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EXHIBIT 10.2
FIRST RIGHT AGREEMENT
THIS AGREEMENT is entered into this 12th day of July, 2001 between Western
Reserve Life Assurance Co. of Ohio ("WRL") and The WMA Corporation ("WMAC").
WHEREAS, WRL and WMAC, through WMA Life Insurance Company Limited ("WMA
Life"), have previously entered into several reinsurance agreements pursuant to
the terms of which WMAC, through WMA Life, has reinsured life insurance policies
and annuity contracts issued by WRL; and
WHEREAS, WMAC wishes to continue this relationship by securing a first
right by WMA Life to reinsure life insurance policies and annuity contracts
issued by WRL and all United States domiciled entities affiliated with WRL
(collectively, the "WRL Companies") and written by WMA Agents and WFG Agents, as
such terms are defined below.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, WRL and WMAC hereby agree as follows:
1. Reinsurance written on a Coinsurance/Modified Coinsurance ("Co/ModCo")
Basis
a. Commencing from the effective date of this agreement through
December 31, 2002, the WRL Companies hereby grant to WMAC,
through WMA Life, the right to reinsure on a coinsurance and
modified coinsurance (Co/ModCo) basis, in the same form of
reinsurance agreement being currently reinsured by WMAC
through WMA Life as follows:
(i) up to forty percent (40%), on a quota share basis, of
all new variable annuity ("VA") contracts, from
products introduced after December 31, 2000, issued
by any of the WRL Companies and written by agents of
World Marketing Alliance, Inc. ("WMA Agents") or
agents of World Financial Group Insurance Agency
("WFG Agents") if the previous calendar year's direct
written premiums of VA, issued by any of the WRL
Companies and written by WMA Agents or WFG Agents, of
at least $100 million, but not more than $249
million; or
(ii) up to fifty percent (50%), on a quota share basis, of
all new VA contracts, from products introduced after
December 31, 2001, issued by any of the WRL Companies
and written by WMA Agents or WFG Agents if the
previous calendar year's direct written premiums of
VA, issued by any of the WRL Companies and written by
WMA Agents or WFG Agents, of at least $250 million.
provided that, the parties may exclude from the terms of this
Section 1 for any year, any new products which the parties
agree, in the form of a Schedule to this Agreement executed by
authorized officers of both WRL and WMAC, are not expected to
produce during such year at least $50 million of annual
premium volume.
b. Commencing from the effective date of this agreement through
March 31, 2003, the WRL Companies hereby grant to WMAC,
through WMA Life, the right to reinsure on a Co/ModCo basis up
to twenty percent (20%), on a quota share basis (provided
that, for reinsurance on a Co/ModCo basis of reinsurance first
reinsured on a Monthly Renewable Term ("MRT") basis, the quota
amount shall not exceed the quota share amount originally
reinsured on the MRT basis), of all new variable universal
life insurance ("VUL") policies on the WRL Freedom Elite
Builder ("FEB") policy form and on single life VUL policy
forms introduced after the FEB, if the previous calendar
year's sales produced annual first year collected target
premium volume of VUL, issued by any of the WRL Companies and
written by WMA Agents and WFG Agents, in the aggregate, of at
least $50 million in the first year of this Agreement and
increasing by 10% each year thereafter.
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c. Except for the WRL Financial Freedom Builder, WRL Freedom
Wealth Creator and WRL Freedom Premier products, at any time
on or after the date of this Agreement, WMAC shall have the
option (provided it can demonstrate sufficient capacity) to
reinsure business on a Co/ModCo basis as described above (in
Section 2(a) or (b) as the case may be) of all policies issued
by any of the WRL Companies and written by WFG agents since
the beginning of the prior calendar year to the date on which
the option is exercised.
d. All reinsurance written by WMAC, through WMA Life, pursuant to
the above grant(s), will provide that the ceding company may
not recapture the reinsurance during the first thirty years of
any policy so reinsured.
e. The reinsurance allowances paid by WMAC, through WMA Life, to
WRL for reinsurance under this grant shall be such that WRL's
baseline pricing statutory return on investment ("ROI") after
WMAC reinsurance is not less than its pricing ROI before WMAC
reinsurance. WRL will provide WMAC with an Actuarial Pricing
Memorandum prepared in accordance with the Actuarial Standards
of Practice to support its baseline pricing with respect to
each ceding of reinsurance hereunder.
f. The foregoing grant is further subject to the condition that
WMA Life must maintain sufficient capacity throughout the term
of this Agreement by showing that its unassigned invested
securities, together with anticipated cash flows (including
retrocession facilities), will be sufficient to meet expected
reinsurance settlements under reinsurance agreements with WRL.
g. Except as otherwise considered under the terms of the
reinsurance treaties between WRL and WMA Life in force as of
the date of this Agreement, WRL agrees it will provide WMAC,
including WMA Life, baseline product pricing and
specifications on a timely basis so that it may properly
evaluate the reinsurance of such business.
2. Reinsurance written on a Monthly Renewable Term ("MRT") Basis.
a. In the event WMAC does not exercise its right under Section
1(b) to reinsure on a Co/ModCo basis certain new VUL policies,
the WRL Companies hereby grant to WMAC the right of first
refusal to write reinsurance for up to twenty percent (20%)
but not less than 15% of all new VUL policies on FEB policy
form and on single life VUL policy forms introduced after the
FEB, provided, that the first year annual collected target
premium volume of VUL written by WMA Agents and WFG Agents, in
the aggregate, during the preceding calendar year was at least
$50 million in the initial calendar year of this Agreement and
increasing by 10% each year thereafter.
b. All reinsurance written by WMAC pursuant to the above grant
will provide that the ceding company may not recapture the
reinsurance during the first twenty years of any policy so
reinsured.
c. WMAC's first right of refusal with respect to MRT reinsurance
granted hereunder shall be exercisable after WRL has first
secured bids for such reinsurance from commercial reinsurers
as follows:
(i) If WRL intends to reinsure with one or more
commercial reinsurers on a first-dollar quota share basis,
then WRL will advise WMAC of each bid it intends to accept and
the proportion of business to be ceded to each commercial
reinsurer, assuming WMAC, through WMA Life, exercises its
option of first right of refusal under this provision, after
which WMAC, through WMA Life, shall have the option to
reinsure their quota share of such block of insurance at 105%
of the "blended rate" of the commercial reinsurers' rates. The
"blended rate" shall mean the net reinsurance cost (gross
reinsurance premiums net of reinsurance allowances) to WRL of
each respective reinsurer's portion of WRL business to be
ceded, but excluding any portions ceded to WMA Life or to any
commercial reinsurer that is directly or indirectly affiliated
with WRL, provided that if WRL ultimately reinsures at a
blended rate different from the blended rate
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calculated based on the rates in the bids WRL disclosed to
WMAC, then WRL shall disclose such other rates and WMAC shall
again have the right to elect (in a restarted time period
pursuant to Section (iii) below) to exercise its right of
first refusal to reinsure its quota share based on the new
blended rate.
(ii) If WRL does not intend to reinsure with any
commercial reinsurer on a first-dollar quota share basis, WRL
shall secure a minimum of three bids from U.S.-domiciled
commercial reinsurers having A.M. Best ratings of A- or
better, excluding any reinsurer that is directly or indirectly
affiliated with WRL, on a first-dollar quota share basis with
a recapture period of twenty (20) years. WRL will advise WMAC
of each bid secured from the commercial reinsurers after which
WMAC, through WMA Life, shall have the option to reinsure
their quota share of such block of insurance at "Y" times the
average of the commercial reinsurers bids, where "Y" shall not
exceed the lesser of (i) 105% or (ii) the multiple which would
otherwise result in a 25 basis point reduction in WRL's
baseline product pricing statutory ROI as compared to WRL's
pricing ROI before reinsurance with WMA Life. WRL will provide
WMAC with an Actuarial Pricing Memorandum prepared in
accordance with the Actuarial Standards of Practice to support
its baseline product pricing with respect to each ceding of
reinsurance hereunder.
(iii) WMAC shall have twenty business days from the date
material is provided to WMAC from WRL to advise WRL in writing
that it is exercising its right of first refusal as provided
in this Agreement.
3. Term and Termination
a. Subject to subsection (b) below, (i) the rights set forth in
Section 1(a) shall terminate on December 31, 2002; (ii) the
rights set forth in Sections 1(b) through 1(g) shall terminate
on March 31, 2003; and (iii) the rights set forth in Section 2
shall terminate on March 31, 2006. The parties agree that this
Agreement, and all of the rights specified hereunder, shall
continue on a year-to-year basis after the expiration of the
respective terms in this paragraph, unless, at least one
hundred eighty (180) days prior to each of these termination
dates and each renewal date thereafter, either party notifies
the other party, in writing, of the party's desire not to
automatically renew.
b. This Agreement may be terminated under the following
circumstances:
(i) the mutual agreement of the parties hereto upon a
mutually determined termination date;
(ii) by either party, if the other party has, in any
material respect, breached its obligations under this
Agreement and such breach has not been cured within
thirty days after the non-breaching party has
notified the breaching party in writing of such
breach, which termination date shall be five days
after the expiration of the above thirty day period;
(iii) by either party in the event the other party: becomes
insolvent; acknowledges that it is unable to pay its
debts as they become due; has filed a voluntary
petition in bankruptcy or has had an involuntary
petition filed against it by its creditors, and such
petition is not dismissed within thirty days after
its filing; or has commenced proceedings to be
granted a suspension of payments or any other
proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any
jurisdiction; and
(iv) by WRL in the event that any reinsurance agreement
between WRL and WMAC or WMA Life is terminated by WRL
for cause based on a default by WMAC or WMA Life
which is not cured within any applicable cure period.
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4. Miscellaneous Provisions
a. WRL and WMAC will periodically, throughout the term of this
Agreement, provide each other with their independent analysis
of the business reinsured pursuant to the terms of this
Agreement. All information, regardless of its form, that is
provided by one party to the other pursuant to the terms of
this Agreement shall be maintained in a confidential manner
and shall not be disclosed to any third party without the
express written consent of the party that provided such
information, unless such disclosure is compelled under
judicial, statutory or regulatory subpoena or order.
b. The rights granted in Sections 1 and 2 of this Agreement shall
not apply to the WRL Freedom Elite VUL policy form; provided
that (i) the FEB product is introduced no later than sixty
(60) days after the Convention held in July 2001, except for
any delays attributable solely to extended review by the
Securities and Exchange Commission as long as WRL shall
continue to diligently pursue approval of such filing and (ii)
not later than sixty (60) days following its approval and
availability for sale within a state, the WRL Freedom Elite
VUL product is withdrawn from the list of products available
for sale by the WFG Agents located in that state. If items (i)
and (ii) in the preceding sentence have not been met before
January 1, 2002, then from and after such date, the rights
granted in Sections 1 and 2 of this Agreement shall apply to
the WRL Freedom Elite VUL policy form from January 1, 2002
forward.
c. The rights and obligations of the respective parties hereto
shall inure to the benefit of and be binding upon each of them
and their respective successors and assigns. This agreement
may not be assigned by either party without the express,
prior, written consent of the other party, which consent will
not be unreasonably withheld.
d. If any provision of this Agreement is determined by judicial
authority or an arbitrator to be in violation of an applicable
state or federal law or regulation or to be invalid or
unenforceable; then such provision shall be enforced during
such period of prohibition only to the extent permitted by
such law, regulation or decision, and all other provisions of
this Agreement shall remain in full force and effect to the
greatest extent possible.
e. This Agreement shall be governed by and construed in
accordance with the laws of the state of Ohio without giving
effect to any choice of law or conflict of law provision.
f. The reinsurance agreements between WRL and WMAC or WMA Life
pursuant to the terms of this Agreement shall be consistent
with the reinsurance agreements entered into by WRL with other
reinsurance companies for the VUL policies covered hereunder,
except as set forth in this Agreement and certain provisions
unique to WMAC or WMA Life, including establishing a letter of
credit in favor of WRL and provisions that restrict WMAC or
WMA Life from retroceding reinsurance, except for (i) ceding
mortality risks in excess of their retention limits on a
monthly or yearly renewable term plan of reinsurance or (ii)
ceding or assigning to secure financial reinsurance which
shall not result in a material increase in surplus through a
reduction of any liability in any financial statement filed
with any regulatory authority, and/or shall not result in a
permanent transfer by the reinsurer of the business reinsured.
g. WRL shall be responsible for ensuring compliance by each of
the WRL Companies with the terms of this Agreement.
h. Any controversy or claim between the parties, arising out of
or relating to this Agreement or the breach thereof or the
coverage of this arbitration provision, shall be settled by
arbitration. There shall be three (3) arbitrators who shall be
current or former officers of life insurance companies or life
reinsurers. However, unless otherwise consented to in writing
by the parties, such person shall not be a current or former
employee of, or current or former consultant to, the parties
or any affiliate or reinsurer of the parties; nor shall he or
she have any current employment or affiliation with,
consulting or contractual engagement with, or financial
interest in: a party to this Agreement or persons or companies
affiliated or associated with a party to this Agreement. WMAC
shall
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appoint one of the arbitrators and WRL shall appoint a second
arbitrator and these two arbitrators shall select the third.
If either party shall fail to appoint an arbitrator within
thirty (30) days after the other party has given notice of its
appointment of an arbitrator, the appointment of the
arbitrator for the party which has so failed to appoint an
arbitrator shall be left to the other party. Should the two
arbitrators appointed by or for the parties fail to agree on
the choice of the third, within sixty (60) days of their
appointment then each of them shall name three (3)
individuals, of whom the other shall decline two (2), and the
decision shall be made by drawing lots. Arbitration shall be
conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association which shall be in
effect on the date of delivery of demand for arbitration;
except, however, that arbitrators shall be appointed in
accordance with the provisions of this paragraph and that, to
the extent any other terms or provisions of this paragraph are
inconsistent with or in conflict with the Commercial
Arbitration Rules, this paragraph shall control. The
arbitration shall be conducted in a location to be determined
by a majority of the Arbitrators. WMAC and WRL shall each pay
that part of the expense of arbitration which shall be
apportioned to it by the arbitrators. The award rendered by
the arbitrators shall be final, and judgment may be entered
upon it in any court having jurisdiction thereof. The
Arbitrators shall base their decision on the terms and
conditions of this Agreement and, as necessary, on the customs
and practices of the life reinsurance and life insurance
industries rather than on a strict interpretation of
applicable law.
i. WRL and WMAC agree to amend the existing reinsurance
agreements between them to cover policies sold by the WFG
Agents as well as by the WMA Agents.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed on their behalf by their respective duly authorized officer
as of the date first written above.
The WMA Corporation Western Reserve Life
Assurance Co. of Ohio
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President Senior Vice President
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