the portion of the policies reinsured hereunder.
▇. ▇▇▇▇▇▇▇▇▇▇▇ AND CONTESTED CLAIMS. For Contestable Claims greater than or equal to $100,000, THE REINSURER will have the
right to advise THE COMPANY as to whether the claim should be paid or denied. THE REINSURER will have two business days
to review the information and offer advice to THE COMPANY. Any advice offered by THE REINSURER will not be binding on
THE COMPANY.
THE COMPANY will advise THE REINSURER of any intention to contest a claim involving a policy reinsured hereunder. THE
REINSURER may choose not to participate in the contest of such a Contestable Claim. THE REINSURER will have 10 business
days to communicate to its decision to THE COMPANY. If THE REINSURER chooses not to participate, it will discharge its
liability by immediately paying to THE COMPANY the full amount of THE REINSURER's liability on the portion of the policy
reinsured under this Agreement, regardless of any subsequent outcome of such contest.
e. CLAIM EXPENSES. THE REINSURER will pay its share of any interest paid by THE COMPANY on any claim payment. In addition,
THE REINSURER will pay its share of the unusual expense of THE COMPANY of adjudicating contestable claims including
investigation expenses and compensation expenses charged by THE COMPANY's Special Investigation Unit. The term "unusual
expense" shall mean all reasonable and customary expenses of THE COMPANY associated with the contestable claim other
than normal and customary claim administration expenses that are commonly incurred with the normal and customary
settlement of non-contestable claims. Also, expenses incurred in connection with a dispute or contest arising out of
conflicting claims of entitlement to policy proceeds or benefits that THE COMPANY admits are payable are not a claim
expense under this Agreement. Notwithstanding the above, THE REINSURER will not be liable for any portion of interest
or unusual expenses for any period of time after THE REINSURER chooses not to participate in a contested, compromised or
litigated claim.
f. EXTRACONTRACTUAL DAMAGES. Generally, THE REINSURER will not participate in punitive or compensatory damages, which are
awarded against THE COMPANY as a result of an act, omission or course of conduct committed by THE COMPANY or its agents
in connection with the policies reinsured under this Agreement. THE REINSURER will, however, pay its share of statutory
penalties awarded against THE COMPANY in connection with the policies reinsured under this Agreement. The parties
recognize that circumstances may arise in which equity would require THE REINSURER, to the extent permitted by law, to
share proportionately in certain assessed punitive or compensatory damages. Such circumstances are difficult to define
in advance, but generally would be those situations in which THE REINSURER was an active party and in writing either
directed, consented to, or ratified the act, omission, or course of conduct of THE COMPANY which ultimately results in
the assessment of punitive and/or compensatory damages. In such situations, THE COMPANY and THE REINSURER would share
such damages assessed in equitable proportions.
For purposes of the provision, the following definitions will apply:
"Punitive Damages" are those damages awarded as a penalty, the amounts of which are not governed or fixed by statute;
"Statutory Penalties" are those amounts that are awarded as a penalty, but are fixed in amount by statute;
"Compensatory Damages" are those amounts awarded to compensate for actual damages sustained, and are not awarded as a
penalty, nor fixed in amount by statute.
14. MISREPRESENTATION AND SUICIDE
If either a misrepresentation on an application or a death of an insured by suicide results in the return of policy premiums
by THE COMPANY under the policy rather than payment of policy benefits, then all premiums and considerations paid under this
Agreement for such policy will be returned by THE REINSURER and THE COMPANY to the other party. If there is an adjustment
for a misrepresentation or misstatement of age or sex, a corresponding adjustment to the reinsurance benefit will be made.
15. MODIFIED COINSURANCE RESERVES
The Modco reserve for this Agreement shall be an amount equal to the gross statutory reserves on the portion of the policies
reinsured hereunder as of the close of such accounting period for which this calculation is being made. For the first
accounting period after the Effective Date of this Agreement, the beginning Modco reserve for purposes of the calculation of
increase or decrease in the Modco reserve shall be zero.
The term "statutory reserve(s)" or "gross statutory reserve(s)," whenever used for the purpose of this Agreement, shall mean
the total Separate Account and General Account reserves calculated under the State of Arizona's insurance regulations and in
accordance with accepted actuarial industry practice, on the portion of the policies reinsured hereunder, had this Agreement
not been placed in effect.
16. QUARTERLY ACCOUNTING REPORTS
The accounting period for all reports and settlements described herein will be on a calendar quarter basis. For each
calendar quarter, THE COMPANY will provide THE REINSURER a quarterly accounting report within twenty calendar days following
the end of the calendar quarter. Such reports shall include information on the amount of reinsurance premium, commission
and expense allowances, benefits, Modco reserves, and gross statutory reserves,
for the then current accounting period. Whenever the term "the then current accounting period" is used herein, it shall
mean the calendar quarter for which the reports contained herein are being prepared and not the calendar quarter in which
the actual preparation of the report occurs. Whenever the term "beginning or opening" accounting period is used herein, it
shall be the first day of such then current accounting period or, for the first accounting period, the Effective Date of
this Agreement. Furthermore, opening or beginning reserves shall mean the reserve as of the end of the immediately
preceding calendar quarter. Whenever, the term "ending or closing" accounting period is used herein it shall mean the last
day of the then current calendar quarter or, in the event of the final quarter, the date of expiration or termination of
this Agreement.
17. QUARTERLY CASH FLOW SETTLEMENTS
Quarterly cash flow settlements shall be determined on a net basis as of the last day of each calendar quarter. Settlements
shall be due and payable thirty calendar days following the end of each accounting period. The quarterly accounting
settlement shall be an amount equal to the following:
a. the reinsurance premium as described in Section 11 a.; plus
b. any decrease in the Modco reserve as described in Section 11 b.; plus
c. any positive investment income consideration as described in Section 11 c.; less
d. any increase in the Modco reserve as described in Section 12 a.; less
e. any negative investment income consideration described in Section 11 c.; less
f. the commission as described in Section 12 b.; less
g. the administration expense allowance as described in Section 12 c.; less
h. the premium taxes as described in Section 12 d.; less
i. benefits as described in Section 13.
Should the above calculation result in a net positive cash flow, such net amount is due and payable to THE REINSURER.
Should the above calculation result in a negative net cash flow, such net amount is due and payable to THE COMPANY. All
financial transactions under this Agreement will be in United States dollars.
18. ESTIMATES AND DELAYS
If the amounts cannot be determined on an exact basis within the time period defined in Section 16, such payments will be
paid in accordance with a mutually acceptable formula, which will approximate the actual payments. Adjustments will then be
made to reflect actual amounts when such information is available. Any such adjustments will include an interest adjustment
as defined below.
If there is a delay in a settlement payment, other than one caused by a delay in the execution of this Agreement, THE
COMPANY will pay an interest penalty as described below. If there is a delay in a settlement payable to THE REINSURER
because the quarterly accounting report was produced more than twenty days following the end of the accounting period, then
there will be an interest penalty as described below, payable by THE COMPANY to THE REINSURER.
The interest adjustments and penalties described above will be calculated for each one month period for which the amount is
overdue. The annual interest rate to be used in such calculation shall equal the London Interbank Offered Rate, US
Denomination-Fixed One-month, (LIBOR) in effect at the beginning of each period.
If a settlement payable to THE REINSURER is forty-five days past due, for reasons other than (1) they could not be made
prior to the execution of this Agreement or (2) those due to error or omission as defined below in Section 27, the
settlement will be considered in default, and THE REINSURER may terminate the reinsurance by providing a 15-day prior
written notice to THE COMPANY. Reinsurance will end at the end of such 15-day period provided that the payment is not
received within that 15-day period. THE COMPANY will be liable for the prorated reinsurance premiums to the termination
date. At the end of this 15-day period, THE REINSURER's liability will automatically terminate for all reinsurance on which
balances remain due and unpaid, including reinsurance on which balances became due and unpaid during and after the 15-day
notice period.
THE COMPANY may reinstate reinsurance terminated for non-payment of balances due at any time within 60 days following the
date of termination. However, THE REINSURER will have no liability for claims incurred between the termination date and the
reinstatement date.
THE COMPANY agrees that it will not force termination of this Agreement under the provisions of this paragraph solely to
avoid the recapture requirements or to transfer the block of business reinsured to another reinsurer.
If a settlement payable to THE COMPANY is sixty days past due, for reasons other than those due to error or omission as
defined below in Section 27, the settlement will be considered in default, and THE COMPANY may recapture the reinsurance as
described in Section 24.
19. ANNUAL ACCOUNTING REPORTS AND TAX SETTLEMENTS
The parties agree to mutually exchange any and all reasonable information, reports, listings or other data as may be
required to properly complete their respective Annual Statements, or GAAP Statements for such calendar year for the duration
of this Agreement. All such information shall be made available within twenty working days of the date such request for
information was first made. The parties agree that it shall pay to the other party an annual settlement for DAC taxes within
thirty days after the close of such calendar year in accordance with the following formula:
DACPayt = (T/k)*(.95*Cct - At), where
|
|
DACPayt, = DAC Tax Payment for calendar year t. |
| |||||||||
|
|
T = tax rate (currently equal to .35). |
| |||||||||
|
|
k = 1 - T*(1+.95*CR). |
| |||||||||
|
|
CR = DAC Tax capitalization rate (currently equal to .077 for individual life insurance). | ||||||||||
|
|
Cct = CR*(Pt - NCFt). |
| |||||||||
|
|
Pt = reinsurance premiums for the calendar year t. |
| |||||||||
|
|
NCFt, = sum of the quarterly cash flow settlements for the year as defined in Section 17. |
| |||||||||
|
|
A t = amortization of prior years’ DAC tax capitalization's calculated as |
| |||||||||
|
|
(.05)*C t-10 + (.1)* Σ C t-a, where a=1 to 9 |
| |||||||||
|
|
C t = CR*(P t - NCF t + DACPay t) |
| |||||||||
Should the above calculation for the DAC Tax Payment be positive, such amount is due and payable to THE COMPANY. Should the
above calculation for the DAC Tax Payment be negative, such amount is due and payable to THE REINSURER.
Should a material change occur in either the DAC Tax capitalization rate (CR), as defined in IRC Section 848, or the
Corporate Tax Rate (T) applicable for Life Insurance Companies, then these rates should be adjusted accordingly.
20. DAC TAX AGREEMENT
THE COMPANY and THE REINSURER, herein collectively called the "Parties", or singularly the "Party", hereby enter into an
election under Treasury Regulations Section 1.848-2(g) (8) as promulgated under the Internal Revenue Code, as found in Title
26 of the United States Code, hereinafter referred to as the Regulations and the IRC. Both parties agree to make the
election contemplated by this Section by timely attaching to their U.S. tax returns the schedule contemplated by Section
1.848-2(g)(8)(ii) of the Regulations. Furthermore, the parties agree to the following:
a. For each taxable year under this Agreement, the party with the net positive consideration, as defined in the Regulations,
will capitalize specified policy acquisition expenses with respect to this Agreement without regard to the general
deductions limitation of Section 848 (c) (1);
b. THE COMPANY and THE REINSURER agree to exchange information pertaining to the net consideration under this Agreement each
year to insure consistency or as otherwise required by the Internal Revenue Service;
c. THE COMPANY will submit to THE REINSURER by May 1 of each year its calculation of the net consideration for the preceding
calendar year.
d. THE REINSURER may contest such calculation by providing an alternative calculation to THE COMPANY in writing within thirty
days of THE REINSURER's receipt of THE COMPANY's calculation. If THE REINSURER does not so notify THE COMPANY, THE
REINSURER will report the net consideration as determined by THE COMPANY in THE REINSURER's tax return for the previous
calendar year;
e. If THE REINSURER contests THE COMPANY's calculation of the net consideration, the parties will act in good faith to reach an
agreement as to the correct amount within thirty days of the date THE REINSURER submits its alternative calculation. If
THE COMPANY and THE REINSURER do not reach agreement on the net amount of consideration within such 30-day period, then
the net amount of consideration for such year shall be determined by an independent accounting firm acceptable to both
THE COMPANY and THE REINSURER within twenty days after the expiration of such 30-day period. Both parties will share
the costs of the independent accounting firm.
f. THE COMPANY and THE REINSURER agree that this election shall first be effective for the 2005 calendar tax year and will be
effective for all subsequent taxable years for which this Agreement remains in effect.
THE REINSURER and THE COMPANY represent and warrant that they are subject to U.S. taxation under either Subchapter L of
Chapter 1, or Subpart F of Subchapter N of Chapter 1 of the Internal Revenue Code of 1986, as amended.
21. OFFSET TO PAYMENTS
All money due to either THE COMPANY or THE REINSURER under this Agreement shall be offset against each other, dollar for
dollar, regardless of any insolvency of either party.
22. POLICY CHANGES
a. NOTICE. If a reinsured policy is changed, as described below, a corresponding change will be made in the reinsurance for
that policy.
b. INCREASES. If a request for an increase in the amount of insurance is made for a reinsured policy and the insured meets THE
COMPANY's underwriting requirements and THE COMPANY approves the increase under the policy, then the amount of
reinsurance under this Agreement will be adjusted as of the effective date of the increase. If a request for an
increase does not meet all of the terms of automatic reinsurance, then THE COMPANY may apply for facultative reinsurance
as stated in Section 9.
c. REDUCTION OR TERMINATION. If the amount of insurance on a reinsured policy is reduced, the reinsurance will be reduced
proportionately as of the effective date of the reduction.
If a reinsured policy is terminated, the reinsurance will cease on the date of such termination.
d. PLAN CHANGES. If a reinsured policy is changed to another plan of insurance that is not currently reinsured under this
Agreement as defined in Schedule A, then the reinsurance under this Agreement will cease with respect to the policy as
of the effective date of the change.
If a policy that is not reinsured under this Agreement is changed to a plan that is reinsured under this Agreement as
defined in Schedule A and the insured has met THE COMPANY's underwriting requirements for the plan change, then
reinsurance will commence as of the policy date of the new policy.
23. REINSTATEMENTS
a. AUTOMATIC REINSTATEMENT. If THE COMPANY reinstates a policy that was originally ceded to THE REINSURER as automatic
reinsurance, the reinsurance under this Agreement shall be reinstated.
b. FACULTATIVE REINSTATEMENT. If THE COMPANY has been requested to reinstate a policy that was originally ceded to THE
REINSURER as facultative reinsurance and the reinstatement is processed under THE COMPANY's Long Form Reinstatement
Process, then THE COMPANY will re-submit the appropriate evidence for the case to THE REINSURER for underwriting
approval before the reinsurance can be reinstated.
24. RECAPTURE
At any time during the term of the Agreement, THE COMPANY may elect to recapture in full the coverage reinsured under this
Agreement following the occurrence of any of the following events:
1) Nonpayment of a settlement due from THE REINSURER that is sixty days past due provided that THE COMPANY provides THE
REINSURER with 30 days prior written notice and that payment is not received within that 30 day period.
THE REINSURER agrees that it will not force termination of this Agreement under the provisions of this paragraph solely
to avoid recapture requirements.
2) Material breach of any term or condition of this Agreement if such breach is not cured within a period of at least 60
calendar days following the delivery of notice of such breach from THE COMPANY to THE REINSURER.
3) THE REINSURER is deemed insolvent as described in Section 28.
4) The occurrence of a "Risk Trigger Event" as defined in Schedule A of this Agreement.
5) A change in ownership of THE REINSURER.
6) Any written representation or warranty made by THE REINSURER under this Agreement proves to be untrue in any material
respect.
If THE COMPANY elects to recapture the risks ceded to THE REINSURER under this Agreement as stated above, it will do so by
giving written notice to THE REINSURER. Upon the delivery of such notice, all of the risks previously ceded under each of
the policies subject to this Agreement shall be recaptured, effective as of the date specified in THE COMPANY's notice. If
THE COMPANY does not specify in the written notice the date that such recapture is to be effective, then the recapture shall
be effective immediately upon THE REINSURER's receipt of the notice. However, if the recapture arises from a material
breach of this Agreement by THE REINSURER, the recapture shall occur in accordance with Section 33.
A change in ownership of THE REINSURER shall mean a change in control of the common stock of THE REINSURER, without the
express written consent of THE COMPANY, except that any reorganization of THE REINSURER's shares to facilitate a holding
company reorganization with such new holding company materially controlled by the same entities or individuals as THE
REINSURER shall not be considered a change in control.
25. TERMINATION OF REINSURANCE BY THE REINSURER
THE REINSURER may terminate the reinsurance under this Agreement for any of the following occurrences:
a. Nonpayment of a settlement due from THE COMPANY that is forty-five days past due.
b. A material breach of any term or condition by THE COMPANY of this Agreement if such breach is not cured within a period of
at least 60 calendar days following the delivery of notice of such breach from THE REINSURER to THE COMPANY.
c. Any written representation or warranty made by THE REINSURER under this Agreement proves to be untrue in any material
respect.
If the recapture arises from a material breach of this Agreement by THE COMPANY, the recapture shall occur in accordance
with Section 33.
26. SPECIAL ACCOUNTING AND SETTLEMENT
In the event that the reinsurance under this Agreement is prematurely recaptured or terminated as provided in Sections 24
and 25, respectively, or if by mutual agreement of the parties, other than due to the natural expiration of this Agreement
due to settlement of the last remaining policyholder's benefit, a special accounting and settlement shall take place.
a. Special Accounting Date. The special accounting date shall be the effective date of recapture or termination pursuant to
any notice of recapture or termination given under this Agreement or such other date as shall be mutually agreed to in
writing.
b. Special Accounting Report. THE COMPANY shall provide THE REINSURER with a special accounting report providing all of the
information contained in the quarterly accounting report as defined in Section 16 and the annual accounting report as
defined in Section 19, except that for all reports the close of such accounting period shall be the special accounting
date as defined in Section 26 a. above. All reports shall be available to THE REINSURER within sixty calendar days
after the special accounting date.
c. Special Cash Flow Settlement. The special cash flow settlement shall consist of:
i) the numeric result of the customary cash flow settlement as provided for in Section 17, except that all amounts will
be calculated as of the instant in time immediately before this Agreement expires. For example, the ending Modco
reserve for purposes of this Section 26 c. would be a numerical value and not the value zero which it will be
immediately upon the expiration of this Agreement; Plus
ii) payment by THE COMPANY to THE REINSURER of an amount equal to the Modco reserves on the portion of the policies
reinsured hereunder as of the instant in time immediately before the expiration of this Agreement. This payment is the
reversal of the initial Modco adjustment, returning THE REINSURER's assets for the Modco portion of the reserves. It is
the intent of the parties that under no circumstance should this payment not be fully and completely offset by the
payment described in Section 26 c. (iii) below and that the only reason for making such offsetting payments is to
demonstrate the full release of liability from one another; Less
iii) payment by THE REINSURER to THE COMPANY of a final Modco reserve adjustment equal to the Modco reserves on the
portion of the policies reinsured hereunder as of immediately before expiration of this Agreement only if THE REINSURER
has received full credit for the payment called for in Section 26 c. (ii) above; Plus
iv) payment to THE REINSURER for any positive future profits, if any, in an amount defined as the present value of
future reinsurance premiums minus the present value of future benefit payments and expenses as determined in accordance
with the assumptions defined in Section 26 d., below; Less
v) payment to THE COMPANY for any negative future profit defined as the present value of future reinsurance premiums
minus the present value of future benefit payments and expenses as determined in accordance with the assumptions defined
in Section 26 d., below; Plus
vi) payment to THE REINSURER of an amount equal to the unamortized prior years' DAC tax capitalization, determined in
accordance with Section 19.
Should the above calculation of subparagraphs (i) through (vi) result in a positive cash flow, such net amount is due
and payable to THE REINSURER. Should the above calculation of subparagraphs (i) through (vi) result in a negative cash
flow, the absolute value of such net amount is due and payable to THE COMPANY. If only a portion of the policies is
recaptured, then the settlement described above shall be with respect to only those policies or percentage of policies
recaptured. All payments shall be considered timely if such payment is received within fifteen calendar days after the
calculation is completed. Should there be a delay in such payment, there will be an interest penalty for the period
that the amount is overdue. The annual interest rate to be used in such calculation shall equal the London Interbank
Offered Rate, US Denomination-Fixed One-Month, (LIBOR). Any special cash flow settlement made under this subsection c.
shall be added to, or subtracted from, any previous quarterly settlement amount outstanding as of the Special Accounting
Date.
d. Assumptions to Calculate Future Profits. The assumptions used to calculate the future profits of the then existing block of
business shall be as follows:
i) Mortality: The mortality assumption to be used in the calculation for such recaptured policies will be based on a
blend of THE COMPANY's adjusted mortality pricing assumption and the product of THE REINSURER's actual-to-expected
aggregate mortality ratio on Reinsured Policies over the last five years on a rolling average basis and the sum of THE
COMPANY's original pricing mortality table plus 2.5 % of the mortality table used in THE COMPANY's adjusted mortality
pricing assumption. This blend shall be accomplished by weighting THE COMPANY's and THE REINSURER's mortality
assumption as follows. For all business reinsured for a period of one year or less, a blend of 90% Company mortality
and 10% Reinsurer mortality will be used. THE COMPANY's weight will decrease and THE REINSURER's weight will increase
by 10 % for every year the business has been in force under this Agreement until the tenth year when the mortality
assumption will be wholly THE REINSURER's mortality and no weight shall be given to THE COMPANY's mortality from that
point on. This calculation shall be done separately for each underwritten block that has a different mortality pricing
assumption. For the purpose of THE REINSURER's actual-to-expected mortality, "actual" is defined as THE REINSURER's
paid claims, as defined in Section 13, from the inception of this Agreement and "expected" is defined as the claims
liability that would have emerged had THE COMPANY's original pricing mortality assumption exactly been realized. If the
type of business being measured has been reinsured for less than five years, then such shorter time period shall be used
in lieu of the five year rolling average period in the previous paragraph. The adjusted mortality pricing assumption is
defined as THE COMPANY's original mortality assumption multiplied by a factor representing the ratio of the present
value of cost of insurance charges currently applicable to the policies covered by this Agreement to the present value
of the cost of insurance charges in effect when such policies were first reinsured. THE COMPANY will share with THE
REINSURER the details of any such modification prior to its being implemented for any change in the level of cost of
insurance charges due under this Agreement. If there are any disagreements in the calculation, then any disagreements
will be settled under the Arbitration provision of this Agreement. The initial grade-in period during which the blend
referred to above would apply would be ten calendar years where 2003 (or the first year that a particular type of
business is first reinsured, if later) is defined to be the first year.
ii) Lapse Assumption: The lapse assumption used in the calculation for such recaptured policies will be based on a blend
of THE COMPANY's Adjusted Pricing lapse assumption and THE REINSURER's actual lapse rate on reinsured policies measured
over the last three years on a rolling average basis. The grade in period would be seven (7) years over which THE
REINSURER's experience would be 1/7 after year 1, 2/7 after year 2, etc. up to 100% after this Agreement has been in
effect for seven full years.
iii) Special Cases: If the profit levels of a single case are different than the underlying policy form, either in
amount or incidence, then such special case will be treated as a unique valuation cell. Determination of such special
cases will be by mutual agreement between THE COMPANY and THE REINSURER.
iv) Expenses: Expenses shall be as defined in Section 12 b., c. and d.
v) Interest Rate Used in the Calculation: In order to determine the present value, THE REINSURER shall use a discount
rate that is one hundred basis points higher than THE COMPANY's then target internal rate of return. For example as of
the Effective Date of this Agreement, such target internal rate of return is 12.0 % for all these products, and the
discount rate for purposes of this paragraph would be 13.0 %. THE COMPANY shall provide notice of any change in its
target internal rate of return for any product and such change shall be effective for the purposes of this Section 26 d.
six months after such notice is received.
vi) Appropriateness of Assumptions: In the event that either party believes that any of the above methods for
determining the mortality and lapse assumptions to be used to calculate future profits is inappropriate based upon the
expectation for future experience, then that party may recommend that a different assumption be used. If the other
party does not agree with the recommendation, then an independent actuary shall be used to develop the assumption. The
cost of such actuary shall be borne equally by the parties.
vii) Calculation process: The calculation will be initially done by THE REINSURER, but the calculation will be subject
to review by THE COMPANY. At THE COMPANY's request, an independent actuary shall be used to verify that THE REINSURER's
calculations are accurate, and based on the assumptions described above. Such actuary must be satisfactory to both
parties. The cost of such actuary shall be borne equally by the parties.
viii) Reasonability of Final Calculations: In doing this calculation a reasonability test will be employed using current
actuarial principles not inconsistent with this Agreement since not all contingencies can be addressed in advance. Such
reasonability testing will be also subject to review by the independent actuary, if requested. The cost of such actuary
shall be borne equally by the parties.
27. ERRORS AND OMISSIONS
If either THE REINSURER or THE COMPANY fails to comply with any of the terms of this Agreement and it is shown that the
failure was unintentional or the result of a misunderstanding or an administrative oversight on the part of either party,
this Agreement will remain in effect. If the failure to comply changes the operation or effect of this Agreement, both
parties will be put back to the positions they would have occupied if the failure to comply had not occurred. A payment for
the time value of money would not be contemplated in such a settlement. This section will not apply to any facultative
submission until THE COMPANY has mailed the Notification of Reinsurance form to THE REINSURER.
28. INSOLVENCY
For the purpose of this Agreement: THE COMPANY or THE REINSURER shall be deemed "insolvent" if one or more of the following
occurs:
a. A court-appointed receiver, trustee, custodian, conservator, liquidator, government official or similar officer takes
possession of the property or assets of either THE COMPANY or THE REINSURER; or
b. Either THE COMPANY or THE REINSURER is placed in receivership, rehabilitation, liquidation, conservation, bankruptcy or
similar status pursuant to the laws of any state or of the United States; or
c. Either THE COMPANY or THE REINSURER becomes subject to an order to rehabilitate or an order to liquidate as defined by the
insurance code of the jurisdiction of the domicile of THE COMPANY or THE REINSURER, as the case may be.
In the event of the insolvency of THE COMPANY, all reinsurance ceded, renewed or otherwise becoming effective under this
Agreement shall be payable by THE REINSURER directly to THE COMPANY or to its liquidator, receiver, or statutory
successor on the basis of the liability of THE COMPANY under the contract or contracts reinsured without diminution
because of the insolvency of THE COMPANY. It is understood, however, that in the event of the insolvency of THE
COMPANY, the liquidator or receiver or statutory successor of the insolvent Company shall give written notice of the
pendency of a claim against THE COMPANY on the policy reinsured within a reasonable time after such claim is filed in
the insolvency proceeding, and during the pendency of such claim THE REINSURER may investigate such claim and interpose,
at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses which it may deem
available to THE COMPANY or is liquidator or receiver or statutory successor.
In the event THE REINSURER is deemed insolvent, THE REINSURER will be bound by any legal directions imposed by its
liquidator, conservator, or statutory successor. However, and if not in conflict with such legal directions, THE
COMPANY shall have the right to cancel this Agreement with respect to occurrences taking place on or after the date THE
REINSURER first evidences insolvency. Such right to cancel shall be exercised by providing THE REINSURER (or its
liquidator, conservator, receiver or statutory successor) with a written notice of THE COMPANY'S intent to recapture
ceded business. If THE COMPANY exercises such right to cancel and recapture ceded business, such election shall be in
lieu of any premature recapture fee. Upon such election, THE COMPANY shall be under no obligation to THE REINSURER, its
liquidator, receiver or statutory successor; however, THE REINSURER, its liquidator, receiver or statutory successor
shall be liable for all claims incurred prior to the date of recapture.
29. ARBITRATION
a. GENERAL. All disputes and differences under this Agreement that cannot be amicably agreed upon by the parties shall be
decided by arbitration. The arbitrators will have the authority to interpret this Agreement and, in doing so, will
consider the customs and practices of the life insurance and life reinsurance industry. The arbitrators will consider
this Agreement as an honorable engagement rather than merely a legal obligation, and they are relieved of all judicial
formalities and may abstain from following the strict rules of law. The arbitration shall take place within the United
States.
b. NOTICE. To initiate arbitration, one of the parties will notify the other, in writing, of its desire to arbitrate. The
notice will state the nature of the dispute and the desired remedies. The party to which the notice is sent will
respond to the notification in writing within ten days of receipt of the notice. At that time, the responding party
will state any additional dispute it may have regarding the subject of arbitration.
c. PROCEDURE. Arbitration will be heard before a panel of three disinterested arbitrators. The arbitrators will be current or
former executive officers or employees of life insurance or reinsurance companies; however, these companies will not be
either party or any of their reinsurers or affiliates. Each party will appoint one arbitrator. Notice of the
appointment of these arbitrators will be given by each party to the other party within thirty days of the date of
mailing of the notification initiating the arbitration. These two arbitrators will, as soon as possible, but no longer
than forty-five days after the date of the mailing of the notification initiating the arbitration, then select the third
arbitrator.
Should either party fail to appoint an arbitrator or should the two initial arbitrators be unable to agree on the choice
of a third arbitrator, each arbitrator will nominate three candidates, two of whom the other will decline, and the
decision will be made by drawing lots on the final selection. Once chosen, the three arbitrators will have the
authority to decide all substantive and procedural issues by a majority vote. The arbitration hearing will be held on
the date fixed by the arbitrators at a location agreed upon by the parties. The arbitrators will issue a written
decision from which there will be no appeal. Either party may reduce this decision to a judgment before any court that
has jurisdiction of the subject of the arbitration.
d. COSTS. Each party will pay the fees of its own attorneys, the arbitrator appointed by that party, and all other expenses
connected with the presentation of its own case. The two parties will share equal cost of the third arbitrator.
30. REPRESENTATIONS AND WARRANTIES
Each party represents and warrants to the other party that it is solvent on a statutory basis in all states in which it does
business or is licensed. Each party agrees to promptly notify the other if it is subsequently financially impaired. Each
party affirms that it has and will continue to disclose all matters material to this Agreement and each cession. Examples
of such matters are a material change in underwriting or issue practices or philosophy, or a change in each party's
ownership or control.
THE COMPANY represents and warrants the following:
a. It is a corporation duly organized, existing and in good standing under the laws of the State of Arizona.
b. It is empowered under applicable laws and by its charter and bylaws to enter into and perform the duties contemplated in
this Agreement.
c. It has taken all requisite corporate proceedings to authorize it to enter into and perform the duties contemplated in this
Agreement.
d. It has obtained any and all regulatory approvals as may be required for THE COMPANY to cede the Policies covered hereunder.
e. It will take no unauthorized action that would encourage the policyholders whose policies are reinsured under this Agreement
to surrender, reduce or otherwise terminate their existing coverages either through direct or indirect acts, including
but not limited to, a plan of internal replacement, without the consent of THE REINSURER.
f. THE COMPANY acknowledges that THE REINSURER is entering into this Agreement in reliance upon these representations and
warranties of THE COMPANY and THE COMPANY agrees that THE REINSURER's right of termination under Section 25 of this
Agreement will be triggered if, at any point in the future during the term of this Agreement, these representations and
warranties are no longer true and correct.
THE REINSURER represents and warrants the following:
a. It is a corporation duly organized, existing and in good standing under the laws of the State of Colorado.
b. It is empowered under applicable laws and by its charter and bylaws to enter into and perform the duties contemplated in
this Agreement.
c. It has taken all requisite corporate proceedings to authorize it to enter into and perform the duties contemplated in this
Agreement.
d. It has obtained any and all regulatory approvals as may be required for THE REINSURER to provide the reinsurance covered
hereunder.
e. It agrees that no retrocessions of any portion of the policies reinsured hereunder shall be made to any party (other than
the THIRD PARTY REINSURANCE REINSURERS referred to in the Preamble of this Agreement) without the express written
consent of THE COMPANY. Furthermore, THE REINSURER shall fully disclose any and all terms of any such proposed
retrocessions to THE COMPANY. THE COMPANY reserves the right to review, alter, change and approve any and all such
terms as may be contained therein.
f. As part of THE COMPANY's due diligence process, THE REINSURER has provided a completed copy of the Reinsurance Carrier Fact
Sheet, a copy of which is attached in Schedule G. The information included in the Reinsurance Carrier Fact Sheet is
true and accurate as of the date shown on the Fact Sheet.
g. It qualifies under section ▇▇-▇▇▇-▇▇.A.3 of the Arizona statutes so as to fully entitle THE COMPANY to take the maximum
permissible credit for the risks ceded under this Agreement on each of its statutory financial statements.
h. It has, by executing this Agreement, submitted to the authority of the State of Arizona to examine its books and records.
i. THE REINSURER acknowledges that THE COMPANY is entering into this Agreement in reliance upon these representations and
warranties of THE REINSURER, and THE REINSURER agrees that THE COMPANY's right of recapture under Section 24 of this
Agreement will be triggered if, at any point in the future during the term of this Agreement, these representations and
warranties are no longer true and correct.
31. GOOD FAITH
Each party agrees that all matters with respect to this Agreement require its utmost good faith.
32. COVENANTS
THE REINSURER and THE COMPANY agree as follows:
a. Each party shall indemnify, defend and hold harmless the other, its directors, officers, employees and agents from any and
all claims, actions, suits, judgments, damages (including punitive or exemplary damages), fines and other proceedings,
whether civil, criminal (only to the extent permitted by law or public policy), administrative, investigative or
otherwise, together with all costs, expenses and other amounts, including attorney's fees, arising or alleged to have
arisen out of any act, error or omission related to or resulting from the performance of the duties, obligations or
responsibilities of the indemnifying party, its directors, officers, employees and agents, under this Agreement.
b. No commission, fee or compensation is due to any third person by virtue of having negotiated or arranged the transactions
herein. Each of the parties agrees to pay all costs incurred by it for actuarial, legal and other services received or
utilized in connection herewith.
33. MATERIAL BREACH
If THE COMPANY or THE REINSURER is found to be in violation of any of the provisions of Sections 30, 31, 32 or 41, the party
discovering such breach shall notify in writing the other party of the existence of such breach. Once notified, the other
party shall have 60 days from the date such notification was mailed to provide to the notifying party evidence that the
breach has been remedied. In the event that it is THE REINSURER who has committed the breach and failed to remedy such
breach, THE COMPANY may recapture all of the policies reinsured hereunder. In the event that it is THE COMPANY who has
committed the breach and failed to remedy such breach, THE REINSURER may terminate the reinsurance on all of the policies
reinsured hereunder. Any such recapture or termination shall be made in accordance with all of the payments defined in
Section 26.
34. FACILITY OF REINSURANCE
THE COMPANY and THE REINSURER hereby acknowledge and agree that the ceding of the portion of the policies reinsured under
this Agreement will not alter reinsurance agreements with THIRD-PARTY REINSURERS that may already be in effect or placed in
effect while this Agreement is in force on the policies reinsured under this Agreement. Such THIRD-PARTY REINSURANCE is
permitted because THE REINSURER would require its own reinsurance protection on the portion of the policies reinsured
hereunder, had THE COMPANY not already obtained such reinsurance. Therefore, the parties agree to make the reinsurance
under this Agreement subordinate to such inforce THIRD-PARTY REINSURANCE and to make all payments under this Agreement,
regardless of whether to or from THE COMPANY, net of all payments under such THIRD-PARTY REINSURANCE, regardless of whether
to or from THE COMPANY. These payments would include experience refunds paid to THE COMPANY under such THIRD-PARTY
REINSURANCE. Such experience refunds shall be paid by THE COMPANY to THE REINSURER as part of the settlements under this
Agreement as a return of premium as contemplated by Section 11 a.
35. REINSURANCE ADMINISTRATION
THE COMPANY shall perform all duties with respect to the administration of the reinsurance under this Agreement on the
portion of the policies reinsured under this Agreement.
36. AUDIT
THE COMPANY and THE REINSURER, their respective employees or authorized representatives may audit, inspect and examine,
during regular business hours, at the home office of the other party, any and all books, records, statements,
correspondence, reports, trust accounts and their related documents or other documents that relate to the policies covered
hereunder provided that 24-hour advance notice has been given to the other party. In addition, at THE REINSURER's request,
THE COMPANY will make a reasonable effort to provide information concerning the controls and processes related to the
administration and financial reporting of the policies reinsured hereunder. The audited party agrees to provide a reasonable
workspace for such audit, inspection or examination and to cooperate fully and to faithfully disclose the existence of and
produce any and all necessary and reasonable materials requested by such auditors, investigators, or examiners. The expense
of the respective party's employee(s) or authorized representatives engaged in such activities shall be borne solely by such
party.
37. GOVERNING LAW
This Agreement is subject to, and is to be interpreted in accordance with, the laws of the State of Arizona (excluding
conflicts of laws rules) except that it is agreed that the provisions of Section 29, shall be governed by the rules of the
American Arbitration Association.
38. NONWAIVER
No forbearance on the part of either party to insist upon compliance by the other party with any of the terms of this
Agreement shall be construed as, or constitute a waiver of, any of the terms of this Agreement.
39. COUNTERPARTS
This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
40. SEVERABILITY
In the event that any provision or term of this Agreement shall be held by any court to be illegal or unenforceable, all of
the other terms and provisions shall remain in full force and effect, except if the provision or term held to be illegal or
unenforceable is also held to be a material part of this Agreement such that the party in whose favor the material term or
provision was stipulated herein would not have entered into this Agreement without such term or provision, then the party in
whose favor the material term or provision was stipulated shall have the right, upon such holding, to terminate this
Agreement.
41. CONFIDENTIALITY
Each of THE REINSURER and THE COMPANY agrees to regard and preserve as confidential all information and material which is
related to THE COMPANY's business and/or customers of the other that may be obtained by the receiving party from any source
as a result of this Agreement. Neither THE REINSURER nor THE COMPANY will, without first obtaining prior written consent of
the other, disclose to any person, firm or enterprise, or use for its own benefit or for the benefit of any third party any
Confidential Information or Customer Information of the other party. "Confidential Information" includes, but is not
limited to, any and all financial data, statistics, programs, research, developments, information relating to insurance and
financial products of THE COMPANY or THE REINSURER, as applicable, planned or existing computer systems architecture and
software, data, and information of THE COMPANY or THE REINSURER, as applicable, as well as third party Confidential
Information to which THE COMPANY or THE REINSURER has access. "Customer Information" includes all information provided by,
or at the direction of, THE COMPANY or THE REINSURER about a customer of THE COMPANY, or any of its affiliates, or of THE
REINSURER, or any of its affiliates, (including as an affiliate of THE REINSURER for this purpose, any Member Firm of M
Financial Group), including but not limited to name, address, telephone number, email address, account or policy
information, and any list or grouping of customers.
Notwithstanding the foregoing, the provisions of Section 41 shall not apply with respect to disclosing of the Product, the
Specifications and/or Confidential Information which is already known to a party or is or becomes publicly known through no
wrongful act of the receiving party; or is received from a third party without similar restriction and without breach of
this Agreement; or is independently developed by the receiving party; or is approved for release by written authorization of
the party to whom the Confidential Information relates; or is placed in or becomes part of the public domain pursuant to or
by reason of operation of law. The foregoing exceptions do not apply to the disclosure of Customer Information, which may
not be disclosed except as permitted by the Gramm ▇▇▇▇▇ ▇▇▇▇▇▇ Financial Services Modernization Act of 1999 and implementing
regulations. Nothing in this Section 41 shall prevent THE REINSURER or THE COMPANY from using Confidential or Customer
Information for its own internal analytical and business planning purposes in connection with this Agreement or from
disclosing Confidential or Customer Information to Third Party Reinsurers.
Each of THE REINSURER and THE COMPANY certifies that it has implemented and will maintain an effective information security
program to protect Customer Information, which program includes administrative, technical, and physical safeguards:
(a) to ensure the security and confidentiality of Customer Information;
(b) to protect against any anticipated threats or hazards to the security or integrity of such Customer Information; and
(c) to protect against unauthorized access to or use of Customer Information which could result in substantial harm or
inconvenience to the other party or its affiliates, or to customers of any of them.
In the event that a party is in material breach of any provisions of this Section 41 as it relates to Confidential
Information only, it shall immediately advise the other party and take steps to remedy such breach, including but not
limited to protecting the other party and the other party's affiliates, against the consequences of any disclosure or use of
Confidential Information in violation of this Agreement. In the event that Reinsurer is in material breach of the preceding
paragraph of this Section 41 as it relates to Customer Information only, it shall immediately advise THE COMPANY and take
steps to remedy such breach, including but not limited to protecting customers, THE COMPANY, and THE COMPANY's affiliates,
against the consequences of any disclosure or use of Customer Information. If THE COMPANY notifies any customer of a breach
of the security of Customer Information, THE COMPANY will also provide notification to either THE REINSURER or to the
producer of record.
Except as required by law, neither THE REINSURER nor THE COMPANY will disclose Confidential Information of the other party
to third parties without the consent of the other party; however, each party agrees that the other may, in the normal course
of its business, share Confidential Information with other insurance and reinsurance companies ("Retrocessionaires") to the
extent necessary to retrocede risk to the Retrocessionaires, so long as the Retrocessionaires have agreed to maintain the
confidentiality of the Information on terms substantially similar to this Agreement.
In the event a party is required by court order or other legislative, judicial, or administrative process to disclose
Confidential Information, such party agrees, unless prohibited by law, to provide the other party with prompt notice of the
order or process so the other party has an opportunity to obtain a protective order or other relief.
42. FINANCIAL REPORTS
Upon request, each party shall furnish to the other its respective NAIC Convention Blank Statements, as required by their
respective state laws, within fifteen days after such request.
43. SURVIVAL
Sections 26, 27, 30, 31, 32 and 41, shall survive the recapture, termination or expiration of this Agreement.
44. SERVICE OF SUIT
It is agreed that if THE REINSURER fails to perform its obligations under this Agreement and at the request of THE COMPANY,
THE REINSURER shall (a) submit to the jurisdiction of any court of competent jurisdiction in the United States, comply with
all jurisdictional requirements and abide by the court's final decision or, if an appeal is taken, the final decision of an
appellate court and (b) designate the Arizona Director of Insuranceas agent to accept service of process in any action, suit
or proceeding instituted by or on behalf of THE COMPANY. Nothing in this clause constitutes or should be understood to
constitute a waiver of THE REINSURER's rights to commence an action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted
by the laws of the United States or of any state in the United States. Service of process in any such suit may be made upon
any then duly elected officer of THE REINSURER or THE COMPANY, as applicable, at the address specified in Schedule B (agent
for service of process). In any suit instituted against THE REINSURER or THE COMPANY upon this Agreement, such party will
abide by the final decision of such court or of any appellate court in the event of an appeal. Each party's agent for
service of process is authorized and directed to accept service of process on behalf of such party in any such suit and/or,
upon the request of the other party, to give a written undertaking to that party that the agent for service of process will
enter a general appearance on behalf of that party in the event that such a suit shall be instituted. THE REINSURER hereby
designates the Superintendent, Commissioner or Director of Insurance or his successor or successors in office, for the State
of Arizona, 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 COMPANY or any beneficiary hereunder arising out of this Agreement, and hereby designates
the agent for service of process as the firm to whom said officer is authorized to mail such processor a true copy thereof.
45. NOTICES
All notices and other communications under this Agreement will be effective when received and sufficient if given in writing
and delivered by confirmed facsimile transmission, by certified or registered mail, or by an overnight delivery service of
general commercial use (such as UPS, Federal Express or Airborne), addressed to the attention of the applicable party
described in Schedule B attached hereto, or any successor thereof.
46. ASSIGNMENT
This Agreement is not assignable by either party except by the express written consent of the other. This Agreement shall
not be bifurcated, partially assigned, or partially assumed without the express written consent of the other party.
In witness of the above, THE COMPANY and THE REINSURER have by their respective officers executed and delivered this Agreement in
duplicate on the dates indicated below, with an effective date of December 15, 2003.
----------------------------------------------------------- --------------------------------------------------------
PRUCO LIFE INSURANCE COMPANY M LIFE INSURANCE COMPANY (dba M Financial Re)
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
By:________________________________ By:______________________________
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
Title:_______________________________ Title:_____________________________
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
Date:_______________________________ Date:_____________________________
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
By:________________________________ By:______________________________
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
Title:_______________________________ Title:_____________________________
----------------------------------------------------------- --------------------------------------------------------
----------------------------------------------------------- --------------------------------------------------------
Date:_______________________________ Date:_____________________________
----------------------------------------------------------- --------------------------------------------------------
SCHEDULE A
REINSURANCE COVERAGE
---------------------------------------------------------------------------------------------------------------------------------------
1. PLANS REINSURED
Only those policies issued by THE COMPANY and referred to internally by THE COMPANY as M Premier VUL and sold through a
Member Firm of the M Financial Group at the time the policy application is taken are eligible for reinsurance hereunder.
Also included is the Target Term Rider attached to the policies.
Excluded from reinsurance under this Agreement are the Waiver of Premium and Accidental Death Benefits included in the above
reinsured policies. Also excluded from reinsurance under this Agreement are riders that provide additional life insurance
on the lives of any dependent children of the policyholder. Included under this Agreement is the Living Needs Benefit.
2. AUTOMATIC PORTION REINSURED
THE REINSURER will automatically reinsure, under this Agreement, an amount up to 50% of each policy on a first-dollar quota
share basis, except to the extent reinsured under THIRD-PARTY REINSURANCE.
3. AUTOMATIC PORTION RETAINED
THE COMPANY will retain at least 10% of each policy up to its retention limit. THE COMPANY may cede the balance of each
policy to other reinsurers.
4. AUTOMATIC ACCEPTANCE LIMIT
For any policy to be reinsured under automatic reinsurance, the face amount will not exceed the Automatic Issue Limits shown
in the following tables:
US/Canadian Residents - No Foreign Travel - Non-Smoker
=========================== ========================= ============================= ============================
Issue Age of Insured No Substandard Rating Class A - D Class E - H
--------------------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
Ages: 18 - 65 $60,000,000 $55,000,000 $40,000,000
--------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
66 - 70 $49,000,000 $44,000,000 $35,500,000
--------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
71 - 75 $40,000,000 $40,000,000 $23,500,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
76 - 77 $26,500,000 $23,500,000 $16,000,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
78 - 80 $22,000,000 $19,000,000 $11,500,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
81 - 85 $13,500,000 $11,500,000 None
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
86 - 90 $5,350,000 $4,350,000 None
=========== =============== ========================= ============================= ============================
---------------------------------------------------------------------------------------------------------------------------------------
US/Canadian Residents - No Foreign Travel - Smoker
=========================== ========================= ============================= ============================
Issue Age of Insured No Substandard Rating Class A - D Class E - H
--------------------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
Ages: 18 - 65 $50,000,000 $50,000,000 $40,000,000
--------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
66 - 70 $40,000,000 $40,000,000 $34,500,000
--------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
71 - 75 $40,000,000 $40,000,000 $23,500,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
76 - 77 $23,500,000 $23,500,000 $15,000,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
78 - 80 $19,000,000 $19,000,000 $10,500,000
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
81 - 85 $11,500,000 $10,500,000 None
----------- --------------- ------------------------- ----------------------------- ----------------------------
----------- --------------- ------------------------- ----------------------------- ----------------------------
86 - 90 $4,350,000 $3,350,000 None
=========== =============== ========================= ============================= ============================
US/Canadian Residents - Foreign Travel
===================== ===================== ================= =====================
Pref. Best - Class C Class D - E Class F - H
--------------------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
Ages: 18 - 70 $ 6,666,000 $ 5,000,000 None
--------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
71 - 75 $ 5,000,000 $ 3,333,000 None
----------- --------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
▇▇ - ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
=========== ========= ===================== ================= =====================
Non US/Canadian Residents
===================== ===================== ================= =====================
Pref. Best - Class C Class D - E Class F - H
--------------------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
Ages: 18 - 70 $ 20,000,000 $ 15,000,000 None
--------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
71 - 75 $ 15,000,000 $ 10,000,000 None
----------- --------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
▇▇ - ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
=========== ========= ===================== ================= =====================
For any policy to be reinsured under automatic reinsurance, the amounts subject to reinsurance are the First Layer of
Coverage amounts shown in the following tables:
US/Canadian Residents - No Foreign Travel
=========================== ========================= =============================
Issue Age of Insured Pref. Best - Class D Class E - H
--------------------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
Ages: 18 - 65 $ 50,000,000 $ 35,000,000
--------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
66 - 70 $ 40,000,000 $ 25,000,000
--------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
71 - 75 $ 35,000,000 $ 15,000,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
76 - 77 $ 15,000,000 $ 10,000,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
78 - 80 $ 10,000,000 $ 5,000,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
81 - 85 $ 5,000,000 None
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
86 - 90 $ 1,500,000 None
=========== =============== ========================= =============================
US/Canadian Residents - Foreign Travel
===================== ===================== ================= =====================
Pref. Best - Class C Class D - E Class F - H
--------------------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
Ages: 18 - 70 $ 6,666,000 $ 5,000,000 None
--------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
71 - 75 $ 5,000,000 $ 3,333,000 None
----------- --------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
▇▇ - ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
=========== ========= ===================== ================= =====================
Non US/Canadian Residents
===================== ===================== ================= =====================
Pref. Best - Class C Class D - E Class F - H
--------------------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
Ages: 18 - 70 $ 20,000,000 $ 15,000,000 None
--------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
71 - 75 $ 15,000,000 $ 10,000,000 None
----------- --------- --------------------- ----------------- ---------------------
----------- --------- --------------------- ----------------- ---------------------
▇▇ - ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
=========== ========= ===================== ================= =====================
For any policy to be reinsured under automatic reinsurance, the amounts reinsured with THE REINSURER on that life will not
exceed the amounts in the following tables:
US/Canadian Residents - No Foreign Travel
=========================== ========================= =============================
Issue Age of Insured Pref. Best - Class D Class E - H
--------------------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
Ages: 18 - 65 $20,000,000 $17,500,000
--------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
66 - 70 $20,000,000 $12,500,000
--------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
71 - 75 $17,500,000 $ 7,500,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
76 - 77 $ 7,500,000 $ 5,000,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
78 - 80 $ 5,000,000 $ 2,500,000
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
81 - 85 $ 2,500,000 None
----------- --------------- ------------------------- -----------------------------
----------- --------------- ------------------------- -----------------------------
86 - 90 $ 750,000 None
=========== =============== ========================= =============================
US/Canadian Residents - Foreign Travel
===================== ===================== ================== ====================
Pref. Best - Class C Class D - E Class F - H
--------------------- --------------------- ------------------ --------------------
----------- --------- --------------------- ------------------ --------------------
Ages: 18 - 70 $3,333,000 $2,500,000 None
--------- --------------------- ------------------ --------------------
----------- --------- --------------------- ------------------ --------------------
71 - 75 $2,500,000 $1,666,500 None
----------- --------- --------------------- ------------------ --------------------
----------- --------- --------------------- ------------------ --------------------
▇▇ - ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
=========== ========= ===================== ================== ====================
Non US/Canadian Residents
======================= =================== ================== ====================
Pref. Best - Class D - E Class F - H
Class C
----------------------- ------------------- ------------------ --------------------
----------- ----------- ------------------- ------------------ --------------------
Ages: 18 - 70 $10,000,000 $7,500,000 None
----------- ------------------- ------------------ --------------------
----------- ----------- ------------------- ------------------ --------------------
71 - 75 $7,500,000 $5,000,000 None
----------- ----------- ------------------- ------------------ --------------------
----------- ----------- ------------------- ------------------ --------------------
▇▇ - ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
=========== =========== =================== ================== ====================
5. JUMBO LIMIT
For any policy to be reinsured under automatic reinsurance, the total amount of insurance in force and applied for in all
companies will not exceed the amounts in the following tables:
US/Canadian Residents- No Foreign Travel
===================== ===================== =================== ===================
No Substandard Class A - D Class E - H
Rating
--------------------- --------------------- ------------------- -------------------
----------- --------- --------------------- ------------------- -------------------
Ages: 18 - 80 $65,000,000 $65,000,000 $65,000,000
----------- --------- --------------------- ------------------- -------------------
----------- --------- --------------------- ------------------- -------------------
81 - 85 $30,000,000 $30,000,000 $30,000,000
----------- --------- --------------------- ------------------- -------------------
----------- --------- --------------------- ------------------- -------------------
86 - 90 $10,000,000 $10,000,000 $10,000,000
=========== ========= ===================== =================== ===================
Note: When a policy is reinsured under automatic reinsurance and the total amount in force and applied for in all companies
exceeds $50,000,000, THE REINSURER must be notified and THE COMPANY shall provide the amount being issued.
US/Canadian Residents - Foreign Travel
===================== ===================== =================== ===================
No Substandard Class A - D Class E - H
Rating
--------------------- --------------------- ------------------- -------------------
----------- --------- --------------------- ------------------- -------------------
Ages: 18 - 75 $35,000,000 $35,000,000 $35,000,000
=========== ========= ===================== =================== ===================
Non US/Canadian Residents
===================== ===================== =================== ===================
No Substandard Class A - D Class E - H
Rating
--------------------- --------------------- ------------------- -------------------
----------- --------- --------------------- ------------------- -------------------
Ages: 18 - 75 $35,000,000 $35,000,000 $35,000,000
=========== ========= ===================== =================== ===================
6. OCCUPATION EXCLUSION LIST FOR AUTOMATIC REINSURANCE
o Entertainers
o High Profile Athletes
7. FOREIGN TRAVEL EXCLUSIONS
Applications by US/Canadian residents with foreign travel will be excluded from automatic reinsurance and handled on a
facultative basis if the following conditions apply:
o The amount of insurance is in excess of $1 million and
o Travel is to a "C" or "D" rated country where the expected travel is greater than or equal to three months or travel is to
an "E" rated country where the expected travel is greater than one month.
8. FOREIGN RESIDENCE EXCLUSIONS
Non-US/Canadian residents will be excluded from automatic reinsurance and handled on a facultative basis if the following
conditions apply:
o The amount of insurance is in excess of $1 million and
o Residence is in a "C" or "D" rated country.
9. MINIMUM CESSION
The minimum amount per cession that can be reinsured with THE REINSURER is $50,000.
10. RISK TRIGGER EVENT:
A "Risk Trigger Event" will have occurred if THE REINSURER's Company Action Level RBC Ratio is reduced below 200% and THE
REINSURER has not provided THE COMPANY, on a timely basis, alternative security in the form of a letter of credit in an
amount equal to the effective exposure (as defined below) for the policies reinsured under this Agreement, and that meets
the requirements set forth in the 'Letter of Credit Provisions' in Section 11 of this Schedule A.
"Effective Exposure" is defined as the amount owed to THE COMPANY by THE REINSURER.
11. LETTER OF CREDIT PROVISIONS:
a. Under the circumstances described in Section 10 of this Schedule A, THE REINSURER may apply for, provide to THE COMPANY, and
maintain during the entire term of this Agreement, one or more letters of credit with respect to all the amounts
recoverable from THE REINSURER under this Agreement (collectively, the "Letters of Credit") so as to avoid triggering
THE COMPANY's right of recapture under Section 24. If THE REINSURER elects to do so, each of the Letters of Credit must
individually satisfy the requirements of subsections b., c. and d. below and all of the Letters of Credit collectively
must satisfy the requirements of subsections e. and f. below. In addition, each Letter of Credit individually and all
of the Letters of Credit collectively must satisfy any other applicable legal or regulatory requirements of Arizona that
must be complied with in order to ensure that THE COMPANY is entitled to take the maximum credit for the risks ceded
under this Agreement on its financial statements.
b. Each of the Letters of Credit must: (I) be an original and signed by an authorized official of the issuing bank or an
authorized official of the confirming bank (in the case of a confirmation meeting the requirements of this Section);
(II) contain an issuance date and contain an expiry date that is no earlier than one calendar year from the issuance
date; (III) be issued or confirmed by a "Qualified Bank" (as defined in subsection c. below ); (IV) be issued on behalf
of THE REINSURER as the "Applicant" and include such indication in a boxed area that states it is "For Internal
Identification Purposes Only" (or similar words to that effect) and that does not affect the terms of the Letter of
Credit or the bank's obligations thereunder; (V) be issued to THE COMPANY as "Beneficiary" and expressly indicate in the
body of the Letter of Credit that the definition of the "Beneficiary" under the Letter of Credit includes any successor
by operation of law of THE COMPANY, including, without limitation, any liquidator, rehabilitator, receiver, or
conservator for THE COMPANY; (VI) be issued, presentable and payable at an office of the issuing or confirming bank
within the United States; (VII) be "clean and unconditional" (meaning that the Letter of Credit makes no reference to
any other agreement, document or entity and provides that the Beneficiary need only draw a sight draft under the Letter
of Credit or confirmation and present it to promptly obtain funds and that no other document need be presented); (VIII)
contain a statement that it is not subject to any agreement, condition or qualification outside the Letter of Credit
itself; (IX) contain a statement to the effect that the obligation of the issuing bank under the Letter of Credit is an
individual obligation of such bank and is in no way contingent upon reimbursement with respect thereto; (X) be
irrevocable and contain an "evergreen clause" (meaning that the letter of credit or confirmation cannot be revoked prior
to its expiry date and that it will automatically renew prior to the occurrence of the expiry date unless written notice
sent by U.S. registered mail has been delivered to THE COMPANY as Beneficiary at the notice address stipulated in
subsection d. of this Section not less than 30 days prior to the expiry date); (XI) state that it is subject to and
governed by the laws of the State of Arizona and the 1993 Revision of the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce (Publication 500) and that, in the event of any conflict, the laws of
the State of Arizona will control; and (XII) contain a provision for an extension of time, of not less than 30 days
after resumption of business, to draw against the Letter of Credit in the event that one or more of the occurrences
described in article 17 of Publication 500 occurs.
c. As used in subsection b. of this Section, the term "Qualified Bank" shall mean a bank or trust company that: (I) is
organized and existing, or in the case of a branch or agency office of a foreign banking organization is licensed, under
the laws of the United States or any state thereof; (II) is regulated, supervised and examined by United States Federal
or state authorities having regulatory authority over banks and trust companies; (III) is determined by the Securities
Valuation Office of the National Association of Insurance Commissioners to meet such standards of financial condition
and standing as are considered necessary and appropriate to regulate the quality of banks and trust companies whose
letters of credit will be acceptable to insurance regulatory authorities; (IV) is not a foreign branch office of a bank
or trust company organized and existing in the United States; and (V) is not a parent, subsidiary or affiliate of THE
COMPANY or THE REINSURER.
d. Each Letter of Credit must indicate that notices of non-renewal will be sent to the following address, or such other address
as may be indicated in a notice sent by THE COMPANY to the issuing or confirming bank:
Chief Actuary
Pruco Life Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
e. All of the Letters of Credit must, in the aggregate, provide for a maximum amount that can be drawn thereunder of a sum that
is at least as great as THE COMPANY has indicated will be required under the terms of this Agreement and under the
respective terms of all other related reinsurance agreements between THE REINSURER and THE COMPANY for which a Risk
Trigger Event, as defined in the respective reinsurance agreements, has occurred. Each year around December 1, THE
COMPANY will indicate to THE REINSURER the aggregate coverage amount needed under all of the Letters of Credit as well
as any other information necessary for THE REINSURER to provide THE COMPANY the required Letters of Credit prior to
December 31. The cost for all Letters of Credit furnished and maintained under this Agreement will be borne solely by
THE REINSURER.
f. THE REINSURER and THE COMPANY agree that any or all of the Letters of Credit provided by THE REINSURER pursuant to the
provisions of this Agreement may be drawn upon in full or in part at any time, notwithstanding any other provisions in
this Agreement, and may be utilized by THE COMPANY or any successor by operation of law of THE COMPANY including,
without limitation, any liquidator, rehabilitator, receiver or conservator of THE COMPANY for any of the following
purposes:
i. to reimburse THE COMPANY for THE REINSURER's share of premiums returned to the owners of policies reinsured under the
reinsurance agreement on account of cancellations of such policies;
ii. to reimburse THE COMPANY for THE REINSURER's share of benefits or losses paid by THE COMPANY under the terms and provisions
of the policies reinsured under this Agreement;
iii. to pay any other amounts THE COMPANY claims are due under this Agreement:
All of the foregoing will be applied without diminution because of insolvency on the part of THE COMPANY or THE
REINSURER.
g. THE REINSURER and THE COMPANY agree that any or all of the Letters of Credit provided by THE REINSURER pursuant to the
provisions of this Agreement may be drawn upon in full or in part upon notice of non-renewal of the Letter of Credit,
notwithstanding any other provisions in this Agreement, and may be utilized by THE COMPANY or any successor by operation
of law of THE COMPANY including, without limitation, any liquidator, rehabilitator, receiver or conservator of THE
COMPANY for the following purpose:
i. to fund an account with THE COMPANY in an amount at least equal to the deduction, for reinsurance ceded, from THE COMPANY's
liabilities for policies ceded under this Agreement. Such amount shall include, only reserves for claims and
losses incurred (including losses incurred but not reported), loss adjustment expenses, and unearned premiums;
and
The foregoing will be applied without diminution because of insolvency on the part of THE COMPANY or THE REINSURER.
THE REINSURER further acknowledges and agrees that THE COMPANY or any successor by operation of law of THE COMPANY
including, without limitation, any liquidator, rehabilitator, receiver or conservator of THE COMPANY may draw upon any or
all of the Letters of Credit in full or in part in the event that: (I) a notice of cancellation or non-renewal has been
issued by the issuing or confirming bank under any of the Letters of Credit and THE REINSURER has not obtained one or more
replacement letters of credit that satisfy all of the applicable requirements of this Section by that date which is ten
days prior to the earliest expiry date of the Letter of Credit or Letters of Credit as to which notice of cancellation or
non-renewal has been sent; or (II) the maximum amount that may be drawn under any of the Letters of Credit has been reduced
or THE COMPANY has communicated to THE REINSURER in accordance with the provisions of subsection e. of this Section a need
to increase the aggregate amount available under all of the Letters of Credit and THE REINSURER has not obtained one or more
replacement Letters of Credit or one or more additional Letters of Credit so that all issued and outstanding Letters of
Credit that will remain in effect provide for coverage in an amount sufficient to meet the requirements of subsection e. of
this Section.
12. RISK RETENTION LIMITS - THE COMPANY
The total amount of insurance retained on an individual life for THE COMPANY and its affiliates will not exceed the risk
retention limits in the following tables.
Non-Smoker:
==================== ========================== ========================== ==========================
Issue Age No Substandard Rating Class A-D Class E-H
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
0 - 65 $30,000,000 $25,000,000 $15,000,000
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
66 - 70 $25,000,000 $20,000,000 $13,000,000
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
71 - 75 $15,000,000 $12,000,000 $10,000,000
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
76 - 80 $13,000,000 $10,000,000 $7,000,000
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
81 - 85 $9,000,000 $7,000,000 $5,000,000
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
86 - 90 $4,000,000 $3,000,000 $2,000,000
==================== ========================== ========================== ==========================
Smoker:
==================== ========================== ========================== ==========================
Issue Age No Substandard Rating Class A-D Class E-H
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
15 - 65 $20,000,000 $20,000,000 $15,000,000
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
66 - 70 $15,000,000 $15,000,000 $12,000,000
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
71 - 75 $10,000,000 $10,000,000 $10,000,000
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
76 - 80 $10,000,000 $10,000,000 $6,000,000
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
81 - 85 $7,000,000 $6,000,000 $4,000,000
-------------------- -------------------------- -------------------------- --------------------------
-------------------- -------------------------- -------------------------- --------------------------
86 - 90 $3,000,000 $2,000,000 $2,000,000
==================== ========================== ========================== ==========================
13. RISK RETENTION LIMITS THE REINSURER
The retention limit of THE REINSURER is equal to $400,000 per life.
SCHEDULE B
NOTICES
---------------------------------------------------------------------------------------------------------------------------------------
1. NOTICES SENT TO THE COMPANY
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Vice President and Actuary
The Prudential Insurance Company of America
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
2. NOTICES SENT TO THE REINSURER
▇▇▇▇ ▇▇▇▇▇▇▇
Director of Reinsurance
M Financial Plaza
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
SCHEDULE C-1
COMPANY EXPENSE ALLOWANCES
C1.01 Expense Allowances as a Percentage of Premiums. THE REINSURER shall pay THE COMPANY premium based expense allowances for all
policies without ECV rider as follows:
-------------------------------------------- ----------------------- ------------------------- --------------------
First Policy Year Policy Years 2 - 10 Policy Years 11 +
-------------------------------------------- ----------------------- ------------------------- --------------------
-------------------------------------------- ----------------------- ------------------------- --------------------
Compensation to Producer as a % of Target 65% 5.25% 1.5%
Premium
-------------------------------------------- ----------------------- ------------------------- --------------------
-------------------------------------------- ----------------------- ------------------------- --------------------
Compensation to Producer as a % in Excess 2.25% 2.25% 1.5%
of Target Premium
-------------------------------------------- ----------------------- ------------------------- --------------------
-------------------------------------------- ----------------------- ------------------------- --------------------
Overrides as a % of Target Premium 5.5% 1.0% 0%
-------------------------------------------- ----------------------- ------------------------- --------------------
-------------------------------------------- ----------------------- ------------------------- --------------------
Overrides as a % in Excess of Target 0.5% 0.5% 0%
Premium
-------------------------------------------- ----------------------- ------------------------- --------------------
-------------------------------------------- ----------------------- ------------------------- --------------------
Overhead and Administration Expense as a % 7.6% 0.2% 0.25%
of Target Premium
-------------------------------------------- ----------------------- ------------------------- --------------------
-------------------------------------------- ----------------------- ------------------------- --------------------
Overhead as a % in Excess of Target Premium 0% 0% 0.25%
-------------------------------------------- ----------------------- ------------------------- --------------------
---------------------------------------------------------------------------------------------------------------------------------------
THE REINSURER shall pay THE COMPANY premium based expense allowances for all policies with ECV rider as follows:
-------------------------------------- --------------- ---------------- ------------------- ------------------------
First Policy Policy Years 2 Policy Years 6 - Policy Years 11 +
Year - 5 10
-------------------------------------- --------------- ---------------- ------------------- ------------------------
-------------------------------------- --------------- ---------------- ------------------- ------------------------
Compensation to Producer as a % of 20.33% 5.25% 5.25% 1.5%
Target Premium
-------------------------------------- --------------- ---------------- ------------------- ------------------------
-------------------------------------- --------------- ---------------- ------------------- ------------------------
Compensation as a % of Target N/A 14.58% N/A N/A
Premium Paid in Year 1 *
-------------------------------------- --------------- ---------------- ------------------- ------------------------
-------------------------------------- --------------- ---------------- ------------------- ------------------------
Compensation to Producer as a % in 2.25% 2.25% 2.25% 1.5%
Excess of Target Premium
-------------------------------------- --------------- ---------------- ------------------- ------------------------
-------------------------------------- --------------- ---------------- ------------------- ------------------------
Overrides as a % of Target Premium 1.72% 1.0% 1.0% 0%
-------------------------------------- --------------- ---------------- ------------------- ------------------------
-------------------------------------- --------------- ---------------- ------------------- ------------------------
Overrides as a % in Excess of Target 0.5% 0.5% 0.5% 0%
Premium
-------------------------------------- --------------- ---------------- ------------------- ------------------------
-------------------------------------- --------------- ---------------- ------------------- ------------------------
Overhead and Administration Expense 7.6% 0.2% 0.2% 0.25%
as a % of Target Premium
-------------------------------------- --------------- ---------------- ------------------- ------------------------
-------------------------------------- --------------- ---------------- ------------------- ------------------------
Overhead as a % in Excess of Target 0% 0% 0% 0.25%
Premium
-------------------------------------- --------------- ---------------- ------------------- ------------------------
*Deferred compensation not payable in policy years 2 - 5 if policy has lapsed. Upon death all future compensation will be payable.
C1.02 Expense Allowances as a Percentage of Assets. THE REINSURER shall pay THE COMPANY asset based expense allowances as follows:
-------------------------------------------- ----------------------- ------------------------- --------------------
Policy Years 0 - 3 Policy Years 4 - 10 Policy Years 11 +
-------------------------------------------- ----------------------- ------------------------- --------------------
-------------------------------------------- ----------------------- ------------------------- --------------------
Compensation to Producer as a % of 0.0% .11% .05%
Contract Fund
-------------------------------------------- ----------------------- ------------------------- --------------------
-------------------------------------------- ----------------------- ------------------------- --------------------
Overrides as a % of Contract Fund 0.0% 0.0% 0.0%
-------------------------------------------- ----------------------- ------------------------- --------------------
-------------------------------------------- ----------------------- ------------------------- --------------------
Overhead as a % of Contract Fund 0.0% 0.0% 0.0%
-------------------------------------------- ----------------------- ------------------------- --------------------
C1.03 Expense Allowances Per Policy THE REINSURER shall pay THE COMPANY a per policy expense allowance as follows:
----------------------------------------------------
First Policy Year Policy Years 2+
----------------------------------------------------
----------------------------------------------------
$222.06 $40.94
----------------------------------------------------
These amounts shall be increased by 2.5% per calendar year beginning in Year 2.
C1.04 Expense Allowance for Risk-based Capital. THE REINSURER shall pay THE COMPANY a quarterly expense allowance as follows:
RBC Expense Allowance = (Rent Factor) times (Notional Target Surplus)
Rent Factor = 2.7%
Notional Target Surplus = (C-4 factor of 0.0005) x (Target RBC Ratio) x (Portion of Policy Reinsured x Separate Account Reserves)
Target RBC Ratio = 230%. The Target RBC Ratio is defined as the percentage of the NAIC Company Action Level RBC that is used to
determine target surplus requirements in product pricing. This ratio may be changed on inforce policies or new business by mutual
agreement of THE COMPANY and THE REINSURER.
C1.05 Sharing of M Fund Margins. M Financial Investment Advisers, Inc. ("MFIA"), is the investment adviser to M Fund, Inc. (the
"Fund"), a series fund consisting of multiple portfolios which are offered as variable subaccounts of the Pruco AZ/NJ Account. THE
REINSURER hereby agrees to apportion to THE COMPANY an amount equal to the portion of the policy reinsured times the net income
derived from such Account for each annual accounting period for which net income is positive. Net income becomes positive at the
point when cumulative gross revenue from inception of the Fund to date exceeds cumulative total expenses from inception of the Fund
to date. This payment is not in return for any services provided by THE COMPANY.
.
For the purposes of the Agreement the term gross revenue shall be defined as the investment advisory fees earned by MFIA pursuant
to Schedule A to the Investment Advisory Agreement between M Fund, Inc. and MFIA.
For the purposes of this Agreement the term total expenses shall be those expenses listed below:
a. Sub-Advisory fees paid to the Fund's sub-advisers, which are identified in Schedule A to the Investment Sub-Advisory
Agreements between MFIA and the sub-advisers.
b. Voluntary operating expense reimbursement undertaken by MFIA equal to any M Fund operating expenses (not including advisory
fees, brokerage or other portfolio transaction expenses or expenses of litigation, indemnification, taxes or other extraordinary
expenses) that exceed 25bp of average daily net assets for each portfolio.
c. Administrative expenses (marketing, staffing research and development, etc.) associated with the management of the M Fund
Portfolios for which MFIA receives no additional compensation from M Fund.
For each annual accounting period where gross revenue exceeds total expenses and net income is positive, THE REINSURER will
apportion an amount equal to 50% of the net income associated with the Account to be determined as follows:
Payment to THE COMPANY =
(Pruco Account Average M Fund daily net assets) X (50%) X (MFIA Net income)
(M Fund Average daily net assets)
SCHEDULE D
INVESTMENT INCOME CALCULATION
The investment income, for purposes of Section 11 c., shall be calculated for each and every accounting period for the duration of
this Agreement as follows:
D.01 General Account Assets. For the assets underlying the general account portion of the Modco reserves, the investment income
shall be calculated according to the following formula:
(A + B) divided by 2 times I, where
A = the portion of the Modco reserve under the fixed account rider as of the beginning of such then current accounting
period; and
B = the same Modco reserve as of the end of such accounting period; and
I = the interest crediting rate of the MPVUL policies for the previous quarter.
D.02 Separate Account Assets. For the assets underlying the separate account portion of the Modco reserves, the investment income
shall be equal to the sum of the daily investment experience for each of the subaccounts within the separate account. The account
value increases or decreases daily depending on the gross investment experience of the subaccounts to which the amounts are allocated
at the direction of the policyowner.
Such separate accounts are operated as unit investment trusts registered under the Investment Company Act of 1940. Such investment
income shall be equal to the sum of:
a) total Accrued Investment Income; plus
b) realized and unrealized capital gains; less
c) realized and unrealized capital losses; less
d) investment expenses as defined in D.02, below.
Quarterly accounting settlements will reflect investment income based on the average portfolio rate for the previous three months,
for the pertinent investment portfolio according to the third-party administrator investment report applied to the current accounting
period's average Modco reserves.
D.03 Investment Expenses. For purpose of this Agreement, the term investment expenses shall be those expenses listed below as they
apply to their respective investment income calculation above:
a) Investment management fees paid by the Company's General Account to the various Investment Managers of the subaccounts; and
b) Investment expenses paid by the Company's General Account which pertain to activities undertaken by the Trust (Series Fund);
and
c) Investment expenses incurred by the Company Separate Account that are paid by the General Account; and
d) Investment expenses paid by the Trust (Series Fund).
Any changes to the investment expenses described in this paragraph shall be made only upon the mutual consent of the parties, but THE
REINSURER shall not withhold its consent if the such changed expense is competitive with the industry charges of other investment
managers and less than loading for such investment expenses then currently assessed to the policyholder.