[LOGO] Swiss Re Life & Health
This Automatic Self Administered YRT Reinsurance Agreement
Effective March 1, 2001
is made between
American Family Life Insurance Company
of Madison, Wisconsin
(hereinafter referred to as "the Company")
and
Life Reassurance Corporation of America
(A Member of the Swiss Re Group)
of Stamford, Connecticut
(hereinafter referred to as "the Reinsurer")
The following Articles, qualified by the Exhibits of the Agreement, will form
the basis of the Agreement.
This Agreement will be referred to as Agreement No. 16027-1
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Table of Contents
Article 1
1.1 Scope of Coverage
1.2 Forms, Manuals, Issue Rules
Article 2
2.1 Automatic Coverage
2.2 Facultative Coverage
Article 3
3.1 Automatic Submissions
3.2 Facultative Submissions
Article 4
4.1 Premium Accounting
4.2 Non-Payment of Premiums
Article 5
5.1 Right of Offset
Article 6
6.1 Conversions
6.2 Policy Changes
6.3 Reductions
6.4 Lapses
6.5 Reinstatements
6.6 Minimum Reinsurance Limit
Article 7
7.1 Retention Limit Changes
7.2 Recapture
Article 8
8.1 Liability
8.2 Commencement of Automatic Reinsurance Liability
8.3 Commencement of Facultative Reinsurance Liability
8.4 Conditional or Interim Receipt Liability
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Article 9
9.1 Claims Notice
9.2 Claims Payment
9.3 Contested Claims
9.4 Claims Expenses
9.5 Extra Contractual Obligations
9.6 Misstatement of Age or Sex
Article 10
10.1 Oversights
10.2 Arbitration
Article 11
11.1 Insolvency
Article 12
12.1 DAC Tax
12.2 Taxes and Expenses
Article 13
13.1 Entire Agreement
13.2 Parties to Agreement
13.3 Inspection of Records
13.4 Good Faith
13.5 Confidentiality
Article 14
14.1 Duration of Agreement
14.2 Severability
14.3 Construction
Exhibits
A-1 Business Covered
A-2 Required Forms, Manuals & Issue Rules - Conditional Receipt Amount
B Application for Reinsurance
C General Terms - Reinsurance Rates and Allowances
D The Company's Retention Limits
E The Automatic Acceptance Limits
F Reinsurance Reports
G DAC Tax Election
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Article 1
1.1 Scope of Coverage
This Agreement applies to all insurance policies and supplementary benefits
and riders attached thereto (hereinafter referred to as "policies"), as
listed in Exhibit A-1, which have been issued directly by the Company in
accordance with its underwriting rules, premium rates and policy forms as
provided to the Reinsurer.
The Company will cede, and the Reinsurer will accept risk on the above
referenced policies in accordance with the terms and conditions of this
Agreement. The policies accepted by the Reinsurer will be hereinafter
referred to as "Reinsured Policies".
The Company may not reinsure the amount it has retained on the business
covered hereunder on any basis whatsoever without the Reinsurer's written
consent.
This Agreement does not cover the following on an automatic basis unless
specified elsewhere in this Agreement:
1.1.1 Noncontractual conversions, rollovers, or exchanges; or
1.1.2 Any business issued under a program where full current evidence of
insurability consistent with the amount of insurance is not obtained,
or where conventional selection criteria are not applied in
underwriting the risk; or
1.1.3 Any conversion of a previously issued policy that had been reinsured
with another reinsurer.
Each policy covered under this Agreement must provide for the maximum
normal periods of suicide and contestability protection permitted in the
state in which the policy is executed.
1.2 Forms, Manuals, Issue Rules
The Company affirms that its retention schedule, underwriting rules, issue
rules, premium rates and policy forms applicable to the Reinsured Policies
and in use as of the effective date of this Agreement have been supplied to
the Reinsurer as listed in Exhibit A-2; that it has fully disclosed all
material facts regarding the business reinsured hereunder.
The Company will notify the Reinsurer of any proposed material changes in
its retention schedule and/or underwriting and issue rules and/or premium
rates and/or policy forms. This Agreement will not extend to policies
issued pursuant to such changes unless the Reinsurer has consented in
writing to accept policies subject to such changes.
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It is the Company's responsibility to ensure that the applicable forms are
in compliance with current Medical Information Bureau (M.I.B.) regulations.
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Article 2
2.1 Automatic Coverage
For automatic reinsurance coverage of any policy covered under this
Agreement, the Company will retain the amount stipulated in Exhibit D
according to the age and mortality rating at the time of underwriting. The
Company will automatically cede the amount of reinsurance to the Reinsurer
according to the Automatic Acceptance Limits specified in Exhibit E.
2.2 Facultative Coverage
The reinsurance will be on a facultative basis if the Company receives an
application for a policy covered under this Agreement for which:
2.2.1 The total of the new reinsurance required and the amount already
reinsured on that life under this Agreement and all other life
agreements between the Reinsurer and the Company, exceeds the
Automatic Acceptance Limits set out in Exhibit E; or
2.2.2 The Company intends to retain less than the Retention Limit set out
in Exhibit D taking into account the applicant's age and mortality
rating; or
2.2.3 The amount of insurance in force, including any coverage to be
replaced, plus the amount currently applied for on that life in all
companies exceeds the Jumbo Limit stated in Exhibit E; or
2.2.4 The application is on a life for which an application had been
submitted by the Company on a facultative basis to the Reinsurer or
any other reinsurer within the last 3 years, unless the reason for
submitting facultatively no longer applies.
The reinsurance will also be on a facultative basis if the Company submits
an application to the Reinsurer for its consideration on a plan or rider
which qualifies for automatic reinsurance under this Agreement.
The relevant terms and conditions of this Agreement will apply to those
facultative offers made by the Reinsurer which are accepted by the Company.
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Article 3
3.1 Automatic Submissions
The Company will submit automatic policies to the Reinsurer according to
the reporting terms set out in Exhibit F.
Upon the request of the Reinsurer, the Company will send to the Reinsurer
copies of the application, underwriting papers and other papers on a life
reinsured automatically under this Agreement.
3.2 Facultative Submissions
The Company will apply for reinsurance on a facultative basis by sending to
the Reinsurer an Application for Reinsurance, a sample of which is included
as Exhibit B. Accompanying this Application for Reinsurance will be copies
of all underwriting evidence that is available for risk assessment. Any
subsequent information received by the Company that is pertinent to the
risk assessment will be transmitted to the Reinsurer immediately.
After consideration of the Application for Reinsurance and related papers,
the Reinsurer will promptly inform the Company of its underwriting
decision.
If the underwriting decision is acceptable to the Company and the Company's
policy is subsequently placed in force in accordance with the issue rules
provided to the Reinsurer, the Company will duly notify the Reinsurer
according to the terms outlined in Exhibit F.
The Company will advise the Reinsurer in writing if the Application for
Reinsurance is not to be placed with the Reinsurer.
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Article 4
4.1 Premium Accounting
The Company will pay the Reinsurer premiums in accordance with the terms
specified in Exhibit C.
The method and requirements for reporting and remitting premiums are
outlined in Exhibit F.
The Reinsurer reserves the right to charge interest on overdue premiums.
The interest will be calculated according to the terms and conditions
specified in Exhibit C.
4.2 Non-Payment of Premiums
The Reinsurer may terminate its liability for any Reinsured Policy for
which the premiums have not been paid within 60 days after the Due Date
stated in Exhibit F, by giving the Company 15 days written notice of such
termination.
Notwithstanding such termination, the Company is still obligated to pay the
overdue premiums, plus interest to the date of payment.
The Company will not force termination under the provisions of this Article
solely to avoid the recapture requirements or to transfer the Reinsured
Policies to another reinsurer.
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Article 5
5.1 Right of Offset
The Company and the Reinsurer will have the right to offset any balance or
balances whether on account of premiums, allowances or claims due from one
party to the other, under this Agreement or under any other reinsurance
agreement between the Company and the Reinsurer.
The right of offset will not be affected or diminished because of the
insolvency of either party.
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Article 6
6.1 Conversions
In the event of the conversion of a Reinsured Policy the policy arising
from the conversion will be reinsured with the Reinsurer. The amount to be
reinsured will be determined on the same basis as used for the original
policy (e.g. excess of retention, quota share) but will not exceed the
amount reinsured as of the date of conversion unless mutually agreed
otherwise.
If the policy arising from a conversion is on a plan that is:
6.1.1 Reinsured on a coinsurance basis with the Reinsurer, the appropriate
premium at the attained age will be used and the policy year for the
purpose of commission rates will be based on the duration of the
original policy; or
6.1.2 Reinsured on a YRT basis with the Reinsurer, the appropriate YRT rate
at the attained age and duration of the original policy will be used
and any allowance will be based on the duration of the original
policy; or
6.1.3 Not covered by any reinsurance agreement with the Reinsurer,
reinsurance will be on a YRT basis using the YRT rates specified in
Exhibit C, at the attained age and duration of the original policy.
The above terms will apply unless specified otherwise in Exhibit C.
Unless mutually agreed otherwise, policies that had been reinsured with
another reinsurer and which convert to a plan covered under this Agreement
will not be reinsured with the Reinsurer.
6.2 Policy Changes
If the plan, the amount of reinsurance or the premiums of a Reinsured
Policy are changed, the Company will promptly inform the Reinsurer.
Whenever a Reinsured Policy is changed and the Company's underwriting rules
do not require that full evidence be obtained, the reinsurance will remain
in effect with the Reinsurer. The suicide, contestability and recapture
periods applicable to the original Reinsured Policy will apply to the
reissued Reinsured Policy and the duration will be measured from the
effective date of the original Reinsured Policy.
Whenever any Reinsured Policy is changed and the Company's underwriting
rules require that full evidence be obtained, the change will be subject to
the Reinsurer's approval, if:
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6.2.1 The new amount of the Reinsured Policy would be in excess of the
Automatic Acceptance Limit, in effect at the time of the change, as
set out in Exhibit E; or
6.2.2 The new amount of the policy and the amount already in force on the
same life exceeds the Jumbo Limit stated in Exhibit E; or
6.2.3 The Reinsured Policy is on a facultative basis.
The amount of any non-contractual increase will be subject to the terms
stated in Exhibit C.
The Company will report the details of all changes according to the terms
outlined in Exhibit F, Reinsurance Reports.
For changes not covered under this Agreement, which affect the terms of any
Reinsured Policy, the Company must obtain the Reinsurer's approval before
such changes become effective.
6.3 Reductions
Unless specified otherwise in this Agreement, if the amount of insurance of
a policy issued by the Company is reduced, then the amount of reinsurance
on that life will be reduced effective the same date by the full amount of
the reduction under the original policy. If the amount of insurance
terminated equals or exceeds the amount of reinsurance, the full amount of
reinsurance is terminated. If the reinsurance is a quota share of the
policy issued by the Company, the reduction would be proportional.
The reduction will first apply to any reinsurance on the policy being
reduced and then in a chronological order according to policy date ("first
in, first out") to any reinsurance on the other policies in force on the
life. However, the Company will not be required to assume a risk for an
amount in excess of its regular retention for the age at issue and the
mortality rating of the policy under which reinsurance is being terminated.
If the reinsurance for a policy has been placed with more than one
reinsurer, the reduction will be applied to all reinsurers pro rata to the
amounts originally reinsured with each reinsurer.
6.4 Lapses
When a policy lapses, the corresponding Reinsured Policy will be terminated
effective the same date. The Reinsurer's liability with respect to unearned
premiums on the terminated Reinsured Policy is set out in Exhibit F.
Unless specified otherwise in this Agreement, if a policy fully retained by
the Company
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lapses, the Reinsured Policy or Policies on that same life will be reduced
or terminated effective the same date in order for the Company to maintain
its full retention. The terms under the preceding Reductions clause would
apply.
If the Company allows extended or reduced paid-up insurance following a
lapse, the reinsurance will be appropriately amended. If the Company allows
the policy to remain in force under its automatic premium loan regulations,
the reinsurance will continue unchanged and in force as long as such
regulations remain in effect, except as provided for otherwise in this
Agreement.
6.5 Reinstatements
If a policy reinsured on an automatic basis is reinstated in accordance
with its terms or the rules of the Company, as provided to the Reinsurer,
the Reinsured Policy will be reinstated automatically by the Reinsurer. The
Reinsurer's approval is required only for the reinstatement of a
facultative policy when the Company's regular reinstatement rules indicate
that more evidence than a Statement of Good Health is required.
The Company's liability with respect to the premiums in arrears is set out
in Exhibit F.
6.6 Minimum Reinsurance Limit
The Company may not submit a policy to the Reinsurer unless the amount of
the policy to be reinsured exceeds the Minimum Initial Reinsurance Limit
specified in Exhibit C. The Reinsured Policy will be canceled whenever its
net amount at risk becomes less than the Minimum Final Reinsurance Limit
set out in Exhibit C.
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Article 7
7.1 Retention Limit Changes
If the Company changes its retention limits, it will provide the Reinsurer
with written notice of the new retention limits and the effective date.
A change to the Company's Retention Limits in Exhibit D will not affect the
Reinsured Policies in force at the time of such a change except as
specifically provided for elsewhere in this Agreement.
7.2 Recapture
The Company may apply its increased retention limits to reduce the benefit
amount of in force Reinsured Policies provided:
7.2.1 The Company gives the Reinsurer written notice of its intention to
recapture within 90 days of the effective date of the retention
increase; and
7.2.2 Such recaptures are made on the next anniversary of each Reinsured
Policy affected and with no recapture being made until the Reinsured
Policy has been in force for the period stated in Exhibit C. For a
conversion policy or re-entry, the recapture terms of the original
policy will apply and the duration for the recapture period will be
measured from the effective date of the original policy; and
7.2.3 The Company has maintained from the time the policy was issued, its
full retention as set out in Exhibit D for the plan and the insured's
classification. Reinsured policies on a first dollar quota share basis
will not be eligible for recapture; and
7.2.4 The Company has applied its increased Retention Limits in a
consistent manner to all categories of its Retention Limits set out in
Exhibit D unless otherwise agreed to by the Reinsurer.
In applying its increased Retention Limits to Reinsured Policies, the age
and mortality rating at the time of issue will be used to determine the
amount of the Company's increased retention.
Recapture as provided herein is optional with the Company, but if any
Reinsured Policy is recaptured, all Reinsured Policies eligible for
recapture under the provisions of this Article must be recaptured. If there
is reinsurance in other companies on risks eligible for recapture, the
necessary reduction is to be applied pro rata to the total outstanding
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reinsurance.
The amount of reinsurance eligible for recapture is based on the
reinsurance net amount at risk as of the date of recapture.
The Company may not recapture reinsurance if the Company has either
obtained or increased stop loss reinsurance coverage as justification for
the increase in retention.
The Reinsurer will not be liable, after the effective date of recapture,
for any Reinsured Policies or portions of such Reinsured Policies eligible
for recapture, that the Company has overlooked. The Reinsurer will be
liable only for a credit of the premiums, received after the recapture
date, less any allowance.
The terms and conditions for the Company to recapture in force Reinsured
Policies due to the insolvency of the Reinsurer are set out in the
Insolvency clause in Article 11.
If the Company transfers business which is reinsured under this Agreement
to a successor company, then the successor company has the option to
recapture the reinsurance, in accordance with the recapture criteria
outlined in this Article, only if the successor company has a higher
retention limit than the Company.
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Article 8
8.1 Liability
Unless specified elsewhere in the Agreement, the Reinsurer's liability for
the Reinsured Policies is restricted to its share of the Company's
liability as limited by the terms and conditions of the particular policy
under which the Company is liable.
The Reinsurer may terminate its liability for any policies for which
reinsurance premium payments are in arrears, according to the terms set out
in Article 4 of this Agreement.
8.2 Commencement of Automatic Reinsurance Liability
The Reinsurer's liability for any Reinsured Policy accepted automatically
will begin simultaneously with the Company's contractual liability for that
policy.
8.3 Commencement of Facultative Reinsurance Liability
If a facultative application is submitted by the Company to the Reinsurer
only, then the Reinsurer's liability will begin simultaneously with the
Company's contractual liability for this facultative policy. The amount of
the Reinsurer's liability will be the lesser of the Reinsurer's offer, the
Conditional Receipt Amount set out in Exhibit A-2 or the Automatic
Acceptance Limits set out in Exhibit E. The Reinsurer's liability ceases if
the Reinsurer declines the risk and duly notifies the Company. The
Reinsurer's liability would also cease if the Company declines the
Reinsurer's offer.
If, however, a facultative application is submitted by the Company to any
other reinsurer, in addition to the Reinsurer, the liability of the
Reinsurer will commence when the Reinsurer has received written notice from
the Company, during the lifetime of the insured, that the Reinsurer's offer
has been accepted. The Company will have 120 days from the date of the
Reinsurer's final offer in which to place the policy with the
insured/owner, after which time the Reinsurer's offer will expire unless
the Reinsurer explicitly states in writing that the offer is extended for
some further period.
8.4 Conditional or Interim Receipt Liability
The extent of the Reinsurer's liability on a per life basis, for claims
accepted by the Reinsurer that have arisen under the conditional receipt or
interim receipt coverage, is set out in Exhibit A-2.
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Article 9
9.1 Claims Notice
The Company will notify the Reinsurer as soon as reasonably possible after
the Company receives the claim. Copies of all claims papers will be sent
promptly by the Company to the Reinsurer. The settlement made by the
Company will be binding on the Reinsurer. However, for claims made during
the contestable period or in any case where the total amount of reinsurance
ceded to the Reinsurer is greater than the amount retained by the Company,
or if the Company retained less than, or none of, its usual retention on
the policy, then all papers in connection with the claim will be submitted
to the Reinsurer and the Company will wait for up to ten days from the date
of submission for the Reinsurer's recommendation before conceding liability
or making settlement to the claimant.
The Company will provide the Reinsurer with all further reports and papers
required by the Reinsurer for its consideration of the claim.
For Joint Life Last Survivor business, the Company will notify the
Reinsurer of the first death.
9.2 Claims Payment
Provided there is no existing breach of this Agreement by the Company, the
Reinsurer will be liable to the Company for the benefits reinsured and the
reinsurance will not exceed the Company's contractual liability under the
terms of its policies. The payment of death claims by the Reinsurer will be
in one lump sum regardless of the mode of settlement under the original
policy. The Reinsurer's share of interest, which is based on the death
proceeds paid by the Company, will be payable in addition to the death
claim settlement. The Reinsurer will pay to the Company premiums at the
rate applicable to the original policy on any policy approved for a waiver
of premium claim, provided always that the waiver of premium benefit
applicable to such benefits has been reinsured under this Agreement.
9.3 Contested Claims
The Company will notify the Reinsurer of its intention to contest,
compromise or litigate a claim involving a Reinsured Policy. The Company
will also provide the Reinsurer prompt notice of any legal proceedings
initiated against the Company in response to its denial of a claim on a
reinsured policy. Should any claim be settled on a reduced compromise
basis, or should a contested claim be settled for a reduced sum, the
Company and the Reinsurer will participate in such reductions in proportion
to their respective liabilities under the policy or policies reinsured.
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The Reinsurer may pay its share of the death benefit if it does not deem it
advisable to contest the claim.
9.4 Claims Expenses
The Reinsurer will pay its share of reasonable investigation and legal
expenses incurred in adjudicating or litigating the claim. The Reinsurer
will not be liable for any portion of any routine investigative or
administrative expenses incidental to the settlement of claims (such as
compensation of salaried employees) which are incurred by the Company; nor
for any 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.
In the event that the Reinsurer pays its share of the death benefit of a
policy for which the Company is contesting the claim, the Reinsurer will
not be liable for any subsequent expenses incurred by the Company.
9.5 Extra Contractual Obligations
Extra Contractual Obligations are obligations outside of the contractual
obligations and include but are not limited to punitive damages, bad faith
damages, compensatory damages, and other damages or statutory penalties
which may arise from the willful and/or negligent acts or omissions by the
Company.
The Reinsurer is not liable for Extra Contractual Obligations unless it
concurred in writing and in advance with the actions of the Company which
ultimately led to the imposition of the Extra Contractual Obligations.
In such situations, the Company and the Reinsurer will share in Extra
Contractual Obligations, in equitable proportions, but all factors being
equal, the division of any such assessments would be in proportion to the
total risk accepted by each party for the plan of insurance involved.
Notwithstanding anything stated herein, this Agreement will not apply to
any Extra Contractual Obligations incurred by the Company as a result of
any fraudulent and/or criminal act by any employee or officer of the
Company or an agent representing the Company, acting individually,
collectively or in collusion in the presentation, defense, or settlement of
any claim. Nor will the Company be held responsible for any Extra
Contractual Obligations incurred as a result of any fradulent and/or
criminal act by any employee or officer of the Reinsurer.
9.6 Misstatement of Age or Sex
In the event of an increase or reduction in the amount payable under a
policy due to a misstatement in age or sex, the proportionate liabilities
under this Agreement will be the basis for determining each party's share
of any increase or reduction. The Reinsured Policy will be rewritten from
commencement on the basis of the adjusted amounts using premiums and
amounts at risk for the correct ages and sex, and the proper adjustment for
the difference in reinsurance premiums, without interest, will be made.
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Article 10
10.1 Oversights
Any unintentional or accidental failure to comply with the terms of this
Agreement which can be shown to be the result of an oversight,
misunderstanding or clerical error, by either the Company or the Reinsurer,
will not be deemed to be a breach of this Agreement. Upon discovery, the
error will be corrected so that both parties are restored to the position
they would have occupied had the oversight, misunderstanding or clerical
error not occurred. Should it not be possible to restore both parties to
such a position, the party responsible for the oversight, misunderstanding
or clerical error will be responsible for any resulting liabilities and
expenses.
This provision will apply only to oversights, misunderstandings or clerical
errors relating to the administration of reinsurance covered by this
Agreement and not to the administration of the insurance provided by the
Company to its insured.
If the Company or the Reinsurer discovers that the Company did not cede
reinsurance on a policy it should have reinsured under this Agreement, the
Company may be required to audit its records, at the request of the
Reinsurer, to determine if reinsurance was unreported on any other
policies. The Company is expected to take the necessary actions to ensure
that similar oversights do not recur. If the Reinsurer receives no evidence
that the Company has taken action to remedy such a situation, the Reinsurer
reserves the right to limit its liability to correctly reported policies
only.
Any negligent or deliberate acts or omissions by the Company regarding the
insurance or reinsurance provided are the responsibility of the Company and
its liability insurer, if any, but not that of the Reinsurer.
10.2 Arbitration
Any controversy arising hereafter between the Company and the Reinsurer
relating to policies covered under this Agreement or the breach thereof
will be referred to three arbitrators. These arbitrators must be officers
of Life Insurance Companies or Life Reinsurance Companies excluding
officers of the parties to this Agreement, their affiliates or subsidiaries
or past employees of any of these entities. The arbitrators who will regard
this Agreement from the standpoint of practical business as well as the
law, are empowered to determine the interpretation of the treaty
obligation.
Each party will appoint one arbitrator and these two arbitrators will
select a third arbitrator within two weeks of the appointment of the
second. If either party refuses or neglects to appoint an arbitrator within
60 days after receipt of the written request for arbitration, the other
party may appoint a second arbitrator. Should the two arbitrators not agree
on the choice of the third, then each party will name four candidates to
serve as the arbitrator. Beginning with the party who did not initiate
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arbitration, each party will eliminate one candidate from the eight listed
until one candidate remains. If this candidate declines to serve as the
arbitrator, the candidate last eliminated will be approached to serve. This
process will be repeated until a candidate has agreed to serve as the third
arbitrator.
The place of meeting of the arbitrators will be decided by a majority vote
of the arbitrators. The written decision of a majority of the arbitrators
will be final and binding on both parties and their respective successors
and assigns.
The arbitrators will render a decision within four months of the
appointment of the third arbitrator, unless both parties agree otherwise.
In the event no decision is rendered within four months, new arbitrators
will be selected as above.
Alternatively, if both parties consent, any controversy may be settled by
arbitration in accordance with the rules of the American Arbitration
Association.
Unless the Arbitrators decide otherwise, each party will bear the expense
of its own arbitration, including its arbitrator and outside attorney fees
and will jointly and equally bear with the other party the expense of the
third arbitrator.
Judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
It is specifically the intent of both parties that these arbitration
provisions will replace and be in lieu of any statutory arbitration
provision, if the law so permits.
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Article 11
11.1 Insolvency
A party to this Agreement will be deemed "insolvent" when it;
11.1.1 Applies for or consents to the appointment of a receiver,
rehabilitator, conservator, liquidator or statutory successor
(hereinafter referred to as the Authorized Representative) of its
properties or assets; or
11.1.2 Is adjudicated as bankrupt or insolvent; or
11.1.3 Files or consents to the filing of a petition in bankruptcy, seeks
reorganization or an arrangement with creditors or takes advantage of
any bankruptcy, dissolution, liquidation, or similar law or statute;
or
11.1.4 Becomes the subject of an order to rehabilitate or an order to
liquidate as defined by the insurance code of the jurisdiction of the
party's domicile.
In the event of the insolvency of the Company, all reinsurance made, ceded,
renewed or otherwise becoming effective under this Agreement will be
payable by the Reinsurer directly to the Company or to its Authorized
Representative, on the basis of the liability of the Company under the
Reinsured Policies without diminution because of the insolvency of the
Company.
The Authorized Representative will give written notice to the Reinsurer of
all pending claims against the Company on any policies reinsured within a
reasonable time after such claims are filed in the insolvency proceedings.
While a claim is pending, the Reinsurer may investigate such claim and
interpose, at its own expense, in the proceedings where the claim is to be
adjudicated, any defense or defenses which it may deem available to the
Company or the Authorized Representative.
The expense thus incurred by the Reinsurer will be chargeable, subject to
court approval, against the Company as part of the expense of conservation
or 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 reinsurers are involved in the same claim
and a majority in interest elect to interpose a defense to such claim, the
expense will be apportioned in accordance with the terms of the Agreement
as though such expense had been incurred by the Company.
In the event of insolvency of the Company, the Right of Offset afforded
under Article 5 will remain in full force and effect to the extent
permitted by applicable law.
In the event of the insolvency of the Reinsurer, the Company may cancel
this Agreement for new business by promptly providing the Reinsurer, its
receiver,
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rehabilitator, conservator, liquidator or statutory successor with written
notice of the cancellation effective the date on which the Reinsurer's
insolvency is established by the authority responsible for such
determination. Any requirement for a notification period prior to the
cancellation of the Agreement would not apply under such circumstances.
In addition, the Company may provide the Reinsurer, its receiver,
rehabilitator, conservator, liquidator or statutory successor with written
notice of its intent to recapture all reinsurance in force under this
Agreement regardless of the duration the reinsurance has been in force or
the amount retained by the Company on the policies reinsured hereunder. The
effective date of a recapture due to insolvency would be at the election of
the Company and would not be earlier than the date on which the Reinsurer's
insolvency is established by the authority responsible for such
determination. Any Recapture Fee applicable will be mutually agreed upon by
the Company and the Reinsurer, its rehabilitator, conservator, liquidator
or statutory successor.
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Article 12
12.1 DAC Tax
The Company and the Reinsurer agree to the DAC Tax Election pursuant to
Section 1.848-2(g)(8) of the Income Tax Regulation under Section 848 of the
Internal Revenue code of 1986, as amended, whereby:
12.1.1 The party with the net positive consideration for this Agreement for
each taxable year will capitalize specified policy acquisition
expenses with respect to this Agreement without regard to the general
deductions limitation of Section 848(c)(1); and
12.1.2 Both parties agree to exchange information pertaining to the amount
of net consideration under this Agreement each year to ensure
consistency.
The term "net consideration" will refer to the net consideration as defined
in Regulation Section 1.848-2(f).
The method and timing of the exchange of this information is set out in
Exhibit G.
This DAC Tax Election will be effective for all years for which this
Agreement remains in effect.
The Company and the Reinsurer represent and warrant that they are subject
to U.S. taxation under either the provisions of subchapter L of Chapter 1
or the provisions of subpart F of subchapter N of Chapter 1 of the Internal
Revenue Code of 1986, as amended.
12.2 Taxes and Expenses
Apart from any taxes, allowances, refunds, and expenses specifically
referred to elsewhere in this Agreement, no taxes, allowances, or
proportion of any expense will be paid by the Reinsurer to the Company in
respect of any Reinsured Policy.
23
Article 13
13.1 Entire Agreement
This Agreement will constitute the entire agreement between the parties
with respect to the business being reinsured hereunder. There are no
understandings between the Company and the Reinsurer other than as
expressed in this Agreement.
Any alteration to this Agreement will be null and void unless made by
written amendment, attached to the Agreement and signed by both parties.
13.2 Parties to Agreement
This is an Agreement solely between the Company and the Reinsurer. The
acceptance of reinsurance hereunder will not create any right or legal
relation between the Reinsurer and the insured, beneficiary, or any other
party to any policy of the Company which may be reinsured hereunder.
This Agreement will be binding upon the parties hereto and their respective
successors and assigns.
13.3 Inspection of Records
The Reinsurer, or its duly appointed representatives, will have access to
the records of the Company concerning the business reinsured hereunder for
the purpose of inspecting, auditing and photocopying those records. Such
access will be provided at the office of the Company and will be during
reasonable business hours.
Provided there is business in force under this Agreement, the Reinsurer's
right of access as specified above will survive the term of the Agreement.
13.4 Good Faith
All matters with respect to this Agreement require the utmost good faith of
both parties.
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 will promptly notify the other if it is subsequently financially
impaired.
The Reinsurer has entered into this Agreement in reliance upon the
Company's representations and warranties. The Company affirms that it has
and will continue to
24
disclose all matters material to this Agreement. Examples of such matters
are a change in underwriting or issue practices or philosophy, a change in
underwriting or claims management personnel, or a change in the Company's
ownership or control.
The Company affirms that the underwriting, administration and claims
practices it employs are consistent with the customary and usual practices
of the insurance industry as a whole. Should the Company engage in
exceptional or uncustomary practices, it will inform the Reinsurer of such
action and obtain its written consent before assigning any liability to the
Reinsurer with respect to any policies covered under this Agreement.
13.5 Confidentiality
Both the Company and the Reinsurer will hold confidential and not disclose
or make competitive use of any shared proprietary information unless
otherwise agreed to in writing, or unless the information otherwise becomes
publicly available or the disclosure of which is required for retrocession
purposes or has been mandated by law or is duly required by external
auditors.
The parties to this Agreement acknowledge that the Company is engaged in
the business of insurance and financial protecting products and services;
and, that as part of its business operation, it maintains personally
identifiable customer and consumer financial and medical information. The
Company's customer information includes information from individuals who
have a continuing relationship with the Company. This includes its life
insurance policy owners and annuity contract owners. The Company's
consumers includes life insurance and annuity applicants, beneficiaries,
claimants, and named insureds and annuitants who are not policy or contract
owners.
In recognition of the business relationship as outlined in this Agreement,
the Company is required to provide the Reinsurer access to
confidential/private personally identifiable customer and consumer
information. The Company's granting the Reinsurer access to said
information is necessary to improve its operationally efficiencies, and to
effect and administer transactions requested by the Company's customers.
The Reinsurer shall make all reasonable efforts to maintain the
confidentiality of the personally identifiable information of the Company's
customers and consumers including but not limited to: the names, addresses,
telephone numbers, social security numbers, birth dates, financial
information, medical information and any other records, information or
verbal communications relating in any way to the Company's customers and
consumers. The Reinsurer shall not use or disclose such personally
identifiable information in any manner other than is necessary to perform
this Agreement, or as required by law.
Any and all privacy and confidentiality obligations under this Agreement
shall survive the expiration or termination date of this Agreement.
25
Failure to comply with the requirements of this section shall be grounds
for termination of the Agreement. The Reinsurer further agrees to indemnify
and hold the Company, its officers, directors and employees, harmless from
any and all claims, as well as pay the Company's attorneys fees, arising
from the Reinsurer's failure to comply with the requirements of this
section.
25
Article 14
14.1 Duration of Agreement
This Agreement is unlimited as to its duration. The Reinsurer or the
Company may terminate this Agreement by
14.1.1 Giving at least 90 days written notice to that effect to the other
party; or
14.1.2 As provided elsewhere in this Agreement.
During the 90 day notification period, the Reinsurer will continue to
accept policies covered under the terms of this Agreement.
Further, the Reinsurer remains liable for all Reinsured Policies in force
at the date of the termination, set forth in the notice, until their
natural expiration, unless the parties mutually decide otherwise or as
specified otherwise in this Agreement.
14.2 Severability
If any provision of this Agreement is determined to be invalid or
unenforceable, such determination will not affect or impair the validity or
the enforceability of the remaining provisions of this Agreement.
14.3 Construction
The rights and obligations under this Agreement will be construed and
administered in accordance with the laws of the Company's state of domicile
stated in Exhibit A-1.
26
Made in duplicate and executed by both parties.
Signed for and on behalf of American Family Life Insurance Company
By: By:
-------------------------------- --------------------------------
Title: Title:
Date: 3/24/01 Place: Madison, Wisconsin
Signed for and on behalf of Life Reassurance Corporation of America (A Member of
the Swiss Re Group)
By: By:
-------------------------------- --------------------------------
Title: Vice President Title: Second Vice President
Date: Feb 15, 2001 Place:
Exhibit A-1
Business Covered
Agreement Effective Date:
March 1, 2001. The commencement dates for specific plans are shown below.
Coverage:
The policies on the plans shown below which have policy issue dates falling in
the period that begins with the Commencement Date and ends with the Termination
Date are covered subject to any limitations shown below or elsewhere in this
Agreement.
These policies are on lives resident in the United States.
Currency: US$
Company's State of Domicile: Wisconsin
Limitations:
1. For policies on lives with surnames commencing with the letters A to Z
inclusive, which qualify for automatic coverage, 50 percent of the excess
over the Company's retention specified in Exhibit D, up to the Reinsurer's
Automatic Acceptance Limits specified in Exhibit E, will be reinsured with
the Reinsurer.
Plans, Riders and Benefits:
Plan Exhibit Reference Limitations Commencement Termination
Identification for Rates Item Number Date Date
------------------ ----------------- ----------- ------------- -----------
Flexible Premium C-1 1., above March 1, 2001
Variable UL L-97
(VUL/WI)
Rider:
Additional Insured C-1 1., above March 1, 2001
Rider
Exhibit A-1
Page 2
Facultative Submissions:
The Company may submit, on a facultative basis, to the Reinsurer any application
for a policy on a plan or rider listed above which qualifies for automatic
reinsurance.
The Company will submit on a facultative basis to the Reinsurer any application
for a policy on a plan or rider listed above which meets any of the criteria
listed in Article 2 under Facultative Coverage.
Exhibit A-2
Page 2
Required Forms, Manuals and Issue Rules
The following items have been provided to the Reinsurer by the Company for the
business covered under this Agreement;
1. Policy Application Form
2. Underwriting Manual and Agent's Guide
3. Policy Delivery Rules and Reinstatement Rules
4. Non-medical and Medical Requirements
5. Financial and Non-smoking Questionnaires
6. Preferred Underwriting Guidelines
7. Premium Rates
8. Retention Schedule
Conditional Receipt Amount
The amount of coverage provided by the Reinsurer under a Conditional Receipt (or
Interim Receipt) will not exceed the lesser of:
1. The Reinsurer's share of $500,000; or
2. The Automatic Acceptance Limits; or
3. The Reinsurer's share of the difference between the amount of insurance
provided by the Conditional Receipt (or Interim Receipt) and the Company's
maximum retention assuming the life had been underwritten as standard. The
Company's retention will include any amounts retained under any in force
policies on the life.
Exhibit B
Reinsurance Application
From: Company Name
Company Name
|
-----------------------------------------------------------------------------------------------------------------------
Last First Middle Date of Birth Age Sex
Applicant's Name | | | |
------------------------------------------------------------------------------------------------------
Plan | Preferred Smoker Nonsmoker Reunderwriting
-----------------------------
Curr Residence For Premium Tax Policy Number Policy Date Preliminary Term From
| | | | |
-----------------------------------------------------------------------------------------------------------------------
Type of Application
Facultative Automatic Placement Date Self Administered (Bulk) Terms YRT Coinsurance
| | | | |
-----------------------------------------------------------------------------------------------------------------------
Decrement Cash Values Reserves Age Basis Retention Code Full Reduced Nil
| | | | | | |
----------------------------------------------------- ------------------------------------
Reinsurance Amounts Basic Coverage Additional Coverage Waiver Premium Accidental Death Other Benefits
Benefit Benefit
Previous Insurance In Force | | | | |
-----------------------------------------------------------------------------------------
Of Which We Retained - | | | | |
-----------------------------------------------------------------------------------------
Insurance Now Applied For - | | | | |
-----------------------------------------------------------------------------------------
0f Which We Retain - | | | | |
-----------------------------------------------------------------------------------------
Reinsurance This Cession - | | | | |
-----------------------------------------------------------------------------------------
Extra Premium | | | | |
-----------------------------------------------------------------------------------------
Rating If Substandard - | | | | |
-----------------------------------------------------------------------------------------
Coinsurance Premium - | | | | |
-----------------------------------------------------------------------------------------
*For YRT cases state Gross Premiums WP AD Other Amount of Premium Annual Decrement for
and Expiry Ages for benefits to be Waived Amount at Risk
| | | | |
----------------------------------------------------------------------------------
Additional Information or Remarks
Date By
| |
--------------------------------------------------------------------------------------------------------------------
Exhibit C
General Terms
1. Reinsurance Basis: YRT
2. Reinsurance Rates: The rates set out in the sub-section(s) of Exhibit C
will apply to Reinsured Policies on both an automatic and a facultative
basis.
3. Rate Limit: The rates set out in the sub-section(s) of Exhibit C will apply
to all reinsurances, provided the total of the new reinsurance amount and
the amount already reinsured on the life under this Agreement, and all
other Agreements with the Reinsurer, does not exceed the amount shown in
the table below. Individual consideration will be given to the rates for
any amounts over the limit shown in the table below:
Issue Age Std.(100%) - 500%
--------- -----------------
0 - 85 $15,000,000
4. Age Basis: Nearest.
5. Premium Tax: There will be no separate reimbursement of premium tax.
6. Dividend Payments: The Reinsurer will not be liable for any dividend
payments.
7. YRT Rate Guarantee: The reinsurance rates set out in the sub-section(s) of
Exhibit C are guaranteed to the extent that in the 2nd year and later the
Reinsurer reserves the right to increase the premiums for reinsurance but
not above the statutory net premium.
8. YRT Deficiency Reserves: If deficiency reserves are required to be held by
the Company on any Reinsured Policy, the entire amount of any such reserve
will be established and held by the Company.
9. Minimum Initial Reinsurance Limit: $10,000
Minimum Final Reinsurance Limit: $10,000
Exhibit C
Page 2
10. Net Amounts At Risk: For UL Life type plans, if the death benefit is Option
A, the amount at risk will be the difference between the initial amount of
reinsurance and the cash values applicable to the face amount of the
policy. If the death benefit is Option B, the amount at risk will be the
initial amount of reinsurance.
Increases in the amount at risk due to Cost of Living Rider increases or
fluctuations in the amount at risk caused by the normal workings of the
cash value fund in Universal Life type plans will be shared by the Company
and the Reinsurer using the same retention method as for the base policy.
11. Recapture:
Due to Increase in Company's Retention
Inforce Period: 10 years
Due to Insolvency of Reinsurer
Inforce Period: Not applicable
12. Interest Rate For Overdue Premiums: The interest rate payable by the
Company to the Reinsurer for overdue premiums will be the 90 Day Federal
Government Treasury ▇▇▇▇ rate as first published in the Wall Street Journal
in the month following the end of the billing period plus 50 basis points.
The method of calculation will be simple interest "Bankers' Rule" (or 360
day year).
13. Rates Applicable To Increases: First year reinsurance premium rates and
allowances will apply to the amount normally underwritten of a
non-contractual increase.
14. YRT Rates For Conversions To Non-Reinsured Plans The current applicable YRT
rates.
15. Reductions: Reinsured Policies will be reduced on a full reduction basis.