AUTOMATIC AND FACULTATIVE YRT REINSURANCE AGREEMENT
BETWEEN
NATIONAL LIFE INSURANCE COMPANY
MONTPELIER, VERMONT, USA
And
(HEREINAFTER CALLED THE "REINSURER")
THIS AGREEMENT IS EFFECTIVE JANUARY 1, 2002
TABLE OF CONTENTS
ARTICLE TITLE PAGE
------- ----- ----
I PARTIES TO THE AGREEMENT 3
II COMMENCEMENT, TERMINATION AND CONTINUANCE OF REINSURANCE 3
III SCOPE 4
IV COVERAGE 5
V LIABILITY 6
VI RETENTION AND RECAPTURE 6
VII REINSURANCE PREMIUMS AND ALLOWANCES 6
VIII RESERVES 7
IX TERMINATIONS AND REDUCTIONS 7
X POLICY ALTERATIONS 9
XI POLICY ADMINISTRATION AND PREMIUM ACCOUNTING 10
XII CLAIMS 11
XIII ARBITRATION 12
XIV INSOLVENCY 11
XV OFFSET 12
XVI RIGHT TO INSPECT 12
XVII UNINTENTIONAL ERRORS, MISUNDERSTANDINGS OR OMISSIONS 12
XVIII CHOICE OF LAW, FORUM AND LANGUAGE 13
XIX ALTERATIONS TO THE AGREEMENT 13
XX EXECUTION OF THE AGREEMENT 14
SCHEDULES
---------
I REINSURANCE SPECIFICATIONS 15
II RETENTION 19
III BUSINESS COVERED 20
IV REINSURANCE PREMIUMS 21
V LIMITS 28
VI SAMPLE STATEMENT SPECIFICATIONS 39
VII SAMPLE POLICY EXHIBIT 40
VIII DEFINITIONS 41
-2-
ARTICLE I - PARTIES TO THE AGREEMENT
Reinsurance required by the Ceding Company will be assumed by the Reinsurer as
described in the terms of this Agreement.
This is an Agreement solely between the Reinsurer and the Ceding Company. In no
instance will anyone other than the Reinsurer or the Ceding Company have any
rights under this Agreement, and the Ceding Company is and will remain solely
liable to any insured, policyowner, or beneficiary under the Original Policies
reinsured hereunder.
The current general and special policy conditions, the premium schedules, and
underwriting guidelines of the Ceding Company, applying to the business covered
by this Agreement as set out in the Schedules, will form an integral part of
this Agreement. Additions or alterations to any of these conditions or schedules
will be reported to the Reinsurer without delay. In the case of significant
changes, both parties to the Agreement must agree to the new reinsurance
conditions.
ARTICLE II - COMMENCEMENT, TERMINATION AND CONTINUANCE OF REINSURANCE
1. AGREEMENT COMMENCEMENT
Notwithstanding the date on which this Agreement is signed, this
Agreement will take effect as from the date shown in the attached
Schedule I, and applies to new business taking effect on and after this
date.
2. AGREEMENT TERMINATION
This Agreement will be in effect for an indefinite period and may be
terminated as to new reinsurance at any time by either party giving
ninety (90) days written notice of termination. The day the notice is
mailed to the other party's Home Office, or, if the mail is not used,
the day it is delivered to the other party's Home Office or to an
Officer of the other party will be the first day of the ninety (90) day
period.
During the ninety (90) day period, this Agreement will continue to
operate in accordance with its terms.
3. POLICY TERMINATION
If the Policy is terminated by death, lapse, surrender or otherwise,
the reinsurance will terminate on the same date. If premiums have been
paid on the reinsurance for a period beyond the termination date,
refunds will follow the terms as shown in Schedule I.
If the Policy continues in force without payment of premium during any
days of grace pending its surrender, whether such continuance be as a
result of a Policy provision or a practice of the Ceding Company, the
reinsurance will also continue without payment of premium and will
terminate on the same date as the Ceding Company's risk terminates.
If the Policy continues in force because of the operation of an
Automatic Premium Loan provision, or other such provision by which the
Ceding Company receives compensation for its risk, then the reinsurance
will also continue and the Ceding Company will pay the Reinsurer the
reinsurance premium for the period to the date of termination.
4. CONTINUATION OF REINSURANCE
On termination of this Agreement in accordance with the provisions in
Paragraph two of this Article, the reinsurance ceded will remain in
force subject to the terms and conditions of this Agreement until their
natural expiry.
-3-
ARTICLE III - SCOPE
1. RETENTION OF THE CEDING COMPANY
The type and amount of the Ceding Company's retention on any one life
is as shown in Schedule I. In determining the amounts at risk in each
case, any additional death benefits on the same life (e.g. additional
term insurance or family income benefits) will be taken into account,
as will the amounts at risk under any other existing policies, at the
time of commencement, of the policy ceded under this Agreement.
The Ceding Company may alter its retention in respect of future new
business at any time. The Ceding Company will promptly notify the
Reinsurer of such alteration and its effective date.
2. CURRENCY
All reinsurance to which the provisions of this Agreement apply will be
effected in the same currencies as that expressed in the Original
Policies and as shown in Schedule I.
3. THE REINSURER'S SHARE
The Reinsurer's Share is as shown in Schedule I.
4. BASIS OF REINSURANCE
Plans of insurance listed in Schedule I will be reinsured on the basis
described in Schedule I, using the rates given in the Rate Table as
shown in Schedule I.
5. REINSURANCE ALLOWANCES
The Reinsurer will pay to the Ceding Company the reinsurance allowance,
if any, as shown in Schedule I. If any reinsurance premiums or
installments of reinsurance premiums are returned to the Ceding
Company, any corresponding reinsurance allowance previously credited to
the Ceding Company, will be reimbursed to the Reinsurer.
6. PREMIUM RATE GUARANTEE
Premium Rate Guarantees, if any, are as shown in Schedule I.
7. POLICY FEES
Policy fees, if any, are as shown in Schedule I.
8. TAXES
Taxes, if any, are shown in Schedule I.
9. EXPERIENCE REFUND OR PROFIT COMMISSION
If an experience refund or profit commission is payable under this
Agreement, the conditions and formula are as shown in Schedule I.
-4-
10. EXPENSE OF THE ORIGINAL POLICY
The Ceding Company will bear the expense of all medical examinations,
inspection fees and other charges incurred in connection with the
original policy.
ARTICLE IV - COVERAGE
AUTOMATIC PROVISIONS
For each risk on which reinsurance is ceded, the Ceding Company's
retention at the time of issue will take into account both currently
issued and previously issued policies.
The Ceding Company must cede and the Reinsurer must automatically
accept reinsurance, if all of the following conditions are met for each
life:
1. RETENTION
The Ceding Company has retained its limit of retention as
shown in Schedule I; and
2. PLANS AND RIDERS
The basic plan or supplementary benefit, if any, is shown in
Schedule I; and
3. AUTOMATIC ACCEPTANCE LIMITS
The underwriting class, age, minimum reinsurance amount,
binding amounts and jumbo limits fall within the automatic
limits as shown in Schedule I; and
4. UNDERWRITING
The risk is underwritten according to the Ceding Company's
Standard Guidelines; and
The Ceding Company has never made facultative application for
reinsurance on the same life to the Reinsurer or any other
Reinsurer; and
5. RESIDENCE
The risk is a resident of the Countries, as shown in Schedule
I.
If, for a given application, the Ceding Company cannot comply with the
automatic reinsurance conditions described above, or if the Ceding
Company submits the application to other Reinsurers for their
facultative assessment, the Ceding Company can submit this application
to the Reinsurer on a facultative basis.
FACULTATIVE PROVISIONS
The Ceding Company will send copies of the original applications, all
medical reports, inspection reports, attending physician's statement,
and any additional information pertinent to the insurability of the
risk to the Reinsurer.
The Ceding Company will also notify the Reinsurer of any underwriting
information requested or received after the initial request for
reinsurance is made. For policies which contain automatic increase
provisions, the Ceding
-5-
Company will inform the Reinsurer of the initial and ultimate risk
amounts for which reinsurance is being requested, or in the case of
indexed amounts, the basis of the indexing.
On a timely basis, the Reinsurer will submit a written decision to the
Ceding Company. In no case will the Reinsurer's offer on facultative
submissions be open after 120 days have elapsed from the date of the
Reinsurer's offer to participate in the risk. Acceptance of the offer
and delivery of the policy according to the rules of the Ceding Company
must occur within 120 days of the final reinsurance offer. Unless the
Reinsurer explicitly states in writing that the final offer is
extended, the offer will be automatically withdrawn at the end of day
120.
The Reinsurer will not be liable for proceeds paid under the Ceding
Company's conditional receipt or temporary insurance agreement for
risks submitted on a facultative basis.
ARTICLE V - LIABILITY
The liability of the Reinsurer for all claims within automatic cover and all
claims arising after facultative acceptance as described in Article IV, will
commence simultaneously with that of the Ceding Company and will cease at the
same time as the liability of the Ceding Company ceases.
ARTICLE VI - RETENTION AND RECAPTURE
If the Ceding Company changes its limit of retention as shown in Schedule I,
written notice of the change will promptly be given to the Reinsurer. At the
option of the Ceding Company, a corresponding reduction may be made in the
reinsurance in force under this Agreement, on all lives, on which the Ceding
Company has maintained its maximum limit of retention, provided that all
eligible business is reduced on the same basis. The Ceding Company may apply the
new limits of retention to existing reinsurance and reduce and recapture
reinsurance inforce in accordance with the following rules:
1. No recapture will be made unless reinsurance has been in force for the
minimum period shown in Schedule I.
2. Recapture will become effective on the policy anniversary date
following written notification of the Ceding Company's intent to
recapture.
3. No recapture will be made unless the Ceding Company retained its
maximum limit of retention for the plan, age and mortality rating at
the time the policy was issued. No recapture will be allowed in any
class of fully reinsured business or in any classes of risks for which
the Ceding Company established special retention limits less than the
Ceding Company's maximum retention limits for the plan, age, and
mortality rating at the time the policy was issued.
4. If any reinsurance is recaptured, all reinsurance eligible for
recapture, under the provisions of this Article, must be recaptured.
5. If there is reinsurance with other reinsurers on risks eligible for
recapture, the necessary reduction is to be applied to each company in
proportion to the total outstanding reinsurance.
ARTICLE VII - REINSURANCE PREMIUMS AND ALLOWANCES
1. LIFE REINSURANCE
Premiums for Life and Supplemental Benefit reinsurance will be as shown
in Schedule I.
2. SUBSTANDARD PREMIUMS
Premiums will be increased by any (flat) extra premium as shown in
Schedule I, charged the insured on the face amount initially reinsured.
Premiums will be increased by any substandard premium as shown in
Schedule I, charged the insured on the net amount at risk reinsured.
-6-
3. JOINT POLICY PREMIUMS
In the case of joint policy premiums, if any, the premium rate payable
to the Reinsurer will be as shown in Schedule I.
4. SUPPLEMENTAL BENEFITS
The Reinsurer will receive a proportionate share of any premiums for
additional benefits as shown in Schedule I.
ARTICLE VIII - RESERVES
Reserve requirements of the Ceding Company, if any, are as shown in Schedule I.
ARTICLE IX - TERMINATIONS AND REDUCTIONS
Terminations or reductions will take place in accordance with the following
rules in order of priority:
1. The Ceding Company must keep its initial or recaptured retention on the
policy.
2. Termination or reduction of a wholly reinsured policy will not affect
other reinsurance inforce.
3. A termination or reduction on a wholly retained case will cause an
equal reduction in existing automatic reinsurance with the oldest
policy being reduced first.
4. A termination or reduction will be made first to reinsurance of
partially reinsured policies with the oldest policy being reduced
first.
5. If the policies are reinsured with multiple reinsurers, the reinsurance
will be reduced by the ratio of the amount of reinsurance in each
company to the total outstanding reinsurance on the risk involved.
6. When a policy is reinstated, reinsurance will be reinstated as if the
lapse or reduction had not occurred.
ARTICLE X - POLICY ALTERATIONS
1. REINSTATEMENT
Any policy originally reinsured in accordance with the terms and
conditions of this Agreement by the Ceding Company may be automatically
reinstated with the Reinsurer as long as the policy is reinstated in
accordance with the terms and rules of the Ceding Company. Any policy
originally reinsured with the Reinsurer on a facultative basis that has
been in a lapsed status for more than ninety (90) days must be
submitted with underwriting requirements and approved by the Reinsurer
before it is reinstated. The Ceding Company will pay the Reinsurer its
share of amounts collected or charged for the reinstatement of such
policies.
-7-
2. EXCHANGES
Exchanges will be reinsured under this Agreement only if the original
policy was reinsured with the Reinsurer; the amount of reinsurance
under this Agreement will not exceed the amount of the reinsurance on
the original policy with the Reinsurer immediately prior to the
exchange. Premiums will be determined as follows:
1. If any business covered under this Agreement is subsequently
exchanged to any6 other plan reinsured by the Reinsurer, then
such business shall be reinsured at the rates as shown in the
Agreement covering the new plan. Rates and allowances or pay
percentages applicable to the new plan will be determined at
point-in-scale based on the original policy that is being
exchanged. If the Agreement including the new rates requires
policy fees, then they shall also apply to the new plan.
2. If any business covered under this Agreement is subsequently
exchanged to a plan that is not reinsured with the Reinsurer
under a specific document, then such business shall be
reinsured with the Reinsurer at the current rates. Rates will
be determined at point-in-scale based on the original policy
that is being exchanged.
3. Term plans that exchange to other term plans and receive new
underwriting will be covered under this Agreement on a new
policy basis.
ARTICLE X - POLICY ALTERATIONS, (CONTNIUED)
3. EXTENDED TERM AND REDUCED PAID UP ADDITIONS
Changes as a result of extended term or reduced paid-up insurance will
be handled like reductions.
4. EXCHANGES OR CONVERSIONS
Premiums will be as shown in Schedule IV.
Note: An original date policy Reissue will not be treated as a continuation
of the original policy. It will be treated as a new policy and the
original policy will be treated as Not Taken. All premiums previously
paid to the Reinsurer for the original policy will be refunded to the
Ceding Company. All premiums will be due on the new policy from the
original issue date of the old policy.
Note: Re-Entry, e.g. wholesale replacement and similar programs are not
covered under this Article. If Re-Entry is applicable to this treaty,
then it will be covered in Schedule I.
ARTICLE XI - POLICY ADMINISTRATION AND PREMIUM ACCOUNTING
1. ACCOUNTING PERIOD AND PREMIUM DUE
The Ceding Company will submit accounts to the Reinsurer, for reporting
new business, alterations, terminations, renewals, claims, and premium
due, as shown in Schedule I.
2. ACCOUNTING ITEMS
The accounts will contain a list of premiums due for the current
accounting period, explain the reason for each premium payment, show
premium subtotals adequate to use for premium accounting, including
first year and renewal year premiums and allowances. The account
information should provide the ability to evaluate retention limits,
premium calculations and to establish reserves.
3. REINSURANCE ADMINISTRATION REQUIREMENTS
Reinsurance Administration Requirements are as shown in Schedule I.
-8-
4. PAYMENT OF BALANCES
The Ceding Company will pay any balance due the Reinsurer, at the same
time as the account is rendered, but in all cases, by the Accounting
and Premium Due frequency as shown in Schedule I. The Reinsurer will
pay any balance due the Ceding Company, at the same time as the account
is confirmed, however, at the latest, within thirty (30) days after
receipt of the statement of account. Should the Reinsurer be unable to
confirm the account in its entirety, the confirmed portion of the
balance will be paid immediately. As soon as the account has been fully
confirmed, the difference will be paid immediately by the debtor. All
balances not paid within thirty (30) days of the due date shown on the
statement will be in default.
5. BALANCES IN DEFAULT
The Reinsurer will have the right to terminate this Agreement, when
balances are in default, by giving ninety (90) days written notice of
termination to the Ceding Company. As of the close of the last day of
this ninety (90) day notice period, the Reinsurer's liability for all
risks reinsured under this Agreement will terminate. The first day of
this ninety (90) day notice of termination, resulting from default as
described in paragraph four of this Article, will be the day the notice
is received in the mail by the Ceding Company, or if the mail is not
used, the day it is delivered to the Ceding Company. If all balances in
default are received within the ninety (90) day time period, the
Agreement will remain in effect. The interest payable on balances in
default is stipulated as shown in Schedule I.
ARTICLE XI - POLICY ADMINISTRATION AND PREMIUM ACCOUNTING, (CONTINUED)
6. FLUCTUATIONS IN EXCHANGE RATES
If the premium due periods allowed for the payment of balances are
exceeded by either party, the debtor will bear the currency risk, in
the event of any subsequent alteration in the exchange rate, by more
than five percent, unless the debtor is not responsible for the delay
in payment.
ARTICLE XII - CLAIMS
Claims covered under this Agreement include only death claims, which are those
due to the death of the insured on a policy reinsured and any additional
benefits that are defined in accordance with the underlying policy and are
reinsured under this Agreement.
1. NOTICE
The Ceding Company will promptly notify the Reinsurer of all claims.
2. PROOFS
In every case of loss, copies of the proofs obtained by the Ceding
Company will be taken by the Reinsurer as sufficient. Copies thereof,
together with proof of the amount paid on such claim by the Ceding
Company will be furnished to the Reinsurer when requesting its share of
the claim.
3. PAYMENT OF BENEFITS
The Reinsurer will pay its share of all payable claims, however, if the
amount reinsured with the Reinsurer is more than the amount retained by
the Ceding Company and the claim is contestable, all papers in
connection with such claim, including all underwriting and
investigation papers, must be submitted to the Reinsurer for its
recommendation before admission of any liability on the part of the
Ceding Company.
-9-
If the amount of insurance changes because of a misstatement of rate
classification, the Reinsurer's share of reinsurance liability will
change proportionately.
4. CONTESTED CLAIMS
The Ceding Company will notify the Reinsurer of its intention to
contest, compromise, or litigate a claim. Unless it declines to be a
party to such action, the Reinsurer will pay its share of any
settlement up to the maximum that would have been payable under the
specific policy had there been no controversy plus its share of
specific expenses, except as specified below.
5. CLAIMS EXPENSES
If the Reinsurer declines to be a party to the contest, compromise, or
litigation of a claim, it will pay its full share of the amount
reinsured, as if there had been no contest, compromise, or litigation,
and its proportionate share of covered expenses incurred to the date,
from the date it notifies the Ceding Company it declines to be a party.
6. EXTRA CONTRACTUAL OBLIGATIONS
In no event will the following categories of expenses or liabilities be
reimbursed:
a. Routine investigative or administrative expenses;
b. Salaries of employees or other internal expenses of the Ceding
Company or the original issuing companies;
c. Extra contractual damages, including punitive damages and
exemplary damages; or ARTICLE XI - POLICY ADMINISTRATION AND
PREMIUM ACCOUNTING, (CONTINUED)
d. Expenses incurred in connection with a dispute or contest
arising out of conflicting or any other claims of entitlement
to policy proceeds or benefits.
ARTICLE XIII - ARBITRATION
1. GENERAL
The parties agree to act in all things with the highest good faith.
However, if the parties cannot mutually resolve a dispute or claim,
which arises out of, or in connection with this Agreement, including
formation and validity, and whether arising during, or after the period
of this Agreement, the dispute or claim will be referred to an
arbitration tribunal (a group of three arbitrators), and settled
through arbitration.
The arbitrators will be individuals, other than from the contracting
companies, including those who have retired, with more than ten (10)
years insurance or reinsurance experience within the industry.
The arbitrators will base their decision on the terms and conditions of
this Agreement plus, as necessary, on the customs and practices of the
insurance and reinsurance industry rather than solely on a strict
interpretation of the applicable law; there will be no appeal from
their decision, and any court having jurisdiction of the subject
matter, and the parties, may reduce that decision to judgment.
2. NOTICE
To initiate arbitration, either party will notify the other party by
Certified Mail of its desire to arbitrate, stating the nature of the
dispute and the remedy sought. The party to which the notice is sent,
will respond to the notification in writing, within ten (10) days of
its receipt.
-10-
3. PROCEDURE
Each of the two parties will appoint one arbitrator, and these two
arbitrators will select the third arbitrator. Upon the selection of the
third arbitrator, the arbitration tribunal will be constituted, and the
third arbitrator will act as Chairman of the tribunal.
If either party fails to appoint an arbitrator within sixty (60) days
after the other party has given notice of appointing an arbitrator,
then the Arbitration Association, as shown in Schedule I, will appoint
an arbitrator for the party that has failed to do so.
The party that has failed to appoint an arbitrator will be responsible
for all expenses levied by the Arbitration Association, for such
appointment. Should the two arbitrators be unable to agree on the
choice of the third arbitrator, then the appointment of this arbitrator
is left to the Arbitration Association. Such expense shall be borne
equal by each party to this Agreement.
The tribunal, may in its sole discretion make orders and directions as
it considers to be necessary for the final determination of the matters
in dispute. Such orders and directions may be necessary with regard to
pleadings, discovery, inspection of documents, examination of witnesses
and any other matters relating to the conduct of the arbitration. The
tribunal, will have the widest discretion permissible under the law,
and practice of the place of arbitration, when making such orders or
directions.
4. ARBITRATION COSTS
All costs of the arbitration will be determined by the tribunal, which
may take into account the law and practice of the place of arbitration,
and in what manner arbitration costs will be paid, and by whom.
5. PLACE OF ARBITRATION
The place of arbitration is as shown in Schedule I.
ARTICLE XIII - ARBITRATION, (CONTINUED)
6. ARBITRATION SETTLEMENT
The award of the tribunal, will be in writing, and binding upon the
consenting parties.
ARTICLE XIV - INSOLVENCY
In the event of the insolvency of the Ceding Company, all reinsurance benefits
will be payable directly to the liquidator, receiver, or statutory successor of
the Ceding Company without diminution because of the insolvency and in
accordance with the terms of this Agreement. Also, in the event of the
insolvency or financial impairment of the Reinsurer, the Ceding Company may
terminate this Agreement immediately. A 90-day notification period would not be
required. Inforce policies may be recaptured immediately regardless of the
duration the reinsurance has been inforce under this Agreement..
In the event of insolvency of the Ceding Company, the liquidator, receiver, or
statutory successor will immediately give written notice to the Reinsurer of all
pending claims against the Ceding Company on any policies reinsured. While a
claim is pending, the Reinsurer may investigate and interpose, at its own
expense, in the proceedings where the claim is adjudicated, any defense or
defenses which it may deem available to the Ceding Company or its liquidator,
receiver, or statutory successor. The expense incurred by the Reinsurer will be
chargeable, subject to court approval against the Ceding Company as 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. Where two or more Reinsurers are participating in
the same claim and a majority in interest elect to interpose a defense or
defenses to any such claim, the expense will be apportioned in accordance with
the terms of the reinsurance agreement as though such expense had been incurred
by the Ceding Company.
-11-
ARTICLE XV - OFFSET
Any debts or credits, matured or unmatured, liquidated or unliquidated, in favor
of or against, either the Reinsurer or the Ceding Company, with respect to this
Agreement or with respect to any other claim of one party against the other, are
deemed mutual debts or credits, as the case may be, and will be offset, and only
the balance will be allowed or paid.
ARTICLE XVI - RIGHT TO INSPECT
Upon request the Ceding Company will furnish the Reinsurer with detailed
information concerning the risks reinsured under this Agreement. In particular
the Reinsurer will be entitled to request that:
1. Copies of the whole or part of any documents relating to the risks and
their reinsurance be made available to the Reinsurer at its own
expense;
2. During the Ceding Company's normal office hours these documents will be
made available to a representative of the Reinsurer who will be named
in advance; notification of such visits will normally be given two
weeks in advance and even in urgent cases at least forty-eight hours in
advance; and
3. The Reinsurer will have this right of inspection as long as one of the
two parties to this Agreement is claiming from the other.
ARTICLE XVII- UNINTENTIONAL ERRORS, MISUNDERSTANDINGS OR OMISSIONS
It is expressly understood and agreed that if failure to comply with any terms
of this Agreement is hereby shown to be the result of an unintentional error,
misunderstanding or omission, on the part of either the Ceding Company or the
Reinsurer, both the Ceding Company and the Reinsurer, will be restored to the
position they would have occupied, had no such error, misunderstanding or
omission occurred, subject always to the correction of the error,
misunderstanding or omission.
ARTICLE XVIII - CHOICE OF LAW, FORUM, AND LANGUAGE
1. CHOICE OF LAW AND FORUM
This Agreement, will in all respects be governed by, and construed in
accordance with the law and exclusive jurisdiction of the Courts, as
shown in Schedule I.
2. LANGUAGE
The Parties hereto acknowledge and agree that, even though they may
execute this Agreement in both an English version and in another
language, as shown in Schedule I, the version as shown in Schedule I
will control for all legal purposes in the event of any inconsistency
between or disagreement between the two versions.
ARTICLE XIX - ALTERATIONS TO THE AGREEMENT
This Reinsurance Agreement constitutes the entire Agreement between the parties,
with respect to the business being reinsured hereunder, and there are no
understandings between the parties other than as expressed in this Agreement.
Any alterations to the provisions of this Agreement will be made by Amendment,
Addenda or by correspondence attached to the Agreement embodying such
alterations as may be agreed upon and signed by both parties. These documents
will be regarded as part of this Agreement and will be equally binding.
-12-
================================================================================
ARTICLE XX - EXECUTION OF THE AGREEMENT
IN WITNESS OF THE ABOVE,
NATIONAL LIFE INSURANCE COMPANY
OF MONTPELIER, VERMONT, USA
AND
HAVE BY THEIR RESPECTIVE OFFICERS EXECUTED AND DELIVERED THIS AGREEMENT
IN DUPLICATE ON THE DATES INDICATED BELOW:
NATIONAL LIFE INSURANCE COMPANY
BY: BY: ----------------------------
-------------------------------
TITLE: TITLE: ----------------------------
-------------------------------
DATE: DATE: ----------------------------
-------------------------------
BY:
------------------------------------
TITLE: VICE PRESIDENT
DATE: ----------------------------------
================================================================================
-13-
SCHEDULE I - REINSURANCE SPECIFICATIONS
--------------------------------------------------------------------------------
COMMENCEMENT, TERMINATION AND CONTINUANCE OF REINSURANCE, ARTICLE II:
--------------------------------------------------------------------------------
1. EFFECTIVE DATE: This Agreement applies to policies with
applications received by the Ceding Company
on and after January 1, 2002.
2. POLICY TERMINATION: The Reinsurer will refund any unearned
REFUNDS: reinsurance premiums. However, polic fees,
if any, will be deemed earned for a policy
year if the policy is reinsured during any
portion of that policy year.
--------------------------------------------------------------------------------
SCOPE, ARTICLE III:
--------------------------------------------------------------------------------
1. RETENTION OF THE CEDING See Schedule II, Retention
COMPANY:
2. CURRENCY: United States Dollars ("US$") 3. THE
REINSURER'S SHARE : Excess of Ceding
Company's Retention
4. BASIS OF REINSURANCE: YRT
5. REINSURANCE ALLOWANCE: See Schedule IV, Reinsurance Premiums
6. PREMIUM RATE GUARANTEE: See Schedule IV, Reinsurance Premiums
7. POLICY FEES: See Schedule IV, Reinsurance Premiums
8. TAXES:
DAC TAX REGULATIONS
The Ceding Company and the Reinsurer hereby agree to the following
pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations
issued December 29, 1992, under Section 848 of the Internal Revenue
Code of 1986, as amended.
1. The term "party" will refer to either the Ceding Company or
the Reinsurer as appropriate.
2. The terms used in this Article are defined by reference to
Treasury Regulation Section 1.848-2 in effect as of December
29, 1992. The term "net consideration" will refer to net
consideration as defined in Treasury Regulation Section
1.848-2(f).
-14-
SCHEDULE I - REINSURANCE SPECIFICATIONS (CONTINUED)
--------------------------------------------------------------------------------
SCOPE, ARTICLE III (CONTINUED):
--------------------------------------------------------------------------------
8. TAXES (CONTINUED):
3. The party with the net positive consideration for this
Agreement for each taxable year will capitalize specified
policy acquisition expenses with respect to this Agreement
without regard to the general deductions limitation of IRS
Section 848(c)(1).
4. The Ceding Company and the Reinsurer agree to exchange
information pertaining to the amount of net consideration
under this Agreement each year to ensure consistency. The
Ceding Company and the Reinsurer also agree to exchange
information which may be otherwise required by the IRS.
5. The Ceding Company will submit a schedule to the Reinsurer by
June 1 of each year of its calculation of the net
consideration for the preceding calendar year. This schedule
of calculations will be accompanied by a statement signed by
an officer of the Ceding Company stating that the Ceding
Company will report such net consideration in its tax return
for the preceding calendar year.
6. The Reinsurer may contest such calculation by providing an
alternative calculation to the Ceding Company. If the
Reinsurer does not so notify the Ceding Company, the Reinsurer
will report the net consideration as determined by the Ceding
Company in the Reinsurer's tax return for the previous
calendar year.
7. If the Reinsurer contests the Ceding Company's calculation of
the net consideration, the parties will act in good faith to
reach an agreement as to the correct amount. If the Ceding
Company and the Reinsurer reach agreement on an amount of net
consideration, each party will report such amount in their
respective tax returns for the previous calendar year.
PREMIUM TAX: Premium Tax will not be reimbursed.
9. EXPERIENCE REFUND OR See Schedule IV, Reinsurance Premiums
PROFIT COMMISSION:
--------------------------------------------------------------------------------
COVERAGE, ARTICLE IV:
--------------------------------------------------------------------------------
1. RETENTION: See Schedule II, Retention
2. PLAN(S) AND RIDER(S): See Schedule III, Business Covered
3. AUTOMATIC ACCEPTANCE See Schedule V, Limits
LIMITS:
4. UNDERWRITING CLASS: See Schedule IV, Reinsurance Premiums
-15-
SCHEDULE I - REINSURANCE SPECIFICATIONS (CONTINUED)
--------------------------------------------------------------------------------
COVERAGE, ARTICLE IV (CONTINUED):
--------------------------------------------------------------------------------
5. RESIDENCE: United States, Canada, Puerto Rico or Guam
--------------------------------------------------------------------------------
RETENTION AND RECAPTURE, ARTICLE VI:
--------------------------------------------------------------------------------
MINIMUM RECAPTURE
PERIOD: Twenty (20) years
--------------------------------------------------------------------------------
REINSURANCE PREMIUMS AND ALLOWANCES, ARTICLE VII:
--------------------------------------------------------------------------------
1. LIFE REINSURANCE: See Schedule IV, Reinsurance Premiums
2. SUBSTANDARD PREMIUMS: See Schedule IV, Reinsurance Premiums
3. JOINT POLICY PREMIUMS: See Schedule IV, Reinsurance Premiums
4. SUPPLEMENTARY BENEFITS: See Schedule IV, Reinsurance Premiums
--------------------------------------------------------------------------------
RESERVES, ARTICLE VIII:
--------------------------------------------------------------------------------
The Ceding Company agrees to post on its books any deficiency reserves
on the coverage reinsured under this Agreement.
--------------------------------------------------------------------------------
POLICY ALTERATIONS, ARTICLE X:
--------------------------------------------------------------------------------
1. EXCHANGES OR
CONVERSIONS: See Schedule IV, Reinsurance Premiums
2. RE-ENTRY'S: See Schedule IV, Reinsurance Premiums
--------------------------------------------------------------------------------
POLICY ADMINISTRATION AND PREMIUM ACCOUNTING, ARTICLE XI:
--------------------------------------------------------------------------------
1. ACCOUNTING PERIOD: Monthly
PREMIUM DUE: Annually in Advance
2. ACCOUNTING ITEMS: See Schedule VI, Sample Statement
Specifications and Schedule VII, Sample
Policy Exhibit
3. REINSURANCE Self Administration
ADMINISTRATION:
-16-
SCHEDULE I - REINSURANCE SPECIFICATIONS (CONTINUED)
--------------------------------------------------------------------------------
POLICY ADMINISTRATION AND PREMIUM ACCOUNTING, ARTICLE XI (CONTINUED):
--------------------------------------------------------------------------------
4. BALANCES IN DEFAULT:
The Reinsurer reserves the right to charge interest at the
Prime Rate plus 2% as stated in the Wall Street Journal on the
1st business day in January prior to the due date of the
premium when:
a. Renewal premiums are not paid within sixty (60) days of the due
date.
b. Premiums for new business are not paid within one hundred twenty
(120) days of the date the policy is issued.
--------------------------------------------------------------------------------
ARBITRATION, ARTICLE XIII:
--------------------------------------------------------------------------------
1. ARBITRATION ASSOCIATION: American Arbitration Association
2. PLACE OF ARBITRATION:
--------------------------------------------------------------------------------
CHOICE OF LAW, FORUM AND LANGUAGE, ARTICLE XVIII:
--------------------------------------------------------------------------------
1. CHOICE OF LAW AND FORUM:
2. LANGUAGE: English
-17-
SCHEDULE II - RETENTION
Each limit specified in this schedule represents the total for the Ceding
Company and its subsidiary companies combined.
Except as noted below, the Ceding Company will retain $1,000,000 of life
insurance an any one life.
Exceptions:
1. For second-to-die policies, the maximum retention per policy is $1
million less the greater amount inforce on either life.
2. In addition to the basic retention, the Ceding Company will retain the
full amounts of additional insurance provided in the following
situations:
a) Accidental Death Benefit (ADB) rider
b) The Ceding Company employee term insurance
c) Additional Insurance Option (AIO) rider
d) Guaranteed issue / simplified issue underwriting (non-COLI)
e) Waiver of Premium (WP) rider
f) Waiver of Monthly Deductions (WMD) rider
3. The amount of Estate Preservation Rider is included in the initial
retention calculation. However, at the time the Estate Preservation
Rider cancels in four (4) years, the Ceding Company will not recapture
up to the full retention amount. The Ceding Company will continue to
reinsure the same percent at time of issue.
4. On all plans other than universal life, the Ceding Company will
retain, in addition to its basic retention, a share proportional to
its basic retention of the additional insurance provided in the
following situations:
i. Purchased by dividends.
ii. Issued under the terms of a Cost of Living (COL) or other
increasing term insurance rider
iii. Issued under the terms of its annual premium additions rider
(APAR).
-18-
SCHEDULE III - BUSINESS COVERED
EFFECTIVE JANUARY 1, 2002
--------------------------------------------------------------------------------
PLAN(S) AND RIDER(S)
--------------------------------------------------------------------------------
NON-TERM SINGLE LIFE
SECOND-TO DIE UNIVERSAL LIFE AND VARIABLE UNIVERSAL LIFE
SECOND-TO-DIE TRADITIONAL
TERM SINGLE LIFE (FACULTATIVE ONLY)
Beneficiary Insurance Option (BIO) Rider
Accelerated Benefits Rider
Accelerated Care Rider
Non-Qualified Acceleration Rider for California Residents
Policy Split Option
Additional Protection Benefit Rider
Estate Preservation Rider
Individual Term Rider
Continuing Coverage Rider
Enhanced Death Benefit Rider
Automatic Increase Rider
First to Die
Policy Continuation Rider
-19-
SCHEDULE IV - REINSURANCE PREMIUMS
--------------------------------------------------------------------------------
LIFE:
--------------------------------------------------------------------------------
Business Covered, as shown in Schedule III (including business ceded to
National Life Insurance Company from Life Insurance Company of the
Southwest) will be reinsured on the yearly renewable term basis with
the Reinsurer participating only in mortality risks (not cash values,
loans, dividends or other features specific to permanent policies). The
mortality risk shall be the net amount at risk on that portion of the
policy which is reinsured with the Reinsurer.
The Life Reinsurance premium rates contained in this Agreement are
guaranteed for one year, and the Reinsurer anticipates continuing to
accept premiums on the basis of these rates indefinitely. If the
Reinsurer deems it necessary to increase rates, such increased rates
cannot be higher than the valuation net premiums for annually renewable
term insurance calculated using the minimum statutory mortality rates
and maximum statutory interest rate for each year of issue. If the
Reinsurer raises rates without the Ceding raising its rates, the Ceding
Company will have the right to recapture with no fee or notification of
termination time requirement.
Reinsurance premiums will be determined according to the amount
reinsured with the Reinsurer per insured life as follows. The life
reinsurance premium will be calculated in the case of life risks, by
multiplying the appropriate life premium rate, from the attached Rate
Table labeled below, for the age of the insured, at the beginning of
the policy year, by the amount at risk reinsured for that policy year,
multiplied by the applicable pay percentage as shown below. The same
procedure will apply for single premium policies and for paid up
policies.
Rates are applicable to Automatic and Facultative Excess only.
NON-TERM SINGLE LIFE AND SECOND-TO- DIE UL/VUL
PLAN(S) RATE TABLE UNDERWRITING CLASS YEAR 1+
------- ---------- ------------------ -------
Elite Preferred Non-Smoker
Preferred Non-Smoker
Non-Term Single Life C - 3 Preferred NS
and Second-to- (without Elite)
Die UL/VUL* Standard Non-Smoker
Preferred Smoker
Standard Smoker
Smoker (without Preferred)
* For Second-to-Die Universal Life and Variable Universal Life with
both lives insurable, Frasierize the above Single Life Rates (See
formula in C-4). A per $1,000 minimum premium applies in all years.
ONE LIFE UNINSURABLE
When one of the lives is uninsurable, the reinsurance premiums will be
based on the age and sex of the insurable life using the above single
life rates for Automatic and Facultative Excess coverage.
The maximum premium allowed is per thousand.
-20-
SCHEDULE IV - REINSURANCE PREMIUMS, (CONTINUED)
SECOND-TO-DIE TRADITIONAL (JEA)
BOTH LIVES INSURABLE
The basis for figuring the premiums payable for this coverage
will be as described below:
For automatic and facultative excess business, reinsurance
premiums shall be based on a joint equal age of the insureds
under the policy. The joint equal age shall be calculated by
using the attached Tables C-1-a through C-1-e in the order
indicated. For preferred nonsmokers, subtract one year from
the age of the individual insured prior to calculating the
joint equal age. For standard nonsmokers, add one year to
the age of the individual insured prior to calculating the
joint equal age.
C-1-a Adjustment for Smoking
C-1-d Female to Male Age Adjustment
C-1-e Determination of Joint Equal Age
The Joint Equal Age is then used to find the applicable Last Survivor premium
rate from the attached Rate Table C-2-a or C-2-b.
C-2-a Two Male Nonsmokers
C-2-b Two Male Smokers
The consideration payable for this coverage shall be based
on the appropriate life rate from the attached Rate Tables
C-2-a and C-2-b, multiplied by the applicable pay
percentages:
PLAN(S) RATE TABLE UNDERWRITING CLASS YEAR 1+
------- ---------- ------------------ -------
Second-to-Die C-2-a OR All Classes
Traditional (JEA) C-2-b
The individual ratings and ages of the two insureds are used
to calculate specific combination ratings, which are then
applied to the premium rate as a multiple in the case of a
percentage rating or as an addition in the case of a flat
extra. These combination ratings and flat extras are
computed based on general actuarial principles.
The maximum premium allowed is per thousand.
FIRST TO DIE
Standard premiums for automatic and facultative excess life reinsurance
will equal the lesser of per thousand and of the sum of the current set
of single life rates in effect at the time of issue .For substandard
table ratings, premiums will be increased by 25% per table.
Standard premiums for facultative shopped life reinsurance will equal
the lesser of per thousand and of the current set of single life rates
in effect at the time of issue.
For substandard table ratings, premiums will be increased by 25% per
table. Flat extra premiums will receive the allowances described in
Exhibit C of the basic Agreement.
-21-
SCHEDULE IV - REINSURANCE PREMIUMS, (CONTINUED)
ONE LIFE UNINSURABLE
When one of the lives is uninsurable, the reinsurance premiums will be
based on the age and sex of the insurable life using the current single
life rates for Automatic and Facultative Excess coverage.
There will be no premium tax reimbursement.
All Policy Fees will be retained by the Ceding Company.
-22-
SCHEDULE IV - REINSURANCE PREMIUMS, (CONTINUED)
--------------------------------------------------------------------------------
SUBSTANDARD PREMIUMS:
--------------------------------------------------------------------------------
SUBSTANDARD TABLE EXTRA
Premiums will be increased by any substandard premium charged the
insured on the net amount at risk reinsured. For substandard table
ratings, premiums will be increased by the following percent per table:
25%
FLAT EXTRA PREMIUMS
The premium will be increased by any flat extra premium charged the
insured on the face amount initially reinsured, less total allowances
as shown below:
FIRST YEAR PERMANENT FIRST YEAR TEMPORARY PAYABLE RENEWAL:
PAYABLE 6 YEARS OR MORE: 1 - 5 YEARS:
100%
For second-to-die UL/VUL policies, table and flat extras will be
applied to the single life rates before Frasierizing (see formula in
C-4). A per $1,000 rate cap applies in all years after Frasierizing.
-23-
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
--------------------------------------------------------------------------------
SUPPLEMENTAL BENEFITS:
--------------------------------------------------------------------------------
RIDER (S)
BENEFICIARY INSURANCE OPTION (BIO) RIDER
The annual consideration to be paid for reinsurance of the Beneficiary
Insurance Option Rider ceded hereunder shall be the sum of:
1. For rider reinsurance not in excess of $2,000,000 on any one life, the
gross premium charged the insured (see Rate Table C-5) on the portion
reinsured less the following total allowances:
POLICY YEAR ALLOWANCE
1
2 and after
2. For rider reinsurance in excess of $2,000,000 on any one life, per
policy plus per $1,000 of reinsurance.
ACCELERATED BENEFITS RIDER
The Accelerated Benefits Rider may be attached to all new business or
inforce business covering Term, Whole Life (Single Life and First To
Die), Universal Life and Variable Universal Life plans of insurance
issued by the Ceding Company.
At the time the option is exercised, the Accelerated Benefits Rider
provides a partial settlement of the death benefit based on two
possible contingencies:
1. Terminal Illness
If the insured is certified by a physician as having an illness or
physical condition and is expected to live no more than 24 months, the
benefit payable shall be computed by multiplying the total Accelerated
Benefits Rider payout by the ratio of the reinsured "net amount at
risk" to the face amount (Death Benefit) used in the total Accelerated
Benefits Rider payout calculation. A terminally ill insured CANNOT
qualify as a chronically ill insured.
2. Chronic Illness
If the insured is certified (within the last 12 months) by a licensed
health care practitioner as :
a) being unable to perform (without substantial assistance from
another individual) at least two activities of daily living (ADL)
for a period of at least 90 days due to a loss of functional
capacity,
b) having a level of disability similar to the level of disability
described in (a),
c) requiring substantial supervision to protect such individual from
threats to health and safety due to severe cognitive impairment.
-24-
The benefit payable shall be computed by multiplying the total
Accelerated Benefits Rider payout by the ratio of the reinsured "net
amount at risk" to the face amount (Death Benefit) used in the total
Accelerated Benefits Rider payout calculation.
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED
This Rider allows a chronically ill insured to accelerate benefits
after the first two policy years. The maximum payout under the
Accelerated Benefits Rider shall be limited to $1,000,000. The
Reinsurer shall pay its share (based on the percentage of the base
policy reinsured with the Reinsurer) of the discounted benefit in a
lump sum.
There is no additional premium for this Rider. The Ceding Company will
continue to pay reinsurance premiums on the unaccelerated portion of
reinsured business until the policy is terminated or the date of death
of the insured, unless a reinsured waiver of premium benefit applies.
ACCELERATED CARE RIDER
The premiums payable for the Accelerated Care Rider on Traditional Life
policies shall be based on the appropriate point-in-scale life rate
from the attached Rate Table labeled C-6 (for "Lifetime" pay without
nonforfeiture benefit), multiplied by the applicable pay percentage as
shown below:
POLICY YEAR ALLOWANCE
1
2 and after
The Ceding Company will continue to pay reinsurance premiums on the
unaccelerated portion of reinsured business until the policy is
terminated or the date of death of the insured, unless a reinsured
waiver of premium benefit applies.
This rider will only be reinsured when the Ceding Company's retention
is exceeded or if the policy is reinsured under the shopped substandard
program.
NON-QUALIFIED ACCELERATED CARE RIDER (FOR CALIFORNIA RESIDENTS ONLY)
The premiums payable for the Non-Qualified Accelerated Care Rider on
Traditional Life policies for California residents shall be based on
the appropriate point-in-scale life rate from the attached Rate Table
labeled C-7 (for "Lifetime" pay without nonforfeiture benefit),
multiplied by the applicable pay percentage as shown below:
POLICY YEAR ALLOWANCE
1
2 and after
The Ceding Company will continue to pay reinsurance premiums on the
unaccelerated portion of reinsured business until the policy is
terminated or the date of death of the insured, unless a reinsured
waiver of premium benefit applies.
This rider will only be reinsured when the Ceding Company's retention
is exceeded or if the policy is reinsured under the shopped substandard
program.
-25-
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
POLICY SPLIT OPTION RIDER
The Reinsurer will not charge a premium for the Policy Split Option
Rider.
At the exercise of the Split Option, the new policy will be reinsured
on the yearly renewable premium basis using the point-in-scale single
life rates in Rate Table C-3 and the pay percents above for non-term
single life, measured from the issue date of the original Joint Last
Survivor policy.
INDIVIDUAL TERM RIDER
The current set of single life rates will be used that are in effect at
the time of issue.
ADDITIONAL PROTECTION RIDER, ESTATE PRESERVATION RIDER, ENHANCED DEATH BENEFIT
RIDER, AND AUTOMATIC INCREASE RIDER
The premiums payable for the above riders shall be based on the
appropriate point-in-scale life rate from the attached Rate Table
labeled C-3, multiplied by the applicable pay percentage as shown for
the Survivorship UL and VUL plans, and Frasierized where appropriate.
CONTINUING COVERAGE RIDER
The Reinsurer will receive its share of the per $1,000 premium
for the Continuing Coverage Rider, less an allowance of in all years.
When the youngest insured reaches attained age 90, the CEDING COMPANY
will pay the REINSURER, up until age 100.
POLICY CONTINUATION RIDER
Upon the first death, subject to some restrictions (i.e., a maximum
attained age for the survivor), new coverage may be purchased on the
life of the surviving insured under the Policy Continuation Rider. The
new coverage will be an attained age Traditional Life policy up to a
predefined maximum Death Benefit. If the second insured dies within 90
days of the death of the first insured, an additional death benefit is
payable. The attached C - 8 Rate Table shall be paid by the Ceding
Company prior to the Policy Continuation Rider option being exercised.
Option Policies: At the exercise of the Policy Continuation, the new
policies will be reinsured on the Yearly Renewable Term basis using the
most current reinsurance rates for automatic and facultative excess
business, measured from the issue date of the original First-to-Die
policy.
-26-
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
--------------------------------------------------------------------------------
RE-ENTRY'S:
--------------------------------------------------------------------------------
Re-Entry's are not covered under this Agreement.
--------------------------------------------------------------------------------
CONVERSIONS OR EXCHANGES:
--------------------------------------------------------------------------------
If any business covered under this Agreement is subsequently converted
or exchanged to any other plan reinsured by the Reinsurer, then such
business will be reinsured at the rates as shown in the Agreement
covering the new plan. Rates and allowances, or pay percentages,
applicable to the new plan will be determined at point in scale based
on the original policy that is being converted or exchanged. If the
Agreement including the new rates requires policy fees, then they will
also apply to the new plan.
If any business covered under this Agreement, is subsequently converted
or exchanged to a plan that is not reinsured with the Reinsurer, under
a specific document, then such business will be reinsured with the
Reinsurer, at point in scale rates based on the original policy that is
being converted or exchanged.
The Reinsurer will provide reinsurance coverage under the Agreement for
policies resulting from a term conversion of a policy not previously
reinsured by the Reinsurer if the converted policy exceeds the Ceding
Company's retention limit. Rates and allowances or pay percentages,
applicable to the new plan will be determined at point in scale based
on the original policy that is being converted or exchanged. If the
Agreement includes new rates and requires policy fees, then they will
also apply to the plan.
--------------------------------------------------------------------------------
EXPERIENCE REFUND OR PROFIT COMMISSION:
--------------------------------------------------------------------------------
Experience Refund or Profit Commissions are not covered under this
Agreement.
-27-
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
--------------------------------------------------------------------------------
RATE SCHEDULES C - 1-A, C -- 1- D , AND C - 1- E
--------------------------------------------------------------------------------
-28-
TABLE C - 1 - A
If there is one smoker and one nonsmoker, the following adjustments
should be made to convert the smoker's age to a nonsmoker's age:
ADJUSTMENT FOR SMOKING
Male Ages +6
--
Female Ages +4
TABLE C - 1 - D
An adjustment should be made in the ages of any females to bring them
to a corresponding male age:
FEMALE TO MALE AGE ADJUSTMENT
All ages: -5
TABLE C-- 1 - E
If there are two male ages with the same underwriting and smoking
class, the following table is used to determine a joint equal age:
JOINT EQUAL AGE
DIFFERENCE IN AGE ADD TO YOUNGER AGE
----------------- ------------------
0 0
1 - 2 1
3 - 4 2
5 - 6 3
7 - 9 4
10 - 12 5
13 - 15 6
16 - 18 7
19 - 23 8
24 - 28 9
29 - 34 10
35 - 39 11
40 - 44 12
45 - 47 13
48 - ββ ββ
-ββ-
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
--------------------------------------------------------------------------------
RATE SCHEDULE C - 2 - A AND C - 2 - B
--------------------------------------------------------------------------------
-30-
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
--------------------------------------------------------------------------------
RATE SCHEDULE C-3
--------------------------------------------------------------------------------
-31-
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
--------------------------------------------------------------------------------
RATE SCHEDULE C-4
--------------------------------------------------------------------------------
1. The premiums for this business shall be calculated using the βββββββ
method and the single life rates as described in Schedule IV. The
single life rates shall be adjusted for substandard mortality by adding
25% per underwriting table and any flat extra charges to the
appropriate single life rate. The substandard single life rates shall
not exceed per thousand.
2. The single life rates calculated as described in Section 1 above shall
be converted to joint last survivor rates using the methodology
described in Section 3 below.
3. METHOD FOR CALCULATING JOINT LAST SURVIVOR PREMIUMS
Definition of Terms:
(a) Qx,n = single life rate per thousand in duration n for an
insured whose policy was issued at issue age x
(b) Qx,y,n = joint last survivor rate per thousand in duration n
for two insureds whose policies were issued at issue ages x
and y
STEP 1
Calculate qx,n for each insured for durations 1 to n.
qx,n = Qx,n divided by 1000.
STEP 2
Calculate px,n for each insured for durations (n-1) and n.
px,n = (1-qx,1) x (1-qx,2) x...x (1-qx,n).
STEP 3
Calculate px,y,n for durations (n-1) and n.
px,y,n = px,n + py,n - ((px,n) x (py,n))
STEP 4
Calculate qx,y,n for duration n. Let px,y,0 = 1.
qx,y,n = 1 - PX,Y,N
-------
px,y,n-1
-32-
STEP 5
Qx,y,n = 1000 x qx,y,n.
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
--------------------------------------------------------------------------------
RATE SCHEDULE C-5
--------------------------------------------------------------------------------
-33-
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
--------------------------------------------------------------------------------
RATE SCHEDULE C- 6
--------------------------------------------------------------------------------
-34-
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
--------------------------------------------------------------------------------
RATE SCHEDULE C-7
--------------------------------------------------------------------------------
-35-
SCHEDULE IV - REINSURANCE PREMIUMS (CONTINUED)
--------------------------------------------------------------------------------
RATE SCHEDULE C- 8
--------------------------------------------------------------------------------
-36-
SCHEDULE V - LIMITS
--------------------------------------------------------------------------------
REINSURER'S SHARE:
--------------------------------------------------------------------------------
25% excess of the Ceding Company's Retention
--------------------------------------------------------------------------------
BINDING LIMITS:
--------------------------------------------------------------------------------
$15,000,000 for Life products
$9,000,000 for the BIO Rider
--------------------------------------------------------------------------------
JUMBO LIMIT:
--------------------------------------------------------------------------------
$25,000,000
-37-
SCHEDULE VI - SAMPLE STATEMENT SPECIFICATIONS
The following information should appear on each Statement and Inforce listing:
o Name of the Insured(s)
o Date of Birth of the Insured(s)
o The Issue Age of each Insured(s)
o The Sex of the Insured(s)
o The Insured(s) Country of Residence
o Underwriting Classification (i.e. Preferred, Standard, etc.)
o Smoking Class (i.e. Smoker, Non Smoker, etc.)
o Indication if Business is Facultative or Automatic
o Indication if Business is Risk Premium or Coinsurance
o Policy Number(s)
o Plan Code(s) / Kind Code(s): Cession Series
o Original Face Amount of the Policy(s)
o Amount(s) Ceded to the Reinsurer
o Amount of Premium being Paid; separated for Supplementary Benefits .
o The Amount of any Reinsurance Premium Allowances
o Any Extra Premiums concerned. Example: $5 / 1000 / 5 YRS
o Effective Date and Duration of any Policy(s) Change, Reissue, or
Termination
-38-
SCHEDULE VII - SAMPLE POLICY EXHIBIT
POLICY SUMMARY NUMBER OF REINSURANCE
CLASSIFICATION POLICIES AMOUNT
-------------- -------- ------
Inforce as of Last Report 878 $410,220,973
New Issues 2 $516,666
Reinstatements 3 $483,334
Increases $500,000
Decreases - Still Inforce $133,332
Rollover - In 0 $0
DEDUCT BY:
Death 0 $0
Surrender 1 $250,000
Lapse 4 $1,000,001
Conversion - Out 0 $0
Decreases - Termination 3 $299,999
Inactive - Pending 0 $0
Not Taken 0 $0
Inforce as of Current Report 875 $410,037,641
-39-
SCHEDULE VIII - DEFINITIONS
ASSUME - To accept or take over a risk, the converse of cede.
AUTOMATIC REINSURANCE - A reinsurance agreement under which the Reinsurer is
obligated to accept or assume risks that meet certain specific criteria based on
the Ceding Company's underwriting.
BINDING LIMIT - The amount of risk over the Ceding Company's retention, which
can be ceded automatically if all automatic conditions are met.
CASH VALUE - The amount of money that the policy owner will receive as a refund
if the policy owner cancels the coverage and returns the policy to the company.
CEDE - To transfer an insurance risk from the company originally issuing the
policy to another insurance company known as the Reinsurer.
CEDING COMPANY - A ceding insurer is an insurer that underwrites and issues an
original, principal policy to an insured and contractually transfers (cedes) a
portion of the risk to the Reinsurer. A ceding Reinsurer is a Reinsurer which
transfers (cedes) a portion of the underlying reinsurance to a retrocessionaire.
CONDITIONAL RECEIPT - A provision included in some life insurance policies
providing coverage from the date of the application to the date at which the
policy is either issued or declined.
EXCESS REINSURANCE - A form of reinsurance under which recoveries are available
when a given loss exceeds the Ceding Company's retention (excess of loss
reinsurance) defined in this Agreement.
EXPERIENCE REFUND OR PROFIT COMMISSION - A provision found in some reinsurance
agreements which provides for profit sharing. Parties agree to a formula for
calculating profit, an allowance for the Reinsurer's expenses, and the Ceding
Company's share of such profit after expenses.
EXTRA CONTRACTUAL OBLIGATIONS (ECO) - A generic term that, when used in a
reinsurance agreement, refers to damages awarded by a court against an insurer
which are outside the provisions of the insurance policy, due to the insurer's
bad faith, fraud or gross negligence in the handling of a claim.
FACULTATIVE - Reinsurance under which the Ceding Company has the option
(faculty) of submitting and the Reinsurer has the option of accepting or
declining individual risks. This Agreement merely reflects how individual
facultative reinsurance will be handled.
FLAT EXTRA PREMIUM - A method for rating substandard risks used when the extra
risk is considered to be constant. The underwriter assesses a specific extra
premium for each $1,000 of insurance. Flat extra ratings usually apply to
applicants in hazardous occupations or avocations, aviation, or with certain
physical impairments of a temporary nature.
INDEXING - The adjustment of the Ceding Company's retention and the reinsurance
limit by a measure of inflation such as the Consumer Price Index.
INDIVIDUAL CESSION ADMINISTRATION - A reinsurance arrangement where the
Reinsurer sets up individual records for each cession and calculates the
reinsurance premium, inforce, and reserve information for its financial reports.
JUMBO LIMIT - The limit placed on an amount of coverage that may be inforce, or
applied for in all companies, on an individual life for automatic reinsurance
purposes. If such insurance exceeds the limit, the Ceding Company must submit
the risk to the Reinsurer for facultative review.
MINIMUM REINSURANCE AMOUNT - The smallest cession that the Reinsurer will accept
automatically. The minimum size is set to avoid the expenses associated with
small cessions.
-40-
ORIGINAL POLICY(S) - Insurance contracts between the Original Company and the
Insured(s).
SCHEDULE VIII - DEFINITIONS (CONTINUED)
POLICY RESERVE - A liability account that identifies the amount of assets that,
together with the future premiums to be received from inforce policies, is
expected to be sufficient to pay future claims on those inforce policies. Also
called a legal reserve or a statutory reserve.
POOL - A method of allocating reinsurance among several Reinsurers. Using this
method, each Reinsurer receives a specified percentage of each risk ceded into
the pool. A reinsurance pool is a multi-Reinsurer agreement under which each
Reinsurer in the group or pool assumes a specified portion of each risk ceded to
the pool.
PREMIUM - (Written/Unearned/Earned) - Written premium is premium registered on
the books of an insurer or Reinsurer at the time a policy is issued and paid.
Premium for a future exposure period is said to be unearned premium. For an
individual policy, written premium minus unearned premium equals earned premium.
Earned premium is income for the accounting period while unearned premium will
be income in a future accounting period.
PUNITIVE DAMAGES - A term that, when used in reinsurance agreements, refers to
damages awarded by a court against an insured or against an insurer in addition
to compensatory damages. Punitive damages are intended to punish the insured or
the insurer for willful and careless misconduct and to serve as a deterrent.
When the award is against an insurer, it is usually related to the conduct of
the insurer in the handling of a claim.
QUOTA SHARE - A form of reinsurance in which premiums and losses are shared
proportionately between the Ceding Company and the Reinsurer, in which the same
percentage applies to all policies reinsured.
RATE - The premium rate is the amount of premium charged per exposure unit, e.g.
per $1,000.
RECAPTURE - The process by which the Ceding Company recovers the liabilities
transferred to the Reinsurer.
REINSURER - A company which contractually assumes all or part of the Ceding
Company's risk.
RETENTION - The dollar amount or percentage of each loss retained by the Ceding
Company under this reinsurance agreement. The Ceding Company's retention is not
reinsured in any way.
RISK - Insurance on an individual life.
RISK PREMIUM REINSURANCE - Another name for Yearly Renewable Term (YRT)
reinsurance. A form of reinsurance under which the risks, but not the permanent
plan reserves, are transferred to the Reinsurer for a premium that varies each
year with the amount at risk and the ages of the insureds. Under the YRT method,
the Ceding Company will transfer to the Reinsurer the mortality risk on either a
net amount at risk basis or on an approximation of the net amount at risk basis.
SELF-ADMINISTRATION - A reinsurance arrangement where the Ceding Company
provides the Reinsurer with periodic reports for reinsurance ceded giving
premium, inforce, reserve, and any other information required by the Reinsurer
for its financial reports. Self-Administration is also known as Bulk or
Bordereaux.
STANDARD GUIDELINES - The underwriting guidelines intended to be applied to all
applications for insurances of the type(s) reinsured under this agreement.
SUBSTANDARD RISKS - Those insureds that, under the terms of the Ceding Company's
standard guidelines, do not meet the criteria for issuance at standard premium
rates.
SUBSTANDARD TABLE EXTRA - Substandard table extra ratings usually apply to
physically impaired lives. The rates will be increased by a factor as shown in
Schedule I for each table of additional mortality.
-41-
SUM AT RISK OR NET AMOUNT AT RISK - The excess of the death benefit of a policy
over the policy reserve.
SCHEDULE VIII - DEFINITIONS (CONTINUED)
TERMINATION - The formal ending of a reinsurance agreement by its natural
expiry, cancellation or commutation by both parties. Terminations can be either
on a cutoff or runoff basis. Under cutoff provisions, the parties' obligations
are fixed as of the agreed cutoff date. Otherwise, obligations incurred while
the agreement was inforce are run off to their natural extinction.
YEARLY RENEWABLE TERM - Another name for Risk Premium Reinsurance.
-42-
