1American Capitol Assumption Agreement - Exhibit 4.1-A to the L
iquidation Plan
AGREEMENT
for
ASSUMPTION REINSURANCE
by and among
the NATIONAL ORGANIZATION OF LIFE AND HEALTH
INSURANCE GUARANTY ASSOCIATIONS
and its Participating Life and Health Insurance Guaranty Associations
and the
AMERICAN CAPITOL INSURANCE COMPANY
Concerning
THE STATESMAN NATIONAL LIFE INSURANCE COMPANY IN LIQUIDATION
TABLE OF CONTENTS
Page
I. RECITALS 1
II. DEFINITIONS 1
III. ASSUMPTION OF AMERICAN CAPITOL ASSUMED POLICIES 1
A. American Capitol Assumed Policies 1
1. Participating Guaranty Associations 1
2. Assuming Insurer 2
3. Assumption Certificate 2
B. Same Terms and Conditions 2
C. Assignment of Rights 2
D. Reinstatement 3
E. Errors and Omissions 3
F. Third Party Reinsurance 4
IV. POLICY CALCULATIONS AND PAYMENT OBLIGATIONS 4
A. Association Liability 4
B. American Capitol Enhancement 4
V. CLOSING 5
VI. ACCOUNTING AND AUDIT PROCESS 5
A. Accounting 5
B. Audit 5
C. Accounting Date 6
D. Disputes 6
VII. PREMIUMS AND OTHER RECEIPTS 6
VIII.RECORDS 7
IX. LIABILITIES AND INDEMNITIES 7
X. REPRESENTATIONS 8
XI. RESERVES 8
XII. JURISDICTION AND ACCOUNTING PROCEDURE 8
XIII.NOTICE 8
XIV. INSOLVENCY OF AMERICAN CAPITOL 8
XV. GENERAL PROVISIONS 9
I. RECITALS
A. This agreement for assumption reinsurance ("American
Capitol Assumption Agreement") regarding the insolvency and
liquidation of The Statesman National Life Insurance Company
("Statesman") is entered into this 10th day of June, 1999
by and among the National Organization of Life and Health
Insurance Guaranty Associations ("NOLHGA"), and the life and
health insurance guaranty associations affected by the
insolvency and liquidation of Statesman that elect to
participate in this Liquidation Plan ("Participating
Guaranty Associations"), and American Capitol Insurance
Company ("American Capitol" and "Assuming Insurer").
B. This American Capitol Assumption Agreement is entered into
contemporaneously with the Liquidation Plan and the recitals from
the Liquidation Plan are incorporated herein.
NOW, THEREFORE, in consideration of the foregoing premises, and
the covenants, promises and agreements set forth in this American
Capitol Assumption Agreement and the Liquidation Plan, the
Parties agree as follows:
II. DEFINITIONS
Unless otherwise specifically provided or the context so
requires, the capitalized terms set forth in this American
Capitol Assumption Agreement shall have the same meaning as set
forth in Exhibit 2.1 to the Liquidation Plan and such definitions
are incorporated by reference as if fully set forth herein.
III. ASSUMPTION OF AMERICAN CAPITOL ASSUMED POLICIES
A. American Capitol Assumed Policies.
1. Participating Guaranty Associations. Subject to the terms
and conditions of this American Capitol Assumption Agreement, by
virtue of the Permanent Injunction and the Liquidation Plan and
pursuant to their statutory authority, the Participating Guaranty
Associations transfer, cede and assign to Assuming Insurer as of
the Closing Date the American Capitol Assumed Policies and all
rights, privileges and prerogatives thereunder. The American
Capitol Assumed Policies are reflected in Exhibit III.A.1.
American Capitol shall have no liability for any obligations of
Statesman, other than the American Capitol Assumed Policies and
as otherwise provided in the Liquidation Plan.
2. Assuming Insurer. Subject to the terms and conditions of
this American Capitol Assumption Agreement and the Liquidation
Plan, American Capitol assumes effective as of 12:01 a.m. on June
1, 1999 the American Capitol Assumed Policies, to the same extent
and with the same effect as if American Capitol had issued the
American Capitol Assumed Policies directly.
3. Assumption Certificate. As soon as possible after Closing
Date, American Capitol shall deliver an assumption certificate to
policyholders of the American Capitol Assumed Policies
substantially in the form of Exhibit III.A.3. and subject to the
approval of the Commissioner and NOLHGA.
B. Same Terms and Conditions. All American Capitol Assumed
Policies assumed by American Capitol shall be subject in all
respects to the same terms and conditions of the policies and
contracts as issued by Statesman. Notwithstanding anything to
the contrary contained herein, American Capitol does not assume,
and shall not be liable for, any liabilities that are not (a)
Covered Obligations, (b) claims based on policy terms and
provisions, or (c) liabilities expressly provided in the
Liquidation Plan. American Capitol shall accept and assume the
American Capitol Assumed Policies subject to all defenses, set-
offs and counterclaims to which the Participating Guaranty
Associations would be entitled with respect to such American
Capitol Assumed Policies. It is expressly understood and agreed
by the parties that no such defenses, set-offs or counterclaims
are waived by the execution of this American Capitol Assumption
Agreement, the Liquidation Plan or by the consummation of any
related transactions, and that on the Closing Date, American
Capitol shall be fully subrogated to all such defenses, set-offs
and counterclaims (all of which defenses, set-offs and
counterclaims may also be asserted by Statesman or any
Participating Guaranty Association, as the case may be, with
respect to any claims that may be asserted against them).
C. Assignment of Rights. Each Participating Guaranty
Association, severally, hereby assign to American Capitol all of
their respective privileges and prerogatives and the privileges
and prerogatives of Statesman, if any, contained within or
related to the American Capitol Assumed Policies, including, but
not limited to, all defenses, including contestability based upon
material misstatements in the applications for such American
Capitol Assumed Policies, set-offs and counterclaims to which
Statesman or the Participating Guaranty Association would be
entitled with respect to such American Capitol Assumed Policies;
provided that: (a) each Participating Guaranty Association
retains all rights and interests of policyholders against the
Statesman Estate to which the Participating Guaranty Association
is entitled pursuant to its enabling act and the Priority Statute
and all rights and interests of policyholders, in equity or at
law based on violations of common law, tort law, contract law,
statutory law or other law, to which the Participating Guaranty
Association is subrogated pursuant to its enabling act;
(b) American Capitol shall have no claim under the American
Capitol Assumed Policies against the Statesman Estate or any
Participating Guaranty Association except as otherwise set forth
in this American Capitol Assumption Agreement; and (c) American
Capitol shall have no privileges, prerogatives, defenses, set-
offs and counterclaims relating to reinsurance treaties in force,
except for Included Treaties.
D. Reinstatement. American Capitol agrees to reinstate any
American Capitol Assumed Policies policy which on the Closing
Date by its terms was entitled to reinstatement, provided that
all requirements necessary to procure reinstatement of such a
policy under its terms are fulfilled to the satisfaction of
American Capitol. Upon such reinstatement of any such lapsed
policy, it shall for all purposes be treated as if it has been in
force from the date on which it lapsed, except that it shall be
subject to all the terms and conditions of this American Capitol
Assumption Agreement as may be pertinent to the class of the
policy in which it was or should have been included. In the
event of such reinstatement, an appropriate adjustment shall be
made to the reserves or account values, as applicable, the
Enhancement, or the reinstated policy and any amounts due shall
be paid pursuant to this American Capitol Assumption Agreement;
provided that no such adjustment shall be made from and after the
Plan Termination Date.
E. Errors and Omissions. After the Plan Termination Date,
inadvertent errors or omissions shall not relieve any Party from
liability provided that the error or omission is rectified as
soon as practicable after discovery. Upon discovery of an error
or omission, the Party discovering the error or omission shall
notify any other parties affected by the error or omission. All
Parties agree to cooperate and work together, in good faith, to
resolve, consistent with the terms of the Liquidation Plan, any
problems or losses caused by any such error or omission. Such
good faith cooperation may include, but is not limited to,
assumption of Statesman policies, transfer of assets and complete
documentation of the error or omission.
F. Third Party Reinsurance. All of the Included Treaties which
pertain or apply to the American Capitol Assumed Policies, are
identified on Exhibit III.F. hereto. All such Included Treaties
shall be transferred to American Capitol on the Closing Date,
subject to the reinsurer's acceptance of the transfer, and may be
terminated thereafter at the election of American Capitol. The
Parties hereto shall use commercially reasonable efforts to
ensure that all such Included Treaties shall be amended,
adjusted, assigned or novated on terms and conditions
satisfactory to American Capitol on or before the Closing Date.
IV. POLICY CALCULATIONS AND PAYMENT OBLIGATIONS
A. Association Liability.
1. The Association Liability for the American Capitol Assumed
Policies shall be calculated by the following formula: American
Capitol Assumed Policies Reserves PLUS Reserve Adjustment EQUALS
Association Liability. The American Capitol Assumed Policies
reserves, the methodology for the reserve adjustment and the
detailed calculation for each Participating Guaranty
Association's Association Liability is set forth in Exhibit IV.A.
which shall include a break-down by specific policy block type:
Medical Supplement Attained Age; Companion Life; and Hospital
Indemnity.
2. On the Closing Date, each Participating Guaranty Association
shall deliver to American Capitol its Association Liability in
the manner set forth in the Liquidation Plan.
B. American Capitol Enhancement. On or before September 1, 2002
and in accordance with the Liquidation Plan, American
Capitol will contribute an Enhancement to each Participating
Guaranty Association pursuant to the calculations set forth in
Exhibit IV.B. for the Medicare Supplement Attained Age policies.
On the Closing Date, American Capitol will contribute a Reserve
Adjustment with respect to the Companion Life and Hospital
Indemnity policies which amounts shall be allocated to each
Participating Guaranty Association in accordance with its related
Association Liability as set forth in Exhibit IV.A.
V. CLOSING
Subject to the terms, conditions and limitations of the
Liquidation Plan, the Closing of this American Capitol Assumption
Agreement shall take place on the Closing Date contemporaneously
with the Closing of the Liquidation Plan.
VI. ACCOUNTING AND AUDIT PROCESS
A. Accounting.
1. On or before April 1, 2000, American Capitol shall prepare
and deliver to NOLHGA a one-year accounting and statement of
policy reserves, account values premiums and claims related to
American Capitol Assumed Policies for the prior calendar year.
That accounting shall be presented substantially in the form of
Exhibit VI.A.
2. Along with the one-year accounting, American Capitol shall
make available to NOLHGA and each Participating Guaranty
Association sufficient detail and documentation to support an
audit at the contract level.
3. On or before April 1, 2001, American Capitol shall prepare
and deliver to NOLHGA a second-year accounting and statement of
reserves, account values, premiums and claims related to the
American Capitol Assumed Policies in the same format as the one-
year report along with the contract level.
4 On or before April 1, 2002, American Capitol shall prepare
and deliver to NOLHGA a third-year accounting and statement of
reserves, account values, premiums and claims related to the
American Capitol Assumed Policies in the same format as the one-
year report along with the contract level.
5. On or before September 1, 2002, American Capitol shall
prepare and deliver to NOLHGA and to each Participating Guaranty
Association (to the extent related to that Participating Guaranty
Association's Covered Obligations) a final accounting and
statement of reserves, account values, premiums and claims
related to the American Capitol Assumed Policies for all three
years and any payment due.
B. Audit. On or before the first business day three (3) months
after receipt of each year's accounting, and statement of
reserves, account values, premiums and claims related to the
American Capitol Assumed Policies, NOLHGA and each Participating
Guaranty Association, shall each, separately, complete its audit
and communicate any areas of dispute or disagreement with
American Capitol's accounting.
C. Accounting Date.
1. Subject to the accounting and audit process set forth in
this Article VI, all amounts and calculations, including the
Enhancement, shall be final, due and payable on the Plan
Termination Date.
2. The exhibits to this American Capitol Assumption Agreement
and the obligations of each Party under this American Capitol
Assumption Agreement, shall be adjusted in accordance with the
audited annual accountings and the terms and provisions of the
Liquidation Plan.
D. Disputes. To the extent that disputes or disagreements
exist regarding the final accounting and/or audits thereof, and
the parties are unable to resolve those disputes, the disputes
shall be resolved by means of the Accounting Procedure as
specified in the Liquidation Plan.
VII. PREMIUMS AND OTHER RECEIPTS
A. All policyholder payments related to the American
Capitol Assumed Policies for periods after the Closing Date
shall be the sole property of American Capitol. All
policyholder payments related to the American Capitol
Assumed Policies for periods before the Closing Date shall
be the sole property of Statesman.
B. All moneys, checks, drafts, money orders, postal notes, and
other instruments received after the Closing Date for premiums on
the American Capitol Assumed Policies which are the sole property
of American Capitol shall be forthwith transferred and delivered
to American Capitol and any such instruments, when so delivered,
shall bear all endorsements required to effect the transfer of
same to American Capitol. As of and following the Closing Date,
American Capitol shall have all the rights of Statesman under
outstanding bank draft authorizations from policyholders which
authorized Statesman to draw on the policyholder's account to
automatically withhold from policyholder's accounts and transmit
to Statesman funds to apply to premium on the American Capitol
Assumed Policies. So far as permitted by the laws of the
applicable states, American Capitol, as part of this American
Capitol Assumption Agreement, assumes the guaranty obligations of
Statesman, if any, with respect to such bank drafts
authorizations outstanding on the Closing Date. American Capitol
shall have the right and authority to collect for the account of
American Capitol all receivables and other items which shall be
transferred by Statesman to American Capitol and to endorse
without recourse and without warranties of any kind the name of
Statesman on any checks or the evidences of indebtedness received
by American Capitol on account of any such receivables or other
items.
VIII.RECORDS
A. Each Participating Guaranty Association agrees to
transfer, assign, deliver and convey to American Capitol,
subject to the terms set forth in this Agreement, all files
and records related to the American Capitol Assumed Policies
in their possession or under their control. American
Capitol agrees that after such delivery, the Participating
Guaranty Associations and/or NOLHGA shall be entitled, at
any reasonable time and at their expense, to inspect, audit
and copy any and all such records and files of American
Capitol and all other records and files of American Capitol
relating to the American Capitol Assumed Policies.
B. Neither NOLHGA nor any Participating Guaranty Association
makes any warranty or representation that the books and records
of Statesman which may be transferred to American Capitol may or
shall be either accurate or complete.
C. Any and all correspondence, premiums, records or documents
coming into the possession of a Participating Guaranty
Association after the Closing Date directly pertaining to any
American Capitol Assumed Policies policy shall be promptly
delivered to American Capitol by the Participating Guaranty
Association, without charge to American Capitol.
IX. LIABILITIES AND INDEMNITIES
The Parties acknowledge that this American Capitol Assumption
Agreement is entered into as part of the Liquidation Plan and
that the liabilities and indemnities from the Liquidation Plan
apply to this American Capitol Assumption Agreement and are
incorporated herein by reference.
X. REPRESENTATIONS
The Parties acknowledge that this American Capitol Assumption
Agreement is entered into as part of the Liquidation Plan and
that the representations from the Liquidation Plan apply to this
American Capitol Assumption Agreement and are incorporated herein
by reference.
XI. RESERVES
The Parties acknowledge that this American Capitol Assumption
Agreement is entered into as part of the Liquidation Plan and
that the requirements related to American Capitol's reserve
maintenance from the Liquidation Plan apply to this American
Capitol Assumption Agreement and are incorporated herein by
reference.
XII. JURISDICTION AND ACCOUNTING PROCEDURE
The Parties acknowledge that this American Capitol Assumption
Agreement is entered into as part of the Liquidation Plan and
that the provisions and requirements related to jurisdiction and
the Accounting Procedure from the Liquidation Plan apply to this
American Capitol Assumption Agreement and are incorporated herein
by reference.
XIII.NOTICE
The Parties acknowledge that this American Capitol Assumption
Agreement is entered into as part of the Liquidation Plan and
that the notice provisions from the Liquidation Plan apply to
this American Capitol Assumption Agreement and are incorporated
herein by reference.
XIV. INSOLVENCY OF AMERICAN CAPITOL
In the event of the insolvency of American Capitol prior to the
Plan Termination Date, the obligations of the Participating
Guaranty Associations under any Association Notes issued to
American Capitol are canceled and void. In the event of such
insolvency resulting in the cancellation of the Association
Notes, the Association Notes and their corresponding policyholder
liabilities shall be returned to the appropriate Participating
Guaranty Association and shall be the sole responsibility of that
Participating Guaranty Association.
XV. GENERAL PROVISIONS
The Parties acknowledge that this American Capitol Assumption
Agreement is entered into as part of the Liquidation Plan and
that the general provisions from the Liquidation Plan apply to
this American Capitol Assumption Agreement and are incorporated
herein by reference. Regardless of any specific references, the
Parties acknowledge and agree that this American Capitol
Assumption Agreement is to be performed pursuant to, and
interpreted consistent with, the terms and provisions from the
Liquidation Plan.
IN WITNESS WHEREOF, this American Capitol Assumption Agreement
has been executed on the day and year subscribed.
AMERICAN CAPITOL INSURANCE COMPANY
By: /s/Xxxxxxx X. Guest Date: June 10, 1999
--------------------
Name: Xxxxxxx X. Guest
Title: Chairman of the Board
NATIONAL ORGANIZATION OF LIFE AND HEALTH INSURANCE GUARANTY
ASSOCIATIONS
By: /s/Xxxxx X. Xxxxxxxx Date: June 10, 1999
--------------------
Name: Xxxxx X. Xxxxxxxx
Title: President
