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Exhibit 10.6
AMENDMENT NO. VIII
TO THE
PORTFOLIO INDEMNITY REINSURANCE AGREEMENT (A90-04)
BETWEEN
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
NEW YORK, NEW YORK
AND
THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA
NEW YORK, NEW YORK
Except as hereinafter specified, all the terms and conditions of the Reinsurance
Agreement effective the 31st day of December, 1990, amendments and addenda
thereto, shall apply, and this Amendment is to be attached to and made part of
the aforesaid Agreement.
It is mutually agreed that effective the 31st day of December, 1995 the
following shall apply:
1. "Contents page" - REVISED.
2. Article III, Paragraph 26. "Material relied on" - REVISED.
3. Article IV, "Definition of Reinsurance Premium" - REVISED.
4. Article VIII, "Reinsuring Clause & Conditions Precedent" - REVISED.
5. Article IX, "Executory Contract and Set off" - REMOVED (Material covered
under General Contract Law).
6. Article X, "Insolvency of Company" - RELABELED Article IX.
7. Article XI, Arbitration, Litigation, and Choice of Law and Forum" -
RELABELED Article X.
8. Article XII, "Duration of Agreement" - Relabeled Article XI and paragraph 2
- REVISED.
9. Article XIII, "Accounting upon Termination of Agreement" - RELABELED Article
XII.
10. Article XIV, "Execution" - RELABELED Article XIII.
11. Schedule A -REVISED.
12. Schedule D, Part 1 - "Quarterly Reporting Period Reinsurance Reports" -
REVISED.
13. Schedule D, Part II, Section G - "Audited Statutory and, if available, GAAP
statements" - REMOVED.
14. Schedule D, Part II, Section I; "Leverage Worksheet" - REMOVED.
15. Schedule D, Part II, Section L; "Examination Reports" - REMOVED.
16. Schedule D, Part II, Section N; "Reinsurance Questionnaire For Federal
Income Tax Considerations" - REMOVED.
17. Schedule D, Part II, Section H; "Policy by policy in force listing (in NYS
format, if available" - RELABELED ▇▇▇▇▇▇▇ ▇.
▇▇. ▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇ ▇; "Any management letter from the Company's
external auditors regarding reinsurance ceded" - RELABELED Section H.
19. Schedule D, Part II, Section K; "Statement of Actuarial Opinion with respect
to policies reinsured" - RELABELED Section I.
20. Schedule D, Part II, Section M; "Modco interest calculation - showing X, Y,
I, and CG" RELABELED Section J.
21. Schedule D, Part II, Section N; "Section 848 DAC Premium" - RELABELED
Section K.
22. "Net Considerations Page" - REMOVED.
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23. Schedule E, "Interest Rates" - REVISED.
24. Schedule F, "Experience Refund" - REVISED.
25. Addendum 1, paragraph 1; "Cash Flow (CF)" - REVISED.
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CONTENTS
ARTICLE I REINSURANCE COVERAGE
ARTICLE II COMMENCEMENT AND TERMINATION OF LIABILITY
ARTICLE III GENERAL PROVISIONS
ARTICLE IV DEFINITION OF REINSURANCE PREMIUM
ARTICLE V DEFINITION OF FORMULA DIVIDENDS
ARTICLE VI DEFINITION OF REINSURANCE BENEFITS
ARTICLE VII ACCOUNTING AND REPORTING
ARTICLE VIII REINSURING CLAUSE AND CONTRACTUAL CONDITIONS
ARTICLE IX INSOLVENCY
ARTICLE X ARBITRATION, LITIGATION AND CHOICE of LAW
ARTICLE XI DURATION OF AGREEMENT
ARTICLE XII ACCOUNTING UPON TERMINATION OF AGREEMENT
ARTICLE XIII EXECUTION
SCHEDULE A POLICY LISTING
SCHEDULE B COMMISSION AND EXPENSE ALLOWANCES
SCHEDULE C REPORTS
SCHEDULE D QUARTERLY ACCOUNTING PERIOD REINSURANCE REPORTS
SCHEDULE E INTEREST RATES
SCHEDULE F EXPERIENCE REFUND
ADDENDUM 1
ACCOUNTING WORKSHEET
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ARTICLE III
GENERAL PROVISIONS
26. Material relied on. The material relied on includes the PTS profit runs but
the Company has made no guarantees with respect to these runs.
ARTICLE IV
DEFINITION OF REINSURANCE PREMIUM
The Reinsurance Premium equals (1)+(3)-(2), which is payable to the
reinsurer if positive, and payable to the ceder if negative, according to
the terms of the "Reinsuring Clause."
1. Initial Reinsurance Premium. The Initial Reinsurance Premium is the net of
(a)-(b), as defined below, as computed on the "Effective Date." The Initial
Reinsurance Premium may be positive (due the Reinsurer) or negative (due to the
Company), or zero.
a. The Initial Coinsurance Reserves, as defined in Schedule A, less any
premium deficiency reserves on the quota share of the Policies cited in
Schedule A.
b. The Initial Allowance as specified in Schedule B.
2. Terminal Premium. On full or partial recapture the Company and Reinsurer
shall compute a Terminal Premium, which shall equal the Recapture Fee (defined
in Addendum 1), less the Coinsurance Reserves.
3. Quarterly Reinsurance Premium. The Quarterly Reinsurance Premium shall be
the net of (a)+(b)-(c)-(d)-(e)+(f)-(g) as defined below, and may be positive
(due to the Reinsurer) or negative (due to the Company).
a. Reinsurer's Share of Policy Premium. Policy Premiums are the gross
premiums, including contract fees, collected from the policyholder with
respect to the Risks Reinsured hereunder and described on Schedule A hereto,
reduced by an amount equal to the Reinsurer's share of reinsurance premiums
INCURRED by the Company for risks ceded under other reinsurance agreements.
The Reinsurer's share of the Policy Premium is specified in Schedule A.
Incurred Premiums equal paid premiums plus the increase in due plus deferred
less advance premiums.
b. Recapture Fee. On a full or partial recapture there shall be a Recapture
Fee as defined in Addendum 1.
c. Allowances.
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(a) Initial Allowances. The Initial allowances as set forth in Schedule
B of this Agreement
(b) Quarterly Allowances. The Allowances, which shall include an
allowance for premium tax, are set forth in Schedule B of this
Agreement.
d. Surrender and Endowment Payments. Surrender and endowment payments shall
equal the surrender and endowment payments INCURRED by the Company on the
Risks Reinsured, net of any reinsurance coverages due and payable from other
reinsurers of the Policies reinsured hereunder, regardless of whether such
amounts due from other reinsurers are in fact or as a matter of law deemed
to be collectible or uncollectible. In order to be reimbursed, the surrender
or endowment payments must have occurred after the Effective Date and on or
before the Termination Date.
e. Policyholder Dividends. Policyholder dividends are determined by the next
article.
f. Modco reserve adjustment. Equals the beginning modco reserve plus
interest at the modco rate defined in the Schedule E less then ending modco
reserve.
g. Experience Refunds, as determined by Schedule F.
4. Indivisibility of Reinsurance Premium. It is expressly understood that
the pluses and minuses used to compute reinsurance premium shall never be
treated as severable or divisible.
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PAGE LEFT BLANK TO ACCOMMODATE NUMBERING (NO TEXT)
ARTICLE V
ARTICLE VI
ARTICLE VII
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ARTICLE VIII
REINSURING CLAUSE AND CONDITIONS PRECEDENT
1. Reinsuring Clause. Despite the use of the word "paid", "payable" or
"incured" elsewhere in this agreement, nothing shall be owed or paid either
party, except as determined by this section of this Article.
The "cash flow" shall be the algebraic excess of Reinsurance Premiums over
Reinsurance Benefits. If negative, such shall be paid to the Company. If
positive such shall be payable to the Reinsurer, and applied as described in
Paragraph 2.
If such amounts cannot be determined at such date on an exact basis, such
payments may be determined on an estimated basis and any final adjustments are
to be made within six (6) weeks after the end of the Accounting Period.
The Initial Reinsurance Premium is due on the Effective Date. If positive it is
payable to the Reinsurer, as described in the following paragraph, and if
negative it is paid to the Company.
The Terminal Reinsurance Premium is due on the Termination Date. If positive is
it paid to the Reinsurer, and if negative is it paid to the Company.
2. Cash Payments and Coinsurance Reserve Adjustments. If the Cash Flow, as
defined above is positive, this amount (which is an asset of the Reinsurer)
shall be applied as follows:
(a) first, as a cash payment to the Reinsurer to cover the risk and DAC
charges, and then increase the Experience Account Asset if such is
negative, until the Experience Account Asset reaches zero;
(b) second, any remaining amount shall be applied to reduce the
reinsurer's liability, namely the Coinsurance Reserve (and increase
the modco reserve); but the Coinsurance Reserve (minus the Premium
Deficiency Reserves) shall not be reduced below zero, and
(c) third, any excess of the Cash Flow less risk and DAC charges over
the Coinsurance Reserve shall be paid to the Reinsurer in cash.
If the Cash Flow is negative, this amount (which is an asset of the Company)
shall be paid in cash.
3. Recoupment and Failure of Consideration. If either party of the Agreement
fails to perform this Agreement in full, then the other party has the right to
suspend performance, and if the defaults cannot be cured, without 90 days
following delivery of written notice from the non-defaulting party to the
defaulting party, to terminate the Agreement. Alternatively, the non-defaulting
party can recoup damages from future quarterly settlements.
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ARTICLE IX
INSOLVENCY OF COMPANY
1. In the event of the insolvency of the Company, payments due the Company on
all reinsurance made, 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 policy or Policies 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 Reinsurer shall be given written notice of
the pendency of a claim against the Insolvent Company on a policy reinsured
within a reasonable time after such claim is filed in the insolvency proceeding
and that 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 its liquidator or receiver or statutory successor.
2. It is further understood that the expense thus incurred by the Reinsurer
shall be chargeable, subject to court approval, against the insolvent Company as
part of the expense of liquidation to the extent of a proportionate share of the
benefit which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer. Where two or more assuming reinsurers are involved
in the same claim and a majority in interest elect to interpose defense to such
claim, the expense shall be apportioned in accordance with the terms of this
Agreement as though such expense had been incurred by the Company.
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ARTICLE X
ARBITRATION, LITIGATION AND CHOICE OF LAW AND FORUM
1. Arbitration
A. Any dispute arising from or relating to this Reinsurance Agreement or
any transaction contemplated hereby or effected hereunder shall be
submitted to and decided by arbitration in the manner hereinafter set
forth. The arbitrators shall be disinterested and unbiased officers, or
former officers, of either life insurance companies or the reinsurance
departments of property and casualty insurance companies (other than, in
each instance, either party to this Reinsurance Agreement or any
affiliate of either party), and be knowledgeable in the insurance and
reinsurance business. The party requesting arbitration (hereinafter
referred to as the "claimant") shall appoint an arbitrator and give
written notice thereof to the other party (hereinafter referred to as
the "respondent") together with the claimant's notice of its intent to
arbitrate. Within thirty (30) days after receiving such notice, the
respondent shall also appoint an arbitrator and shall give written
notice thereof to the claimant. If the respondent shall fail to appoint
an arbitrator within such thirty (30) day period, the claimant shall
select the second arbitrator.
B. Prior to instituting a hearing, the two arbitrators chosen pursuant to
paragraph A above shall choose a third arbitrator (hereinafter referred
to as the "umpire"). If, within thirty (30) days following the
appointment of the second arbitrator, the two arbitrators fail to agree
upon the appointment of an umpire, each of them shall nominate five
candidates within twenty (20) days thereafter. Each arbitrator shall
then decline four of the candidates proposed by the other arbitrator.
The umpire shall be chosen by lot from the two remaining candidates.
Should the chosen umpire refuse to serve, the other remaining candidate
shall be appointed umpire. Should the other remaining candidate also
refuse to serve as umpire, the two arbitrators shall repeat the process
set forth in this paragraph B until successful.
C. Any arbitration instituted pursuant to this Article shall be held in New
York, New York. The laws of the State of New York shall govern the
interpretation and application of this Reinsurance Agreement. All
proceedings before the panel shall be informal and the panel shall not
be bound by any formal rules of evidence. Cross examination and rebuttal
shall be permitted. The panel shall have the power to fix all procedural
rules relating to the arbitration proceeding. In reaching any decision,
the arbitrators shall give due consideration to customary and standard
practices in the reinsurance business. The arbitrators shall decide by a
majority vote. The decision of the panel shall be in writing and shall
state the reasons therefor. There shall be no appeal from their
decision. Judgment may be entered on the decision of the arbitrators by
any court having jurisdiction.
D. If each party has chosen one arbitrator, each party shall bear the
expense of its arbitrator. If one party has chosen the first two
arbitrators, the parties shall jointly and equally bear the expense of
such arbitrators. In either case, the parties shall
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jointly and equally bear the expense of the umpire. In addition, each
party shall bear the expense of any outside attorneys or consultants
employed by it.
E. Submission of a matter to arbitration shall be a condition precedent to
any right to seek injunction or other provisional relief pending the
arbitration of a matter subject to arbitration pursuant to this
Reinsurance Agreement.
2. Consent to Jurisdiction
The intent of the parties to this Reinsurance Agreement is that all
disputes arising from or relating to this Reinsurance Agreement or any
transaction contemplated hereby or effected hereunder be submitted to
and decided by arbitration. If for any reason, however, any such dispute
is not submitted to or decided by arbitration, each party hereto
irrevocably submits to the non-exclusive jurisdiction of any Federal
court sitting in the City of New York, Borough of Manhattan (and, to the
extent that such Federal courts do not have jurisdiction, to the
jurisdiction of any New York State court sitting in the State of New
York, Borough of Manhattan) over any suit, action or proceeding arising
from or related to such dispute. To the fullest extent it may
effectively do so under applicable law, each party and its successors or
assigns or any receiver of such party, irrevocably waives and agrees not
to assert, by way of motion as a defense or otherwise, any claim that is
not subject to the subject-matter jurisdiction of any court, any
objection that it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding brought in any court and any
claim that any such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum.
3. Notice of Arbitration; Service of Process
Any notices of the submission of a dispute to arbitration shall be sent
by registered or certified mail, postage prepaid, return receipt
requested, to the address of the party specified, and to the attention
of the person specified, in this Agreement. In addition for purposes of
any suit, action or proceeding referred to section 2 above, each party
consents to process being served in the same manner, and agrees that
such service (i) shall be deemed in every respect effective service of
process upon such party in any such suit, action or proceeding and (ii)
shall, to the fullest extent permitted by law, be taken and held to be
valid personal service upon and personal delivery to such party.
4. Choice of Law
As stated above, in any arbitration proceeding, the laws of the State of
New York shall govern the interpretation and application of this
Reinsurance Agreement. In addition, for purposes of any suit, action or
proceeding referred to in section 2 above, this Reinsurance Agreement
shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by the laws of the State of New York,
except that: (i) no effect shall be given to the principles of conflict
of laws thereof; and (ii) and if the application of New York law would
prevent arbitration, the arbitrability of the dispute shall be
determined by the laws of the state of domicile of the ceding Company.
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5. Survival
The provisions of this Article shall survive the termination of this Reinsurance
Agreement.
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ARTICLE XI
DURATION OF AGREEMENT
1. Automatic Termination. If at the end of an accounting period, none of the
Policies reinsured hereunder are in force, this Agreement shall automatically
terminate.
2. Cancellation Due to Nonpayment. The Reinsurer may elect to cancel this
Agreement if the Company fails to pay Reinsurance Premiums or other amounts due
the Reinsurer, when due, provided the Reinsurer has given at least thirty (30)
days prior written notice of its intent to cancel. The Company may avoid
cancellation by paying all Reinsurance Premiums that are either delinquent or
then due on or before the effective date of such election to terminate the
Agreement. A Party may cancel if the duties of the Agreement are assigned by the
Superintendent of Insurance acting as a Trustee in the event of an insolvency.
3. Recapture. The Company may recapture on or after January 2, 1998.
4. Termination of Liability. If recapture is elected by the Company, or if the
Agreement is cancelled, subject to the provisions of paragraph 2 or 3 of this
Article, both the Company and the Reinsurer shall be obligated to make and shall
make the payments set forth in Article XII and Article VII.
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ARTICLE XII
ACCOUNTING UPON TERMINATION OF AGREEMENT
1. In the event that this Agreement is terminated pursuant to the provisions of
Article XI, a terminal accounting and settlement shall take place.
2. The terminal accounting shall include:
(i) the Net Amount Due from the Accounting Period Reinsurance Report for the
final Accounting Period, plus,
(ii) the Terminal Premium.
3. In the event that, subsequent to the terminal accounting and settlement as
above provided, an adjustment is made with respect to any amount taken into
account pursuant to Schedule D, a supplementary accounting shall take place
pursuant to paragraph 2 of this Article. Any amount owed to the Reinsurer or
the Company by reason of such supplementary accounting shall be paid
promptly upon the completion thereof.
4. In the event of a partial recapture the recapture provisions will apply to
the amount of business terminated.
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ARTICLE XIII
EXECUTION
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be executed
in duplicate by their duly authorized representatives.
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇. VP & Chief Actuary
------------------------- ----------------------
Title
Attest:
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ AVP & Actuary
------------------------ -------------
Title
Date: 11/12/96
--------
THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ , ▇▇. VP
----------------------------------- ------
Title
Attest:
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇ Vice President
---------------- --------------
Title
Date: 11/13/96
--------
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SCHEDULE A
POLICY LISTING
1. Under this Agreement, the Reinsurer reinsures a 38% quota share of the
risks on the blocks of insurance contracts issued by the Company, inforce
on 12/31/95, and described below:
All Premium Paying life insurance policies, excluding
Canadian policies, as of the Effective Date of this
Agreement and any paid-up additions on those policies
valued assuming American Experience, 1941 CSO, or 1958 CSO
mortality and interest rates of 4.0 percent or less,
except for policies with the following index numbers:
0060-0, 0512-0, 0990-9, 0513-0, 0520-0 and 0525-0.
The Reinsurer will not participate in disability waiver, accidental death
benefits or other miscellaneous benefits. Transfers to non-forfeiture
status (extended term and reduced paid up, but not automatic premium loans)
shall be considered surrenders.
2. The Reinsurer's share of the Policy Premium, as defined in Article IV,
shall equal 100% times the applicable quota share percentage shown above.
3. The Initial Total Reserves shall equal the Exhibit 8 reserve (mortality),
unreduced for due and deferred premiums; plus the Exhibit 7 reserve
(dividends), as reported on page 3 lines 7.1, 7.2 and 8 of the NAIC blank.
The Initial Modco Reserve shall equal the Initial Total Reserves less the
Initial Allowance. The Initial Coinsurance Reserve shall equal the Initial
Total Reserves less the Initial Modco Reserve.
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SCHEDULE D - PART I
QUARTERLY REPORTING PERIOD REINSURANCE REPORTS
FROM MUTUAL OF NEW YORK
TO THE GUARDIAN LIFE INSURANCE COMPANY
for the quarter ending __/__/__
A. Reinsurance Premium
1. Reinsurer's Share of Policy Premium
a. Policy Premium _______________
b. Premiums from Dividends _______________
2. Recapture Fees
3. Allowances (Schedule B)
a. Per policy _______________
b. Percent of premium _______________
4. Surrender and Endowment Payments _______________
5. Policyholder Dividends _______________
6. Modco reserve adjustment
a. Beg Reserve _______________
b. Modco rate _______________
c. Interest on the above _______________
d. Ending Reserve _______________
e. Adjustment = (a)+(c)-(d) _______________
7. Experience Refund _______________
REINSURANCE PREMIUM
= (1)+(2)-(3)-(4)-(5)+(6)-(7) _______________
REINSURANCE BENEFITS
1. Death Benefits
a. Death Benefits Paid _______________
b. Expense of Compromised Claims _______________
c. Beginning Claim Reserve _______________
d. Ending Claim Reserve _______________
e. Incurred = a+b+c-b _______________
REINSURANCE BENEFITS = (1)+(2)+(3) _______________
CASH FLOW = Premium - Benefits
(Owed to Reinsurer if positive, owed to Co. if negative.) _______________
Increase in Coinsurance Reserve _______________
(before coinsurance reserve adjustment)
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SCHEDULE D - PART I
QUARTERLY REPORTING PERIOD REINSURANCE REPORTS
FROM MUTUAL OF NEW YORK
TO THE GUARDIAN LIFE INSURANCE COMPANY
for the quarter ending __/__/__
B. Policy Information
Policy Count Face Amount
Beginning ___________ ____________
Additions ___________ ____________
Deaths ___________ ____________
Surrenders ___________ ____________
Matured Endowments ___________ ____________
Other Subtractions ___________ ____________
Ending ___________ ____________
C. Reserve Information - Total Reserve
Exhibit 8A Reserve ___________
Exhibit 8D ___________
Exhibit 8E ___________
Exhibit 8F ___________
+ Advance Premium ___________
- Due Premium ___________
- Deferred Premium ___________
NET RESERVE ___________
+ Exhibit 8G1 Defic Res. ___________
NET RESERVE incl. Defic. ___________
D. Reserve by Type - excluding Premium Deficiency Reserves, which are coinsured.
Total Modco Coins.
Beginning Reserve __________ __________ __________
Ending Reserve __________ __________ __________
Coins. Res. Adj. __________ __________ __________
Ending after CPA __________ __________ __________
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SCHEDULE D - PART II
ANNUAL REPORTS
The following reports shall be supplied to the Reinsurer.
A* Policy Exhibit
B* Additional Policy Exhibit Information - page 26.
C* Analysis of Increase in Reserves - page 7 of NAIC blank
D* New York State Analysis of Reserves
E DAC Premiums, under Section 848 of the Internal Revenue Code (see addenda 1
and 2)
F Tax Reserves
G Policy by Policy in force listing (in NYS format, if available)
H Any management letter from the Company's external auditors regarding
reinsurance ceded
I* Statement of Actuarial Opinion with respect to policies reinsured
J Modco interest calculation - showing X, Y, I, and CG
K* Section 848 DAC Premium
The description of some of the asterisk marked items (*) is given in more detail
in an addendum.
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SCHEDULE E
INTEREST RATES
1. The Modified Coinsurance Interest Rate shall equal:
rate = (I+CG) / .5 (X+Y-I-CG)
Here "I" equals investment income (Exhibit 2, line 10, column 7). Here "CG"
equals realized capital gains (Exhibit 3, line 10, column 4) plus
unrealized capital gains (Exhibit 4, line 10, column 4). Here "X" and "Y"
equal the beginning and end of year "asset base." The "asset base" equals
invested assets (page 2, line 10a), plus accrued investment income (Exhibit
2, line 10, columns 3+4-2-5) less borrowed money (page 3, line 22), less
any write in liability which is in the nature of borrowed money. The I, CG,
X and Y terms shall include the investment income and assets attributable
to the Aegon block. (All line numbers are with respect to the 1994 annual
statement, and shall be adjusted if the line numbers change.)
If the modco rate is not available for a given reporting period it shall be
based on the most recent annual statement data, and then trued up as of the
2nd Quarter of the following year.
2. Quarterly Interest on delayed payments due the Company or the Reinsurer
shall be the modco rate, but not lower than one-fourth the valuation rate.
3. The Quarterly Experience Account Interest Rate shall be equal to the rate
defined in paragraph 2 above, but not greater than the modco rate.
4. The Quarterly Risk Charge shall be deducted quarterly from the Experience
Account Asset, and be based on the Coinsurance Reserves at the beginning of
the quarter (or on the Effective Date) for the first quarter.
On the first $20 million of the Coinsurance Reserves the risk charge shall
equal:
1995-1996 0.375%
1997-1998 0.625%
1999-later 0.75%
Any Coinsurance Reserves over $20 million shall have a risk charge of 0.3%.
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SCHEDULE F
EXPERIENCE REFUND
The Experience Refund for 1996 and 1997 shall equal the excess of
Reinsurance Premiums less Reinsurance Benefits computed without
regard for the Experience Refund, and less any loss carryforward
accumulated at interest at the Schedule E rate, and less excess
capital gains for 1996 or 1997, where "excess capital gains"
shall equal any capital gains in excess of 75 basis points times
the modco reserves, and less any risk and DAC charges. The loss
carryforward for 1996 shall be zero. The loss carryforward for
1997 shall equal any excess of 1996 Reinsurance Benefits over
Reinsurance Premiums over the 1996 risk and DAC charges. After
1997 the experience refunds shall be discretionary with the
reinsurer. For each quarter during 1996-1997 the payments to the
parties shall reflect an estimated experience refund, based on
the year to date results.
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ADDENDUM 1
FORMULAS
1. CASH FLOW (CF). The Cash flow on the effective date shall equal
the Initial Premium. The Cash Flow for any subsequent quarter
shall equal the Reinsurance Premiums less the Reinsurance
Benefits. The Cash Flow shall also include the Terminal Premium
for any contracts recaptured during the quarter, prior to the
Termination Date.
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