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Exhibit (b)(7)(i)
REINSURANCE AGREEMENT
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
DOVER, DELAWARE
REFERRED TO AS THE "CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
ST. LOUIS, MISSOURI
REFERRED TO AS THE "REINSURER"
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TABLE OF CONTENTS
Page
ARTICLE I GENERAL PROVISIONS 2
ARTICLE II INITIAL CONSIDERATION AND REINSURANCE PREMIUMS 8
ARTICLE III COMMISSIONS AND ALLOWANCES 11
ARTICLE IV BENEFIT PAYMENTS 17
ARTICLE V RESERVE ADJUSTMENTS 20
ARTICLE VI EXPENSE AND RISK CHARGES 22
ARTICLE VII REINSURANCE GAINS AND LOSSES 24
ARTICLE VIII LOSS CARRYFORWARD 25
ARTICLE IX EXPERIENCE REFUND 27
ARTICLE X ACCOUNTING AND SETTLEMENTS 29
ARTICLE XI DURATION AND RECAPTURE 33
ARTICLE XII TERMINAL ACCOUNTING AND SETTLEMENT 35
ARTICLE XIII REPRESENTATIONS 37
ARTICLE XIV ARBITRATION 38
ARTICLE XV INSOLVENCY 40
ARTICLE XVI EXECUTION AND EFFECTIVE DATE 41
SCHEDULE A ANNUITIES AND RISKS REINSURED 42
SCHEDULE B QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS 43
SCHEDULE C MODIFIED COINSURANCE RESERVE INVESTMENT CREDIT 46
SCHEDULE D CEDING COMPANY DATA 47
EXHIBIT A ACCOUNTS RECEIVABLE AGREEMENT
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REINSURANCE AGREEMENT
This Agreement is made and entered into by and between North American Security
Life Insurance Company (hereinafter referred to as the "Ceding Company") and ITT
Xxxxxx Life Insurance Company (hereinafter referred to as the "Reinsurer").
The Ceding Company and the Reinsurer mutually agree to reinsure on the terms and
conditions stated herein. This Agreement is an indemnity reinsurance agreement
solely between the Ceding Company and the Reinsurer, and performance of the
obligations of each party under this Agreement will be rendered solely to the
other party. In no instance will anyone other than the Ceding Company or the
Reinsurer have any rights under this Agreement, and the Ceding Company will be
and remain the only party hereunder that is liable to any insured, policyowner
or beneficiary under any annuity reinsured hereunder.
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ARTICLE I
GENERAL PROVISIONS
1. Annuities and Risks Reinsured. The Reinsurer agrees to indemnify the
Ceding Company for, and the Ceding Company agrees to reinsure with the
Reinsurer, according to the terms and conditions hereof, the portion of
the risks under the annuities described in Schedule A attached hereto.
2. Coverages and Exclusions.
A. Only the variable annuities described in Schedule A are reinsured
under this Agreement.
B. The Reinsurer will not participate in any loans on annuities
reinsured hereunder.
3. Plan of Reinsurance. This indemnity reinsurance will be on a modified-
coinsurance basis. The Ceding Company will retain, control and own all
assets held in relation to the Modified Coinsurance Reserve.
4. Dividends to Policyowners. The Reinsurer will have no liability to the
Ceding Company for reimbursement of, and will not reimburse the Ceding
Company for, dividends to policyowners.
5. Expenses. The Reinsurer will bear no part of the expenses incurred in
connection with the annuities reinsured hereunder, except as otherwise
provided herein.
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6. Annuity Changes. The Ceding Company must provide written notification to
the Reinsurer of any change which affects the original terms or conditions
of any annuity reinsured hereunder within fifteen (15) days after the
change takes effect. The Reinsurer will provide written notification to
the Ceding Company as to the Reinsurer's acceptance or rejection of the
change within fifteen (15) days after receipt of notice of the change. If
the Reinsurer accepts any such change, the Reinsurer will share in any
increase or decrease in the Ceding Company's liability that results from
such change in the same proportion as the portion of the annuities
reinsured hereunder. If the Reinsurer rejects any such change, the
Reinsurer's liability under this Agreement will be determined as if no
such change had occurred.
7. No Extracontractual Damages. The Reinsurer does not indemnify the Ceding
Company for, and will not be liable for, any extracontractual damages or
extracontractual liability of any kind whatsoever resulting from fraud,
oppression, bad faith, strict liability, or negligent, reckless or
intentional wrongs on the part of the Ceding Company or its directors,
officers, employees and agents. The following types of damages are
examples of damages that would be excluded from this Agreement for the
conduct described above: actual damages, damages for emotional distress,
and punitive or exemplary damages.
8. Annuity Administration. The Ceding Company will administer the annuities
reinsured hereunder and will perform all accounting for such annuities;
provided, however, that the Reinsurer reserves the right to participate in
claims administration.
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9. Inspection. At any reasonable time, the Reinsurer may inspect, during
normal business hours, at the principal office of the Ceding Company, the
original papers and any and all other books or documents relating to or
affecting reinsurance under this Agreement. The Reinsurer will not use any
information obtained through any inspection pursuant to this Paragraph for
any purpose not relating to reinsurance hereunder.
10. Taxes. The allowance for any premium taxes paid in connection with the
annuities reinsured hereunder is included in the Commissions and
Allowances as described in Article III. The Reinsurer will not reimburse
the Ceding Company for any other taxes paid by the Ceding Company in
connection with the annuities reinsured hereunder.
11. Proxy Tax Reimbursement. Pursuant to IRC Section 848, insurance companies
are required to capitalize and amortize specified policy acquisition
expenses. The amount capitalized is determined by proxy based on a
percentage of "reinsurance premiums" as defined in the IRS regulations
relating to IRC Section 848. At the Reinsurer's request, the Ceding
Company will reimburse the Reinsurer for any positive timing cost to the
Reinsurer which results from the application of IRC Section 848 to the
annuities reinsured hereunder and which the Reinsurer considers material.
At the Ceding Company's request, the Reinsurer will reimburse the Ceding
Company for the absolute value of any negative timing cost to the Ceding
Company which results from the application of IRC Section 848 to the
annuities reinsured hereunder and which the Ceding Company considers
material.
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12. Election to Determine Specified Policy Acquisition Expenses. The Ceding
Company and the Reinsurer agree that the party with net positive
consideration under this Agreement will capitalize specified policy
acquisition expenses with respect to annuities reinsured under this
Agreement without regard to the general deductions limitation of Section
848(c)(1) of the Internal Revenue Code of 1986, as amended. The Ceding
Company and the Reinsurer will exchange information pertaining to the
amount of net consideration under this Agreement each year to ensure
consistency. The Ceding Company will submit a schedule to the Reinsurer by
May 1 of each year showing its calculation of the net consideration for
the preceding taxable year. The Reinsurer may contest the calculation in
writing within thirty (30) days of receipt of the Ceding Company's
schedule. Any differences will be resolved between the parties so that
consistent amounts are reported on the respective tax returns for the
preceding taxable year. This election to capitalize specified policy
acquisition expenses without regard to the general deductions limitation
is effective for all taxable years during which this Agreement remains in
effect.
13. Condition. The reinsurance hereunder is subject to the same limitations
and conditions as the annuities issued by the Ceding Company which are
reinsured hereunder, except as otherwise provided in this Agreement.
14. Misunderstandings and Oversights. If any failure to pay amounts due or to
perform any other act required by this Agreement is unintentional and
caused by misunderstanding or oversight, the Ceding Company and the
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Reinsurer will adjust the situation to what it would have been had the
misunderstanding or oversight not occurred.
15. Adjustments. If the Ceding Company's liability under any of the annuities
reinsured hereunder is changed because of a misstatement of age, sex or
any other material fact, the Reinsurer will share in the change
proportionately to the amount reinsured hereunder, and will make any and
all proportional adjustments with the Ceding Company.
16. Reinstatements. If an annuity reinsured hereunder is surrendered or
annuitized, and is subsequently reinstated while this Agreement is in
force, the reinsurance for such annuity will be reinstated automatically.
The Ceding Company will pay the Reinsurer the Reinsurer's proportionate
share of all amounts received by the Ceding Company in connection with the
reinstatement of the annuity plus any amounts previously refunded to the
Ceding Company by the Reinsurer in connection with the lapse of the
annuity.
17. Assignment. The Ceding Company may not assign any of its rights, duties or
obligations under this Agreement without prior written consent of the
Reinsurer.
18. Amendments. This Agreement may be amended only by written agreement of the
parties.
19. Entire Agreement. The terms expressed herein constitute the entire
agreement between the parties with respect to the annuities reinsured
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hereunder. There are no understandings between the parties with respect to
the annuities reinsured hereunder other than as expressed in this
Agreement.
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ARTICLE II
INITIAL CONSIDERATION AND REINSURANCE PREMIUMS
1. Initial Consideration. The Ceding Company will pay the Reinsurer an
Initial Consideration equal to 100 percent of the Modified Coinsurance
Reserve, as defined in Article V, Paragraph 3, calculated as of the
Effective Date of this Agreement. Simultaneously with the payment of the
Initial Consideration, the Ceding Company will withhold on behalf of the
Reinsurer 3.2 percent of the Initial Consideration, calculated as of the
Effective Date of this Agreement, in accordance with Paragraph 3 below,
but not to exceed $15 million.
2. Reinsurance Premiums. The Ceding Company will pay the Reinsurer
Reinsurance Premiums on all annuities in effect under this Agreement in an
amount equal to that portion of the gross premiums collected by the Ceding
Company during the current Accounting Period which corresponds to the
portion of the annuities reinsured hereunder. The Reinsurance Premiums
paid to the Reinsurer by the Ceding Company will be remitted to the
Reinsurer at the end of the Accounting Period during which the gross
premiums were collected by the Ceding Company and the Reinsurer will treat
any such Reinsurance Premiums as paid premium for annual statement
purposes, regardless of the mode of collection by the Ceding Company on
the annuities reinsured hereunder.
3. Funds Withheld. The Ceding Company and the Reinsurer have entered into the
"Accounts Receivable Agreement" attached to this Agreement as Exhibit A.
Pursuant to the terms of the Accounts Receivable Agreement,
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the Ceding Company will withhold on behalf of the Reinsurer the amount
described in Paragraph 1 above. The amount withheld by the Ceding Company
will be credited to the Reinsurer and will be considered as an amount held
on behalf of the Reinsurer. The Reinsurer will consider such amount as a
receivable and the Ceding Company will consider such amount as a payable.
Such amount withheld will be subject to repayment in accordance with the
terms of the Accounts Receivable Agreement. The Funds Withheld at the end
of each Accounting Period will be equal to (i) minus (ii), where:
(i) equals the Funds Withheld at the end of the preceding
Accounting Period; and
(ii) equals any payment by the Ceding Company to the Reinsurer of
any amount withheld, as described in item (i) above, during
the Accounting Period in accordance with the Accounts
Receivable Agreement.
With respect, however, to the Accounting Period during which the Effective
Date of this Agreement occurs, the reference in (i) above to "the end of
the preceding Accounting Period" means 3.2 percent of the Initial
Consideration, but not to exceed $15 million, determined in accordance
with Paragraph 1 above.
In no event will the Funds Withheld at the end of any Accounting Period
exceed 50 percent of the Ceding Company's total statutory capital and
surplus as of the end of the preceding calendar year.
4. Interest Expense Charge. The Ceding Company will pay the Reinsurer an
Interest Expense Charge at the end of each Accounting Period equal to [(i)
x (ii)] + [(iii) x (iv)], where:
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(i) equals any amounts withheld in accordance with item (i) of
Paragraph 3 above, which have not been paid by the Ceding
Company to the Reinsurer at the end of the preceding
Accounting Period and for which payment is not due to the
Reinsurer as described in the Accounts Receivable Agreement;
(ii) equals the Interest Expense Rate as described in Paragraph 5
below;
(iii) equals any amounts withheld in accordance with item (i) of
Paragraph 3 above, which have not been paid by the Ceding
Company to the Reinsurer at the end of the preceding
Accounting Period and for which payment is due to the
Reinsurer as described in the Accounts Receivable Agreement;
and
(iv) equals the Loss Carryforward Rate described in Article VIII,
Paragraph 2.
5. Interest Expense Rate. For the Accounting Periods beginning January 1,
1994 through December 31, 1998, the Interest Expense Rate at the end of
each Accounting Period will be equal to 1.7715 percent. For Accounting
Periods beginning January 1, 1999 and thereafter, the Interest Expense
Rate at the end of each Accounting Period will be equal to the Loss
Carryforward Rate as described in Article VIII, Paragraph 2.
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ARTICLE III
COMMISSIONS AND ALLOWANCES
1. Ceding Commission. Simultaneously with the payment of the Initial
Consideration, the Reinsurer will pay a Ceding Commission to the Ceding
Company of 2.2 percent of the Initial Consideration as described in
Article II, Paragraph 1, but not to exceed $10 million.
2. Unamortized Ceding Commission. The Unamortized Ceding Commission at the
end of each Accounting Period equals (i) minus (ii), where:
(i) equals the Unamortized Ceding Commission at the end of the
preceding Accounting Period; and
(ii) equals the Unamortized Ceding Commission Adjustment determined
in accordance with Paragraph 3 below.
With respect, however, to the Accounting Period during which the Effective
Date of this Agreement occurs, the reference in (i) to the "end of the
preceding Accounting Period" refers to the Effective Date of this
Agreement immediately after the Ceding Commission, as described in
Paragraph 1, has been paid. The Unamortized Ceding Commission may never be
less than zero. In the Accounting Period during which (i) minus (ii) as
described above, first becomes zero or negative, then, for that and all
subsequent Accounting Periods, the Unamortized Ceding Commission will be
set equal to zero.
3. Unamortized Ceding Commission Adjustment. The Unamortized Ceding
Commission Adjustment at the end of each Accounting Period equals (i)
minus (ii) minus (iii) minus (iv) minus (v), where:
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(i) equals the Reinsurance Gain or Reinsurance Loss determined in
accordance with Article VII;
(ii) equals the Loss Carryforward at the end of the preceding
Accounting Period with accrued interest thereon, determined in
accordance with Article VIII, Paragraph 1, item (i);
(iii) equals the Interest Expense Charge determined in accordance
with Article II, Paragraph 4;
(iv) equals the Interest on the Unamortized Ceding Commission
determined in accordance with Paragraph 9 below; and
(v) equals the Expense and Risk Charge determined in accordance
with Article VI, Paragraph 2.
However, in no event will the Unamortized Ceding Commission Adjustment be
less than zero or exceed the lesser of:
(1) the Unamortized Ceding Commission at the end of the preceding
Accounting Period determined in accordance with Paragraph 2
above, or
(2) the Maximum Unamortized Ceding Commission Adjustment as
described in Paragraph 4 below.
Notwithstanding anything to the contrary in this Agreement, if the
Unamortized Ceding Commission at the end of any Accounting Period is still
positive, but has been reduced during any Accounting Period by an amount
less than the Maximum Unamortized Ceding Commission Adjustment described
in Paragraph 4 below, then such shortfall can be recovered from future
positive Unamortized Ceding Commission Adjustments.
4. Maximum Unamortized Ceding Commission Adjustment. The Maximum Unamortized
Ceding Commission Adjustment for each Accounting Period is as follows:
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For Accounting Maximum Unamortized
Periods Ending During Ceding Commission Adjustment
------------------------------------ -----------------------------
1994 through 1998 $ 500,000
1999 and thereafter $2,000,000
However, if in any Accounting Period (a) the Termination Rate as described
in Paragraph 5 below, is greater than 0.30, and/or (b) the Investment
Credit Accumulation Rate as described in Paragraph 6 below, is less than
zero, then the Reinsurer may elect to define the Maximum Withheld Ceding
Commission Adjustment as any amount up to $10 million for the first
Accounting Period in the current calendar year and for all Accounting
Periods thereafter.
5. Termination Rate. The Termination Rate in any Accounting Period equals 1 -
[(i) divided by (ii)], where:
(i) equals the total number of annuities reinsured hereunder and
described in Schedule A, as of the date the current Accounting
Period ends; and
(ii) equals the total number of annuities reinsured hereunder and
described in Schedule A, as of the date one year prior to the
date the current Accounting Period ends.
6. Investment Credit Accumulation Rate. The Investment Credit Accumulation
Rate in any Accounting Period equals (i) / [.5 x {(ii) + (iii)}], where:
(i) equals the Modified Coinsurance Reserve Investment Credit as
described in Schedule C, for the current Accounting Period;
(ii) equals the portion of the account value for the annuities
reinsured hereunder which corresponds to the portion of the
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annuities reinsured hereunder at the beginning of the current
Accounting Period; and
(iii) equals the portion of the account value for the annuities
reinsured hereunder which corresponds to the portion of the
annuities reinsured hereunder at the end of the current
Accounting Period.
7. Allowances for Commissions and Expenses. The Reinsurer will pay the Ceding
Company Allowances for Commissions and Expenses for each Accounting
Period, subsequent to the initial Accounting Period, equal to (i) plus
(ii) plus (iii) plus (iv), where:
(i) equals (a) times (b), where:
(a) equals $7.50 times the quota share percentage of the
annuities reinsured hereunder as described in Schedule
A; and
(b) equals the number of annuities reinsured hereunder and
described in Schedule A, and enforce at the end of the
current Accounting Period;
(ii) equals .0125 percent times that portion of the account value
of the annuities reinsured hereunder which corresponds to the
portion of the annuities reinsured hereunder as of the end of
the current Accounting Period;
(iii) equals the Trailer Commission, as defined below, times that
portion of the account value of the Venture Variable Annuity 3
annuities reinsured hereunder which corresponds to the portion
of the Venture Variable Annuity 3 annuities reinsured
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hereunder and described in Schedule A, as of the end of the
current Accounting Period; and
(iv) equals .25 percent times that portion of the account value,
attributable to purchase payments received by the Ceding
Company thirteen months or more prior to their trailer
commission payment dates, of the Venture Vision annuities
reinsured hereunder which corresponds to the portion of the
Venture Vision annuities reinsured hereunder and described in
Schedule A, as of the end of the current Accounting Period.
The Trailer Commission for Venture Variable Annuity 3 annuities for each
Accounting Period is defined below:
For Accounting
Periods Ending During Trailer Commission
1994 .04%
1995 .05%
1996 .055%
1997 and thereafter .0625%
8. Allowances for Death Benefit Guarantee. The Reinsurer will pay the Ceding
Company Allowances for Death Benefit Guarantee for each Accounting Period,
subsequent to the initial Accounting Period, as an allowance for costs of
the minimum death benefit guarantee on the annuities reinsured hereunder,
equal to the sum of:
(i) .0375 percent times that portion of the account value of the
Venture Vision annuities reinsured hereunder which corresponds
to the portion of the Venture Vision annuities reinsured
hereunder and described in Schedule A, as of the end of the
current Accounting Period, plus
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(ii) .0125 percent times that portion of the account value of the
Venture Variable Annuity 3 annuities reinsured hereunder which
corresponds to the portion of the Venture Variable Annuity 3
annuities reinsured hereunder and described in Schedule A, as
of the end of the current Accounting Period.
9. Interest on the Unamortized Ceding Commission. The Ceding Company will pay
the Reinsurer Interest on the Unamortized Ceding Commission at the end of
each Accounting Period, subsequent to the initial Accounting Period, equal
to the Unamortized Ceding Commission at the end of the preceding
Accounting Period determined in accordance with Paragraph 2 above, times
the Interest Expense Rate described in Article II, Paragraph 5.
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ARTICLE IV
BENEFIT PAYMENTS
1. Benefit Payments. Benefit Payments, as referred to in this Agreement,
means the Reinsurer's quota share of (i) Claims as described in Xxxxxxxxx
0 xxxxx, (xx) Cash Surrender Values as described in Paragraph 3 below, and
(iii) Annuity Benefits as described in Paragraph 7 below.
2. Claims. The Reinsurer will pay the Ceding Company Claims. The term
"Claims," whenever used for purposes of this Agreement, means that portion
of death benefits paid by the Ceding Company on annuities reinsured
hereunder which is equal to the Reinsurer's quota share of the account
value of those annuities.
3. Cash Surrender Values. The Reinsurer will pay the Ceding Company that
portion of the Cash Surrender Values paid by the Ceding Company on
annuities reinsured hereunder which corresponds to the portion of the
annuities reinsured hereunder.
4. Notice. The Ceding Company will notify the Reinsurer promptly after
receipt of any information regarding Claims on annuities reinsured
hereunder. The reinsurance claim and copies of notification, claim papers,
and proofs will be furnished the Reinsurer upon request.
5. Liability and Payment. The Reinsurer will accept the decision of the
Ceding Company with respect to payment of Claims on annuities reinsured
hereunder. The Reinsurer will pay its proportionate share of Claims in a
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lump sum to the Ceding Company without regard to the form of settlement by
the Ceding Company.
6. Contested Claims. The Ceding Company will advise the Reinsurer of its
intention to contest, compromise or litigate Claims involving annuities
reinsured hereunder. The Reinsurer will pay its share of the expenses of
such contests, in addition to its share of Claims, or it may choose not to
participate. If the Reinsurer chooses not to participate, it will
discharge its liability by payment to the Ceding Company of the full
amount of its liability on the annuity reinsured.
7. Annuity Benefits.
A. The Reinsurer will be liable, on a coinsurance basis, for its
portion of annuity payments made on any annuity reinsured hereunder
if the annuity payments are based on the fixed settlement options at
terms guaranteed in the annuity at the time of issue of the annuity.
B. The Reinsurer will be liable, on a modified coinsurance basis, for
its portion of annuity payments made on any annuity reinsured
hereunder if the annuity payments are based on variable settlement
options at terms guaranteed in the annuity at the time of issue of
the annuity.
C. The Reinsurer will not be liable for the reinsurance of any annuity
annuitizing at terms more favorable than those guaranteed at the
time of issue of such annuity. In the event that the Ceding Company
allows annuitization at terms more favorable than those guaranteed
in the annuity at the time of issue of such annuity, such annuity
will be considered surrendered and the Reinsurer will pay the Ceding
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Company that portion of the annuity account value applied to the
annuitization which corresponds to the portion of the annuities
reinsured hereunder. No further obligation or liability will exist
for the Reinsurer for such annuitized annuities.
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ARTICLE V
RESERVE ADJUSTMENTS
1. Initial Reserve Adjustment. Simultaneously with the payment of the Initial
Consideration described in Article II, Paragraph 1, by the Ceding Company
to the Reinsurer, the Reinsurer will pay the Ceding Company an Initial
Reserve Adjustment in an amount that is equal to the Modified Coinsurance
Reserve determined in accordance with Paragraph 3 below, on the Effective
Date of this Agreement.
2. Modified Coinsurance Reserve Adjustment.
A. The Modified Coinsurance Reserve Adjustment will be computed each
Accounting Period equal to (i) minus (ii) minus (iii), where:
(i) equals the Modified Coinsurance Reserve at the end of the
current Accounting Period on the annuities reinsured
hereunder;
(ii) equals the Modified Coinsurance Reserve at the end of the
preceding Accounting Period on the annuities reinsured
hereunder; and
(iii) equals the Modified Coinsurance Reserve Investment Credit
described in Schedule C.
With respect, however, to the Accounting Period during which the
Effective Date of this Agreement occurs, the reference in (ii) above
to "the end of the preceding Accounting Period" refers to the
Effective Date of this Agreement immediately after the Initial
Reserve Adjustment, as described in Paragraph 1 above, has occurred.
In the Accounting Period in which termination of this Agreement
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occurs, the reference in (i) above to "the end of the current
Accounting Period" refers to the terminal accounting date as
described in Article XII, Paragraph 2.
B. For any Accounting Period in which the amount computed in A. above
is positive, the Reinsurer will pay the Ceding Company such amount.
For any Accounting Period in which the amount computed in A. above
is negative, the Ceding Company will pay the Reinsurer the absolute
value of such amount.
3. Modified Coinsurance Reserve. The term "Modified Coinsurance Reserve," as
used in this Agreement, means the statutory reserve held by the Ceding
Company with respect to the annuities reinsured hereunder.
4. Reserve Strengthening. Any increase in reserves resulting from a reserve
strengthening with respect to the annuities reinsured hereunder will be
paid by the Ceding Company to the Reinsurer at the end of the Accounting
Period during which the reserve strengthening occurs.
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ARTICLE VI
EXPENSE AND RISK CHARGES
1. Initial Expense and Risk Charge. The Initial Expense and Risk Charge for
the initial Accounting Period, payable to the Reinsurer by the Ceding
Company will be 1 percent times the Ceding Commission determined in
accordance with Article III, Paragraph 1.
2. Expense and Risk Charge. The Expense and Risk Charge for each Accounting
Period subsequent to the initial Accounting Period, payable to the
Reinsurer by the Ceding Company, will be equal to the sum of (i) and (ii),
where:
(i) equals the Expense and Risk Charge Rate, as defined below,
times the Loss Carryforward for the preceding Accounting
Period, with accrued interest thereon, determined in
accordance with Article VIII, Paragraph 1, item (i); and
(ii) equals the Expense and Risk Charge Rate, as defined below,
times the Expense and Risk Charge Base, as defined below.
The Expense and Risk Charge Rate for each Accounting Period is defined as
follows:
For Accounting Expense and
Periods Ending During Risk Charge Rate
-------------------------------- ----------------
1994 through 1998 .4125%
1999 and thereafter .4142%
The Expense and Risk Charge Base for each Accounting Period is defined as
follows:
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For Accounting
Periods Ending During Expense and Risk Charge Base
------------------------- --------------------------------------
1994 through 1998 greater of either (a) the Unamortized
Ceding Commission at the end of the
preceding Accounting Period
determined in accordance with
Article III, Paragraph 2, minus the
Maximum Unamortized Ceding
Commission Adjustment determined in
accordance with Article III,
Paragraph 4, or (b) quantity (iii)
as defined below, but never less
than zero
1999 and thereafter (iii) below, but never less than
zero, where:
(iii) equals (a) plus (b) minus (c) minus (d) minus (e), where:
(a) equals the Unamortized Ceding Commission at the end of
the preceding Accounting Period determined in accordance
with Article III, Paragraph 2;
(b) equals the absolute value of any Reinsurance Loss
determined in accordance with Article VII;
(c) equals any Reinsurance Gain determined in accordance
with Article VII;
(d) equals the Interest Expense Charge determined in
accordance with Article II, Paragraph 4; and
(e) equals the Interest on the Unamortized Ceding Commission
determined in accordance with Article III, Paragraph 9.
In no event will the Expense and Risk Charge payable be less than $20,000 for
any Accounting Period after December 31, 1998.
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ARTICLE VII
REINSURANCE GAINS AND LOSSES
Formula. A Reinsurance Gain or Reinsurance Loss will be calculated for each
Accounting Period and will be equal to the excess of (i) over (ii), where:
(i) equals the Reinsurance Premiums determined in accordance with
Article II, Paragraph 2; and
(ii) equals the sum of:
(a) Benefit Payments, as described in Article IV, plus
(b) the Modified Coinsurance Reserve Adjustment, determined in
accordance with Article V, Paragraph 2, plus
(c) Allowances for Commissions and Expenses determined in
accordance with Article III, Paragraph 7, plus
(d) Allowances for Death Benefit Guarantee determined in
accordance with Article III, Paragraph 8.
A Reinsurance Gain results if the excess of (i) over (ii) is positive. A
Reinsurance Loss results if the excess of (i) over (ii) is negative.
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ARTICLE VIII
LOSS CARRYFORWARD
1. Formula. The Loss Carryforward at the end of each Accounting Period will
be equal to (i) minus (ii) plus (iii) plus (iv) plus (v) plus (vi), where:
(i) equals the Loss Carryforward at the end of the preceding
Accounting Period (except that, for the initial Accounting
Period, the preceding Accounting Period Loss Carryforward will
be zero) accumulated to the end of the current Accounting
Period at an interest rate equal to the Loss Carryforward Rate
described in Paragraph 2 below;
(ii) equals any Reinsurance Gain determined in accordance with
Article VII;
(iii) equals the absolute value of any Reinsurance Loss determined
in accordance with Article VII;
(iv) equals the Interest Expense Charge determined in accordance
with Article II, Paragraph 4;
(v) equals the Interest on the Unamortized Ceding Commission
determined in accordance with Article III, Paragraph 9; and
(vi) equals the Expense and Risk Charge determined in accordance
with Article VI, Paragraph 2.
If the above calculation yields a negative amount, then the Loss
Carryforward will be set equal to zero.
2. Loss Carryforward Rate. The Loss Carryforward Rate at the end of each
Accounting Period will be equal to 43.75 basis points plus (i) divided by
(ii), where:
- 25 -
28
(i) equals the ninety day (90) transfer pricing rate as determined
by ITT Financial Corporations's Treasury Department for ITT
Financial Corporation debt as of the date the current
Accounting Period begins; and
(ii) equals four.
- 26 -
29
ARTICLE IX
EXPERIENCE REFUND
1. General. An Experience Refund will be paid by the Reinsurer to the Ceding
Company at the end of each Accounting Period with respect to the
reinsurance hereunder, if the operation of the Experience Refund formula
detailed in Paragraph 2 below produces a positive amount for that
Accounting Period. If the operation of the Experience Refund formula
produces a negative amount for that Accounting Period, then the Experience
Refund will be zero and the Loss Carryforward provisions of Article VIII
will apply. No Experience Refund will be paid by the Reinsurer to the
Ceding Company after the earliest of: (a) the Unamortized Ceding
Commission as described in Article III, Paragraph 2, becomes zero, or (b)
the Ceding Company withholds amounts in accordance with Article II,
Paragraph 3, item (i) for which payment is due to the Reinsurer as
described in the Accounts Receivable Agreement.
2. Formula. The Experience Refund at the end of each Accounting Period will
be equal to (i) minus (ii), where:
(i) equals the Reinsurance Gain or Reinsurance Loss determined in
accordance with Article VII; and
(ii) equals the sum of:
(a) the Loss Carryforward for the preceding Accounting
Period, with accrued interest thereon, determined in
accordance with Article VIII, item (i), plus
(b) the Interest Expense Charge determined in accordance
with Article II, Xxxxxxxxx 0, xxxx
- 00 -
00
(c) the Interest on the Unamortized Ceding Commission
determined in accordance with Article III, Xxxxxxxxx 0,
xxxx
(x) the Expense and Risk Charge determined in accordance
with Article VI, Paragraph 2, plus
(c) the Unamortized Ceding Commission Adjustment determined
in accordance with Article III, Paragraph 3.
- 28 -
31
ARTICLE X
ACCOUNTING AND SETTLEMENTS
1. Quarterly Accounting Period. Each Accounting Period under this Agreement
will be a calendar quarter, except that: (a) the initial Accounting Period
runs from the Effective Date of this Agreement through the last day of the
calendar quarter during which the Effective Date of this Agreement falls,
and (b) the final Accounting Period runs from the end of the preceding
Accounting Period until the terminal accounting date of this Agreement as
described in Article XII, Paragraph 2. However, the Reinsurer reserves the
right to adjust all accounting and settlements to a calendar year-to-date
basis.
2. Quarterly Accounting Reports. Quarterly accounting reports in the form of
Schedule B will be submitted to the Reinsurer by the Ceding Company for
each Accounting Period not later than fifteen (15) days after the end of
each Accounting Period. Such reports will include information on the
amount of Initial Consideration, Reinsurance Premiums, Ceding Commission,
Allowances for Commissions and Expenses, Allowances for Death Benefit
Guarantee, Benefit Payments, Reinsurance Gains and Losses, Experience
Refund, Loss Carryforward, Funds Withheld, Interest Expense Charge,
Unamortized Ceding Commission, Unamortized Ceding Commission Adjustment,
Interest on the Unamortized Ceding Commission, Expense and Risk Charges
and Modified Coinsurance Reserve.
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32
3. Initial Quarterly Settlement.
A. Within fifteen (15) days after the initial Accounting Period, the
Ceding Company will pay the Reinsurer the sum of: (i) the Initial
Consideration determined in accordance with Article II, Paragraph 1,
plus (ii) the Initial Expense and Risk Charge determined in
accordance with Article VI, Paragraph 1.
B. Simultaneously, the Reinsurer will pay the Ceding Company the sum
of: (i) the Initial Reserve Adjustment determined in accordance with
Article V, Paragraph 1, plus (ii) the Ceding Commission determined
in accordance with Article III, Paragraph 1.
4. Quarterly Settlements.
A. Within fifteen (15) days after the end of each Accounting Period,
the Ceding Company will pay the Reinsurer the sum of: (i) the
Reinsurance Premiums determined in accordance with Article II,
Paragraph 2, plus (ii) any Modified Coinsurance Reserve Adjustment
payable to the Reinsurer determined in accordance with Article V,
Paragraph 2, plus (iii) any Funds Withheld payable to the Reinsurer
during the current Accounting Period in accordance with the terms of
the Accounts Receivable Agreement determined in accordance with
Article II, Paragraph 3, item (ii).
B. Simultaneously, the Reinsurer will pay the Ceding Company the sum
of: (i) the amount of Benefit Payments paid during the Accounting
Period as described in Article IV, plus (ii) Allowances for
Commissions and Expenses determined in accordance with Article III,
Paragraph 7, plus (iii) Allowances for Death Benefit Guarantee
determined in accordance with Article III, Xxxxxxxxx 0, xxxx (xx)
- 00 -
00
any Modified Coinsurance Reserve Adjustment payable to the Ceding
Company determined in accordance with Article V, Paragraph 2, plus
(v) any Experience Refund determined in accordance with Article IX.
5. Amounts Due Quarterly. Except as otherwise specifically provided in this
Agreement, all amounts due to be paid to either the Ceding Company or the
Reinsurer under this Agreement will be determined on a net basis as of the
last day of each Accounting Period and will be due as of such date and
payable within fifteen (15) days after the end of the Accounting Period.
6. Annual Accounting Reports. The Ceding Company will provide the Reinsurer
with annual accounting reports within thirty (30) days after the end of
the calendar year for which such reports are prepared. These reports will
contain sufficient information about the annuities reinsured hereunder to
enable the Reinsurer to prepare its annual financial reports and to verify
the information reported in Schedule B, and will include Exhibit 8 by
reserve basis, Page 7, Page 23 and Schedule S of the Annual Statement.
7. Estimations. If the amounts, as described in Paragraphs 3 and 4 above,
cannot be determined by the dates described in Paragraph 5 above, on an
exact basis, such payments will be paid in accordance with a mutually
agreed upon formula which will approximate the actual payments.
Adjustments will then be made to reflect actual amounts when they become
available.
8. Delayed Payments. For purposes of Paragraph 5 above, if there is a delayed
settlement of a payment due, there will be an interest penalty, at
- 31 -
34
the Interest Expense Rate described in Article II, Paragraph 5, for the
period that the amount is overdue. For purposes of this Paragraph, a
payment will be considered overdue thirty (30) days after the date such
payment is due.
9. Offset of Payments. All monies due either the Ceding Company or the
Reinsurer under this Agreement or any other agreements will be offset
against each other, dollar for dollar, regardless of any insolvency of
either party.
- 32 -
35
ARTICLE XI
DURATION AND RECAPTURE
1. Duration. Except as otherwise provided herein, this Agreement is unlimited
in duration.
2. Reinsurer's Liability. The liability of the Reinsurer with respect to any
annuity reinsured hereunder will begin simultaneously with that of the
Ceding Company, but not prior to the Effective Date of this Agreement. The
Reinsurer's liability with respect to any annuity reinsured hereunder will
terminate on the earliest of: (i) the date such annuity is recaptured;
(ii) the date the Ceding Company's liability on such annuity is
terminated; or (iii) the date this Agreement is terminated. Termination of
the Reinsurer's liability is subject to payments in respect of such
liability in accordance with the provisions of Article XII of this
Agreement. In no event should the interpretation of this Paragraph imply a
unilateral right of the Reinsurer to terminate this Agreement.
3. Termination for Nonpayment of Reinsurance Premiums or Other Amounts Due.
If the Ceding Company fails to pay the Reinsurance Premiums or any other
amounts due to the Reinsurer pursuant to this Agreement, within sixty (60)
days after the end of any Accounting Period, the Reinsurer may terminate
this Agreement, subject to thirty (30) days prior written notice to the
Ceding Company.
4. Recapture. Annuities reinsured hereunder will be eligible for recapture,
at the option of the Ceding Company, on any January 1, following the fifth
- 33 -
36
anniversary of the Effective Date of this Agreement, subject to ninety
(90) days prior written notice, or on any other date which is mutually
agreed to in writing. If the Ceding Company opts to recapture, then the
Ceding Company must recapture all of the annuities reinsured hereunder. In
no event may the Ceding Company recapture anything other than 100 percent
of all annuities reinsured hereunder.
5. Internal Replacements. Should the Ceding Company, its affiliates,
successors or assigns, initiate a program of Internal Replacement that
would include any of the annuities reinsured hereunder, the Ceding Company
will immediately notify the Reinsurer. The Reinsurer may elect to treat
such annuities as recaptured rather than surrendered, and such recapture
will apply to all annuities reinsured hereunder. For purposes of this
Agreement, the term "Internal Replacement" means any instance in which a
policy or any portion of the cash value of an annuity is exchanged for
another policy or annuity, not covered under this Agreement, which is
written by the Ceding Company, its affiliates, successors or assigns.
- 34 -
37
ARTICLE XII
TERMINAL ACCOUNTING AND SETTLEMENT
1. Terminal Accounting. In the event that this Agreement is terminated in
accordance with Article XX, Xxxxxxxxx 0, or all reinsurance under this
Agreement is recaptured in accordance with Article XX, Xxxxxxxxx 0, a
Terminal Accounting and Settlement will take place.
2. Date. The terminal accounting date will be the earliest of: (1) the
effective date of recapture pursuant to any notice of recapture given
under this Agreement, (2) the effective date of termination pursuant to
any notice of termination given under this Agreement, or (3) any other
date mutually agreed to in writing.
3. Settlement. The Terminal Accounting and Settlement will consist of:
(a) The quarterly settlement as provided in Article X, Paragraph
4, computed as of the terminal accounting date; and
(b) payment by the Ceding Company to the Reinsurer of a Terminal
Reserve equal to the Modified Coinsurance Reserve on the
annuities reinsured hereunder as of the terminal accounting
date;
(c) payment by the Reinsurer to the Ceding Company of a Terminal
Reserve Adjustment equal to the Modified Coinsurance Reserve
on the annuities reinsured hereunder as of the terminal
accounting date;
(d) payment by the Ceding Company to the Reinsurer of a Terminal
Ceding Commission Adjustment equal to any Unamortized Ceding
- 35 -
38
Commission as described in Article III, Paragraph 2, as of the
terminal accounting date;
(e) payment by the Ceding Company to the Reinsurer of any Funds
Withheld determined in accordance with Article II, Paragraph
3, as of the terminal accounting date; and
(f) payment by the Ceding Company to the Reinsurer of any Loss
Carryforward as described in Article VIII, calculated as of
the terminal accounting date.
If the calculation of the Terminal Accounting and Settlement produces an
amount owing to the Ceding Company, such amount will be paid by the
Reinsurer to the Ceding Company. If the calculation of the Terminal
Accounting and Settlement produces an amount owing to the Reinsurer, such
amount will be paid by the Ceding Company to the Reinsurer.
4. Supplementary Accounting and Settlement. In the event that, subsequent to
the Terminal Accounting and Settlement as provided above, a change is made
with respect to any amounts due, a supplementary accounting will take
place pursuant to Paragraph 3 above. Any amount owed to the Ceding Company
or to the Reinsurer by reason of such supplementary accounting will be
paid promptly upon the completion thereof.
- 36 -
39
ARTICLE XIII
REPRESENTATIONS
Representations. The Ceding Company acknowledges that, at the Reinsurer's
request, it has provided the Reinsurer with the Ceding Company Data described in
Schedule D prior to the execution of this Agreement by the Reinsurer. The Ceding
Company represents that all factual information contained in the Ceding Company
Data is complete and accurate as of the date the document containing the
information was prepared. The Ceding Company further represents that any
assumptions made in preparing the Ceding Company Data were based upon informed
judgment and are consistent with sound actuarial principles. The Ceding Company
further represents that it is not aware of any omissions, errors, changes or
discrepancies which would materially affect the Ceding Company Data. The
Reinsurer has relied on such data and the foregoing representations in entering
into this Agreement.
- 37 -
40
ARTICLE XIV
ARBITRATION
1. General. All disputes and differences between the Ceding Company and the
Reinsurer on which an agreement cannot be reached will be decided by
arbitration. The arbitrators will construe this Agreement from the
standpoint of practical business and equitable principles and the customs
and practices of the insurance and reinsurance business, rather than from
the standpoint of strict law. The parties intend that the arbitrators will
make their decision with a view to effecting the intent of this Agreement.
2. Method. Three arbitrators will decide any differences. They must be
impartial and present or former officers of life insurance companies other
than the parties to this Agreement or any company owned by, or affiliated
with, either party. One of the arbitrators will be appointed by the
Reinsurer, another by the Ceding Company, and the two arbitrators thus
selected will select a third arbitrator before arbitration begins. Should
one of the parties decline to select an arbitrator within thirty (30) days
after the date of a written request to do so, or should the two
arbitrators selected by the parties not be able to agree upon the choice
of a third, the appointment(s) will be left to the President of the
American Arbitration Association or its successor. The arbitrators will
decide by a majority of votes and their decision will be final and binding
upon the parties. The costs of arbitration, including the fees of the
arbitrators, will be shared equally by the parties unless the arbitrators
- 38 -
41
decide otherwise. Any counsel fees incurred by a party in the conduct of
arbitration will be paid by the party incurring the fees.
- 39 -
42
ARTICLE XV
INSOLVENCY
Insolvency. In the event of the Ceding Company's insolvency, any payments due
the Ceding Company from the Reinsurer pursuant to the terms of this Agreement
will be made directly to the Ceding Company or its liquidator, receiver or
statutory successor. The reinsurance will be payable by the Reinsurer on the
basis of the liability of the Ceding Company under the annuities reinsured
without diminution because of the insolvency of the Ceding Company. The
liquidator, receiver or statutory successor of the Ceding Company will give the
Reinsurer written notice of the pendency of a claim against the Ceding Company
on any annuity reinsured within a reasonable time after such claim is filed in
the insolvency proceeding. During the pendency of any such claim, the Reinsurer
may investigate such claim and interpose in the Ceding Company's name (or in the
name of the Ceding Company's liquidator, receiver or statutory successor), in
the proceeding where such claim is to be adjudicated, any defense or defenses
which the Reinsurer may deem available to the Ceding Company or its liquidator,
receiver or statutory successor. The expense thus incurred by the Reinsurer will
be chargeable, subject to court approval, against the Ceding Company as a part
of the expense of liquidation to the extent of a proportionate share of the
benefit which may accrue to the Ceding Company solely as a result of the defense
undertaken by the Reinsurer.
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43
ARTICLE XVI
EXECUTION AND EFFECTIVE DATE
In witness of the above, this Agreement is executed in duplicate on the dates
indicated below with an Effective Date of December 31, 1993.
NORTH AMERICAN SECURITY LIFE
ATTEST: INSURANCE COMPANY ("Ceding Company")
By: By:
--------------------------------- -------------------------------
Title: Title:
--------------------------------- -------------------------------
Date: Date:
--------------------------------- -------------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: By:
--------------------------------- -------------------------------
Title: Title:
--------------------------------- -------------------------------
Date: Date:
--------------------------------- -------------------------------
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44
SCHEDULE A
ANNUITIES AND RISKS REINSURED
Annuities and Risks Reinsured. The amount of reinsurance under this Agreement
will be a quota share of the Ceding Company's net liability on those variable
annuities issued by the Ceding Company and described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
-------------------- ------------- ------- ---------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 95% VEN 10
"Net liability," as used in this Agreement, means the Ceding Company's liability
on annuities reinsured hereunder.
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45
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period: ______________
Calendar Year: __________________
Date Report Completed:___________
1. Initial Consideration (Article II, Paragraph 1)*
a. Amount of Initial Consideration paid
to Reinsurer ____
b. Amount of Initial Consideration withheld by
Ceding Company ____
Initial Consideration = a + b ____
2. Reinsurance Premiums (Article II, Paragraph 2) ____
3. Benefit Payments (Article IV)
a. Death Benefits ____
b. Cash Surrender Values ____
c. Annuity Benefits ____
Benefit Payments = a + b + c ____
4. Initial Reserve Adjustment (Article V, Paragraph 1)* ____
5. Modified Coinsurance Reserve Adjustment (Article V, Paragraph 2)
a. Modified Coinsurance Reserve end of
preceding Accounting Period ____
b. Modified Coinsurance Reserve end of
current Accounting Period ____
c. Equals b - a ____
d. Modified Coinsurance Reserve Investment
Credit (Schedule C) ____
Modified Coinsurance Reserve Adjustment = c - d ____
6. Reinsurance Gain = 0 - 0 - 0 - 00 - 00
(Xx negative, see Article VII) ____
7. Reinsurance Loss = 0 - 0 - 0 - 00 - 00
(Xx positive, see Article VII) ____
8. Loss Carryforward [Article VIII, Paragraph 1, item (i)] ____
9. Initial Expense and Risk Charge (Article VI, Paragraph 1)* ____
10. Expense and Risk Charge (Article VI, Paragraph 2) ____
11. Ceding Commission (Article III, Paragraph 1)* ____
- 43 -
46
12. Unamortized Ceding Commission (Article III, Paragraph 2)
----------
13. Unamortized Ceding Commission Adjustment
(Article III, Paragraph 3)
----------
14. Allowances for Commissions and Expenses
(Article III, Paragraph 7)
----------
15. Allowances for Death Benefit Guarantee
(Article III, Paragraph 8)
----------
16. Experience Refund = 6 + 0 - 0 - 00 - 00 - 00 - 00
(Xx negative, see Article IX)
----------
17. Funds Withheld payment [Article II, Paragraph 3, item (ii)]
----------
18. Funds Withheld = 0x - 00 (Xxxxxxx XX, Xxxxxxxxx 3)
----------
19. Interest Expense Charge (Article II, Paragraph 4)
----------
20. Interest on the Unamortized Ceding Commission
(Article III, Paragraph 9)
----------
21. Cash Settlement =
1a + 2 - 3 - 4 - 5 + 9 - 11 - 14 - 15 - 16 + 17 ==========
*Initial Accounting Period, only.
Supplemental Information
Venture
Total Variable Venture
Number Annuity 3 Vision Total
of Account Account Account Loss
Annuities Value Value Value Carryforward
Beginning of Period
---------- ---------- ---------- -------- ------------
+ Additions
---------- ---------- ---------- -------- ------------
- Terminations ---------- ---------- ---------- -------- ------------
End of Period ========== ========== ========== ======== ============
Venture Venture
Variable Vision
Annuity 3 Number
Number of of
Annuities Annuities
Beginning of Period
---------- ----------
+ Additions
---------- ----------
- Terminations
---------- ----------
End of Period
========== ==========
- 44 -
47
Termination Rate (Article III, Paragraph 5)
a. Total number of annuities reinsured hereunder
as of date current Accounting Period ends
----
b. Total number of annuities reinsured hereunder
as of the date one year prior to the date
the current Accounting Period ends
----
c. Termination Rate 1 - (a / b)
====
Investment Credit Accumulation Rate (Article III, Paragraph 6)
a. Modified Coinsurance Reserve Investment Credit
----
b. Account value at beginning of current Accounting Period
----
c. Account value at end of current Accounting Period
----
d. Investment Credit Accumulation Rate
a / [.5 x (b + c)]
====
- 45 -
48
SCHEDULE C
MODIFIED COINSURANCE RESERVE INVESTMENT CREDIT
Modified Coinsurance Reserve Investment Credit. The Modified Coinsurance Reserve
Investment Credit is equal to the portion of the sum of all accrued investment
income and capital gains and losses, realized and unrealized, on the Ceding
Company's Separate Account for the current Accounting Period which corresponds
to the portion of the annuities reinsured hereunder. The Modified Coinsurance
Reserve Investment Credit will not be adjusted for income taxes or changes in
any provision for taxes, investment management fees, or charges for mortality or
expense risks.
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49
SCHEDULE D
CEDING COMPANY DATA
- Package from Xxxx Xxxxxx of the Ceding Company to Xxxx Xxxxxxxx of the
Reinsurer containing:
- 1993 Reinsurance Proposal
- Section 1 of 1994 Ceding Company Business Plan
- Ceding Company Annuity Sales Summary as of September 30, 1993
- Ceding Company 1992 IRIS Ratios and Company Response
- North American Life Insurance Company/Ceding Company Guarantee
Agreement
- VENTURE VARIABLE ANNUITY 3 Product Kit
- VENTURE VISION Product Kit
- Ceding Company March 1993 Quarterly Statement
- Ceding Company June 0000 Xxxxxxxxx Xxxxxxxxx
- Ceding Company 1992 NAIC Annual Statement
- Ceding Company 1992 NAIC Separate Account Statement
- Package from Xxxx Xxxxxx of the Ceding Company to Xxxx Xxxxxxxx of the
Reinsurer containing:
- Supplement No. 1 to the 1993 Reinsurance Proposal Dated November 12,
1993
- Policy Forms for VENTURE VISION and VENTURE VARIABLE ANNUITY 3
- Projected Runoff of the Existing Closed Block of VENTURE VARIABLE
ANNUITY 3
- Pricing Runs using Chalke PTS for VENTURE VISION and VENTURE
VARIABLE ANNUITY 3
- Telephone conversations with Xxxx Xxxxxx of the Ceding Company on December
27, 1993 regarding:
- Expense allowances: Except for the trail commissions and the
allowance for the minimum death benefit guarantee, direct variable
expenses are approximately 45% - 50% of total pricing expenses.
Death Benefit guarantee costs 5 basis points annually for VENTURE
VARIABLE ANNUITY 3; 15 basis points annually for VENTURE VISION
- Revised projection of 1993 VENTURE VISION premiums: $110 million
- December 23, 1993 Account Values are $606 million for VENTURE
VARIABLE ANNUITY 3 and $107 million for VENTURE VISION
- 47 -
50
EXHIBIT A
ACCOUNTS RECEIVABLE AGREEMENT
THIS AGREEMENT, effective as of December 31, 1993, is made and entered into by
and between North American Security Life Insurance Company, a corporation
organized and existing under the laws of the State of Delaware (hereinafter
referred to as the "Borrower") and ITT Xxxxxx Life Insurance Company, a
corporation organized and existing under the laws of the state of Missouri
(hereinafter referred to as the "Lender").
WITNESSETH
WHEREAS the Borrower and the Lender have entered into Reinsurance Agreement
Number 1293-104 with an effective date of December 31, 1993 (hereinafter
referred to as the "Reinsurance Agreement"), a copy of which is attached to
this Agreement and incorporated herein by reference; and
WHEREAS the Borrower desires to withhold on behalf of the Lender a specified
percentage of the Initial Consideration, but not to exceed $15 million, as
described in Article II, Paragraph 1, of the Reinsurance Agreement, such amount
withheld to be paid by the Borrower to the Lender at a later date.
NOW THEREFORE, in consideration of the mutual promises and covenants contained
herein, the Borrower and the Lender agree as follows:
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51
ARTICLE I
PROVISIONS RELATING TO THE ACCOUNTS RECEIVABLE
1. Accounts Receivable. The term "Accounts Receivable," as used in this
Agreement, means the Funds Withheld, determined in accordance with Article
II, Paragraph 3 of the Reinsurance Agreement, and represents funds
withheld by the Borrower from the Lender in accordance with the terms of
Article II, Paragraphs 1, 2 and 4 of the Reinsurance Agreement. The Funds
Withheld under the Reinsurance Agreement are considered to be amounts held
on behalf of the Lender. The Lender will record such amounts as a
receivable and the Borrower will record such amounts as a payable. The
Accounts Receivable will be subject to the Repayment provisions specified
in Paragraphs 2 and 3 below.
2. Scheduled Repayment. The Borrower will repay a portion of the Accounts
Receivable at the end of each calendar year in an amount equal to the
Scheduled Repayment Amount. The Scheduled Repayment Amount will be equal
to the Repayment Schedule Percentage, as defined below, times the Accounts
Receivable, as described in Paragraph 1 above, as of the Effective Date of
this Agreement. The Repayment Schedule Percentage at the end of each
calendar year is defined below:
Calendar Year Repayment Schedule Percentage
------------- -----------------------------
1994 20%
1995 20%
1996 20%
1997 20%
1998 20%
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52
3. Non-Scheduled Repayment. The Accounts Receivable, as described in
Paragraph 1 above, will be paid by the Borrower to the Lender within
fifteen (15) days after the earlier of:
(a) the date the Lender elects to receive payment from the Borrower of
any portion of the Accounts Receivable are described in Paragraph 4
below; or
(b) the terminal accounting date, as described in Article XII, Paragraph
2 of the Reinsurance Agreement, as part of the Terminal Accounting
and Settlement as described in Article XII, Paragraph 3, item (e) of
the Reinsurance Agreement.
4. Events of Default and Remedies Therefor. Any one or more of the following
in any calendar year will constitute an Event of Default as used in this
Agreement:
(a) the insurance claims paying ability rating assigned to the Borrower
by Standard and Poor's Corporation falls below A;
(b) default for a period in excess of sixty (60) days with respect to the
repayment of the portion of the Accounts Receivable payable by the
Borrower to the Lender at the end of the calendar year, as described
in Paragraph 2 above;
(c) any material representation, warranty or other statement made by the
Borrower herein or in any statement or certificate furnished in
connection with, or pursuant to, the transactions contemplated
hereunder, or in compliance with the terms hereof, proves untrue in
any material respect as of the date of the issuance of making thereof;
- 3 -
53
(d) violation of any of the Borrower Covenants contained in Article II,
Paragraph 3;
(e) the Borrower files for bankruptcy or admits in writing its inability to
pay its debts as they mature or makes an assignment for the benefit of
creditors;
(f) the Borrower applies for or consents to the appointment of a trustee,
custodian, receiver or liquidator for the Borrower or for the major
part of the property of the Borrower;
(g) bankruptcy, reorganization, insolvency or other proceedings for relief
under any bankruptcy, reorganization, insolvency or similar law or laws
for the relief of debtors, are instituted against the Borrower and are
consented to or are not dismissed within sixty (60) days after such
institution; and/or
(h) the non-observance or non-performance of any other provision of this
Agreement which is not remedied within thirty (30) days after written
notice thereof to the Borrower by the Lender;
When any Event of Default described above occurs, then the Lender may elect to
receive payment from the Borrower of any portion of the Accounts Receivable, as
described in Paragraph 1 above, as of the end of the calendar year.
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54
ARTICLE II
MISCELLANEOUS PROVISIONS
1. Duration of Agreement. This Agreement will remain in effect while the
Reinsurance Agreement is in effect.
2. Borrower's Representation and Warranties. The Borrower represents and
warrants as follows:
(a) Corporate Existence and Power. The Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of
Delaware, and has all corporate powers and all material government
licenses, authorizations, consents and approvals required to carry on
its business as now conducted.
(b) Corporate and Governmental Authorization. The execution, delivery and
performance of this Agreement by the Borrower and the transactions
contemplated hereby are within the Borrower's corporate power, have
been duly authorized by all necessary corporate actions, require no
action by or in respect of, or filing with, any governmental body,
agency or official and do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the
Certificate of Incorporation of the Borrower or of any agreement,
judgment, injunction, order, decree or other instrument binding upon
the Borrower.
(c) Binding Effect. This Agreement and the Reinsurance Agreement constitute
valid and binding obligations of the Borrower, and are enforceable
against the Borrower in accordance with their
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55
terms, except as: (1) the enforceability thereof may be affected by
bankruptcy, reorganization, insolvency or similar laws affecting the
enforcement of creditor's rights generally and (2) rights of
acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability.
(d) Litigation. There is no action, suit or proceeding pending, or to the
knowledge of the Borrower threatened, against or affecting the Borrower
before any court or arbitrator or any governmental body, agency or
official which could reasonably be expected to have a material adverse
effect on the business of the Borrower, or which in any manner
questions the validity of this Agreement or the Reinsurance Agreement.
3. Borrower Covenants. The Borrower agrees that so long as this Agreement is in
effect:
(a) the Borrower will do all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises granted
by law or otherwise; provided, however, that nothing in this Paragraph
will prevent the abandonment or termination of the existence and
franchises of any subsidiary or any rights of the Borrower if such
abandonment or termination is in the best interest of the Borrower and
not disadvantageous in any material respect to the Lender;
(b) the Borrower will duly pay and discharge all taxes, assessments and
other governmental charges upon or against the Borrower or its
properties, as well as all other liabilities
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of the Borrower, before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings;
(c) the Borrower will maintain a minimum of $25 million of statutory capital
and surplus as reflected in its Annual Statement filed with the Delaware
Insurance Department;
(d) the Borrower will maintain a minimum risk-based capital ratio of 225
percent of the NAIC authorized control level, as defined for 1993, as of
December 31 of each calendar year; and
(e) the Borrower will maintain sufficient statutory capital and surplus
such that the ratio of total debt to total statutory capital and
surplus, plus transfers to separate accounts (as described on Page 3,
Line 13A of the 1993 Annual Statement, adjusted for the final business
day's activities of the reporting period), does not exceed 75 percent at
the end of any calendar year; provided that this covenant may be waived
or modified if the Borrower and the Lender mutually agree to do so, and
provided, further, that if such ratio does exceed 75 percent at the end
of any calendar year, the Borrower may repay a portion of the Accounts
Receivable, as described in Article I, Paragraph 1, in order to reduce
the ratio below 75 percent.
4. Amendments and Waivers. This Agreement may be amended only by written
agreement of the parties. Any provision of this Agreement may be waived
only by the written agreement of the parties.
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57
5. Arbitration. The Lender and the Borrower agree to arbitrate all disputes
hereunder. Any arbitration under this Agreement will be conducted in
accordance with Article XIV of the Reinsurance Agreement.
6. Assignment. Neither party may assign any of its rights, duties or
obligations under this Agreement without the prior written consent of the
other party.
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58
In witness of the above, this Accounts Receivable Agreement is executed in
duplicate on the dates indicated below.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Ceding Company")
By: By:
----------------------------- -----------------------------------
Title: Title:
-------------------------- -------------------------------
Date: Date:
-------------------------- -------------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: By:
----------------------------- ----------------------------------
Title: Title:
-------------------------- -------------------------------
Date: Date:
-------------------------- -------------------------------
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AMENDMENT ONE
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
"REINSURER"
60
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. ARTICLE II, INITIAL CONSIDERATION AND REINSURANCE PREMIUMS, Paragraphs 2,
3 and 4, are replaced in their entirety by the following:
2. Reinsurance Premiums. At the end of each Accounting Period, the
Ceding Company will pay the Reinsurer Reinsurance Premiums on all
annuities in effect under this Agreement in an amount equal to that
portion of the gross premiums collected by the Ceding Company during
the Accounting Period which corresponds to the portion of the
annuities reinsured hereunder. The Reinsurer will treat any such
Reinsurance Premiums as paid premium for annual statement purposes,
regardless of the mode of collection by the Ceding Company on the
annuities reinsured hereunder.
The Ceding Company will withhold on behalf of the Reinsurer, in
accordance with Paragraph 3 below, an amount equal to (i) times
(ii), but not to exceed $6 million for the current calendar year,
where:
(i) equals the Funds Withheld Rate, as described in Schedule
E, Paragraph 1; and
(ii) equals Reinsurance Premiums, determined in accordance
with this Paragraph 2.
3. Funds Withheld. The Ceding Company and the Reinsurer have entered
into the "Accounts Receivable Agreement" attached to this Agreement
as Exhibit A. Pursuant to the terms of the Accounts Receivable
Agreement, the Ceding Company will withhold on behalf of the
Reinsurer the amounts described in Paragraphs 1 and 2 above. The
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amount withheld by the Ceding Company will be credited to the
Reinsurer and will be considered as an amount held on behalf of the
Reinsurer. The Reinsurer will consider such amount as a receivable
and the Ceding Company will consider such amount as a payable. Such
amount withheld will be subject to repayment in accordance with the
terms of the Accounts Receivable Agreement. The Funds Withheld at
the end of each Accounting Period will be equal to (i) plus (ii)
minus (iii), where:
(i) equals the Funds Withheld at the end of the preceding
Accounting Period;
(ii) equals the Funds Withheld Rate, as described in Schedule
E, Paragraph 1, times the Reinsurance Premiums,
determined in accordance with Paragraph 2 above, but not
to exceed $6 million for the current calendar year; and
(iii) equals any payment by the Ceding Company to the
Reinsurer of any amount withheld, as described in items
(i) and (ii) above, during the Accounting Period in
accordance with the Accounts Receivable Agreement.
With respect, however, to the Accounting Period during which the
Effective Date of this Agreement occurs, the reference in (i) above
to "the Funds Withheld at the end of the preceding Accounting
Period" means 3.2 percent of the Initial Consideration, determined
in accordance with Paragraph 1 above, but not to exceed $15 million.
In no event will the Funds Withheld at the end of any Accounting
Period exceed 50 percent of the Ceding Company's total statutory
capital and surplus as of the end of the preceding calendar year.
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4. Interest Expense Charge. The Ceding Company will pay the Reinsurer
an Interest Expense Charge at the end of each Accounting Period
equal to [(i) x (ii)] + [(iii) x (iv)] + [(v) x (vi)] + [(vii) x
(viii)] + [(ix) x (x)] + [(xi) x (xii)], where:
(i) equals any amounts withheld in accordance with Paragraph
1 above, as of the end of the preceding Accounting
Period and for which payment is not yet due to the
Reinsurer, as described in the Accounts Receivable
Agreement;
(ii) equals the Interest Expense Rate, as described in
Paragraph 5 below;
(iii) equals, for the Accounting Periods beginning April 1,
1994 and thereafter, any amounts withheld, in accordance
with Paragraph 2 above, during the first Accounting
Period in the 1994 calendar year and for which payment
is not yet due to the Reinsurer, as described in the
Accounts Receivable Agreement;
(iv) equals,
- for the Accounting Periods beginning April 1, 1994
through December 31, 1994, 43.75 basis points,
plus [(a) / (b)] x (c), where:
(a) equals the funds transfer pricing rate
as determined by ITT Financial
Corporation's Treasury Department for
ITT Financial Corporation debt for the
number of days remaining in the current
calendar year measured from the
quarterly settlement
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date, as described in Article X, for the first
Accounting Period in the 1994 calendar year;
(b) equals the number of days remaining in the current
calendar year measured from the quarterly settlement
date, as described in Article X, for the first
Accounting Period in the 1994 calendar year; and
(c) equals,
- for the Accounting Period beginning April 1, 1994,
the number of days remaining in the Accounting
Period measured from the quarterly settlement
date, as described in Article X, for the first
Accounting Period in the 1994 calendar year; and
- for the Accounting Periods beginning July 1, 1994
and October 1, 1994, the number of days in the
current Accounting Period;
- for the Accounting Periods beginning January 1, 1995 and
thereafter, the Loss Carryforward Rate, described in Article
VIII, Paragraph 2;
(v) equals, for the Accounting Periods beginning July 1, 1994 and
thereafter, any amounts withheld, in accordance with Paragraph
2 above, during the second Accounting Period in the 1994
calendar year and for
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which payment is not yet due to the Reinsurer, as described in
the Accounts Receivable Agreement;
(vi) equals,
- for the Accounting Periods beginning July 1, 1994 and
October 1, 1994, 43.75 basis points, plus [(a) / (b)] x
(c), where:
(a) equals the funds transfer pricing rate as
determined by ITT Financial Corporation's Treasury
Department for ITT Financial Corporation debt for
the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in Article X, for
the second Accounting Period in the 1994 calendar
year;
(b) equals the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in Article X, for
the second Accounting Period in the 1994 calendar
year; and
(c) equals,
- for the Accounting Period beginning July
1, 1994, the number of days remaining in
the Accounting Period measured from the
quarterly settlement date, as described
in
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Article X, for the second Accounting Period in the 1994
calendar year; and
- for the Accounting Periods beginning October 1, 1994,
the number of days in the current Accounting Period;
(vii) equals, for the Accounting Periods beginning October 1, 1994
and thereafter, any amounts withheld, in accordance with
Paragraph 2 above, during the third Accounting Period in the
1994 calendar year and for which payment is not yet due to the
Reinsurer, as described in the Accounts Receivable Agreement;
(viii) equals,
- for the Accounting Periods beginning October 1, 1994,
43.75 basis points, plus [(a) / (b)] x (c), where:
(a) equals the funds transfer pricing rate as
determined by ITT Financial Corporation's Treasury
Department for ITT Financial Corporation debt for
the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in Article X, for
the third Accounting Period in the 1994 calendar
year;
(b) equals the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in
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Article X, for the third Accounting Period in the
1994 calendar year; and
(c) equals the number of days remaining in the
Accounting Period measured from the quarterly
settlement date, as described in Article X, for
the third Accounting Period in the 1994 calendar
year; and
- for the Accounting Periods beginning January 1, 1995 and
thereafter, the Loss Carryforward Rate, as described in
Article VIII, Paragraph 2;
(ix) equals, for the Accounting Periods beginning January 1, 1995
and thereafter, any amounts withheld, in accordance with
Paragraph 2 above, during the fourth Accounting Period in the
1994 calendar year and for which payment is not yet due to the
Reinsurer, as described in the Accounts Receivable Agreement;
(x) equals,
- for the Accounting Period beginning January 1, 1995,
[(a) / (b)] x (c), where:
(a) equals the Loss Carryforward Rate, as described in
Article VIII, Paragraph 2;
(b) equals the number of days in the current
Accounting Period; and
(c) equals the number of days remaining in the
Accounting Period measured from the quarterly
settlement date, as described in
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Article X, for the fourth Accounting Period in the
1994 calendar year; and
- for the Accounting Periods beginning April 1, 1995 and
thereafter, the Loss Carryforward Rate, as described in
Article VIII, Paragraph 2;
(xi) equals any amounts withheld in accordance with items (i) and
(ii) of Paragraph 3 above, which have not been paid by the
Ceding Company to the Reinsurer at the end of the preceding
Accounting Period and for which payment is due to the
Reinsurer, as described in the Accounts Receivable Agreement;
and
(xii) equals the Loss Carryforward Rate, as described in Article
VIII, Paragraph 2.
II. ARTICLE III, COMMISSIONS AND ALLOWANCES, Paragraphs 1, 2, 3, 4, 6, 7 and
9, are replaced in their entirety by the following:
1. Ceding Commission. Simultaneously with the payment of the Initial
Consideration, the Reinsurer will pay a Ceding Commission to the
Ceding Company of 2.2 percent of the Initial Consideration, as
described in Article II, Paragraph 1, but not to exceed $10 million.
For Accounting Periods beginning January 1, 1994 and thereafter, the
Reinsurer will pay a Ceding Commission to the Ceding Company equal
to the Ceding Commission Rate, as described in Schedule E, Paragraph
2, times the Reinsurance Premiums, determined in accordance with
Article II, Paragraph 2, but not to exceed $4 million for the
current calendar year.
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2. Unamortized Ceding Commission. The Unamortized Ceding Commission at
the end of each Accounting Period equals (i) plus (ii) minus (iii),
where:
(i) equals the Unamortized Ceding Commission at the end of
the preceding Accounting Period;
(ii) equals the Ceding Commission Rate, as described in
Schedule E, Paragraph 2, times the Reinsurance Premiums,
determined in accordance with Article II, Paragraph 2,
but not to exceed $4 million for the current calendar
year; and
(iii) equals the Unamortized Ceding Commission Adjustment,
determined in accordance with Paragraph 3 below.
With respect, however, to the Accounting Period during which the
Effective Date of this Agreement occurs, the reference in (i) to the
"end of the preceding Accounting Period" refers to the Effective
Date of this Agreement immediately after the Ceding Commission, as
described in Paragraph 1 above, has been paid. The Unamortized
Ceding Commission may never be less than zero. In the Accounting
Period during which (i) plus (ii) minus (iii) as described above,
first becomes zero or negative, then, for that and all subsequent
Accounting Periods, the Unamortized Ceding Commission will be set
equal to zero.
3. Unamortized Ceding Commission Adjustment. The Unamortized Ceding
Commission Adjustment at the end of each Accounting Period equals
(i) minus (ii) minus (iii) minus (iv) minus (v), where:
(i) equals the Reinsurance Gain or Reinsurance Loss,
determined in accordance with Article VII;
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(ii) equals the Loss Carryforward, determined in accordance
with Article VIII, Paragraph 1, item (i), at the end of
the preceding Accounting Period with accrued interest
thereon;
(iii) equals the Interest Expense Charge, determined in
accordance with Article II, Paragraph 4;
(iv) equals the Interest on the Unamortized Ceding
Commission, determined in accordance with Paragraph 9
below; and
(v) equals the Expense and Risk Charge, determined in
accordance with Article VI, Paragraph 2.
However, in no event will the Unamortized Ceding Commission
Adjustment be less than zero or exceed the lesser of:
(1) the sum of (A) plus (B), where:
(A) equals the Unamortized Ceding Commission,
determined in accordance with Paragraph 2 above,
at the end of the preceding Accounting Period; and
(B) equals the Ceding Commission Rate, as described in
Article III, Paragraph 1, times the Reinsurance
Premiums, determined in accordance with Article
II, Paragraph 2, but not to exceed $4 million for
the current calendar year, or
(2) the Maximum Unamortized Ceding Commission Adjustment, as
described in Paragraph 4 below.
Notwithstanding anything to the contrary in this Agreement, if the
Unamortized Ceding Commission at the end of any Accounting Period is
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still positive, but has been reduced during any Accounting Period by
an amount less than the Maximum Unamortized Ceding Commission
Adjustment, as described in Paragraph 4 below, then such shortfall
can be recovered from future positive Unamortized Ceding Commission
Adjustments.
4. Maximum Unamortized Ceding Commission Adjustment. The Maximum
Unamortized Ceding Commission Adjustment for each Accounting Period
is as follows:
Maximum Maximum
Unamortized Unamortized
Ceding Ceding
Commission Commission
For Adjustment Adjustment Maximum
Account- (For Amounts (For Amounts Unamortized
ing Paid During Paid During Ceding
Periods Initial 1994 Commission
Ending Accounting Calendar Adjustment
During Period) Year) (Total)
---------------- ------------ ------------ -------------
1994 $500,000 $ 0 $500,000
1995 through
1998 $500,000 $200,000 $700,000
1999 $ 0 $200,000 $200,000
2000 and there-
after $ 0 $ 0 $ 0
However, if in any Accounting Period (a) the Termination Rate, as
described in Paragraph 5 below, is greater than 0.30, and/or (b) the
Investment Credit Accumulation Rate, as described in Paragraph 6
below, is less than zero, then the Reinsurer may elect to define the
Maximum Withheld Ceding Commission Adjustment as any amount up to
$14 million for the first Accounting Period in the current calendar
year and for all Accounting Periods thereafter.
6. Investment Credit Accumulation Rate. For Accounting Periods
beginning January 1, 1995 and thereafter, the Investment Credit
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Accumulation Rate in any Accounting Period equals (i) / [.5 x {(ii)
+ (iii)}], where:
(i) equals the Modified Coinsurance Reserve Investment
Credit, as described in Schedule C, for the current
Accounting Period and the three Accounting Periods
immediately preceding the current Accounting Period;
(ii) equals the portion of the account value for the
annuities reinsured hereunder which corresponds to the
portion of the annuities reinsured hereunder as of the
date one year prior to the date the current Accounting
Period ends; and
(iii) equals the portion of the account value for the
annuities reinsured hereunder which corresponds to the
portion of the annuities reinsured hereunder as of the
date the current Accounting Period ends.
7. Allowances for Commissions and Expenses. The Reinsurer will pay the
Ceding Company Allowances for Commissions and Expenses for each
Accounting Period, equal to (i) plus (ii) plus (iii) plus (iv) plus
(v) plus (vi), where:
(i) equals (a) times (b), where:
(a) equals $7.50 times the quota share percentage of
the annuities reinsured hereunder, as described in
Schedule A; and
(b) equals the number of annuities reinsured hereunder
and described in Schedule A, and inforce at the
end of the current Accounting Period;
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(ii) equals .0125 percent times that portion of the account
value of the annuities reinsured hereunder which
corresponds to the portion of the annuities reinsured
hereunder as of the end of the current Accounting
Period;
(iii) equals the Trailer Commission, as defined below, times
that portion of the account value of the Venture
Variable Annuity 3 annuities reinsured hereunder which
corresponds to the portion of the Venture Variable
Annuity 3 annuities reinsured hereunder and described in
Schedule A, as of the end of the current Accounting
Period;
(iv) equals (a) times (b), where:
(a) equals the Reinsurance Premiums, determined in
accordance with Article II, Paragraph 2, with
respect to the Venture Variable Annuity 3
annuities reinsured hereunder which corresponds to
the portion of the Venture Variable Annuity 3
annuities reinsured hereunder and described in
Schedule A; and
(b) equals,
- for the Accounting Periods beginning
January 1, 1994 through October 1, 1994,
5.33 percent, and
- for the Accounting Periods beginning
January 1, 1995 and thereafter, 7
percent;
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(v) equals .25 percent times that portion of the account
value, attributable to purchase payments received by the
Ceding Company thirteen (13) months or more prior to
their trailer commission payment dates, of the Venture
Vision annuities reinsured hereunder which corresponds
to the portion of the Venture Vision annuities reinsured
hereunder and described in Schedule A, as of the end of
the current Accounting Period; and
(vi) equals (a) times (b), where:
(a) equals the portion of Reinsurance Premiums,
determined in accordance with Article II,
Paragraph 2, received by the Ceding Company
thirteen (13) months or more after the issue date
of each Venture Vision annuity reinsured hereunder
which corresponds to the portion of the Venture
Vision annuities reinsured hereunder and described
in Schedule A; and
(b) equals,
- for the Accounting Periods beginning
January 1, 1994 through October 1, 1994,
1.83 percent, and
- for the Accounting Periods beginning
January 1, 1995 and thereafter, 3.5
percent.
The Trailer Commission for Venture Variable Annuity 3
annuities for each Accounting Period is defined below:
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For Accounting
Periods Ending During Trailer Commission
1994 .04%
1995 .05%
1996 .055%
1997 and thereafter .0625%
9. Interest on the Unamortized Ceding Commission. The Ceding Company
will pay the Reinsurer Interest on the Unamortized Ceding Commission
at the end of each Accounting Period, subsequent to the initial
Accounting Period, equal to [(i) x (ii)] + [(iii) x (iv)] + [(v) x
(vi)] + [(vii) x (viii)] + [(ix) x (x)], where:
(i) equals the portion of the Unamortized Ceding Commission,
determined in accordance with Paragraph 2 above, paid by
the Reinsurer to the Ceding Company as Ceding Commission
during the initial Accounting Period in accordance with
Paragraph 1 above, calculated as of the end of the
preceding Accounting Period;
(ii) equals the Interest Expense Rate, as described in
Article II, Paragraph 5;
(iii) equals, for the Accounting Periods beginning April 1,
1994 and thereafter, the portion of the Unamortized
Ceding Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to the Ceding
Company as Ceding Commission, in accordance with
Paragraph 1 above, for the first Accounting Period in
the 1994 calendar year;
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(iv) equals,
- for the Accounting Periods beginning April 1, 1994
through December 31, 1994, 43.75 basis points,
plus [(a) / (b)] x (c), where:
(a) equals the funds transfer pricing rate
as determined by ITT Financial
Corporation's Treasury Department for
ITT Financial Corporation debt for the
number of days remaining in the current
calendar year measured from the
quarterly settlement date, as described
in Article X, for the first Accounting
Period in the 1994 calendar year;
(b) equals the number of days remaining in
the current calendar year measured from
the quarterly settlement date, as
described in Article X, for the first
Accounting Period in the 1994 calendar
year; and
(c) equals,
- for the Accounting Period
beginning April 1, 1994, the
number of days remaining in
the Accounting Period measured
from the quarterly settlement
date, as described in Article
X, for the first Accounting
Period in the 1994 calendar
year; and
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- for the Accounting Periods beginning July 1, 1994
and October 1, 1994, the number of days in the
current Accounting Period; and
- for the Accounting Periods beginning January 1, 1995 and
thereafter, the Loss Carryforward Rate, as described in
Article VIII, Paragraph 2;
(v) equals, for the Accounting Periods beginning July 1, 1994 and
thereafter, the portion of the Unamortized Ceding Commission,
determined in accordance with Paragraph 2 above, paid by the
Reinsurer to the Ceding Company as Ceding Commission, in
accordance with Paragraph 1 above, for the second Accounting
Period in the 1994 calendar year; and
(vi) equals,
- for the Accounting Periods beginning July 1, 1994 and
October 1, 1994, 43.75 basis points, plus [(a) / (b)] x
(c), where:
(a) equals the funds transfer pricing rate as
determined by ITT Financial Corporation's Treasury
Department for ITT Financial Corporation debt for
the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in Article X, for
the second Accounting Period in the 1994 calendar
year;
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(b) equals the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in Article X, for
the second Accounting Period in the 1994 calendar
year; and
(c) equals,
- for the Accounting Period beginning July
1, 1994, the number of days remaining in
the Accounting Period measured from the
quarterly settlement date, as described
in Article X, for the second Accounting
Period in the 1994 calendar year; and
- for the Accounting Period beginning
October 1, 1994, the number of days in
the current Accounting Period;
(vii) equals, for the Accounting Periods beginning October 1,
1994 and thereafter, the portion of the Unamortized
Ceding Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to the Ceding
Company as Ceding Commission, in accordance with
Paragraph 1 above, for the third Accounting Period in
the 1994 calendar year;
(viii) equals,
- for the Accounting Period beginning October 1,
1994, 43.75 basis points, plus [(a) / (b)] x (c),
where:
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(a) equals the funds transfer pricing rate as
determined by ITT Financial Corporation's Treasury
Department for ITT Financial Corporation debt for
the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in Article X, for
the third Accounting Period in the 1994 calendar
year;
(b) equals the number of days remaining in the current
calendar year measured from the quarterly
settlement date, as described in Article X, for
the third Accounting Period in the 1994 calendar
year;
(c) equals the number of days remaining in the
Accounting Period measured from the quarterly
settlement date, as described in Article X, for
the third Accounting Period in the 1994 calendar
year; and
- for the Accounting Periods beginning January 1, 1995 and
thereafter, the Loss Carryforward Rate, as described in
Article VIII, Paragraph 2;
(ix) equals, for the Accounting Periods beginning January 1, 1995
and thereafter, the portion of the Unamortized Ceding
Commission, determined in accordance with Paragraph 2 above,
paid by the Reinsurer to the Ceding Company as Ceding
Commission, in accordance with
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Paragraph 1 above, for the fourth Accounting Period in the
1994 calendar year; and
(x) equals,
- for the Accounting Period beginning January 1, 1995,
[(a) / (b)] x (c), where:
(a) equals the Loss Carryforward Rate, as described in
Article VIII, Paragraph 2;
(b) equals the number of days in the current
Accounting Period; and
(c) equals the number of days remaining in the
Accounting Period measured from the quarterly
settlement date, as described in Article X, for
the fourth Accounting Period in the 1994 calendar
year; and
- for the Accounting Periods beginning April 1, 1995 and
thereafter, the Loss Carryforward Rate, as described in
Article VIII, Paragraph 2.
III. ARTICLE XI, DURATION AND RECAPTURE, Paragraph 5, is replaced in its
entirety by the following:
5. Internal Replacements. Should the Ceding Company, its affiliates,
successors or assigns, initiate a program of Internal Replacement
that would include any of the annuities reinsured hereunder, the
Ceding Company will immediately notify the Reinsurer. The Reinsurer
may elect to treat such annuities as recaptured rather than
surrendered, and such recapture will apply to all annuities
reinsured hereunder. For purposes of this Agreement, the term
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"Internal Replacement" means any instance in which an annuity or any
portion of the cash value of an annuity is exchanged for another
policy or annuity, not covered under this Agreement, which is
written by the Ceding Company, its affiliates, successors or
assigns. Internal Replacements initiated by policyholders and
allowed by the Ceding Company will not be considered Internal
Replacements for purposes of this Paragraph unless the total cash
value rolled over by such Internal Replacements in any four
consecutive Accounting Periods exceeds 10 percent of the account
values as of the date one year prior to the date the current
Accounting Period ends.
IV. ARTICLE VI, EXPENSE AND RISK CHARGES, Paragraph 2, is replaced in its
entirety by the following:
2. Expense and Risk Charge. The Expense and Risk Charge for each
Accounting Period subsequent to the initial Accounting Period,
payable to the Reinsurer by the Ceding Company, will be equal to the
sum of (i) and (ii), where:
(i) equals the Expense and Risk Charge Rate, as defined
below, times the Loss Carryforward, determined in
accordance with Article VIII, Paragraph 1, item (i), at
the end of the preceding Accounting Period, with accrued
interest thereon; and
(ii) equals the Expense and Risk Charge Rate, as defined
below, times the Expense and Risk Charge Base, as
defined below.
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The Expense and Risk Charge Rate for each Accounting Period is
defined as follows:
For Accounting Expense and
Periods Ending During Risk Charge Rate
1994 through 1999 .4125%
2000 and thereafter .4142%
The Expense and Risk Charge Base for each Accounting Period is
defined as follows:
For Accounting
Periods Ending During Expense and Risk Charge Base
----------------------- --------------------------------------
1994 through 1999 greater of either (a) the Unamortized
Ceding Commission, determined in
accordance with Article III,
Paragraph 2, at the end of the
preceding Accounting Period, plus
the Ceding Commission Rate, as
described in Article III, Paragraph
1, times the Reinsurance Premiums,
determined in accordance with
Article II, Paragraph 2, but not to
exceed $4 million for the current
calendar year, minus the Maximum
Unamortized Ceding Commission
Adjustment, determined in accordance
with Article III, Paragraph 4, or
(b) quantity (iii) as defined below,
but never less than zero
2000 and thereafter (iii) below, but never less than
zero, where:
(iii) equals (a) plus (b) plus (c) minus (d) minus (e) minus (f),
where:
(a) equals the Unamortized Ceding Commission, determined in
accordance with Article III, Paragraph 2, at the end of
the preceding Accounting Period;
-22-
82
(b) equals the Ceding Commission Rate, as described in
Article III, Paragraph 1, times the Reinsurance
Premiums, determined in accordance with Article II,
Paragraph 2, but not to exceed $4 million for the
current calendar year;
(c) equals the absolute value of any Reinsurance Loss,
determined in accordance with Article VII;
(d) equals any Reinsurance Gain, determined in accordance
with Article VII;
(e) equals the Interest Expense Charge, determined in
accordance with Article II, Paragraph 4; and
(f) equals the Interest on the Unamortized Ceding
Commission, determined in accordance with Article III,
Paragraph 9.
In no event will the Expense and Risk Charge payable be less than
$20,000 for any Accounting Period after December 31, 1999.
V. ARTICLE X, ACCOUNTING AND SETTLEMENTS, Paragraph 4, is replaced in its
entirety by the following:
4. Quarterly Settlements.
A. Within fifteen (15) days after the end of each Accounting
Period, the Ceding Company will pay the Reinsurer the sum of:
(i) the Reinsurance Premiums paid by the Ceding Company to the
Reinsurer during the current Accounting Period, determined in
accordance with Article II, Paragraph 2, plus (ii) any
Modified Coinsurance Reserve Adjustment payable to the
Reinsurer, determined in accordance with Article V,
-23-
83
Paragraph 2, plus (iii) any Funds Withheld payable to the
Reinsurer during the current Accounting Period in accordance
with the terms of the Accounts Receivable Agreement,
determined in accordance with Article II, Paragraph 3, item
(ii).
B. Simultaneously, the Reinsurer will pay the Ceding Company the
sum of: (i) the amount of Benefit Payments, as described in
Article IV, plus (ii) Allowances for Commissions and Expenses,
determined in accordance with Article III, Paragraph 7, plus
(iii) Allowances for Death Benefit Guarantee, determined in
accordance with Article III, Paragraph 8, plus (iv) any
Modified Coinsurance Reserve Adjustment payable to the Ceding
Company, determined in accordance with Article V, Paragraph 2,
plus (v) any Experience Refund, determined in accordance with
Article IX.
VI. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety by
the following:
Annuities and Risks Reinsured. The amount of reinsurance under this
Agreement will be a quota share of the Ceding Company's net
liability on those variable annuities issued by the Ceding Company
and described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
----------------------- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1994 95% VEN 10
-24-
84
"Net liability," as used in this Agreement, means the Ceding
Company's liability on annuities reinsured hereunder.
VII. SCHEDULE B, QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS, is replaced in
its entirety by Exhibit A.
VIII. The following SCHEDULE E, RATES, is added to this Agreement:
SCHEDULE E
RATES
1. Funds Withheld Rate. The Funds Withheld Rate for each Accounting
Period is defined as follows:
For Accounting Funds
Period Ending During Withheld Rate
-------------------- -------------
1993 0%
1994 2.5%
1995 and thereafter 0%
2. Ceding Commission Rate. The Ceding Commission Rate for each
Accounting Period, subsequent to the initial Accounting Period, is
defined as follows:
For Accounting Ceding
Periods Ending During Commission Rate
----------------------- ---------------
1994 1.67%
1995 and thereafter 0%
-25-
85
In witness of the above, this Amendment One is executed in duplicate on the
dates indicated below, with an Effective Date of January 1, 1994.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Ceding Company")
By: By:
----------------------------------------------- ------------------------------------------------
Title: Title:
----------------------------------------------- ------------------------------------------------
Date: Date:
----------------------------------------------- ------------------------------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: By:
----------------------------------------------- ------------------------------------------------
Title: Title:
----------------------------------------------- ------------------------------------------------
Date: Date:
----------------------------------------------- ------------------------------------------------
-25-
86
EXHIBIT A
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period: __________________
Calendar Year: ______________________
Date Report Completed: ______________
1. Initial Consideration (Article II, Paragraph 1)*
a. Initial Consideration ________
b. Amount of Initial Consideration withheld by
Ceding Company ________
Portion of Initial Consideration paid in cash
= a - b ________
2. Reinsurance Premiums (Article II, Paragraph 2)
a. Reinsurance Premiums
A. Venture Variable Annuity 3 Reinsurance
Premiums ________
B. Venture Vision Reinsurance Premiums -
first policy year ________
C. Venture Vision Reinsurance Premiums -
renewal ________
Total Reinsurance Premiums = A + B + C ________
b. Amount of Reinsurance Premiums withheld by
Ceding Company ________
Portion of Reinsurance Premiums paid in cash
= a - b ________
3. Benefit Payments (Article IV)
a. Death Benefits ________
b. Cash Surrender Values ________
c. Annuity Benefits ________
Benefit Payments = a + b + c ________
4. Initial Reserve Adjustment (Article V, Paragraph 1)* ________
5. Modified Coinsurance Reserve Adjustment (Article V, Paragraph 2)
a. Modified Coinsurance Reserve end of
preceding Accounting Period ________
b. Modified Coinsurance Reserve end of
current Accounting Period ________
c. Equals b - a ________
d. Modified Coinsurance Reserve Investment
Credit (Schedule C) ________
Modified Coinsurance Reserve Adjustment = c - d ________
6. Reinsurance Gain = 0x - 0 - 0 - 00 - 00
(Xx negative, see Article VII) ________
87
EXHIBIT A CONTINUED
7. Reinsurance Loss = 0x - 0 - 0 - 00 - 00
(Xx positive, see Article VII)
--------
8. Loss Carryforward [Article VIII, Paragraph 1, item (i)]
--------
9. Initial Expense and Risk Charge (Article VI, Paragraph 1)*
--------
10. Expense and Risk Charge (Article VI, Paragraph 2)
--------
11. Ceding Commission (Article III, Paragraph 1)
--------
12. Unamortized Ceding Commission (Article III, Paragraph 2)
--------
13. Unamortized Ceding Commission Adjustment
(Article III, Paragraph 3)
--------
14. Allowances for Commissions and Expenses
(Article III, Paragraph 7)
--------
15. Allowances for Death Benefit Guarantee
(Article III, Paragraph 8)
--------
16. Experience Refund = 6 + 0 - 0 - 00 - 00 - 00 - 00
(Xx negative, see Article IX)
--------
17. Funds Withheld payment [Article II, Paragraph 3, item (ii)]
--------
18. Funds Withheld = Prior 18 + 1b + 2b - 17
(Article II, Paragraph 3)
--------
19. Interest Expense Charge (Article II, Paragraph 4)
--------
20. Interest on the Unamortized Ceding Commission
(Article III, Paragraph 9)
--------
21. Cash Settlement =
1 + 2 - 3 - 4 - 5 + 9 - 11 - 14 - 15 - 16 + 17
========
*Initial Accounting Period, only.
Supplemental Information
Venture
Total Variable Venture
Number Annuity 3 Vision Total
of Account Account Account Loss
Annuities Value Value Value Carryforward
--------- --------- ------- ------- ------------
Beginning of Period
-------- -------- -------- -------- -------------
+ Additions
-------- -------- -------- -------- -------------
- Terminations
-------- -------- -------- -------- -------------
End of Period
======== ======== ======== ======== =============
88
EXHIBIT A CONTINUED
Venture Venture
Variable Vision
Annuity 3 Number
Number of of
Annuities Annuities
--------- ---------
Beginning of Period
--------- ---------
+ Additions
--------- ---------
- Terminations
--------- ---------
End of Period
========= =========
Termination Rate (Article III, Paragraph 5)
a. Total number of annuities reinsured hereunder as of
date current Accounting Period ends
----------
b. Total number of annuities reinsured hereunder as of
the date one year prior to the date the current
Accounting Period ends
----------
c. Termination Rate 1 - (a / b)
==========
Investment Credit Accumulation Rate (Article III, Paragraph 6)
a. Modified Coinsurance Reserve Investment Credit
Current Accounting Period
----------
First most recent Accounting Period
----------
Second most recent Accounting Period
----------
Third most recent Accounting Period
---------- ----------
b. Account value as of date one year prior to date
current Accounting Period ends
----------
c. Account value as of date current Accounting Period ends
----------
d. Investment Credit Accumulation Rate
a / [.5 x (b + c)]
==========
Allowances for Commissions and Expenses (Article III, Paragraph 7)
a. $7.50 x quota share reinsured hereunder x number of annuities
reinsured hereunder and inforce at end of current Accounting
Period
----------
b. .0125 x portion of account value of annuities reinsured
hereunder at end of current Accounting Period
----------
89
EXHIBIT A CONTINUED
c. Trailer Commission x portion of account value of Venture
Variable Annuity 3 annuities reinsured hereunder and inforce
at end of current Accounting Period
----------
d. % x Reinsurance Premiums with respect to Venture Variable
---
Annuity 3 annuities reinsured hereunder
----------
e. .25% x portion of account value, attributable to purchase
payments received by Ceding Company thirteen months or more
prior to their trailer commission dates, of Venture Vision
annuities reinsured hereunder and inforce at end of current
Accounting Period
----------
f. % x renewal Reinsurance Premiums with respect to Venture
---
Vision annuities reinsured hereunder
----------
g. Allowances for Commissions and Expenses =
a + b + c + d + e + f
==========
90
AMENDMENT ONE
ATTACHED TO AND MADE A PART OF THE
ACCOUNTS RECEIVABLE AGREEMENT
EFFECTIVE DECEMBER 31, 0000
XXXXXXX
XXXXX XXXXXXXX SECURITY LIFE INSURANCE COMPANY
("Borrower")
AND
ITT XXXXXX LIFE INSURANCE COMPANY
("Lender")
---------------------------------------------------------------------
The Borrower and the Lender agree to amend this Accounts Receivable Agreement as
follows:
ARTICLE I, PROVISIONS RELATING TO THE ACCOUNTS RECEIVABLE, Paragraph 2, is
replaced in its entirety by the following:
2. Scheduled Repayment. The Borrower will repay a portion of the Accounts
Receivable at the end of each calendar year in an amount equal to the
Scheduled Repayment Amount as defined below:
Calendar Year Scheduled Repayment Amount
------------- --------------------------
1994 $3,000,000
-1-
91
Calendar Year Scheduled Repayment Amount
------------- --------------------------
1995 through 1998 $3,000,000, plus 20 percent times the
lesser of (a) 2.5 percent times the
total Reinsurance Premiums,
determined in accordance with Article
II, Paragraph 2, of the Reinsurance
Agreement, for the calendar year
1994, or (b) $6,000,000
1999 20 percent times the lesser of (a)
2.5 percent times the total
Reinsurance Premiums, determined in
accordance with Article II,
Paragraph 2, of the Reinsurance
Agreement, for the calendar year
1994, or (b) $6,000,000
In witness of the above, this Amendment One is executed in duplicate on the
dates indicated below, with an Effective Date of January 1, 1994.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Borrower")
By: By:
------------------------------ ----------------------------------
Title: Title:
--------------------------- -------------------------------
Date: Date:
--------------------------- -------------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Lender")
By: By:
------------------------------ ----------------------------------
Title: Title:
--------------------------- -------------------------------
Date: Date:
--------------------------- -------------------------------
-2-
92
AMENDMENT TWO
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
"REINSURER"
93
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety
by the following:
Annuities and Risks Reinsured. The amount of reinsurance under
this agreement will be a quota share of the Ceding Company's
net liability on those variable annuities issued by the Ceding
Company and described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
---- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1994 95% VEN 10
Venture Vision 1994 95% VISION.001
"Net liability," as used in this Agreement, means the Ceding
Company's liability on annuities reinsured hereunder.
II. The following is added to SCHEDULE D, CEDING COMPANY DATA:
- Letter dated September 14, 1994 from Xxxxx Seller of the
Ceding Company to Xxxxxxx Xxxxxxxxx of the Reinsurer
containing the Venture Vision 25 policy form and a chart
showing a comparison of Vision 25 and Vision 5
-1-
94
In witness of the above, this Amendment Three is executed in duplicate on the
dates indicated below, with an Effective Date of December 31, 1994.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Ceding Company")
By: By:
-------------------------- ----------------------------
Title: Title:
------------------------- ----------------------------
Date: Date:
------------------------- ----------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: By:
------------------------- ---------------------------
Title: Title:
------------------------- ---------------------------
Date: Date:
------------------------- ---------------------------
-2-
95
AMENDMENT THREE
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
"REINSURER"
96
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. ARTICLE II, INITIAL CONSIDERATION AND REINSURANCE PREMIUMS, Paragraphs
1, 3 and 4, are replaced in their entirety by the following:
1. Initial Consideration. On the Effective Date of this
Agreement, the Ceding Company will pay the Reinsurer an
Initial Consideration equal to 100 percent of the Modified
Coinsurance Reserve, as defined in Article V, Paragraph 3,
calculated as of the Effective Date of this Agreement with
respect to the annuities assumed as of such date and described
in Schedule A. Simultaneously with the payment of the Initial
Consideration, the Ceding Company will withhold on behalf of
the Reinsurer 3.2 percent of the Initial Consideration,
calculated as of the Effective Date of this Agreement, in
accordance with Paragraph 3 below, but not to exceed $15
million. On December 31, 1994, the Ceding Company will pay the
Reinsurer a Supplemental Consideration equal to 100 percent of
the Modified Coinsurance Reserve, as defined in Article V,
Paragraph 3, calculated as of December 31, 1994 with respect
to the annuities assumed as of December 31, 1994 and described
in Schedule A.
3. Funds Withheld. The Ceding Company and the Reinsurer have
entered into the "Accounts Receivable Agreement" attached to
this Agreement as Exhibit A. Pursuant to the terms of the
Accounts Receivable Agreement, the Ceding Company will
withhold on behalf of the Reinsurer the amounts described in
Paragraphs 1 and 2 above. The amount withheld by the Ceding
Company will be credited to the Reinsurer and will be
considered as an amount held on behalf of the
-1-
97
Reinsurer. The Reinsurer will consider such amount as a
receivable and the Ceding Company will consider such amount as
a payable. Such amount withheld will be subject to repayment
in accordance with the terms of the Accounts Receivable
Agreement. The Funds Withheld at the end of each Accounting
Period will be equal to (i) plus (ii) minus (iii), where:
(i) equals the Funds Withheld at the end of the
preceding Accounting Period;
(ii) for the Accounting Period ending March 31,
1994 through September 30, 1994 only, equals
the Funds Withheld Rate, as described in
Schedule E, Paragraph 1, times the
Reinsurance Premiums, determined in
accordance with Paragraph 2 above, but not
to exceed $6 million for the current
calendar year; and
(iii) equals any payment by the Ceding Company to
the Reinsurer of any amount withheld, as
described in items (i) and (ii) above,
during the Accounting Period in accordance
with the Accounts Receivable Agreement.
With respect, however, to the Accounting Period during which
the Effective Date of this Agreement occurs, the reference in
(i) above to "the Funds Withheld at the end of the preceding
Accounting Period" means 3.2 percent of the Initial
Consideration, determined in accordance with Paragraph 1
above, but not to exceed $15 million. In no event will the
Funds Withheld at the end of any Accounting Period exceed 50
percent of the Ceding Company's total statutory capital and
surplus as of the end of the preceding calendar year.
-2-
98
4. Interest Expense Charge. The Ceding Company will pay the
Reinsurer an Interest Expense Charge at the end of each
Accounting Period equal to [(i) x (ii)] + [(iii) x (iv)] +
[(v) x (vi)] + [(vii) x (viii)] + [(ix) x (x)], where:
(i) equals any amounts withheld in accordance
with Paragraph 1 above, as of the end of
the preceding Accounting Period and for
which payment is not yet due to the
Reinsurer, as described in the Accounts
Receivable Agreement;
(ii) equals the Interest Expense Rate, as
described in Paragraph 5 below;
(iii) equals, for the Accounting Periods
beginning April 1, 1994 and thereafter, any
amounts withheld, in accordance with
Paragraph 2 above, during the first
Accounting Period in the 1994 calendar year
and for which payment is not yet due to the
Reinsurer, as described in the Accounts
Receivable Agreement;
(iv) equals,
- for the Accounting Periods
beginning April 1, 1994 through
December 31, 1994, 43.75 basis
points, plus [(a) / (b)] x (c),
where:
(a) equals the funds transfer
pricing rate as determined
by ITT Financial
Corporation's Treasury
Department for ITT
Financial Corporation debt
for the number of days
remaining in the current
calendar year measured
from the quarterly
settlement
-3-
99
date, as described in
Article X, for the first
Accounting Period in the
1994 calendar year;
(b) equals the number of days
remaining in the current
calendar year measured from
the quarterly settlement
date, as described in
Article X, for the first
Accounting Period in the
1994 calendar year; and
(c) equals,
- for the Accounting
Period beginning
April 1, 1994, the
number of days
remaining in the
Accounting Period
measured from the
quarterly
settlement date,
as described in
Article X, for the
first Accounting
Period in the 1994
calendar year;
and
- for the Accounting
Periods beginning
July 1, 1994 and
October 1, 1994,
the number of days
in the current
Accounting Period;
- for the Accounting Periods beginning
January 1, 1995 and thereafter, the
Loss Carryforward Rate, described in
Article VIII, Paragraph 2;
(v) equals, for the Accounting Periods
beginning July 1, 1994 and thereafter, any
amounts withheld, in accordance with
Paragraph 2 above, during the second
Accounting Period in the 1994 calendar year
and for
-4-
100
which payment is not yet due to the
Reinsurer, as described in the Accounts
Receivable Agreement;
(vi) equals,
- for the Accounting Periods beginning
July 1, 1994 and October 1, 1994,
43.75 basis points, plus [(a) / (b)]
x (c), where:
(a) equals the funds transfer
pricing rate as
determined by ITT Financial
Corporation's Treasury
Department for ITT
Financial Corporation debt
for the number of days
remaining in the current
calendar year measured from
the quarterly settlement
date, as described in
Article X, for the second
Accounting Period in the
1994 calendar year;
(b) equals the number of days
remaining in the current
calendar year measured from
the quarterly settlement
date, as described in
Article X, for the second
Accounting Period in the
1994 calendar year; and
(c) equals,
- for the Accounting
Period beginning
July 1, 1994, the
number of days
remaining in the
Accounting Period
measured from the
quarterly
settlement date,
as described in
-5-
101
Article X, for the
second Accounting
Period in the 1994
calendar year;
and
- for the Accounting
Periods beginning
October 1, 1994,
the number of days
in the current
Accounting Period;
(vii) equals, for the Accounting Periods beginning
October 1, 1994 and thereafter, any amounts
withheld, in accordance with Paragraph 2
above, during the third Accounting Period in
the 1994 calendar year and for which payment
is not yet due to the Reinsurer, as
described in the Accounts Receivable
Agreement;
(viii) equals,
- for the Accounting Periods beginning
October 1, 1994, 43.75 basis points,
plus [(a) / (b)] x (c), where:
(a) equals the funds transfer
pricing rate as
determined by ITT Financial
Corporation's Treasury
Department for ITT
Financial Corporation debt
for the number of days
remaining in the current
calendar year measured from
the quarterly settlement
date, as described in
Article X, for the third
Accounting Period in the
1994 calendar year;
(b) equals the number of days
remaining in the current
calendar year measured from
the quarterly settlement
date, as described in
-6-
102
Article X, for the third
Accounting Period in the
1994 calendar year; and
(c) equals the number of days
remaining in the Accounting
Period measured from the
quarterly settlement date,
as described in Article X,
for the third Accounting
Period in the 1994 calendar
year; and
- for the Accounting Periods
beginning January 1, 1995 and
thereafter, the Loss Carryforward
Rate, as described in Article VIII,
Paragraph 2;
(ix) equals any amounts withheld in accordance
with items (i) and (ii) of Paragraph 3
above, which have not been paid by the
Ceding Company to the Reinsurer at the end
of the preceding Accounting Period and for
which payment is due to the Reinsurer, as
described in the Accounts Receivable
Agreement; and
(x) equals the Loss Carryforward Rate, as
described in Article VIII, Paragraph 2.
II. ARTICLE III, COMMISSIONS AND ALLOWANCES, Paragraphs 1, 2, 4, 5 and 6,
are replaced in their entirety by the following:
1. Ceding Commission. Simultaneously with the payment of the
Initial Consideration, the Reinsurer will pay a Ceding
Commission to the Ceding Company equal to 2.2 percent times
the Initial Consideration, determined in accordance with
Article II, Paragraph 1, but not to exceed $10 million.
Simultaneously with the payment of the Supplemental
Consideration, the Reinsurer will pay a Ceding
-7-
103
Commission to the Ceding Company equal to 3.58 percent times
the Supplemental Consideration, determined in accordance with
Article II, Paragraph 1, but not to exceed $5.2 million. For
Accounting Periods beginning January 1, 1994 and thereafter,
the Reinsurer will pay a Ceding Commission to the Ceding
Company equal to the Ceding Commission Rate, as described in
Schedule E, Paragraph 2, times the Reinsurance Premiums,
determined in accordance with Article II, Paragraph 2, but not
to exceed $4 million for the current calendar year.
2. Unamortized Ceding Commission. The Unamortized Ceding
Commission at the end of each Accounting Period equals (i)
plus (ii) plus (iii) minus (iv), where:
(i) equals the Unamortized Ceding Commission at the end
of the preceding Accounting Period;
(ii) equals the Ceding Commission Rate, as described in
Schedule E, Paragraph 2, times the Reinsurance
Premiums, determined in accordance with Article II,
Paragraph 2, but not to exceed $4 million for the
current calendar year;
(iii) for the Accounting Period ending December 31, 1994
only, equals 3.58 percent times the Supplemental
Consideration, determined in accordance with Article
II, Paragraph 1, but not to exceed $5.2 million; and
(iv) equals the Unamortized Ceding Commission Adjustment,
determined in accordance with Paragraph 3 below.
With respect, however, to the Accounting Period during which the
Effective Date of this Agreement occurs, the reference in (i) to the
-8-
104
"end of the preceding Accounting Period" refers to the Effective Date
of this Agreement immediately after the Ceding Commission, as described
in Paragraph 1 above, has been paid. The Unamortized Ceding Commission
may never be less than zero. In the Accounting Period during which (i)
plus (ii) plus (iii) minus (iv) as described above, first becomes zero
or negative, then, for that and all subsequent Accounting Periods, the
Unamortized Ceding Commission will be set equal to zero.
4. Maximum Unamortized Ceding Commission Adjustment. The Maximum
Unamortized Ceding Commission Adjustment for each Accounting Period is
as follows:
Maximum Unamortized
Ceding Commission Maximum Unamortized
Adjustment Ceding Commission
For Accounting (For Amounts Paid Adjustment (For
Periods Ending During Initial Amounts Paid During
During Accounting Period) 1994 Calendar Year)
------ ------------------ -------------------
1994 $500,000 $0
1995 through 1998 $500,000 5 percent of the
cumalative Ceding
Commission paid by the
Reinsurer to the Ceding
Company during the 1994
calendar year in
accordance with Article
III, Paragraph 1
1999 $ 0 5 percent of the
cumalative Ceding
Commissionpaid by the
Reinsurer to the Ceding
Company during the 1994
calendar year in
accordance with Article
III, Paragraph 1
2000 and thereafter $ 0 $0
However, if in any Accounting Period (a) the Termination Rate,
as described in Paragraph 5 below, is greater than 0.30,
and/or (b) the Investment Credit Accumulation Rate, as
described in Paragraph 6
-9-
105
below, is less than zero, then the Reinsurer may elect to
define the Maximum Withheld Ceding Commission Adjustment as
any amount up to $14 million for the first Accounting Period
in the current calendar year and for all Accounting Periods
thereafter.
5. Termination Rate. For Accounting Periods beginning January 1,
1995 and thereafter, the Termination Rate in any Accounting
Period equals 1 - [(i) / (ii)], where:
(i) equals the total number of annuities
reinsured hereunder and described in
Schedule A, as of the date the current
Accounting Period ends; and
(ii) equals the total number of annuities
reinsured hereunder and described in
Schedule A, as of the date one year prior to
the date the current Accounting Period ends.
6. Investment Credit Accumulation Rate. For Accounting Periods
beginning January 1, 1996 and thereafter, the Investment
Credit Accumulation Rate in any Accounting Period equals (i) /
[.5 x {(ii) + (iii)}], where:
(i) equals the Modified Coinsurance Reserve
Investment Credit, as described in Schedule
C, for the current Accounting Period and the
three Accounting Periods immediately
preceding the current Accounting Period;
(ii) equals the portion of the account value for
the annuities reinsured hereunder which
corresponds to the portion of the annuities
reinsured hereunder as of the date one year
prior to the date the current Accounting
Period ends; and
-10-
106
(iii) equals the portion of the account value for
the annuities reinsured hereunder which
corresponds to the portion of the annuities
reinsured hereunder as of the date the
current Accounting Period ends.
III. ARTICLE VI, EXPENSE AND RISK CHARGES, Paragraph 2, is replaced in its
entirety by the following:
2. Expense and Risk Charge. The Expense and Risk Charge for each
Accounting Period subsequent to the initial Accounting Period,
payable to the Reinsurer by the Ceding Company, will be equal
to (i) plus (ii) plus (iii), where:
(i) equals the Expense and Risk Charge Rate, as
defined below, times the Loss Carryforward,
determined in accordance with Article VIII,
Paragraph 1, item (i), at the end of the
preceding Accounting Period, with accrued
interest thereon;
(ii) equals the Expense and Risk Charge Rate, as
defined below, times the Expense and Risk
Charge Base, as defined below; and
(iii) for the Accounting Period ending December
31, 1994 only, equals 1.0 percent times 3.2
percent of the Supplemental Consideration,
determined in accordance with Article II,
Paragraph 1, but not to exceed 1.65 percent
times $5.2 million.
The Expense and Risk Charge Rate for each Accounting Period is
defined as follows:
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107
For Accounting Expense and
Periods Ending During Risk Charge Rate
--------------------- ----------------
1994 through 1999 .4125%
2000 and thereafter .4142%
The Expense and Risk Charge Base for each Accounting Period is defined
as follows:
For Accounting
Periods Ending During Expense and Risk Charge Base
--------------------- ----------------------------
1994 through 1999 greater of either (a) the
Unamortized Ceding Commission,
determined in accordance with
Article III, Paragraph 2, at the end
of the preceding Accounting Period,
plus the Ceding Commission Rate, as
described in Article III, Paragraph
1, times the Reinsurance Premiums,
determined in accordance with
Article II, Paragraph 2, but not to
exceed $4 million for the current
calendar year, minus the Maximum
Unamortized Ceding Commission
Adjustment, determined in accordance
with Article III, Paragraph 4, or
(b) quantity (iv) as defined below,
but never less than zero
2000 and thereafter (iv) below, but never less than
zero, where:
(iv) equals (a) plus (b) plus (c) minus (d) minus
(e) minus (f), where:
(a) equals the Unamortized Ceding
Commission, determined in
accordance with Article III,
Paragraph 2, at the end of the
preceding Accounting Period;
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108
(b) equals the Ceding Commission Rate,
as described in Article III,
Paragraph 1, times the Reinsurance
Premiums, determined in accordance
with Article II, Paragraph 2, but
not to exceed $4 million for the
current calendar year;
(c) equals the absolute value of any
Reinsurance Loss, determined in
accordance with Article VII;
(d) equals any Reinsurance Gain,
determined in accordance with
Article VII;
(e) equals the Interest Expense Charge,
determined in accordance with
Article II, Paragraph 4; and
(f) equals the Interest on the
Unamortized Ceding Commission,
determined in accordance with
Article III, Paragraph 9.
In no event will the Expense and Risk Charge payable be less
than $20,000 for any Accounting Period after December 31,
1999.
IV. ARTICLE VII, REINSURANCE GAINS AND LOSSES, is replaced in its entirety
by the following:
Formula. A Reinsurance Gain or Reinsurance Loss will be
calculated for each Accounting Period and will be equal to the
excess of (i) over (ii), where:
(i) equals the sum of:
(a) Reinsurance Premiums, determined in
accordance with Article II,
Xxxxxxxxx 0, xxxx
-00-
000
(x) any Supplemental Consideration
payable during the current
Accounting Period, determined in
accordance with Article II,
Paragraph 1; and
(ii) equals the sum of:
(a) Benefit Payments, as described in
Article IV, plus
(b) the Modified Coinsurance Reserve
Adjustment, determined in
accordance with Article V,
Paragraph 2, plus
(c) Allowances for Commissions and
Expenses, determined in accordance
with Article III, Paragraph 7, plus
(d) Allowances for Death Benefit
Guarantee, determined in accordance
with Article III, Paragraph 8.
A Reinsurance Gain results if the excess of (i) over
(ii) is positive. A Reinsurance Loss results if the
excess of (i) over (ii) is negative.
V. ARTICLE X, ACCOUNTING AND SETTLEMENTS, Paragraphs 2 and 4, are replaced
in their entirety by the following:
2. Quarterly Accounting Reports. Quarterly accounting reports in
the form of Schedule B will be submitted to the Reinsurer by
the Ceding Company for each Accounting Period not later than
fifteen (15) days after the end of each Accounting Period.
Such reports will include information on the amount of Initial
Consideration, Supplemental Consideration, Reinsurance
Premiums, Ceding Commission, Allowances
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110
for Commissions and Expenses, Allowances for Death Benefit
Guarantee, Benefit Payments, Reinsurance Gains and Losses,
Experience Refund, Loss Carryforward, Funds Withheld, Interest
Expense Charge, Unamortized Ceding Commission, Unamortized
Ceding Commission Adjustment, Interest on the Unamortized
Ceding Commission, Expense and Risk Charges and Modified
Coinsurance Reserve.
4. Quarterly Settlements.
A. Within fifteen (15) days after the end of each
Accounting Period, the Ceding Company will pay the
Reinsurer the sum of: (i) the Reinsurance Premiums
paid by the Ceding Company to the Reinsurer during
the current Accounting Period, determined in
accordance with Article II, Paragraph 2, plus (ii)
any Modified Coinsurance Reserve Adjustment payable
to the Reinsurer, determined in accordance with
Article V, Paragraph 2, plus (iii) any Funds Withheld
payable to the Reinsurer during the current
Accounting Period in accordance with the terms of the
Accounts Receivable Agreement, determined in
accordance with Article II, Paragraph 3, item (iv),
plus (iv) any Supplemental Consideration payable
during the current Accounting Period, determined in
accordance with Article II, Paragraph 1.
B. Simultaneously, the Reinsurer will pay the Ceding
Company the sum of: (i) the amount of Benefit
Payments, as described in Article IV, plus (ii)
Allowances for Commissions and Expenses, determined
in accordance with Article III, Paragraph 7, plus
(iii) Allowances for Death Benefit Guarantee,
determined in
-15-
111
accordance with Article III, Paragraph 8, plus (iv)
any Modified Coinsurance Reserve Adjustment payable
to the Ceding Company, determined in accordance with
Article V, Paragraph 2, plus (v) any Experience
Refund, determined in accordance with Article IX.
VI. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety
by the following:
Annuities and Risks Reinsured. Beginning on the Effective Date
of this Agreement, the Reinsurer reinsures a quota share of
the Ceding Company's net liability on those variable annuities
issued by the Ceding Company and described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
---- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1994 95% VEN 10
Venture Vision 1994 95% VISION.001
Beginning on December 31, 1994, under this Agreement the
Reinsurer also reinsures an additional 31 percent quota share
of the Ceding Company's net liability on those variable
annuities issued by the Ceding Company and described below:
Contract and
Plan Issue Years Certificate Numbers
---- ----------- -------------------
Venture Variable
Annuity 3 1987 - 1993 203-VA
"Net liability," as used in this Agreement, means the Ceding
Company's liability on annuities reinsured hereunder.
-16-
112
VII. SCHEDULE B, QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS, is replaced
in its entirety by Exhibit A.
VIII. The following is added to SCHEDULE D, CEDING COMPANY DATA:
- Quarterly settlement reports received under this Agreement
since inception
- The Modified Coinsurance Reserve equals the statutory reserve
with respect to the annuities reinsured hereunder, excluding
mortality reserves
In witness of the above, this Amendment Three is executed in duplicate on the
dates indicated below, with an Effective Date of December 31, 1994.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Ceding Company")
By: By:
------------------------------- ----------------------------
Title: Title:
------------------------------ ----------------------------
Date: Date:
------------------------------ ----------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: By:
------------------------------ ---------------------------
Title: Title:
------------------------------ ---------------------------
Date: Date:
------------------------------ ---------------------------
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113
EXHIBIT A
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period: ______________
Calendar Year: __________________
Date Report Completed: __________
1. Initial Consideration (Article II, Paragraph 1)*
a. Initial Consideration _________
b. Amount of Initial Consideration withheld by
Ceding Company _________
Portion of Initial Consideration paid in cash
= a - b _______
2. Supplemental Consideration (Article II, Paragraph 1) _______
3. Reinsurance Premiums (Article II, Paragraph 2)
a. Reinsurance Premiums
A. Venture Variable Annuity 3 Reinsurance
Premiums _________
B. Venture Vision Reinsurance Premiums -
first policy year _________
C. Venture Vision Reinsurance Premiums -
renewal _________
Total Reinsurance Premiums = A + B + C _______
b. Amount of Reinsurance Premiums withheld by
Ceding Company _________
Portion of Reinsurance Premiums paid in cash
= a - b _______
4. Benefit Payments (Article IV)
a. Death Benefits _________
b. Cash Surrender Values _________
c. Annuity Benefits _________
Benefit Payments = a + b + c _______
5. Initial Reserve Adjustment (Article V, Paragraph 1)* _______
6. Modified Coinsurance Reserve Adjustment (Article V, Paragraph 2)
a. Modified Coinsurance Reserve end of
preceding Accounting Period _________
b. Modified Coinsurance Reserve end of
current Accounting Period _________
c. Equals b - a _________
d. Modified Coinsurance Reserve Investment
Credit (Schedule C) _________
Modified Coinsurance Reserve Adjustment = c - d _______
114
EXHIBIT A CONTINUED
7. Reinsurance Gain = 0x - 0x - 0 - 0 - 00 - 00
(Xx negative, see Article VII) __________
8. Reinsurance Loss = 0x - 0x - 0 - 0 - 00 - 00
(Xx positive, see Article VII) __________
9. Loss Carryforward [Article VIII, Paragraph 1, item (i)] __________
10. Initial Expense and Risk Charge (Article VI, Paragraph 1)* __________
11. Expense and Risk Charge (Article VI, Paragraph 2) __________
12. Ceding Commission (Article III, Paragraph 1) __________
13. Unamortized Ceding Commission (Article III, Paragraph 2) __________
14. Unamortized Ceding Commission Adjustment
(Article III, Paragraph 3) __________
15. Allowances for Commissions and Expenses
(Article III, Paragraph 7) __________
16. Allowances for Death Benefit Guarantee
(Article III, Paragraph 8) __________
17. Experience Refund = 7 + 0 - 0 - 00 - 00 - 00 - 00
(Xx negative, see Article IX) __________
18. Funds Withheld payment [Article II, Paragraph 3, item (ii)] __________
19. Funds Withheld = Prior 19 + 1b + 2b - 18
(Article II, Paragraph 3) __________
20. Interest Expense Charge (Article II, Paragraph 4) __________
21. Interest on the Unamortized Ceding Commission
(Article III, Paragraph 9) __________
22. Cash Settlement =
1 + 2 + 3 - 4 - 5 - 6 + 10 - 12 - 15 - 16 - 17 + 18 __________
*Initial Accounting Period, only.
115
EXHIBIT A CONTINUED
Supplemental Information
Venture
Total Variable Venture
Number Annuity 3 Vision Total
of Account Account Account Loss
Annuities Value Value Value Carryforward
_________ _________ _________ _________ ____________
Beginning of Period _________ _________ _________ _________ ____________
+ Additions _________ _________ _________ _________ ____________
- Terminations _________ _________ _________ _________ ____________
End of Period _________ _________ _________ _________ ____________
Venture Venture
Variable Vision
Annuity 3 Number
Number of of
Annuities Annuities
_________ _________
Beginning of Period _________ _________
+ Additions _________ _________
- Terminations _________ _________
End of Period _________ _________
Termination Rate (Article III, Paragraph 5)
a. Total number of annuities reinsured hereunder as of
date current Accounting Period ends __________
b. Total number of annuities reinsured hereunder as of
the date one year prior to the date the current
Accounting Period ends __________
c. Termination Rate 1 - (a / b) __________
Investment Credit Accumulation Rate (Article III, Paragraph 6)
a. Modified Coinsurance Reserve Investment Credit
Current Accounting Period _________
First most recent Accounting Period _________
Second most recent Accounting Period _________
Third most recent Accounting Period _________ __________
b. Account value as of date one year prior to date
current Accounting Period ends __________
c. Account value as of date current Accounting Period ends __________
d. Investment Credit Accumulation Rate
a / [.5 x (b + c)] __________
116
EXHIBIT A CONTINUED
Allowances for Commissions and Expenses (Article III, Paragraph 7)
a. $7.50 x quota share reinsured hereunder x number of annuities
reinsured hereunder and inforce at end of current Accounting
Period __________
b. .0125 x portion of account value of annuities reinsured
hereunder at end of current Accounting Period __________
c. Trailer Commission x portion of account value of Venture
Variable Annuity 3 annuities reinsured hereunder and inforce
at end of current Accounting Period __________
d. ___% x Reinsurance Premiums with respect to Venture Variable
Annuity 3 annuities reinsured hereunder __________
e. .25% x portion of account value, attributable to purchase
payments received by Ceding Company thirteen months or more
prior to their trailer commission dates, of Venture Vision
annuities reinsured hereunder and inforce at end of current
Accounting Period __________
f. ___% x renewal Reinsurance Premiums with respect to Venture
Vision annuities reinsured hereunder __________
g. Allowances for Commissions and Expenses =
a + b + c + d + e + f __________
117
118
AMENDMENT TWO
ATTACHED TO AND MADE A PART OF THE
ACCOUNTS RECEIVABLE AGREEMENT
EFFECTIVE DECEMBER 31, 0000
XXXXXXX
XXXXX XXXXXXXX SECURITY LIFE INSURANCE COMPANY
("Borrower")
AND
ITT XXXXXX LIFE INSURANCE COMPANY
("Lender")
-------------------------------------------------
The Borrower and the Lender agree to amend this Accounts Receivable Agreement as
follows:
ARTICLE I, PROVISIONS RELATING TO THE ACCOUNTS RECEIVABLE, Paragraph 2, is
replaced in its entirety by the following:
2. Scheduled Repayment. The Borrower will repay a portion of the Accounts
Receivable at the end of each calendar year in an amount equal to the
Scheduled Repayment Amount as defined below:
Calendar Year Scheduled Repayment Amount
------------- --------------------------
1994 $6,064,196
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119
Calendar Year Scheduled Repayment Amount
------------- --------------------------
1995 through 1998 $3,000,000
In witness of the above, this Amendment Two is executed in duplicate on the
dates indicated below, with an Effective Date of December 31, 1994.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Borrower")
By: Xxxxx X. Xxxxxxxxx By: Xxxx X. Xxxxxx
Title: VP Secretary & Title: VP & Actuary
General Counsel
Date: December 30, 1994 Date: December 30, 1994
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Lender")
By: Xxxxxxx X. Xxxxxxxxx By: Xxxxx X. Xxxxxxx
Title: VP & Deputy Chief Title: Exec. V.P.
Secretary
Date: 12/22/94 Date: 12/22/94
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120
AMENDMENT FOUR
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
"REINSURER"
121
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. ARTICLE III, COMMISSIONS AND ALLOWANCES, Paragraphs 1, 2 and 4, are
replaced in their entirety by the following:
1. Ceding Commission. Simultaneously with the payment of the
Initial Consideration, the Reinsurer will pay a Ceding
Commission to the Ceding Company equal to 2.2 percent times
the Initial Consideration, determined in accordance with
Article II, Paragraph 1, but not to exceed $10 million.
Simultaneously with the payment of the Supplemental
Consideration, the Reinsurer will pay a Ceding Commission to
the Ceding Company equal to 3.58 percent times the
Supplemental Consideration, determined in accordance with
Article II, Paragraph 1, but not to exceed $5.2 million. For
Accounting Periods beginning January 1, 1994 and thereafter,
the Reinsurer will pay a Ceding Commission to the Ceding
Company equal to the Ceding Commission Rate, as described in
Schedule E, Paragraph 2, times the Reinsurance Premiums,
determined in accordance with Article II, Paragraph 2, but not
to exceed $1 million for the 1995 calendar year.
2. Unamortized Ceding Commission. The Unamortized Ceding
Commission at the end of each Accounting Period equals (i)
plus (ii) plus (iii) minus (iv), where:
(i) equals the Unamortized Ceding Commission at
the end of the preceding Accounting Period;
(ii) equals the Ceding Commission Rate, as
described in Schedule E, Paragraph 2, times
the Reinsurance Premiums,
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122
determined in accordance with Article II,
Paragraph 2, but not to exceed $1 million
for the 1995 calendar year;
(iii) for the Accounting Period ending December
31, 1994 only, equals 3.58 percent times the
Supplemental Consideration, determined in
accordance with Article II, Paragraph 1, but
not to exceed $5.2 million; and
(iv) equals the Unamortized Ceding Commission
Adjustment, determined in accordance with
Paragraph 3 below.
With respect, however, to the Accounting Period during which
the Effective Date of this Agreement occurs, the reference in
(i) to the "end of the preceding Accounting Period" refers to
the Effective Date of this Agreement immediately after the
Ceding Commission, as described in Paragraph 1 above, has been
paid. The Unamortized Ceding Commission may never be less than
zero. In the Accounting Period during which (i) plus (ii) plus
(iii) minus (iv) as described above, first becomes zero or
negative, then, for that and all subsequent Accounting
Periods, the Unamortized Ceding Commission will be set equal
to zero.
4. Maximum Unamortized Ceding Commission Adjustment. The Maximum
Unamortized Ceding Commission Adjustment for each Accounting
Period is as follows:
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123
Maximum Unamortized
Ceding Commission Maximum Unamortized
Adjustment Ceding Commission
For Accounting (For Amounts Paid Adjustment (For Amounts
Periods Ending During Initial Paid After Initial
During Accounting Period) Accounting Period)
1994 $500,000 $0
1995 $500,000 5 percent of the cuma-
lative Ceding Commission
paid by the Reinsurer to
the Ceding Company
during the 1994 calendar
year in accordance with
Article III, Paragraph 1
1996 through 1998 $500,000 5 percent of the cuma-
lative Ceding Commission
paid by the Reinsurer to
the Ceding Company
during the 1994 and 1995
calendar years in
accordance with Article
III, Paragraph 1
1999 $ 0 5 percent of the cuma-
lative Ceding Commission
paid by the Reinsurer to
the Ceding Company
during the 1994 and 1995
calendar years in
accordance with Article
III, Paragraph 1
2000 $ 0 5 percent of the cuma-
lative Ceding Commission
paid by the Reinsurer to
the Ceding Company
during the 1995 calendar
year in accordance with
Article III, Paragraph 1
2001 and thereafter $ 0 $0
However, if in any Accounting Period (a) the Termination Rate, as described in
Paragraph 5 below, is greater than 0.30, and/or (b) the Investment Credit
Accumulation Rate, as described in Paragraph 6 below, is less than zero, then
the Reinsurer may elect to define the Maximum Withheld Ceding Commission
Adjustment as any amount up to
- 3 -
124
$14 million for the first Accounting Period in the current
calendar year and for all Accounting Periods thereafter.
II. Effective January 1, 1995, ARTICLE III, COMMISSIONS AND ALLOWANCES,
Paragraph 9, is replaced in its entirety by the following:
9. Interest on the Unamortized Ceding Commission. The Ceding
Company will pay the Reinsurer Interest on the Unamortized
Ceding Commission at the end of each Accounting Period,
subsequent to the initial Accounting Period, equal to [(i) x
(ii)] + [(iii) x (iv)] + [(v) x (vi)] + [(vii) x (viii)] +
[(ix) x (x)], where:
(i) equals the portion of the Unamortized Ceding
Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to
the Ceding Company as Ceding Commission
during the initial Accounting Period in
accordance with Paragraph 1 above,
calculated as of the end of the preceding
Accounting Period;
(ii) equals the Interest Expense Rate, as
described in Article II, Paragraph 5;
(iii) equals the portion of the Unamortized Ceding
Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to
the Ceding Company as Ceding Commission, in
accordance with Paragraph 1 above, for the
1994 calendar year:
(iv) equals the Loss Carryforward Rate, as
described in Article VIII, Paragraph 2;
(v) equals, for the Accounting Periods beginning
July 1, 1995 and thereafter, the portion of
the Unamortized
- 4 -
125
Ceding Commission, determined in accordance
with Paragraph 2 above, paid by the
Reinsurer to the Ceding Company as Ceding
Commission, in accordance with Paragraph 1
above, for the first and second Accounting
Period in the 1995 calendar year; and
(vi) equals,
- for the Accounting Period
beginning July 1, 1995,
[(a) / (b)] x (c), where:
(a) equals the Loss Carryforward
Rate, as described in Article
VIII, Paragraph 2;
(b) equals the number of days in
the current Accounting Period;
and
(c) equals the number of days
remaining in the current
Accounting Period measured from
the quarterly settlement date,
as described in Article X, for
the second Accounting Period in
the 1995 calendar year; and
- for the Accounting Periods beginning
October 1, 1995 and thereafter, equals
the Loss Carryforward Rate, as
described in Article VIII, Paragraph 2;
(vii) equals, for the Accounting Periods
beginning October 1, 1995 and thereafter,
the portion of the Unamortized Ceding
Commission, determined in accordance with
Paragraph 2 above, paid by the Reinsurer to
the Ceding Company as Ceding Commission, in
accordance with Paragraph 1 above, for the
third Accounting Period in the 1995 calendar
year;
- 5 -
126
(viii) equals,
- for the Accounting Period beginning October 1,
1995, [(a) / (b)] x (c), where:
(a) equals the Loss Carryforward Rate, as
described in Article VIII, Paragraph 2;
(b) equals the number of days in the current
Accounting Period; and
(c) equals the number of days remaining in the
current Accounting Period measured from the
quarterly settlement date, as described in
Article X, for the third Accounting Period
in the 1995 calendar year; and
- for the Accounting Periods beginning January 1,
1996 and thereafter, the Loss Carryforward Rate,
as described in Article VIII, Paragraph 2;
(ix) equals, for the Accounting Periods beginning
January 1, 1996 and thereafter, the portion of the
Unamortized Ceding Commission, determined in
accordance with Paragraph 2 above, paid by the
Reinsurer to the Ceding Company as Ceding Commission,
in accordance with Paragraph 1 above, for the fourth
Accounting Period in the 1995 calendar year; and
(x) equals,
- for the Accounting Period beginning January 1,
1996, [(a) / (b)] x (c), where:
(a) equals the Loss Carryforward Rate, as
described in Article VIII, Paragraph 2;
- 6 -
127
(b) equals the number of days in the
current Accounting Period; and
(c) equals the number of days remaining
in the current Accounting Period
measured from the quarterly
settlement date, as described in
Article X, for the fourth
Accounting Period in the 1995
calendar year; and
- for the Accounting Periods beginning April
1, 1996 and thereafter, the Loss
Carryforward Rate, as described in Article
VIII, Paragraph 2.
III. ARTICLE VI, EXPENSE AND RISK CHARGES, Paragraph 2, is replaced in its
entirety by the following:
2. Expense and Risk Charge. The Expense and Risk Charge for each
Accounting Period subsequent to the initial Accounting Period,
payable to the Reinsurer by the Ceding Company, will be equal
to (i) plus (ii) plus (iii), where:
(i) equals the Expense and Risk Charge Rate, as
defined below, times the Loss Carryforward,
determined in accordance with Article VIII,
Paragraph 1, item (i), at the end of the
preceding Accounting Period, with accrued
interest thereon;
(ii) equals the Expense and Risk Charge Rate, as
defined below, times the Expense and Risk
Charge Base, as defined below; and
(iii) for the Accounting Period ending December
31, 1994 only, equals 1.0 percent times 3.2
percent of the
- 7 -
128
Supplemental Consideration, determined in
accordance with Article II, Paragraph 1, but
not to exceed 1.65 percent times $5.2
million.
The Expense and Risk Charge Rate for each Accounting Period is
defined as follows:
For Accounting Expense and
Periods Ending During Risk Charge Rate
1994 through 2000 .4125%
2001 and thereafter .4142%
The Expense and Risk Charge Base for each Accounting Period is
defined as follows:
For Accounting
Periods Ending During Expense and Risk Charge Base
1994 through 2000 greater of either (a) the Unamortized
Ceding Commission, determined in
accordance with Article III,
Paragraph 2, at the end of the
preceding Accounting Period, plus
the Ceding Commission Rate, as
described in Article III, Paragraph
1, times the Reinsurance Premiums,
determined in accordance with
Article II, Paragraph 2, but not to
exceed $1 million for the 1995
calendar year, minus the Maximum
Unamortized Ceding Commission
Adjustment, determined in accordance
with Article III, Paragraph 4, or
(b) quantity (iv) as defined below,
but never less than zero
2001 and thereafter (iv) below, but never less than zero,
where:
(iv) equals (a) plus (b) plus (c) minus (d) minus (e) minus
(f), where:
(a) equals the Unamortized Ceding Commission, determined
in accordance with Article III,
- 8 -
129
Paragraph 2, at the end of the preceding
Accounting Period;
(b) equals the Ceding Commission Rate, as
described in Article III, Paragraph 1, times
the Reinsurance Premiums, determined in
accordance with Article II, Paragraph 2, but
not to exceed $1 million for the 1995
calendar year;
(c) equals the absolute value of any Reinsurance
Loss, determined in accordance with Article
VII;
(d) equals any Reinsurance Gain, determined in
accordance with Article VII;
(e) equals the Interest Expense Charge,
determined in accordance with Article II,
Paragraph 4; and
(f) equals the Interest on the Unamortized
Ceding Commission, determined in accordance
with Article III, Paragraph 9.
In no event will the Expense and Risk Charge payable be less
than $20,000 for any Accounting Period after December 31,
2000.
IV. Effective July 1, 1995, ARTICLE VIII, LOSS CARRYFORWARD, Paragraph 2,
is replaced in its entirety by the following:
2. Loss Carryforward Rate. The Loss Carryforward Rate at the end
of each Accounting Period will be equal to 51.25 basis points,
plus the quantity (i) divided by (ii), where:
(i) equals the H.15 annualized rate for three
month Commercial Paper as published by the
Federal Reserve
- 9 -
130
as of the date the current Accounting
Period begins; and
(ii) equals four.
V. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety
by the following:
Annuities and Risks Reinsured. Beginning on the Effective Date
of this Agreement, the Reinsurer reinsures a quota share of
the Ceding Company's net liability on those variable annuities
issued by the Ceding Company and described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1995 95% VEN 10
Venture Vision 1994 - 1995 95% VISION.001
Beginning on December 31, 1994, under this Agreement the
Reinsurer also reinsures an additional 31 percent quota share
of the Ceding Company's net liability on those variable
annuities issued by the Ceding Company and described below:
Contract and
Plan Issue Years Certificate Numbers
Venture Variable
Annuity 3 1987 - 1993 203-VA
"Net liability," as used in this Agreement, means the Ceding
Company's liability on annuities reinsured hereunder.
VI. The following is added to SCHEDULE D, CEDING COMPANY DATA:
- Quarterly settlement reports received under this Agreement since
inception
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131
VII. SCHEDULE E, RATES, Paragraph 2, is replaced in its entirety by the
following:
2. Ceding Commission Rate. The Ceding Commission Rate for each
Accounting Period, subsequent to the initial Accounting
Period, is defined as follows:
For Accounting Ceding
Periods Ending During Commission Rate
1994 and 1995 1.67%
1996 and thereafter 0%
- 11 -
132
In witness of the above, this Amendment Four is executed in duplicate on the
dates indicated below, with an Effective Date of January 1, 1995.
NORTH AMERICAN SECURITY LIFE INSURANCE
ATTEST: COMPANY ("Ceding Company")
By: By:
--------------------------- -------------------------------
Title: Title:
------------------------ ----------------------------
Date: Date:
------------------------ ----------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: By:
--------------------------- -------------------------------
Title: Title:
------------------------ ----------------------------
Date: Date:
------------------------ ----------------------------
- 12 -
133
AMENDMENT FIVE
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
ITT XXXXXX LIFE INSURANCE COMPANY
"REINSURER"
134
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. ARTICLE II, INITIAL CONSIDERATION AND REINSURANCE PREMIUMS, Paragraph
2, is replaced in its entirety by the following:
2. Reinsurance Premiums. At the end of each Accounting Period,
the Ceding Company will pay the Reinsurer Reinsurance Premiums
on all annuities in effect under this Agreement in an amount
equal to the sum of: (i) that portion of the gross premiums
collected by the Ceding Company during the Accounting Period
which corresponds to the portion of the annuities reinsured
hereunder, plus (ii) beginning May 1, 1995 and thereafter,
that portion of the statutory reserves on the quota share
reinsured hereunder which are associated with the portion of
the account values transferred from fixed accounts to variable
accounts with respect to the annuities reinsured hereunder.
The Reinsurer will treat any such Reinsurance Premiums as paid
premium for annual statement purposes, regardless of the mode
of collection by the Ceding Company on the annuities reinsured
hereunder. The Ceding Company will withhold on behalf of the
Reinsurer, in accordance with Paragraph 3 below, an amount
equal to (i) times (ii), but not to exceed $6 million for the
current calendar year, where:
(i) equals the Funds Withheld Rate, as described
in Schedule E, Paragraph 1; and
(ii) equals Reinsurance Premiums, determined in
accordance with this Paragraph 2.
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135
II. ARTICLE III, COMMISSIONS AND ALLOWANCES, Paragraphs 2 and 7, are
replaced in their entirety by the following:
2. Unamortized Ceding Commission. The Unamortized Ceding
Commission at the end of each Accounting Period equals (i)
plus (ii) plus (iii) minus (iv), where:
(i) equals the Unamortized Ceding Commission at
the end of the preceding Accounting Period;
(ii) equals the Ceding Commission Rate, as
described in Schedule E, Paragraph 2, times
the Reinsurance Premiums, determined in
accordance with Article II, Paragraph 2, but
not to exceed $1 million for the 1995
calendar year;
(iii) for the Accounting Period ending December
31, 1994 only, equals 3.58 percent times the
Supplemental Consideration, determined in
accordance with Article II, Paragraph 1, but
not to exceed $5.2 million; and
(iv) equals the Unamortized Ceding Commission
Adjustment, determined in accordance with
Paragraph 3 below.
With respect, however, to the Accounting Period during which
the Effective Date of this Agreement occurs, the reference in
(i) to the "end of the preceding Accounting Period" refers to
the Effective Date of this Agreement immediately after the
Ceding Commission, as described in Paragraph 1 above, has been
paid. The Unamortized Ceding Commission may never be less than
zero. In the Accounting Period during which (i) plus (ii) plus
(iii) minus (iv) as described above, first becomes zero or
negative, then, for that and all subsequent Accounting
Periods, the Unamortized Ceding Commission will be set equal
to zero.
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136
Notwithstanding the above, any portion of the Unamortized
Ceding Commission which corresponds to the portion of the
annuities recaptured pursuant to the second sentence of
Paragraph 4, Article XI, will be paid by the Ceding Company to
the Reinsurer, in accordance with Article XII, Paragraph 3(d),
in an amount equal to [(v) / (vi)] x (vii), where:
(v) equals the portion of the account value,
with respect to the portion of the annuities
reinsured hereunder transferred from
variable accounts to fixed accounts and
treated as recaptured, in accordance with
Article XI, Paragraph 4;
(vi) equals the portion of the account value, at
the end of the preceding Accounting Period
with respect to the portion of the annuities
reinsured hereunder; and
(vii) equals the Unamortized Ceding Commission,
determined in accordance with item (i)
above, at the end of the preceding
Accounting Period.
7. Allowances for Commissions and Expenses. The Reinsurer will
pay the Ceding Company Allowances for Commissions and Expenses
for each Accounting Period, equal to (i) plus (ii) plus (iii)
plus (iv) plus (v) plus (vi), where:
(i) equals (a) times (b) times (c), where:
(a) equals $7.50 times the quota share
percentage of the annuities
reinsured hereunder, as described
in Schedule A;
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137
(b) equals the number of annuities
reinsured hereunder and described
in Schedule A, and inforce at the
end of the current Accounting
Period; and
(c) equals the total account value
invested in variable accounts with
respect to the annuities reinsured
hereunder, divided by the total
account value invested in fixed and
variable accounts with respect to
the annuities reinsured hereunder;
and
(ii) equals .0125 percent times that portion of
the account value of the annuities reinsured
hereunder which corresponds to the portion
of the annuities reinsured hereunder as of
the end of the current Accounting Period;
(iii) equals the Trailer Commission, as defined
below, times that portion of the account
value of the Venture Variable Annuity 3
annuities reinsured hereunder which
corresponds to the portion of the Venture
Variable Annuity 3 annuities reinsured
hereunder and described in Schedule A, as of
the end of the current Accounting Period;
(iv) equals (a) times (b), where:
(a) equals the Reinsurance Premiums,
determined in accordance with
Article II, Paragraph 2, with
respect to the Venture Variable
Annuity 3 annuities reinsured
hereunder which corresponds
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138
to the portion of the Venture
Variable Annuity 3 annuities
reinsured hereunder and described
in Schedule A; and
(b) equals,
- for the Accounting Periods
beginning January 1, 1994
through October 1, 1994,
5.33 percent, and
- for the Accounting Periods
beginning January 1, 1995
and thereafter, 7 percent;
(v) equals .25 percent times that portion of the
account value, attributable to purchase
payments received by the Ceding Company
thirteen (13) months or more prior to their
trailer commission payment dates, of the
Venture Vision annuities reinsured hereunder
which corresponds to the portion of the
Venture Vision annuities reinsured hereunder
and described in Schedule A, as of the end
of the current Accounting Period; and
(vi) equals (a) times (b), where:
(a) equals the portion of Reinsurance
Premiums, determined in accordance
with Article II, Paragraph 2,
received by the Ceding Company
thirteen (13) months or more after
the issue date of each Venture
Vision annuity reinsured hereunder
which corresponds to the portion of
the Venture Vision annuities
reinsured hereunder and described
in Schedule A; and
-5-
139
(b) equals,
- for the Accounting Periods
beginning January 1, 1994
through October 1, 1994,
1.83 percent, and
- for the Accounting Periods
beginning January 1, 1995
and thereafter, 3.5
percent.
The Trailer Commission for Venture Variable Annuity 3
annuities for each Accounting Period is defined below:
For Accounting
Periods Ending During Trailer Commission
--------------------- ------------------
1994 .04%
1995 .05%
1996 .055%
1997 and thereafter .0625%
III. The following Paragraph 10 is added to ARTICLE X, ACCOUNTING AND
SETTLEMENTS:
10. Partial Recapture. If a portion of the annuities reinsured
hereunder is recaptured, as described in Article XX, Xxxxxxxxx
0, then the quarterly settlements described above will
thereafter be made with respect to the portion of the policies
not recaptured. Adjustments in the amounts due from either the
Ceding Company or the Reinsurer will be made accordingly.
IV. ARTICLE XI, DURATION AND RECAPTURE, Paragraphs 4 and 5, are replaced in
their entirety by the following:
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140
4. Recapture. Annuities reinsured hereunder will be eligible for
recapture, at the option of the Ceding Company, on any January
1, following the fifth anniversary of the Effective Date of
this Agreement, subject to ninety (90) days prior written
notice, or on any other date which is mutually agreed to in
writing. However, in the event that any portion of the account
values related to any annuity reinsured hereunder is
transferred from variable accounts to fixed accounts, then the
corresponding portion of such annuity will be treated as
recaptured. Except for the fixed account transfers described
above, if the Ceding Company opts to recapture, then the
Ceding Company must recapture all of the annuities reinsured
hereunder. In no event may the Ceding Company recapture
anything other than 100 percent of all annuities reinsured
hereunder.
5. Internal Replacements. Should the Ceding Company, its
affiliates, successors or assigns, initiate a program of
Internal Replacement that would include any of the annuities
reinsured hereunder, the Ceding Company will immediately
notify the Reinsurer. The Reinsurer may elect to treat such
annuities as recaptured rather than surrendered and such
recapture will apply to all annuities reinsured hereunder,
except that the transfer of any portion of the annuities
reinsured hereunder from variable accounts to fixed accounts
will be treated as a partial recapture, as described in
Article XI, Paragraph 4. For purposes of this Agreement, the
term "Internal Replacement" means any instance in which an
annuity or any portion of the cash value of an annuity is
exchanged for another policy or annuity, not covered under
this Agreement, which is written by the Ceding Company, its
affiliates, successors or assigns.
-7-
141
V. ARTICLE XII, TERMINAL ACCOUNTING AND SETTLEMENT, Paragraphs 1 and 3,
are replaced in their entirety by the following:
1. Terminal Accounting. In the event that all or a portion of the
reinsurance under this Agreement is terminated in accordance
with Article XX, Xxxxxxxxx 0, or recaptured in accordance with
Article XX, Xxxxxxxxx 0, a Terminal Accounting and Settlement
will take place.
3. Settlement. The Terminal Accounting and Settlement will
consist of:
(a) the quarterly settlement as provided in Article X,
Paragraph 4, computed as of the terminal accounting
date; and
(b) payment by the Ceding Company to the Reinsurer of an
amount equal to the Modified Coinsurance Reserve on
the annuities reinsured hereunder as of the terminal
accounting date; and
(c) payment by the Reinsurer to the Ceding Company of a
Terminal Reserve Adjustment equal to the Modified
Coinsurance Reserve on the annuities reinsured
hereunder as of the terminal accounting date;
(d) payment by the Ceding Company to the Reinsurer of a
Terminal Ceding Commission Adjustment equal to any
Unamortized Ceding Commission, as described in
Article III, Paragraph 2, as of the terminal
accounting date;
(e) payment by the Ceding Company to the Reinsurer of any
Funds Withheld, determined in accordance with Article
II, Paragraph 3, as of the terminal accounting date;
and
(f) payment by the Ceding Company to the Reinsurer of any
Loss Carryforward, as described in Article VIII,
calculated as of the terminal accounting date.
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142
If only a portion of the annuities is recaptured, as
described in Article XX, Xxxxxxxxx 0, then the
Terminal Accounting and Settlement described above,
will be made with respect to only the portion of such
annuities recaptured, excluding item (e) above. If
the calculation of the Terminal Accounting and
Settlement produces an amount owing to the Ceding
Company, such amount will be paid by the Reinsurer to
the Ceding Company. If the calculation of the
Terminal Accounting and Settlement produces an amount
owing to the Reinsurer, such amount will be paid by
the Ceding Company to the Reinsurer.
VI. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety
by the following:
Annuities and Risks Reinsured. Beginning on the Effective Date
of this Agreement, the Reinsurer reinsures a quota share of
the Ceding Company's net liability with respect to a portion
of the account values invested in variable accounts under
those variable annuities issued by the Ceding Company and
described below:
Quota Contract and
Plan Issue Years Share Certificate Numbers
---- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1995 95% VEN 10
Venture Vision 1994 - 1995 95% VISION.001
Beginning on December 31, 1994, under this Agreement the
Reinsurer also reinsures an additional 31 percent quota share
of the Ceding Company's net liability with respect to a
portion of the account values invested in variable accounts
under those variable annuities issued by the Ceding Company
and described below:
-9-
143
Contract and
Plan Issue Years Certificate Numbers
---- ----------- -------------------
Venture Variable
Annuity 3 1987 - 1993 203-VA
"Net liability," as used in this Agreement, means the Ceding
Company's liability on annuities reinsured hereunder, net of
other reinsurance.
VIII. Effective January 1, 1995, SCHEDULE B, QUARTERLY REPORT OF ACTIVITY AND
SETTLEMENTS, is replaced in its entirety by Exhibit A.
IX. The following information is added to SCHEDULE D, CEDING COMPANY DATA:
- Quarterly accounting settlement reports for this Agreement
received by the Reinsurer since inception
- Telephone conversation of September 5, 1995 between Xxxxx
Xxxxxx of the Ceding Company and Xxxxx Xxxxxxx of the
Reinsurer, which included the representation that the fixed
account portion of the annuities reinsured hereunder are ceded
to other reinsurers.
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144
In witness of the above, this Amendment Five is executed in duplicate on the
dates indicated below with an Effective Date of May 1, 1995.
NORTH AMERICAN SECURITY LIFE
ATTEST: INSURANCE COMPANY ("Ceding Company")
By: By:
------------------------------ -----------------------------
Title: Title:
------------------------------ -----------------------------
Date: Date:
------------------------------ -----------------------------
ITT XXXXXX LIFE INSURANCE COMPANY
ATTEST: ("Reinsurer")
By: By:
----------------------------- -----------------------------
Title: Title:
----------------------------- -----------------------------
Date: Date:
----------------------------- -----------------------------
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145
EXHIBIT A
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period: ________________
Calendar Year: ____________________
Date Report Completed: ____________
1. Initial Consideration (Article II, Paragraph 1)*
a. Initial Consideration _______
b. Amount of Initial Consideration withheld by
Ceding Company _______
Portion of Initial Consideration paid in cash
= a - b _______
2. Supplemental Consideration (Article II, Paragraph 1) _______
3. Reinsurance Premiums (Article II, Paragraph 2)
a. Reinsurance Premiums
A. Venture Variable Annuity 3 Reinsurance
gross premiums _______
B. Venture Vision Reinsurance Premiums -
first policy year gross premiums _______
C. Venture Vision Reinsurance Premiums -
renewal gross premiums _______
D. Statutory reserves transferred from fixed
accounts to variable accounts [item (ii)] _______
Total Reinsurance Premiums = A + B + C + D _______
b. Amount of Reinsurance Premiums withheld by
Ceding Company _______
Portion of Reinsurance Premiums paid in cash
= a - b _______
4. Benefit Payments (Article IV)
a. Death Benefits _______
b. Cash Surrender Values _______
c. Annuity Benefits _______
Benefit Payments = a + b + c _______
5. Initial Reserve Adjustment (Article V, Paragraph 1)* _______
6. Modified Coinsurance Reserve Adjustment (Article V, Paragraph 2)
a. Modified Coinsurance Reserve end of
preceding Accounting Period _______
b. Modified Coinsurance Reserve end of
current Accounting Period _______
c. Equals b - a _______
d. Modified Coinsurance Reserve Investment
Credit (Schedule C) _______
Modified Coinsurance Reserve Adjustment = c - d _______
146
EXHIBIT A CONTINUED
7. Reinsurance Gain = 0x - 0x - 0 - 0 - 00 - 00
(Xx negative, see Article VII) _______
8. Reinsurance Loss = 0x - 0x - 0 - 0 - 00 - 00
(Xx positive, see Article VII) _______
9. Loss Carryforward [Article VIII, Paragraph 1, item (i)] _______
10. Initial Expense and Risk Charge (Article VI, Paragraph 1)* _______
11. Expense and Risk Charge (Article VI, Paragraph 2) _______
12. Ceding Commission (Article III, Paragraph 1) _______
13. Unamortized Ceding Commission (Article III, Paragraph 2) _______
14. Unamortized Ceding Commission Adjustment
(Article III, Paragraph 3) _______
15. Allowances for Commissions and Expenses
(Article III, Paragraph 7) _______
16. Allowances for Death Benefit Guarantee
(Article III, Paragraph 8) _______
17. Experience Refund = 7 + 0 - 0 - 00 - 00 - 00 - 00
(Xx negative, see Article IX) _______
18. Funds Withheld payment [Article II, Paragraph 3, item (ii)] _______
19. Funds Withheld = Prior 19 + 1b + 2b - 18
(Article II, Paragraph 3) _______
20. Interest Expense Charge (Article II, Paragraph 4) _______
21. Interest on the Unamortized Ceding
Commission (Article III, Paragraph 9) _______
22. Cash Settlement =
1 + 2 + 3 - 4 - 5 - 6 + 10 - 12 - 15 - 16 - 17 + 18 _______
*Initial Accounting Period, only.
Terminal Accounting and Settlement (Partial recapture)
(Article XII, Paragraph 3)
A. Modified Coinsurance Reserve (Article V, Paragraph 3) _______
B. Terminal Reserve Adjustment (Article V, Paragraph 3) _______
147
EXHIBIT A CONTINUED
C. Terminal Ceding Commission (Article III, Paragraph 2)
a. Account value at end of preceding Accounting
Period with respect to portion of annuities
reinsured hereunder transferred from variable
accounts to fixed accounts _______
b. Account value at end of preceding Accounting
Period with respect to portion of annuities
reinsured hereunder _______
c. Unamortized Ceding Commission at end of
preceding Accounting Period _______
Terminal Ceding Commission = (a / b) x c _______
D. Portion of Loss Carryforward with respect to portion
of annuities reinsured hereunder transferred from
variable accounts to fixed accounts (Article VIII) _______
Cash Settlement = A - B + C + D _______
Supplemental Information
Venture
Total Variable Venture
Number Annuity 3 Vision Total
of Account Account Account Loss
Annuities Value Value Value Carryforward
Beginning of Period _________ _________ _______ _______ ____________
+ Additions _________ _________ _______ _______ ____________
- Terminations _________ _________ _______ _______ ____________
End of Period _________ _________ _______ _______ ____________
Venture Venture
Variable Vision
Annuity 3 Number
Number of of
Annuities Annuities
Beginning of Period _________ _________
+ Additions _________ _________
- Terminations _________ _________
End of Period _________ _________
Termination Rate (Article III, Paragraph 5)
a. Total number of annuities reinsured hereunder as of
date current Accounting Period ends _______
b. Total number of annuities reinsured hereunder as of
the date one year prior to the date the current _______
Accounting Period ends
c. Termination Rate 1 - (a / b) _______
148
EXHIBIT A CONTINUED
Investment Credit Accumulation Rate (Article III, Paragraph 6)
a. Modified Coinsurance Reserve Investment Credit
Current Accounting Period _______
First most recent Accounting Period _______
Second most recent Accounting Period _______
Third most recent Accounting Period _______ _______
b. Account value as of date one year prior to date
current Accounting Period ends _______
c. Account value as of date current Accounting Period ends _______
d. Investment Credit Accumulation Rate
a / [.5 x (b + c)] _______
Allowances for Commissions and Expenses (Article III, Paragraph 7)
a. $7.50 x quota share reinsured hereunder x number of annuities
reinsured hereunder and inforce at end of current Accounting
Period _______
b. Total account value invested in variable accounts on
annuities reinsured hereunder / total account value
invested in fixed and variable accounts on
annuities reinsured hereunder _______
c. .0125 x portion of account value of annuities reinsured
hereunder at end of current Accounting Period _______
d. Trailer Commission x portion of account value of Venture
Variable Annuity 3 annuities reinsured hereunder and
inforce at end of current Accounting Period _______
e. ___% x Reinsurance Premiums with respect to Venture Variable
Annuity 3 annuities reinsured hereunder _______
f. .25% x portion of account value, attributable to purchase
payments received by Ceding Company thirteen months or more
prior to their trailer commission dates, of Venture Vision
annuities reinsured hereunder and inforce at end of
current Accounting Period _______
g. ___% x renewal Reinsurance Premiums with respect to Venture
Vision annuities reinsured hereunder _______
h. Allowances for Commissions and Expenses =
[a x b] + c + d + e + f + g _______
149
AMENDMENT SIX
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
"CEDING COMPANY"
AND
RGA REINSURANCE COMPANY
"REINSURER"
150
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. ARTICLE III, COMMISSIONS AND ALLOWANCES, Paragraphs 1, 2, 4, 7 and 8,
are replaced in their entirety by the following:
1. Ceding Commission. Simultaneously with the payment of the
Initial Consideration, the Reinsurer will pay a Ceding
Commission to the Ceding Company equal to 2.2 percent times
the Initial Consideration, determined in accordance with
Article II, Paragraph 1, but not to exceed $10 million.
Simultaneously with the payment of the Supplemental
Consideration, the Reinsurer will pay a Ceding Commission to
the Ceding Company equal to 3.58 percent times the
Supplemental Consideration, determined in accordance with
Article II, Paragraph 1, but not to exceed $5.2 million. For
Accounting Periods beginning January 1, 1994 and thereafter,
the Reinsurer will pay a Ceding Commission to the Ceding
Company equal to the Ceding Commission Rate, as described in
Schedule E, Paragraph 2, times the Reinsurance Premiums,
determined in accordance with Article II, Paragraph 2, but not
to exceed $1 million for the 1995 calendar year and not to
exceed $2.15 million for the 1996 calendar year.
2. Unamortized Ceding Commission. The Unamortized Ceding
Commission at the end of each Accounting Period equals (i)
plus (ii) plus (iii) minus (iv), where:
(i) equals the Unamortized Ceding Commission at the
end of the preceding Accounting Period;
(ii) equals the Ceding Commission Rate, as described
in Schedule E, Paragraph 2, times the Reinsurance Premiums, determined in
1
151
accordance with Article II, Paragraph 2, but not to exceed $1 million for the
1995 calendar year and not to exceed $2.15 million for the 1996 calendar year;
(iii) for the Accounting Period ending December 31,
1994 only, equals 3.58 percent times the Supplemental Consideration, determined
in accordance with Article II, Paragraph 1, but not to exceed $5.2 million; and
(iv) equals the Unamortized Ceding Commission
Adjustment, determined in accordance with Paragraph 3 below.
With respect, however, to the Accounting Period during which
the Effective Date of this Agreement occurs, the reference in (i) to the "end of
the preceding Accounting Period" refers to the Effective Date of this Agreement
immediately after the Ceding Commission, as described in Paragraph 1 above, has
been paid. The Unamortized Ceding Commission may never be less than zero. In the
Accounting Period during which (i) plus (ii) plus (iii) minus (iv) as described
above, first becomes zero or negative, then, for that and all subsequent
Accounting Periods, the Unamortized Ceding Commission will be set equal to zero.
Notwithstanding the above, any portion of the Unamortized
Ceding Commission which corresponds to the portion of the annuities recaptured
pursuant to the second sentence of Paragraph 4, Article XI, will be paid by the
Ceding Company to the Reinsurer, in accordance with Article XII, Paragraph 3(d),
in an amount equal to [(v) / (vi)] x (vii), where:
(v) equals the portion of the account value, with
respect to the portion of the annuities reinsured hereunder transferred from
variable accounts to fixed accounts and treated as recaptured, in accordance
with Article XI, Paragraph 4;
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152
(vi) equals the portion of the account value, at the
end of the preceding Accounting Period with respect to the portion of the
annuities reinsured hereunder; and
(vii) equals the Unamortized Ceding Commission,
determined in accordance with item (i) above, at the end of the preceding
Accounting Period.
4. Maximum Unamortized Ceding Commission Adjustment. The
Maximum Unamortized Ceding Commission Adjustment for each Accounting Period is
as follows:
Maximum Unamortized
Ceding Commission Maximum Unamortized
Adjustment Ceding Commission
For Accounting (For Amounts Paid Adjustment (For Amounts
Periods Ending During Initial Paid After Initial
During Accounting Period) Accounting Period)
-------------- ------------------- -----------------------------
1994 $500,000 $0
1995 $500,000 5 percent of the cumulative
Ceding Commission paid by the
Reinsurer to the Ceding
Company during the 1994
calendar year in accordance
with Article III, Paragraph 1
1996 $500,000 5 percent of the cumulative
Ceding Commission paid by the
Reinsurer to the Ceding
Company during the 1994 and
1995 calendar years in
accordance with Article III,
Paragraph 1
Maximum Unamortized
Ceding Commission Maximum Unamortized
Adjustment Ceding Commission
For Accounting (For Amounts Paid Adjustment (For Amounts
Periods Ending During Initial Paid After Initial
During Accounting Period) Accounting Period)
-------------- ------------------- -----------------------------
1997 through $500,000 5 percent of the cumulative
1998 Ceding Commission paid by the
Reinsurer to the Ceding
Company during the 1994, 1995
and 1996 calendar years in
accordance with Article III,
Paragraph 1
1999 $ 0 5 percent of the cumulative
Ceding Commission paid by the
Reinsurer to the Ceding
Company during the 1994, 1995
and 1996 calendar years in
accordance with Article III,
Paragraph 1
2000 $ 0 5 percent of the cumulative
Ceding Commission paid by the
Reinsurer to the Ceding
Company during the 1995 and
1996 calendar years in
accordance with Article III,
Paragraph 1
3
153
2001 $ 0 5 percent of the cumulative
Ceding Commission paid by the
Reinsurer to the Ceding
Company during the 1996
calendar year in accordance
with Article III, Paragraph 1
2002 and $ 0 $0
thereafter
However, if in any Accounting Period (a) the Termination Rate, as
described in Paragraph 5 below, is greater than 0.30, and/or (b) the Investment
Credit Accumulation Rate, as described in Paragraph 6 below, is less than zero,
then the Reinsurer may elect to define the Maximum Withheld Ceding Commission
Adjustment as any amount up to $14 million for the first Accounting Period in
the current calendar year and for all Accounting Periods thereafter.
7. Allowances for Commissions and Expenses. For Accounting Periods
beginning January 1, 1996 and thereafter, the Reinsurer will pay the Ceding
Company Allowances for Commissions and Expenses for each Accounting Period,
equal to (i) plus (ii) plus (iii) plus (iv) plus (v) plus (vi), where:
(i) equals (a) times (b) times (c) times (d), where:
(a) equals:
- for the Accounting Periods beginning January
1, 1996 through December 31, 1996 only, $8.4375; and
- for the Accounting Periods beginning January
1, 1997 and thereafter, ($8.4375 x 1.04 n), where n equals the number of
calendar years which have occurred since January 1, 1996;
(b) equals the quota share percentage of the
annuities reinsured hereunder, as described in Schedule A;
(c) equals the number of annuities reinsured
hereunder and described in Schedule A, and enforce at the end of the current
Accounting Period; and
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154
(d) equals the total account value invested in variable
accounts with respect to the annuities reinsured hereunder, divided by the total
account value invested in fixed and variable accounts with respect to the
annuities reinsured hereunder; and
(ii) equals .0125 percent times that portion of the account value
of the annuities reinsured hereunder which corresponds to the portion of the
annuities reinsured hereunder as of the end of the current Accounting Period;
(iii) equals the Trailer Commission, as defined below, times that
portion of the account value of the Venture Variable Annuity 3 annuities
reinsured hereunder which corresponds to the portion of the Venture Variable
Annuity 3 annuities reinsured hereunder and described in Schedule A, as of the
end of the current Accounting Period;
(iv) equals the Renewal Commission Rate, as defined below, times
that portion of the gross renewal premiums collected by the Ceding Company with
respect to the Venture Variable Annuity 3 annuities reinsured hereunder which
corresponds to the portion of the Venture Variable Annuity 3 annuities reinsured
hereunder and described in Schedule A;
(v) equals .25 percent times that portion of the account value,
attributable to purchase payments received by the Ceding Company thirteen (13)
months or more prior to their trailer commission payment dates, of the Venture
Vision annuities reinsured hereunder which corresponds to the portion of the
Venture Vision annuities reinsured hereunder and described in Schedule A, as of
the end of the current Accounting Period; and
(vi) equals the Renewal Commission Rate, as defined below, times
that portion of the gross renewal premiums received by the Ceding Company
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thirteen (13) months or more after the issue date of each Venture Vision annuity
reinsured hereunder which corresponds to the portion of the Venture Vision
annuities reinsured hereunder and described in Schedule A.
The Trailer Commission for Venture Variable Annuity 3 annuities for
each Accounting Period is defined below:
For Accounting
Periods Ending During Trailer Commission
--------------------- ------------------
1994 .04%
1995 .05%
1996 .055%
1997 and thereafter .0625%
The Renewal Commission Rate for each Accounting Period is defined
below:
Venture
For Accounting Variable Venture
Periods Ending During Annuity 3 Vision
--------------------- --------- -------
1994 5.33% 1.83%
1995 7.00% 3.50%
1996(1) 4.16% .66%
1997 and thereafter 7.00% 3.50%
(1)Notwithstanding the above, in the event that the total
Reinsurance Premiums, determined in accordance with Article II, Paragraph 2,
reported with respect to calendar year 1996 exceeds $75,704,225, then during
1996 the Renewal Commission Rate, applied to any gross renewal premiums included
in the portion of the total Reinsurance Premiums which exceeds $75,704,225, is
defined below:
Venture Variable
Annuity 3 Venture Vision
---------------- --------------
7.00% 3.50%
8. Allowances for Death Benefit Guarantee. For Accounting Periods
beginning January 1, 1996 and thereafter, the Reinsurer will pay the Ceding
Company Allowances for Death Benefit Guarantee for each Accounting Period, as
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an allowance for costs of the minimum death benefit guarantee on the annuities
reinsured hereunder, equal to the sum of:
(i) .06 percent times that portion of the account value
of the Venture Vision annuities reinsured hereunder which corresponds to the
portion of the Venture Vision annuities reinsured hereunder and described in
Schedule A, as of the end of the current Accounting Period, plus
(ii) .02 percent times that portion of the account value
of the Venture Variable Annuity 3 annuities reinsured hereunder which
corresponds to the portion of the Venture Variable Annuity 3 annuities reinsured
hereunder and described in Schedule A, as of the end of the current Accounting
Period.
II. Effective April 1, 1996, ARTICLE III, COMMISSIONS AND ALLOWANCES, Paragraph
9, is replaced in its entirety by the following:
9. Interest on the Unamortized Ceding Commission. The Ceding
Company will pay the Reinsurer Interest on the Unamortized Ceding Commission at
the end of each Accounting Period, subsequent to the initial Accounting Period,
equal to [(i) x (ii)] + [(iii) x (iv)] + [(v) x (vi)] + [(vii) x (viii)] + [(ix)
x (x)] + [(xi) x (xii)], where:
(i) equals the portion of the Unamortized Ceding
Commission, determined in accordance with Paragraph 2 above, paid by the
Reinsurer to the Ceding Company as Ceding Commission during the initial
Accounting Period in accordance with Paragraph 1 above, calculated as of the end
of the preceding Accounting Period;
(ii) equals the Interest Expense Rate, as described in
Article II, Paragraph 5;
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(iii) equals the portion of the Unamortized Ceding
Commission, determined in accordance with Paragraph 2 above, paid by the
Reinsurer to the Ceding Company as Ceding Commission, in accordance with
Paragraph 1 above, for the 1994 and 1995 calendar years, calculated as of the
end of the preceding Accounting Period;
(iv) equals the Loss Carryforward Rate, as described in
Article VIII, Paragraph 2;
(v) equals, for the Accounting Periods beginning April
1, 1996 and thereafter, the portion of the Unamortized Ceding Commission,
determined in accordance with Paragraph 2 above, paid by the Reinsurer to the
Ceding Company as Ceding Commission, in accordance with Paragraph 1 above, for
the first Accounting Period in the 1996 calendar year; and
(vi) equals,
- for the Accounting Period beginning April 1,
1996, [(a) / (b)] x (c), where:
(a) equals the Loss Carryforward Rate, as
described in Article VIII, Paragraph 2;
(b) equals the number of days in the current
Accounting Period; and
(c) equals the number of days remaining in
the current Accounting Period measured from the quarterly settlement date, as
described in Article X, for the first Accounting Period in the 1996 calendar
year; and
- for the Accounting Periods beginning July 1,
1996 and thereafter, equals the Loss Carryforward Rate, as described in Article
VIII, Paragraph 2;
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(vii) equals, for the Accounting Periods beginning July 1,
1996 and thereafter, the portion of the Unamortized Ceding Commission,
determined in accordance with Paragraph 2 above, paid by the Reinsurer to the
Ceding Company as Ceding Commission, in accordance with Paragraph 1 above, for
the second Accounting Period in the 1996 calendar year; and
(viii) equals,
- for the Accounting Period beginning July 1,
1996, [(a) / (b)] x (c), where:
(a) equals the Loss Carryforward Rate,
as described in Article VIII, Paragraph 2;
(b) equals the number of days in the
current Accounting Period; and
(c) equals the number of days remaining
in the current Accounting Period measured from the quarterly settlement date, as
described in Article X, for the second Accounting Period in the 1996 calendar
year; and
- for the Accounting Periods beginning October
1, 1996 and thereafter, equals the Loss Carryforward Rate, as described in
Article VIII, Paragraph 2;
(ix) equals, for the Accounting Periods beginning October
1, 1996 and thereafter, the portion of the Unamortized Ceding Commission,
determined in accordance with Paragraph 2 above, paid by the Reinsurer to the
Ceding Company as Ceding Commission, in accordance with Paragraph 1 above, for
the third Accounting Period in the 1996 calendar year;
(x) equals,
- for the Accounting Period beginning October
1, 1996, [(a) / (b)] x (c), where:
(a) equals the Loss Carryforward Rate,
as described in Article VIII, Paragraph 2;
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(b) equals the number of days in the
current Accounting Period; and
(c) equals the number of days remaining
in the current Accounting Period measured from the quarterly settlement date, as
described in Article X, for the third Accounting Period in the 1996 calendar
year; and
- for the Accounting Periods beginning January
1, 1997 and thereafter, the Loss Carryforward Rate, as described in Article
VIII, Paragraph 2;
(xi) equals, for the Accounting Periods beginning January
1, 1997 and thereafter, the portion of the Unamortized Ceding Commission,
determined in accordance with Paragraph 2 above, paid by the Reinsurer to the
Ceding Company as Ceding Commission, in accordance with Paragraph 1 above, for
the fourth Accounting Period in the 1996 calendar year; and
(xii) equals,
- for the Accounting Period beginning January
1, 1997, [(a) / (b)] x (c), where:
(a) equals the Loss Carryforward Rate,
as described in Article VIII, Paragraph 2;
(b) equals the number of days in the
current Accounting Period; and
(c) equals the number of days remaining
in the current Accounting Period measured from the quarterly settlement date, as
described in Article X, for the fourth Accounting Period in the 1996 calendar
year; and
- for the Accounting Periods beginning April
1, 1997 and thereafter, the Loss Carryforward Rate, as described in Article
VIII, Paragraph 2.
III. ARTICLE VI, EXPENSE AND RISK CHARGES, Paragraph 2, is replaced in its
entirety by the following:
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2. Expense and Risk Charge. The Expense and Risk Charge for each
Accounting Period subsequent to the initial Accounting Period, payable to the
Reinsurer by the Ceding Company, will be equal to (i) plus (ii) plus (iii),
where:
(i) equals the Expense and Risk Charge Rate,
as defined below, times the Loss Carryforward, determined in accordance with
Article VIII, Paragraph 1, item (i), at the end of the preceding Accounting
Period, with accrued interest thereon;
(ii) equals the Expense and Risk Charge Rate,
as defined below, times the Expense and Risk Charge Base, as defined below; and
(iii) for the Accounting Period ending December
31, 1994 only, equals 1.0 percent times 3.2 percent of the Supplemental
Consideration, determined in accordance with Article II, Paragraph 1, but not to
exceed 1.65 percent times $5.2 million.
The Expense and Risk Charge Rate for each Accounting Period is
defined as follows:
For Accounting Expense and
Periods Ending During Risk Charge Rate
--------------------- ----------------
1994 through 2001 .4125%
2002 and thereafter .4142%
The Expense and Risk Charge Base for each Accounting Period is
defined as follows:
For Accounting
Periods Ending During Expense and Risk Charge Base
--------------------- ----------------------------
1994 through 2001 greater of either (a) the Unamortized
Ceding Commission, determined in accordance with Article III, Paragraph 2, at
the end of the preceding Accounting Period, plus the Ceding Commission Rate, as
described in Article III, Paragraph 1, times the Reinsurance Premiums,
determined in accordance with Article II, Paragraph 2, but not to exceed $1
million for the 1995 calendar year and not to exceed $2.15 million for the 1996
calendar year, minus the Maximum Unamortized Ceding Commission Adjustment,
determined in accordance with Article III, Paragraph 4, or (b) quantity (iv) as
defined below, but never less than zero
2002 and thereafter (iv) below, but never less than zero,
where:
(iv) equals (a) plus (b) plus (c) minus (d) plus (e) plus
(f), where:
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(a) equals the Unamortized Ceding Commission,
determined in accordance with Article III, Paragraph 2, at the end of the
preceding Accounting Period;
(b) equals the Ceding Commission Rate, as
described in Article III, Paragraph 1, times the Reinsurance Premiums,
determined in accordance with Article II, Paragraph 2, but not to exceed $1
million for the 1995 calendar year and not to exceed $2.15 million for the 1996
calendar year;
(c) equals the absolute value of any Reinsurance
Loss, determined in accordance with Article VII;
(d) equals any Reinsurance Gain, determined in
accordance with Article VII;
(e) equals the Interest Expense Charge,
determined in accordance with Article II, Paragraph 4; and
(f) equals the Interest on the Unamortized
Ceding Commission, determined in accordance with Article III, Paragraph 9.
In no event will the Expense and Risk Charge payable be less
than $20,000 for any Accounting Period after December 31, 2001.
IV. SCHEDULE A, ANNUITIES AND RISKS REINSURED, is replaced in its entirety
by the following:
Annuities and Risks Reinsured. Beginning on the Effective Date
of this Agreement, the Reinsurer reinsures a quota share of the Ceding Company's
net liability with respect to a portion of the account values invested in
variable accounts under those variable annuities issued by the Ceding Company
and described below:
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Quota Contract and
Plan Issue Years Share Certificate Numbers
---- ----------- ----- -------------------
Venture Variable
Annuity 3 1987 - 1993 64% 203-VA
Venture Vision 1993 - 1996 95% VEN 10
Venture Vision 1994 - 1996 95% VISION.001
Beginning on December 31, 1994, under this Agreement the
Reinsurer also reinsures an additional 31 percent quota share of the Ceding
Company's net liability with respect to a portion of the account values invested
in variable accounts under those variable annuities issued by the Ceding Company
and described below:
Contract and
Plan Issue Years Certificate Numbers
---- ----------- -------------------
Venture Variable
Annuity 3 1987 - 1993 203-VA
"Net liability," as used in this Agreement, means the Ceding
Company's liability on annuities reinsured hereunder, net of other reinsurance.
V. SCHEDULE B, QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS, is replaced
in its entirety by Exhibit A.
VI. The following information is added to SCHEDULE D, CEDING COMPANY DATA:
- Quarterly accounting settlement reports for this Agreement received
by the Reinsurer since inception
- December 31, 1995 prospectuses for Venture 3, Vision 5 and Vision 25
- Facsimile from Xxxxx Seller of the Ceding Company dated July 25, 1996
which included the reinsurance cost calculation and the update Venture Vision
pricing assumptions
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VII. SCHEDULE E, RATES, Paragraph 2, is replaced in its entirety by the
following:
2. Ceding Commission Rate. The Ceding Commission Rate for each
Accounting Period, subsequent to the initial Accounting Period, is defined as
follows:
For Accounting Ceding
Periods Ending During Commission Rate
--------------------- ---------------
1994 and 1995 1.67%
1996 2.84%
1997 and thereafter 0%
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In witness of the above, this Amendment Six is executed in duplicate on the
dates indicated below with an Effective Date of January 1, 1996.
NORTH AMERICAN SECURITY LIFE
INSURANCE COMPANY ("Ceding Company")
By:_____________________________
Title:_____________________________
Date:_____________________________
RGA REINSURANCE COMPANY
("Reinsurer")
By:_____________________________
Title:_____________________________
Date:_____________________________
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EXHIBIT A
SCHEDULE B
QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS
FROM CEDING COMPANY TO REINSURER
Accounting Period:______________
Calendar Year:__________________
Date Report Completed:__________
1. Initial Consideration (Article II, Paragraph 1)*
a. Initial Consideration ________
b. Amount of Initial Consideration withheld by
Ceding Company ________
Portion of Initial Consideration paid in cash
= a - b ________
2. Supplemental Consideration (Article II, Paragraph 1) ________
3. Reinsurance Premiums (Article II, Paragraph 2)
a. Reinsurance Premiums
A. Venture Variable Annuity 3 Reinsurance
gross premiums ________
B. Venture Vision Reinsurance Premiums -
first policy year gross premiums ________
C. Venture Vision Reinsurance Premiums -
renewal gross premiums ________
D. Statutory reserves transferred from fixed
accounts to variable accounts [item (ii)] ________
Total Reinsurance Premiums = A + B + C + D ________
b. Amount of Reinsurance Premiums withheld by
Ceding Company ________
Portion of Reinsurance Premiums paid in cash = a - b ________
4. Benefit Payments (Article IV)
a. Death Benefits ________
b. Cash Surrender Values ________
c. Annuity Benefits ________
Benefit Payments = a + b + c ________
5. Initial Reserve Adjustment (Article V, Paragraph 1)* ________
6. Modified Coinsurance Reserve Adjustment (Article V, Paragraph 2)
a. Modified Coinsurance Reserve end of
preceding Accounting Period ________
b. Modified Coinsurance Reserve end of
current Accounting Period ________
c. Equals b - a ________
d. Modified Coinsurance Reserve Investment
Credit (Schedule C) ________
Modified Coinsurance Reserve Adjustment = c - d ________
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EXHIBIT A CONTINUED
7. Reinsurance Gain = 2 + 0x - 0 - 0 - 00 - 00
(Xx negative, see Article VII) ________
8. Reinsurance Loss = 2 + 0x - 0 - 0 - 00 - 00
(Xx positive, see Article VII) ________
9. Loss Carryforward [Article VIII, Paragraph 1, item (i)] ________
10. Initial Expense and Risk Charge (Article VI, Paragraph 1)* ________
11. Expense and Risk Charge (Article VI, Paragraph 2) ________
12. Ceding Commission (Article III, Paragraph 1) ________
13. Unamortized Ceding Commission (Article III, Paragraph 2) ________
14. Unamortized Ceding Commission Adjustment
(Article III, Paragraph 3) ________
15. Allowances for Commissions and Expenses
(Article III, Paragraph 7) ________
16. Allowances for Death Benefit Guarantee
(Article III, Paragraph 8) ________
17. Experience Refund = 7 + 0 - 0 - 00 - 00 - 00 - 00
(Xx negative, see Article IX) ________
18. Funds Withheld payment [Article II, Paragraph 3, item (ii)] ________
19. Funds Withheld = Prior 19 + 1b + 2b - 18
(Article II, Paragraph 3) ________
20. Interest Expense Charge (Article II, Paragraph 4) ________
21. Interest on the Unamortized Ceding Commission
(Article III, Paragraph 9) ________
22. Cash Settlement =
1 + 2 + 3 - 4 - 5 - 6 + 10 - 12 - 15 - 16 - 17 + 18 ________
*Initial Accounting Period, only.
Terminal Accounting and Settlement (Partial recapture)
(Article XII, Paragraph 3)
A. Modified Coinsurance Reserve (Article V, Paragraph 3) ________
B. Terminal Reserve Adjustment (Article V, Paragraph 3) ________
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EXHIBIT A CONTINUED
C. Terminal Ceding Commission (Article III, Paragraph 2)
a. Account value at end of preceding Accounting
Period with respect to portion of annuities reinsured
hereunder transferred from variable accounts to fixed
accounts ________
b. Account value at end of preceding Accounting
Period with respect to portion of annuities
reinsured hereunder ________
c. Unamortized Ceding Commission at end of
preceding Accounting Period ________
Terminal Ceding Commission = (a / b) x c ________
D. Portion of Loss Carryforward with respect to portion
of annuities reinsured hereunder transferred from
variable accounts to fixed accounts (Article VIII) ________
Cash Settlement = A - B + C + D ________
Supplemental Information
Venture
Total Variable Venture
Number Annuity 3 Vision Total
of Account Account Account Loss
Annuities Value Value Value Carryforward
Beginning of Period _________ _________ _______ ______ ____________
+ Additions _________ _________ _______ ______ ____________
- Terminations _________ _________ _______ ______ ____________
End of Period _________ _________ _______ ______ ____________
Venture Venture Account Account
Variable Vision Value Value
Annuity 3 Number Invested Invested
Number of of in Fixed in Variable
Annuities Annuities Accounts Accounts
Beginning of Period _________ _________ _______ ______
+ Additions _________ _________ _______ ______
- Terminations _________ _________ _______ ______
End of Period _________ _________ _______ ______
Termination Rate (Article III, Paragraph 5)
a. Total number of annuities reinsured hereunder as of
date current Accounting Period ends ________
b. Total number of annuities reinsured hereunder as of
the date one year prior to the date the current
Accounting Period ends ________
168
c. Termination Rate 1 - (a / b) ________
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EXHIBIT A CONTINUED
Investment Credit Accumulation Rate (Article III, Paragraph 6)
a. Modified Coinsurance Reserve Investment Credit
Current Accounting Period ________
First most recent Accounting Period ________
Second most recent Accounting Period ________
Third most recent Accounting Period ________ _______
b. Account value as of date one year prior to date
current Accounting Period ends _______
c. Account value as of date current Accounting Period ends _______
d. Investment Credit Accumulation Rate
a / [.5 x (b + c)] _______
Allowances for Commissions and Expenses (Article III, Paragraph 7)
a. $8.4375 (x 1.04 n) x quota share reinsured hereunder x
number of annuities reinsured hereunder and inforce
at end of current Accounting Period _______
b. Total account value invested in variable accounts on
annuities reinsured hereunder / total account value
invested in fixed and variable accounts on annuities
reinsured hereunder _______
c. .0125% x portion of account value of annuities reinsured
hereunder at end of current Accounting Period _______
d. Trailer Commission x portion of account value of Venture
Variable Annuity 3 annuities reinsured hereunder and inforce
at end of current Accounting Period _______
e. Renewal Commission Rate x portion of gross renewal premiums
with respect to Venture Variable Annuity 3 annuities
reinsured hereunder _______
f. .25% x portion of account value, attributable to purchase
payments received by Ceding Company thirteen months or more
prior to their trailer commission dates, of Venture Vision
annuities reinsured hereunder and inforce at end of current
Accounting Period _______
g. Renewal Commission Rate x portion of gross renewal premiums
with respect to Venture Vision annuities reinsured hereunder
received 13 months after issue date _______
h. Allowances for Commissions and Expenses =
[a x b] + c + d + e + f + g _______
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AMENDMENT SEVEN
ATTACHED TO AND MADE A PART OF THE
REINSURANCE AGREEMENT NUMBER 1293-104
BETWEEN
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
(FORMERLY KNOWN AS NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY)
"CEDING COMPANY"
AND
RGA REINSURANCE COMPANY
"REINSURER"
171
The Ceding Company and the Reinsurer agree to amend this Reinsurance Agreement
as follows:
I. Effective October 1, 1997, ARTICLE III, COMMISSIONS AND ALLOWANCES,
Paragraph 9, is replaced in its entirety by the following:
9. Interest on the Unamortized Ceding Commission. The Ceding
Company will pay the Reinsurer Interest on the Unamortized Ceding Commission
at the end of each Accounting Period, subsequent to the initial Accounting
Period, equal to [(i) x (ii)] + [{[(iii) + (iv)] / 90} x (v)], where:
(i) equals the portion of the Unamortized Ceding
Commission, determined in accordance with Paragraph 2 above, paid by the
Reinsurer to the Ceding Company as Ceding Commission during the initial
Accounting Period in accordance with Paragraph 1 above, calculated as of the end
of the preceding Accounting Period;
(ii) equals the Interest Expense Rate, as
described in Article II, Paragraph 5;
(iii) equals the portion of the Unamortized Ceding
Commission, determined in accordance with Paragraph 2 above, paid by the
Reinsurer to the Ceding Company as Ceding Commission, in accordance with
Paragraph 1 above, for the calendar years beginning 1994 and thereafter,
calculated as of the beginning of the preceding Accounting Period times the
number of days from the beginning of the current Accounting Period until the
quarterly settlement date, as described Article X, for the preceding Accounting
Period;
(iv) equals the portion of the Unamortized
Ceding Commission, determined in accordance with Paragraph 2 above, paid by
the Reinsurer to
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the Ceding Company as Ceding Commission, in accordance with Paragraph 1 above,
for the calendar years beginning 1994 and thereafter, calculated as of the end
of the preceding Accounting Period times the number of days remaining in the
current Accounting Period measured from the quarterly settlement date, as
described Article X, for the preceding Accounting Period; and
(v) equals the Loss Carryforward Rate, as
described in Article VIII, Paragraph 2.
II. ARTICLE VIII, LOSS CARRYFORWARD, Paragraph 2, is replaced in its
entirety by the following:
2. Loss Carryforward Rate. The Loss Carryforward Rate for each
Accounting Period will be equal to 51.25 basis points plus the quantity [(i) /
(ii)], where:
(i) equals the three month London Interbank
Offered Rates (LIBOR) as published by The Wall Street Journal as of the
quarterly settlement date, as described in Article X, for the preceding
Accounting Period; and
(ii) equals four.
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173
In witness of the above, this Amendment Seven is executed in duplicate on the
dates indicated below with an Effective Date of October 1, 1997.
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA ("Ceding Company")
By:___________________________
Title:___________________________
Date:___________________________
RGA REINSURANCE COMPANY
("Reinsurer")
By:___________________________
Title:___________________________
Date:___________________________
3