EXHIBIT (7)(b)
FORM OF REINSURANCE AGREEMENT
Automatic Variable Annuity Reinsurance Agreement
(Referred to as the Agreement)
Between
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
of Largo, Florida
(referred to as the Reinsured)
and
WMA LIFE INSURANCE COMPANY LIMITED
of ▇▇▇▇▇▇▇▇, Bermuda
(referred to as the Reinsurer)
Effective January 1, 1998
Contents
ARTICLE DESCRIPTION PAGE
------- ----------- ----
I Automatic Reinsurance 3
II Definitions 3
III Liability 5
IV Reductions and Terminations 5
V Premiums 5
VI Payments by Reinsurer 6
VII Reporting 6
VIII Policy Changes 7
IX Annuitization 7
X Deposits of the Modified Coinsurance Reserve 7
XI Interest Credit on Modified Coinsurance Reserve and Modified
Coinsurance Reserve Adjustment 7
XII Reinsurance Reserves 8
XIII General Provisions 9
XIV Recapture 14
XV Arbitration 14
XVI Improper Solicitation of Annuity Contract Owners 15
XVII DAC Tax - Section 1.848-2(g) (8) Election 15
XVIII Duration of Agreement 16
XIX Written Notice 17
XX Execution 18
EXHIBITS DESCRIPTION PAGE
-------- ----------- ----
A Form of Letter of Credit 19
B Investment Policy and Crediting Rate Strategy 20
SCHEDULE DESCRIPTION
-------- -----------
A Business Reinsured
B1 Amount of Reinsurance
B2 Commission And Expense Allowances
C1 Quarterly Settlement Report
C2 Quarterly Reserve And Settlement Report
D1 Monthly Reports
D2 Quarterly Reports Commission and Expense Allowances
E1 Monthly Reports-Monthly Production and Policy Loans Report
E2 Quarterly Reports-Quarterly Production and Policy Loans Report
E3 Quarterly Reports-Quarterly Reserve Report
F Annual Report
G Quarterly Reports-Quarterly Interest Credit (Debit) on
Modified Coinsurance Reserve
H Quarterly Reports-Quarterly Modified Coinsurance Reserve
Adjustment
I Quarterly Reports-Quarterly Target Surplus Adjustment
J Monthly Report-Monthly M&E Asset Based Allowance Calculations
This Agreement is entered into by the Reinsured and the Reinsurer on the
execution date. The Reinsured and the Reinsurer mutually agree to reinsure on
the terms and conditions set out below.
I. AUTOMATIC REINSURANCE
1. Insurance. The Reinsured will cede on an automatic basis and the
Reinsurer will accept as reinsurance the annuity contracts (policies)
written by the Reinsured as shown in Schedule A.
2. Coverages. The annuity contracts Reinsured as shown in Schedule A, are
the Flexible Payment Variable Accumulation Deferred Annuity contracts
and any riders or endorsements attached thereto, with an issue date
after December 31, 1997. Reinsurance will be limited in percentage as
provided in Schedule B1. Only plans sold by a Producer registered with
an affiliated broker-dealer identified in Exhibit A shall be reinsured
under this Agreement.
3. The Separate Account Annuity Value will be reinsured on a modified
coinsurance basis.
4. The Fixed Account will be reinsured on a coinsurance basis.
5. In no event shall reinsurance under this Agreement be in force with
respect to an annuity contract unless the issuance and delivery of the
annuity contract is in compliance with the laws of all applicable
jurisdictions and the Reinsured's corporate charter.
6. The Reinsured declares and agrees that all annuity contracts and
benefits covered under this Agreement shall be issued in accordance
with its normal practices in effect when the annuity contract is
issued. These practices will be provided to the Reinsurer on request.
The Reinsured will also notify the Reinsurer of any material changes
made to these practices before applying them to annuity contracts and
benefits covered by this Agreement.
II. DEFINITIONS
"Annuity Value" has the same meaning as set forth in the Reinsured
Plan.
"Article" or "Paragraph" refers to an Article or Paragraph of this
Agreement.
"Effective Date", with respect to Reinsured Plans, means the date
shown in Schedule A on which reinsurance under this Agreement becomes
effective. The Reinsured is liable for Reinsurance Premiums, less
applicable Reinsurance Allowances, due on or after the Effective Date
of a Reinsured Plan; and the Reinsurer is liable for any reinsured
benefits occurring on or after the Effective Date.
"Execution Date" means the date as of which this Agreement has been
executed, as shown in Article XX, Execution.
"Exhibit" and "Schedule" mean, respectively, an exhibit or schedule
attached to this Agreement and shall be considered part of this
Agreement.
"Fixed Account" means allocation option(s) other than the Separate
Account.
"Fixed Account Value" means the value of the Fixed Account on any
valuation date.
"General Account Statutory Reserves and Liabilities" or "GA Statutory
Reserves and Liabilities" refers to statutory reserves and liabilities
associated with the Fixed Account as held by the Reinsured for the
reinsured contracts.
"Party" or "party" refers to either the Reinsured or the Reinsurer as
appropriate, and parties refer to both, collectively.
"Payment" means initial premium payment and all subsequent purchase
payments as defined in the contract.
"Producer" means a licensed representative registered with a
broker-dealer identified in Exhibit A.
"Reinsured Plan" means any annuity contract or rider form reinsured
under this Agreement, as set forth in Schedule A.
"Series Fund" means a designated mutual fund from which each
sub-account of the Separate Account will buy shares.
"Separate Account" means a separate investment account shown on the
policy schedule page, which is composed of several sub-accounts
established to receive and invest net premiums under the policy.
"Settlement Interest Rate" means the interest rate for ninety (90) day
dealer commercial paper as published in The Wall Street Journal or a
successor or substitute publication, as agreed upon by both parties if
The Wall Street Journal should cease to exist. The Settlement Interest
Rate for a given month will be the Settlement Interest Rate published
on the fifteenth (15th) of the month or the next following business
day if the fifteenth (15th) of the month is not a publication date of
The Wall Street Journal.
"Sub-account" means a subdivision of the Separate Account. Each
Sub-account invests exclusively in the shares of a specified Series
Fund portfolio.
III. LIABILITY
1. The liability of the Reinsurer on any reinsurance under this Agreement
begins upon the effective date of this Agreement as set forth in
Article XX, Execution, and ends after all annuity contracts reinsured
have been terminated, annuitized or recaptured, as set forth in
Article XIV, Recapture.
2. The liability of the Reinsurer to the Reinsured under this Agreement
will be coexisting with the liability of the Reinsured under the
annuity contracts reinsured and may exceed the Reinsured's contractual
liability under the terms of the annuity contracts as described in
Paragraph 3, Article XIII, General Provisions.
3. On an ongoing basis the liability of the Reinsurer, reinsurance
premiums, benefits and other items due to or from each party shall be
accounted for and settled and paid quarterly on the basis of the
quarterly reports prepared by the Reinsured in the form of Schedules
C1 and C2 and sent to Reinsurer via facsimile transmission or such
other medium mutually acceptable to both parties. Also included will
be any adjustments made necessary by changes in reinsurance effective
during the previous quarter, or changes due to any agreed upon errors
on a previous report. Payment of any amount due to be paid by the
Reinsurer or the Reinsured shall be determined on a net basis and
shall be paid, in United States currency, within two (2) weeks after
receipt by Reinsurer of the quarterly report.
4. The settlement, as shown in Schedule C1 and C2 will include interest
on payments received, net transfers, mortality and expense charges,
and asset based allowances as shown in Schedule E1, and interest on
commission and expense allowances, and interest on benefits from the
Fixed Account, as shown in Schedule D1 accruing from the fifteenth
(15th) of every month to the settlement date. The interest rate will
be the Settlement Interest Rate of the month named on the Schedules D1
and E1. Interest will be earned from the fifteenth (15th) of the month
named on Schedules D1 and E1 to the next following settlement date.
IV. REDUCTIONS AND TERMINATIONS
1. If any of the annuity contracts reinsured under this Agreement are
reduced or terminated by payment of a death benefit, withdrawal,
surrender or annuitization, the reinsurance will be reduced
proportionately.
V. PREMIUMS
1. The premium to be paid to the Reinsurer by the Reinsured with respect
to each annuity contract reinsured, as specified in Schedule A, will
be the quota share percentage, as specified in Schedule B1 of:
(i) The total amount "Due WMA", as shown in Schedule C1, and
(ii) The total amount "Due WMA" as shown in Schedule C2.
VI. PAYMENTS BY REINSURER
1. The Reinsurer shall pay to the Reinsured the Reinsurer's quota share
percentage of:
(i) The total amount "Due WRL", as shown in Schedule C1, and
(ii) The total amount "Due WRL", as shown in Schedule C2.
VII. REPORTING
1. The Reinsured shall assume responsibility for the administration of
all reinsurance under this Agreement and will provide the Reinsurer
with information as set forth in Schedule C1 through Schedule J of
this Agreement. The Reinsurer may request, at its option, to review,
at the administrative office of the Reinsured, any papers associated
with the issuance of any annuity contract subject to Automatic
Reinsurance under this Agreement. In addition, the Reinsured will
provide the Reinsurer with information necessary to properly account
for the business reinsured and exercise its obligation as a member of
the Investment Management Committee.
2. Not later than twenty (20) days after the end of each quarter, the
Reinsured will submit a report substantially in accordance with
Schedules C1 and C2 accompanied by Schedules D2, E2, E3, G, H, and I.
The Reinsured agrees to provide or make available to the Reinsurer
such documentation as may be necessary to support the items reported.
3. Not later than twenty (20) days after the end of each month, the
Reinsured will submit a report substantially in accordance with
Schedules D1, E1 and J.
4. Not later than thirty (30) days after the end of each calendar year,
the Reinsured will submit a report substantially in accordance with
Schedule F.
5. Not later than ninety (90) days after the end of each calendar year,
the Reinsured will provide a copy of its statutory statement as filed
with the State of Ohio.
6. Not later than one hundred twenty (120) days after the end of each
calendar year, the Reinsurer will provide a copy of The WMA
Corporation Form 10-K.
7. Not later than sixty (60) days after the end of each quarter, the
Reinsurer will provide a copy of The WMA Corporation Form 10-Q.
VIII. POLICY CHANGES
1. Changes to the terms and conditions of annuity contracts reinsured
under this Agreement shall be made in accordance with the provisions
contained in this Article of the Agreement.
2. If the change affects the plan, the amount of reinsurance, premiums,
commissions or policy changes under cession, the Reinsured shall
inform the Reinsurer in the subsequent Reinsurance Report.
3. The Reinsured agrees to notify the Reinsurer in writing of any
anticipated material changes in the terms and conditions of the
annuity contracts.
IX. ANNUITIZATION
1. Any annuity contract annuitizing (going into payout status) shall be
deemed to be recaptured by the Reinsured.
2. On any annuity contract reinsured with the Reinsurer which annuitizes,
the Reinsurer will pay the Reinsured an amount equal to the annuity
contract's Annuity Value reduced by the Contingent Deferred Sales
Charge specified in the annuity contract and premium tax, if any,
previously paid by Reinsurer with respect to the annuitized Annuity
Contract.
X. DEPOSITS OF THE MODIFIED COINSURANCE RESERVE
1. The Reinsurer shall deposit with the Reinsured the modified
coinsurance reserves identified in Schedule H, for the business
reinsured under this Agreement.
2. For the purpose of this Article, modified coinsurance reserves are
defined to be the quota share percentage of the total Separate Account
Annuity Value of the annuity contracts reinsured.
XI. INTEREST CREDIT (DEBIT) ON MODIFIED COINSURANCE RESERVE AND MODIFIED
COINSURANCE RESERVE ADJUSTMENT
1. The Reinsurer shall receive an interest credit (debit) on the modified
coinsurance reserve. The amount of the credit (debit) will be
determined as set forth in Schedule G.
2. The Reinsured shall receive a modified coinsurance reserve adjustment.
The amount of the adjustment will be determined as set forth in
Schedule H.
3. Both the interest credit (debit) and the modified coinsurance reserve
adjustment will be made at the end of each calendar quarter.
XII. REINSURANCE RESERVES
1. The Reinsured shall set up an Account Payable liability in its
financial statements equal to the quota share percentage of the
excess, if any, of the total Separate Account Annuity Value of the
reinsured annuity contracts over the total Separate Account Statutory
Reserve of the annuity contracts. The Reinsurer shall set up an
Account Receivable asset equal to the Account Payable liability set up
by the Reinsured.
2. The Reinsurer shall set up an Account Payable liability in its
financial statements equal to the quota share percentage of the
excess, if any, of the total Separate Account Statutory Reserve of the
reinsured annuity contracts over the total Separate Account Annuity
Value of the annuity contracts. The Reinsured shall set up an Account
Receivable asset equal to the Account Payable liability set up by the
Reinsurer.
3. The Reinsured will reduce its General Account Statutory Reserves and
Liabilities by the quota share percentage of the total General Account
Statutory Reserves and Liabilities attributable to the reinsured
policies, as shown in Schedule C2. The Reinsurer will increase its
General Account Statutory Reserves and Liabilities by an amount equal
to the reduction taken by the Reinsured.
4. For purposes of Sections 1, 2 and 3 of this Article, the Statutory
Reserve shall be calculated by the Reinsured according to the
"Commissioner's Annuity Reserve Valuation Method" as prescribed in the
NAIC Standard Valuation Law and approved by the State of Ohio
Department of Insurance. The General Account Statutory Reserves and
Liabilities will be the reserves associated with the Fixed Account and
will include the reserves for the guaranteed minimum death benefit.
5. In the event the Reinsurer is not licensed or otherwise accredited or
authorized as a reinsurer in the State of Ohio and in any other
jurisdiction where the Reinsured is licensed to do business, the
Reinsurer agrees to provide Letters of Credit or other forms of
security acceptable to the State of Ohio Department of Insurance, in
favor of the Reinsured for the purpose of offsetting ceded Statutory
Reserves and liabilities and any outstanding losses if reinsurance
credits are not otherwise available. Such Letters of Credit shall be
issued in compliance with the statutes and regulations of the State of
Ohio and shall be issued by a financial institution located in the
United States chosen by the Reinsurer, which has applied for and has
met the standards of financial conditions set forth by the NAIC's
Securities Valuation Office.
6. The Letter(s) of Credit in favor of the Reinsured will be an amount
which at all times should equal or exceed the reinsurance credits
taken or reasonably estimated to be taken by the Reinsured in
connection with this Agreement under Exhibit 8, under Exhibit 11, Part
1, Column 4, Line 4c, and any other Liabilities held for the Reinsured
Policies and reported on the Reinsured's statutory financial
statements. Subject to the approval of the State of Ohio
Department of Insurance, the amount of the Letter of Credit may be
reduced by the quota share percentage of the excess of the Separate
Account Annuity Value over the Separate Account Statutory Reserve.
Should the reinsurance credit not be allowed, as a result of this
reduction in any applicable jurisdiction, the Letter of Credit will be
restored to the value that it would have been without this reduction.
7. The Letter of Credit shall be substantially in the form set forth in
Exhibit B or in such other form as the Ohio Insurance Department or
other applicable state Insurance Department may require or permit. The
terms of the Letter of Credit shall provide that: it is not
conditioned on the delivery of any other documents or materials; it is
irrevocable without the consent of the Reinsured; it is automatically
renewable as provided in Exhibit B; and its initial term is for a
period of not less than one (1) year. Such Letter of Credit may be
drawn upon at any time, notwithstanding any other provisions in this
Agreement, but shall be utilized by the Reinsured or its successors
only for one or more of the following reasons:
(i) to fund an account on behalf of the Reinsured in an amount at
least equal to the deduction, for reinsurance ceded, from the
Reinsured's reserves and liabilities for Reinsured Plans, as
specified in Paragraph 6 of this Article and/or
(ii) to pay any other amounts the Reinsured claims are due under this
Agreement.
8. Such Letter(s) of Credit shall be promptly issued and delivered to the
Reinsured; but in no event shall the Letter(s) of Credit be issued or
confirmed later than December 31 in respect of the year for which the
Reinsured is taking credits for such reinsurance in its statutory
financial statements, and in no event shall the Letter(s) of Credit be
delivered to the Reinsured later than thirty (30) days after such
December 31.
XIII. GENERAL PROVISIONS
1. Parties to Agreement. This Agreement is a contract solely between the
Reinsurer and the Reinsured. The acceptance of reinsurance hereunder
shall not create any right or legal relation between the Reinsurer and
the insured, beneficiary, or any other party to any annuity contract
of the Reinsured, which may be reinsured hereunder.
2. Reinsurance Conditions. The reinsurance is subject to the same
limitations and conditions as the insurance under the annuity
contracts written by the Reinsured on which the reinsurance is based.
3. Expenses. The Reinsurer will have liability equal to the quota share
percentage of any extra-contractual damages which are rendered against
the Reinsured as a result of acts, commission or course of conduct
committed by a Producer of an affiliated broker-dealer identified in
Exhibit A, in connection with the annuity contracts reinsured under
this Agreement. The Reinsurer will receive the quota share percentage
of any reimbursement that the Reinsured collects from World Marketing
Alliance, Inc. or its affiliates. In no event whatsoever will the
Reinsured have any liability for extra-contractual damages assessed
against the Reinsurer as a result of acts, omissions, or course of
conduct committed by the Reinsurer in connection with the reinsurance
of the annuity contracts under this Agreement.
4. Oversights. If failure to pay any premium due or to perform any other
act required by this Agreement is unintentional and is caused by
misunderstanding oversight or clerical error, the Reinsured and the
Reinsurer shall be restored to the position they would have occupied
had the misunderstanding, oversight or clerical error not occurred.
5. Inspection. The Reinsured and the Reinsurer, their auditors and any
regulators having authority over the Reinsured and/or the Reinsurer,
shall have the right, at all reasonable times, and at their expense,
to inspect at the office of the other party all books, records,
procedures, and documents of the other party relating to this
Agreement. A party or its auditor conducting such inspection shall
give the other party one (1) week advance written notice. The
Reinsured, its auditors and regulators shall have the same right to
inspect, verify and value any assets held in a trust account or
otherwise held for the benefit of the Reinsured. The party being
audited or inspected agrees to cooperate in the audit, including
providing any information requested by the other party or its auditor
in advance of the audit or inspection. Upon request, the Reinsured
agrees to furnish the Reinsurer with copies of any underwriting
information in the Reinsured's files pertaining to a reinsured policy
or reinsured rider.
It is mutually agreed by the Reinsured and the Reinsurer that any
information that is made available for inspection under this section
of the Agreement shall, to the extent legally possible, be kept
confidential and under no circumstances may this information be
disclosed to, or made available for inspection by, any third party
without the prior consent of the other contracting party.
6. Assignment or transfer. In no event shall either the Reinsured or the
Reinsurer assign any of its rights, duties or obligations under this
Agreement without the prior written approval of the other party. Such
approval shall not unreasonably be withheld.
In no event shall either the Reinsured or the Reinsurer transfer
either the Annuity Contracts Reinsured under this Agreement or the
reinsurance without the prior written approval of the other party.
Such approval shall not unreasonably be withheld.
7. Entire Agreement. This Agreement represents the entire agreement
between the Reinsurer and the Reinsured and supersedes any prior oral
or written agreements between the parties regarding its subject
matter.
8. Alterations to Agreement. Any alteration, which may from time to time
become necessary in this Agreement, shall be made by amendment
attached to the Agreement embodying such alterations as may be agreed
upon and taken as part of this Agreement and equally binding. No
modification or waiver of any provision of this Agreement shall be
effective unless set forth in written amendment to this Agreement,
which is executed by both parties. A waiver shall constitute a waiver
only with respect to the particular circumstance for which it is given
and not a waiver of any future circumstance.
9. If any provision of this Agreement shall be held or made invalid by an
order of a court of competent jurisdiction, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be construed in accordance with the
applicable federal law and the laws of the State of Ohio and the
rights and obligations of this Agreement shall, at all times, be
regulated under the laws of the State of Ohio.
10. Taxes. The Reinsurer shall reimburse the Reinsured for any U.S. Excise
Tax the Reinsured is required to pay under the U.S. Internal Revenue
Code for the reason that the Reinsurer fails to make an election or
terminates its election to file U.S. federal income tax returns or
otherwise ceases or fails to file such return. The Reinsurer shall
reimburse the Reinsured for the quota share percentage of any other
federal or state taxes or state guaranty fund assessments the
Reinsured may be required to pay with respect to the Reinsured Plans,
but not including federal income tax paid with respect to the
Reinsured Plans. This Paragraph does not diminish in any way the
provisions of Article XVII, DAC Tax.
11. Insolvency of the Reinsured.
(a) The Reinsured shall immediately give Reinsurer written notice of
an event constituting insolvency of the Reinsured. However,
whether such notice is timely given or not, in the event of the
insolvency of the Reinsured, all amounts relating to reinsurance
made, ceded, renewed or otherwise becoming effective under this
Agreement shall be payable by the Reinsurer directly to the
Reinsured or to its liquidator, receiver or statutory successor
on the basis of the liability of the Reinsured without diminution
because of the insolvency of the Reinsured or because the
Reinsured or Reinsured's legal representative has failed to pay
all or a portion of amounts owed to Reinsurer under this
Agreement. It is understood, however, that in the event of the
insolvency of the Reinsured, the liquidator or receiver or
statutory successor of the insolvent Reinsured shall give written
notice to the Reinsurer of the pendency of a claim against the
insolvent Reinsured on the policy reinsured within a reasonable
time after such claim is filed in the insolvency proceeding and
that during the pendency of such claim that the Reinsurer may
investigate such claim and interpose in the name of the Reinsured
(or its liquidator, receiver or statutory successor), at the
Reinsurer's own expense, in the proceeding where such claim is to
be adjudicated any defense or defenses which it may deem
available to the Reinsured or its liquidator or receiver or
statutory successor.
(b) It is further understood that the expenses thus incurred by the
Reinsurer shall be chargeable, subject to court approval, against
the insolvent Reinsured as part of the expense of liquidation to
the extent of a proportionate share of the benefit which may
accrue to the Reinsured solely as a result of the defense
undertaken by the Reinsurer. When two or more reinsurer's are
participating in the same claim and a majority in interest elects
to interpose a defense or defenses to such claim, the expense
shall be apportioned in accordance with the terms of this
Agreement as though such expense had been incurred by the
Reinsured.
12. Insolvency of the Reinsurer. The Reinsurer shall immediately give the
Reinsured written notice of an event constituting insolvency of the
Reinsurer. Upon the insolvency of the Reinsurer, whether notice
thereof was given by the Reinsurer or not, the Reinsured has the right
to immediately, by written notice, terminate this Agreement and
recapture all reinsurance under this Agreement. Notwithstanding such
termination or recapture, Reinsurer or its legal representative shall
continue to be liable to the Reinsured for any obligations of the
Reinsurer under this Agreement still outstanding after giving effect
to such recapture.
13. For the purpose of this Agreement, either the Reinsurer or the
Reinsured shall be deemed "insolvent" under the following
circumstances:
(a) when a cease and desist order or injunction has been issued by
the commissioner or a court of competent jurisdiction in its
state or jurisdiction of domicile ordering either party to cease
and desist from transacting, soliciting or writing any new
business of any kind and is reasonably expected to result in
conservatorship, rehabilitation, receivership, or liquidation; or
(b) when a court of competent jurisdiction order is issued
voluntarily or involuntarily placing either party into
conservatorship, rehabilitation, receivership, or liquidation, or
appointing a conservator, rehabilitator, receiver or liquidator
to take over the business of either party; or
(c) when it files or consents to the filing of a petition in
bankruptcy, seeks reorganization or an arrangement with creditors
or takes advantage of any bankruptcy, dissolution, liquidation or
similar law or statute.
14. Offset. The Reinsurer and the Reinsured shall consider any balance due
and unpaid, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or were incurred, whether on account of
premiums, allowances, policy charges, losses, claims expenses, or any
other amount in accordance with the terms of this Agreement, or any
other reinsurance agreement, due from one party to another to be
mutual debits or credits under this Agreement and shall be offset and
only the balance allowed or paid. If either the Reinsured or Reinsurer
is then under any formal insolvency proceedings, this right of offset
shall be subject to the laws of the domiciliary jurisdiction of the
then insolvent party.
15. Non-Guaranteed Charges, Benefits and Interest Rates. The Reinsured
agrees to manage the non-guaranteed charges, benefits, and interest
rates in a way that balances the interests of the owners, agents,
stockholders, contract owners, and the Reinsurer, while exercising
sound actuarial professional judgment. Any changes in the
non-guaranteed contract charges, benefits, and interest rates will be
accompanied by an actuarial report prepared in accordance with the
standards described in the Actuarial Standards of Practice No. 1, as
Reformatted and Readopted in 1990 by the Actuarial Standards Board.
The actuarial report should disclose a description of the framework
within which the actuary's advice has been developed, a description of
the facts, methods, procedures and assumptions upon which the advice
was based, and the other information called for by the Actuarial
Standard of Practice No. 1. Should the Reinsurer determine that the
Reinsured has not balanced the interests of the Reinsured with the
interests of the Reinsurer and agreement cannot be reached, any claims
may be settled by arbitration in accordance with Article XV,
Arbitration.
16. Investment Management Committee. The parties shall form an Investment
Management Committee consisting of one (1) member each from the
Reinsured and the Reinsurer. The Reinsured shall provide the Reinsurer
copies of its investment policies and crediting rate strategies. The
Reinsurer shall provide the Reinsured its investment policies. If
either party changes its investment policies or crediting rate
strategies, it shall promptly provide the other party a copy of such
changes. The purpose and function of the Investment Management
Committee shall be to recommend crediting rates to the Reinsured for
approval in accordance with the provision set forth in Exhibit C,
Guidelines for Crediting Rates.
17. Forms and Manuals. The Reinsured agrees to make available to the
Reinsurer copies of all appropriate policy forms, prospectuses,
application forms, and other related material. If new material is
published, or changes are made in the material already filed, the
Reinsured agrees to promptly provide the Reinsurer with copies of such
material.
18. Definitions. Any term not defined in this Agreement which is in
general usage in the life insurance and annuity industry shall be
given the same meaning as such general usage ascribes to that term,
giving due consideration to the context in which the term is used in
this Agreement.
19. Headings. The headings of the Articles, Paragraphs and any
subparagraphs and Schedules of this Agreement are inserted for
convenience of reference only and shall not constitute a part of this
Agreement.
XIV. RECAPTURE
1. With the exception of the provisions in Article IX, Annuitization,
business reinsured under this Agreement will not be eligible for
recapture, except the Reinsured reserves the right to recapture any
business that has been enforce thirty-five (35) years after the policy
issue date. Furthermore, should a state regulatory body rule that this
Agreement is not valid for any reason, and there is no remedial action
available to correct the situation, the Reinsured reserves the right
to recapture that portion of the business that was reinsured. Any
adjustment in values as a result of recapture will be agreed upon at
the time of the recapture. If agreement cannot be reached, any claims
will be settled in accordance with the provision of Article XV,
Arbitration.
XV. ARBITRATION
1. Any controversy or claim between the Reinsured and the Reinsurer,
arising out of or relating to this Agreement or the breach thereof or
the coverage of this arbitration provision, shall be settled by
arbitration.
2. There shall be three (3) arbitrators who shall be current or former
officers of life insurance companies or life reinsurer's. 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. The
Reinsured shall appoint one of the arbitrators and the Reinsurer 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.
3. 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 Paragraph 2 of this Article and that, to the
extent any other terms or provisions of this Article are inconsistent
with or in conflict with the Commercial Arbitration Rules, this
Article shall control.
4. The arbitration shall be conducted in a location to be determined by a
majority of the Arbitrators.
5. The Reinsured and the Reinsurer shall each pay that part of the
expense of arbitration, which shall be apportioned to it by the
arbitrators.
6. The award rendered by the arbitrators shall be final, and judgment may
be entered upon it in any court having jurisdiction thereof.
7. 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.
XVI. IMPROPER SOLICITATION OF ANNUITY CONTRACT OWNERS
1. Neither party, nor any affiliate thereof, shall contact or authorize
any other person to contact owners of the annuity contracts for the
purpose of soliciting surrender of the annuity contracts, conversion
of the annuity contracts to another form of insurance, making policy
loans or withdrawals without prior written approval of the other
party.
XVII. DAC TAX - SECTION 1.848-2(g)(8) ELECTION
1. The Reinsurer and the Reinsured each acknowledge that it is subject to
taxation under Subchapter "L" of the Internal Revenue Code of 1986
(The "Code").
2. The Reinsured and the Reinsurer hereby agree to the following pursuant
to Section 1.848-2(g)(8) of the Income Tax Regulations issued December
1992, under Section 848 of the Internal Revenue Code of 1986, as
amended. This election shall be effective for 1998 and for all
subsequent taxable years for which this Agreement remains in effect.
3. The terms used in this Article are defined by reference to Regulation
Section 1.848-2 in effect December 1992.
4. Each party agrees to attach a schedule to its federal income tax
return, which identifies this Agreement for which the joint election
under the Regulation has been made.
5. The party with the net positive consideration for this Agreement for
each taxable year will capitalize specified policy acquisition
expenses with respect to this Agreement without regard to the general
deductions limitation of Section 848(c)(1).
6. Both Parties agree to exchange information pertaining to the amount of
net consideration under this Agreement each year to ensure consistency
or as otherwise required by the Internal Revenue Service.
7. The Reinsured will submit a schedule to the Reinsurer by May 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 Reinsured
stating that the Reinsured will report such net consideration on its
tax return for the preceding calendar year.
8. The Reinsurer may contest such calculation by providing an alternative
calculation to the Reinsured in writing within thirty (30) days of the
Reinsurer's receipt of the Reinsured's calculation. If the Reinsurer
does not so notify the Reinsured, the Reinsurer will report the net
consideration as determined by the Reinsured in the Reinsurer's tax
return for the previous calendar year.
If the Reinsurer contests the Reinsured's calculation of the net
consideration, the parties will act in good faith to reach an
agreement as to the correct amount within thirty (30) days of the date
the Reinsurer submits its alternative calculation. If the Reinsured
and the Reinsurer reach agreement on an amount of net consideration,
each party shall report such amount in their respective tax returns
for the previous calendar year.
XVIII. DURATION OF AGREEMENT
1. Except as provided in Article XIV, Recapture, in force reinsurance
which has been ceded under this Agreement shall be unlimited as to its
duration and shall be maintained in force for so long as such policies
shall remain in force and the reinsurance premiums and payments
referenced in Article V, Premiums and VI Payments By Reinsurer, are
paid when due.
2. Term of Agreement. The initial term of this Agreement shall be five
(5) years. During and after the initial term, this Agreement may be
canceled as it pertains to the reinsurance of new business thereafter:
(a) immediately upon written notice by a party if the other party
becomes insolvent, dissolves, ceases to legally exist, or
otherwise ceases to be legally authorized to act as a reinsurer
or insurer, respectively, in its domiciliary jurisdiction;
(b) upon thirty (30) days written notice by a party if the other
party has materially breached this Agreement and has failed to
cure such breach within such thirty (30) days;
(c) when and as agreed upon by the parties in writing.
4. After the initial term of this Agreement, this Agreement may also be
canceled by either party, as it pertains to the reinsurance of new
business thereafter, by giving three hundred sixty-five (365) days
advance notice of cancellation in writing. In such case, the Reinsurer
shall continue to cede, and the Reinsurer shall continue to accept
reinsurance, under this Agreement on policies and riders issued during
the three hundred sixty-five (365) day period, and the interest of the
Reinsurer in new business shall cease at the end of the three hundred
sixty-five (365) day period.
XIX. WRITTEN NOTICE
1. Any notice given in connection with this Agreement shall be deemed to
be provided when it is sent by facsimile to the numbers shown below,
or by first class mail or by courier to the addresses set forth below,
or to the last address or facsimile number of record such party
designates in writing:
If to the Reinsured: With a Copy to:
Western Reserve Life Assurance Western Reserve Life Assurance
Co. of Ohio Co. of Ohio
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Actuary, Attn: Managing Actuary,
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇ Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Reinsurer: With a Copy to:
WMA Life Insurance Company Limited The WMA Corporation
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇ ▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Manager Attn: Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
XX. EXECUTION
In witness of the above, the Reinsured and the Reinsurer, by their
respective officers have executed this Agreement in duplicate at the dates
and places indicated and shall be effective as of January 1, 1998.
WESTERN RESERVE LIFE WMA LIFE INSURANCE COMPANY
ASSURANCE CO. OF OHIO LIMITED
at at
--------------------------- ---------------------------
on , 1998. on , 1998.
------------------- ------------------
By: By:
--------------------------- ---------------------------
Title: Title:
By: By:
--------------------------- ---------------------------
Title: Title: