AMENDED AND RESTATED AUTOMATIC INDEMNITY REINSURANCE AGREEMENT
CEDING COMPANY: THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(hereinafter referred to as the "Ceding Company")
REINSURER: LINCOLN NATIONAL REINSURANCE COMPANY (BARBADOS)LIMITED
(hereinafter referred to as the "Reinsurer")
EFFECTIVE DATE: July 1, 2003
AMENDMENT DATE: May 15, 2004
Commencing on the Effective Date, the Ceding Company will submit and the
Reinsurer agrees to accept the Ceding Company's Guaranteed Benefit (GB) risks as
defined in Schedule A, associated with the Contracts listed in Schedule B,
subject to the provisions of this Agreement.
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................1
ARTICLE II AUTOMATIC REINSURANCE.......................................2
ARTICLE III PREMIUMS, PAYMENTS, EXPENSES AND REPORTING..................3
ARTICLE IV ERRORS......................................................5
ARTICLE V FORMS ......................................................5
ARTICLE VI REPRESENTATIONS, WARRANTIES AND COVENANTS...................5
ARTICLE VII RECAPTURE PRIVILEGE.........................................6
ARTICLE VIII AUDIT AND INSPECTION........................................7
ARTICLE IX CONFIDENTIALITY.............................................7
ARTICLE X INSOLVENCY..................................................8
ARTICLE XI PARTIES TO THE AGREEMENT....................................9
ARTICLE XII DURATION AND TERMINATION OF AGREEMENT.......................9
ARTICLE XIII RESERVE CREDIT..............................................9
ARTICLE XIV ARBITRATION................................................14
ARTICLE XV DEFERRED ACQUISITION COST TAX ELECTION.....................14
ARTICLE XVI ENTIRE AGREEMENT...........................................15
ARTICLE XVII MISCELLANEOUS..............................................15
SCHEDULE A GB REINSURANCE BENEFITS....................................20
SCHEDULE B CONTRACTS WITH ACCEPTED COVERAGES......................... 22
SCHEDULE C PREMIUM RATE SCHEDULE......................................23
SCHEDULE D REPORTS................................................... 24
SCHEDULE E ARBITRATION............................................... 25
-i-
ARTICLE I
DEFINITIONS
Agreement means this Automatic Indemnity Reinsurance Agreement.
Base Reinsurance Premium(s) means the premium so designated and calculated as
described in Schedule C.
Ceding Company means The Lincoln National Life Insurance Company.
Confidential Information means any and all information acquired by the Reinsurer
or the Ceding Company prior or subsequent to the execution of this Agreement
with the exception of either information readily available in the public domain
or information acquired from sources other than the other party.
Contract(s) means those specific annuity contracts enumerated in Schedule B.
Effective Date is July 1, 2003.
EPRC means Reinsurer's expense, profit and risk charge, calculated as described
in Article III, Section 6.
GAAP Reserve(s) means the Ceding Company's net reserves calculated using
country-regionplaceU.S. Generally Accepted Accounting Principles ("GAAP") before
reinsurance under this Agreement, less the Ceding Company's net reserves for
GAAP purposes after reinsurance under this Agreement.
Individual Policy means a Contract issued to a contractholder.
GB means Guaranteed Benefits and refers specifically to those guaranteed minimum
death benefits and guaranteed living benefits specified in Schedule A.
LNAR means the living net amount at risk and is equal to the greater of the
living benefit if provided for in the Contract minus the account value and zero.
Material Change means a modification to a practice, procedure or condition that
a prudent insurance executive would consider as likely to impact on experience
under this Agreement.
MNAR means the mortality net amount at risk and is equal to the greater of the
death benefit provided for in the Contract minus the account value and zero.
Ongoing Reinsurance Premium(s) means the premium so designated and calculated as
described in Schedule C.
Reinsurer is Lincoln National Reinsurance Company (Barbados) Limited.
Statutory Reserve(s) means the Ceding Company's net reserves for
Indiana insurance regulatory purposes before reinsurance under this
Agreement, less the Ceding Company's net reserves for Indiana
insurance regulatory purposes after reinsurance under this Agreement. For
purposes of this Agreement, Statutory Reserves shall be computed on a basis
consistent with the Ceding Company's Indiana insurance regulatory
reporting valuation practices as of July 1, 2003. In particular, Statutory
Reserves for guaranteed minimum death benefit risks issued prior to June 2, 2003
shall be computed without making a worst case assumption of maximum account
value withdrawals when applying Actuarial Guideline XXXIV.
Treaty Reserve(s) means the greater of the GAAP Reserve(s) and the Statutory
Reserve(s).
Trust Account means the account established pursuant to the Trust Agreement.
Trust Agreement means that trust agreement among the Reinsurer, as grantor, the
Ceding Company, as beneficiary, and Bank of New York, as trustee, entered into
contemporaneously with this Agreement pursuant to Article III, Section 2,
including any amendments and successor agreements thereto.
Trustee means Bank of New York and its successors as trustee, if any, pursuant
to the Trust Agreement.
ARTICLE II
AUTOMATIC REINSURANCE
1. CESSION
Beginning with the Effective Date of this Agreement, the Ceding Company
will cede and the Reinsurer will accept, subject to the limits and
conditions set forth in this Agreement and the attached Schedules,
reinsurance of a quota share equal to 100% of the GB risks attached to the
Contracts as specified in Schedule B.
2. COVERAGE
This Agreement covers the Ceding Company's liability for all GB liabilities
either issued or assumed by the Ceding Company, as contained in the
Contracts enumerated in Schedule B. It does not include any liability
arising under the Contracts other than those specifically attributable to
GB claims.
3. NEW ANNUITY CONTRACTS OR REVISIONS
The Ceding Company may cede to the Reinsurer liability for GB claims with
respect to a new annuity contract, or a revised version of an annuity
contract where such revision affects the calculation of the GB risks,
simply by providing the Reinsurer with written notice of such intention
together with a copy of the proposed annuity contract, or revision. In
addition, to the extent that Ceding Company itself reinsures GB risks of
any life insurance company affiliate, the Ceding Company may automatically
retrocede such GB risks to the Reinsurer by providing Reinsurer with: a)
written notice of its intention to retrocede such risks; and, b) all
necessary and appropriate documentation reasonably requested by the
Reinsurer. Unless the Reinsurer rejects the changes in writing within
thirty (30) days after receipt of the additions and revisions, such
retrocessions, additions and revisions shall automatically be included in
this Agreement. Schedules A and B shall be updated as necessary to reflect
the addition of Contracts and revisions to Contracts covered under this
Agreement. Notwithstanding the foregoing, the Reinsurer retains the right
to terminate this Agreement as to new business according to the terms of
Article XII, Section 2.
ARTICLE III
PREMIUMS, PAYMENTS, EXPENSES AND REPORTING
1. REINSURANCE PREMIUMS
Both the Initial Reinsurance Premium and the Ongoing Reinsurance Premium
shall be determined in accordance with Schedule C. Reinsurance premiums
shall be paid quarterly in arrears.
2. OFFSET
Any debts or credits, regardless of how, when or where they arose or were
incurred, in favor of or against either the Ceding Company or the Reinsurer
shall be offset and only the balance allowed or paid. If either the Ceding
Company or the Reinsurer is under formal delinquency proceedings, this
right of offset shall be subject to the laws of the state exercising
primary jurisdiction over such delinquency proceedings. The application of
this offset provision shall not be deemed to constitute diminution of
liability in the event of insolvency of either party.
3. REIMBURSEMENT OF LOSSES
A. All reinsurance claims settlements are subject to the terms and
conditions of the Individual Policy under which the Ceding Company is
liable. The Reinsurer shall accept the Ceding Company's good faith
settlement of all GB claims under the Contracts. When requested, the
Ceding Company shall provide the Reinsurer with copies of any
documentation within the Ceding Company's possession with respect to
specific GB claims under the Contracts or with respect to items used
to compute amounts contained in the accounting reports.
B. The Reinsurer shall pay losses as of the end of the calendar quarter
immediately following the calendar quarter when the losses are
incurred.
4. REPORTS
Each party shall prepare periodic reports as described in Schedule D and
submit these to the other party within thirty (30) days of the end of each
calendar quarter. Amounts due to or from the parties shall be netted and
only net amounts paid. If an amount is due the Reinsurer, it shall be paid
by the due date of the report. If an amount is due the Ceding Company, it
shall be paid within thirty (30) days of receipt of the report. If,
subsequent to the Effective Date, either party determines that it needs
additional reports from the other party, it shall provide a written request
to the other party detailing its business needs for the additional report.
If the other party does not object in writing within 30 days of receiving
such a request, then Schedule D shall be updated to include such report in
the list of those to be provided on a regular basis. The Ceding Company
will provide the Reinsurer with information necessary to properly account
for the business reinsured, as specified in this Agreement.
5. LEGAL COMPLIANCE TESTING
The Ceding Company shall, no less frequently than annually, make a
determination of whether or not this Agreement has become a material
reinsurance agreement as defined in Indiana Code Section 27-1-23-4(b)(3).
If the Ceding Company determines that this Agreement has become a material
reinsurance agreement under Indiana law, or the N.Y. Insurance
Superintendent shall deny reserve credit for amounts ceded under this
Agreement, the Ceding Company shall promptly notify the Reinsurer and both
parties shall take all actions reasonably necessary to comply with the law.
6. EXPENSE, PROFIT AND RISK CHARGE
The Reinsurer will be entitled to a payment for EPRC as calculated pursuant
to the terms of Schedule C, payable quarterly in arrears.
7. TERMINAL SETTLEMENTS
In the event this Agreement is terminated or part or all of the business
reinsured under this Agreement is recaptured pursuant to Article VII, an
accounting and settlement as to any balance due under this Agreement shall
be undertaken by the parties. The net payment to the Ceding Company shall
be an amount of cash equal to the Treaty Reserves related to the portion of
the business being reclaimed by the Ceding Company less any applicable
reinsurance premiums and EPRC due and not paid on the portion of the
business being reclaimed plus any losses due and not paid on the portion of
the business being reclaimed.
8. CLAIMS, EXPENSES AND EXTRA-CONTRACTUAL DAMAGES
Expenses incurred by the Ceding Company in settling, defending or
investigating a claim for Individual Policy liability or in taking up or
rescinding an Individual Policy reinsured under this Agreement shall be
covered under this Agreement, but in no event shall the following
categories of expenses or liabilities be covered under this Agreement:
A. routine investigative or administrative expenses;
B. expenses incurred in connection with a dispute or contest arising
arising out of the conflicting claims of entitlement to Policy
proceeds or benefits which the Ceding Company admits are payable;
C. expenses, fees, settlements or judgments arising out of, related to
or in connection with claims against the Ceding Company for
consequential, compensatory, punitive or exemplary damages; and
D. expenses, fees, settlements or judgments arising out of, related to
or in connection with claims against the Ceding Company and based on
alleged or actual bad faith, failure to exercise good faith, or
tortious conduct.
9. ALL SETTLEMENTS IN CASH
Notwithstanding any provision in this Agreement to the contrary, all
settlements of account between the Ceding Company and the Reinsurer
shall be made in cash or cash equivalents.
ARTICLE IV
ERRORS
This Agreement will not be abrogated by the failure of either the Ceding Company
or the Reinsurer to comply with any of the terms of this Agreement if it is
shown that said failure was unintentional and the result of a misunderstanding,
oversight or clerical error on the part of either the Ceding Company or the
Reinsurer. Both parties will be returned to the position they would have
occupied had no such oversight, misunderstanding or clerical error occurred. No
interest shall be paid on errors.
ARTICLE V
FORMS
Upon request, the Ceding Company will furnish the Reinsurer with any specimen
copies of its applications, forms, and any tables of rates and values which may
be required for the proper administration of the business reinsured under this
Agreement, and will keep the Reinsurer informed with proper documentation as to
any modifications or new forms which would be required for the proper
administration of reinsurance under this Agreement.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
1. CHANGES TO CEDING COMPANY PROCEDURES
Except as set forth in paragraph 2 below, during the term of this Agreement
the Ceding Company shall not permit a Material Change to its, or, in the
case of a retrocession permitted under this Agreement, the affiliate ceding
company's:
A. normal underwriting practices and procedures when issuing
Contracts with GB risks, particularly with regard to policy coverages
and benefits, classes of persons insured and requirements for medical
examinations and other underwriting information;
B. normal practices and procedures of investigating and administering
claims; and C. method of determining any value used to compute net
retained claims.
2. CONSENT TO CHANGES IN CEDING COMPANY PROCEDURES
The Ceding Company shall promptly notify the Reinsurer in writing of its
intent to take any action which, if performed, would breach one or more of
the covenants contained in paragraph 1. If the Reinsurer determines that
such action would not adversely affect its economic interests under this
Agreement, it shall consent in writing to the action by the Ceding Company.
3. HOLDING COMPANY ACT
The Ceding Company represents that it has reviewed I.C. Section 27-1-23-4
and has determined that as of the Effective Date this Agreement will not
constitute a material reinsurance agreement, for purposes of that statute.
ARTICLE VII
RECAPTURE PRIVILEGE
1. If the Agreement has been terminated as to new business by either party
pursuant to Article XII Section 2, then the Ceding Company may recapture
the GB risks in full and terminate this Agreement on thirty (30) days
written notice to the Reinsurer.
2. The Ceding Company retains the right to recapture portions of the
reinsured business at any time when the Reinsurer's cumulative EPRC equal
at least $250,000 upon thirty (30) days written notice to the Reinsurer.
In order to exercise this right, the Ceding Company must recapture all of
the specified risks within clearly defined ranges of any combination of
the following categories: attained age, duration from issue, gender,
type of benefit, and amount of MNAR or LNAR. If requested by the Ceding
Company, the Reinsurer agrees to provide a new reinsurance quote
reflecting the then current market conditions for automatic yearly
renewable term reinsurance for the business reinsured. Such quote will be
provided within thirty (30) days of the notice of recapture. The Ceding
Company is under no obligation to accept such quote, and any reinsurance
provided under such a quote shall be subject to the negotiation and
execution by both parties of a reinsurance agreement acceptable to both
parties.
3. In the event that more than 50% of the stock of the Reinsurer is ever held
by an individual or entity who is not affiliated with the Ceding Company,
then the Ceding Company may recapture the GB risks in full and terminate
this Agreement on thirty (30) days written notice to the Reinsurer. The
Reinsurer is obligated to provide the Ceding Company with written notice
immediately upon the transfer of 50% or more of its stock to an individual
or entity who is not affiliated with the Ceding Company.
ARTICLE VIII
AUDIT AND INSPECTION
1. The Reinsurer may audit, at any reasonable time and at its own expense,
all records and procedures relating to reinsurance under this Agreement.
The Ceding Company shall cooperate in the audit, including providing at
the office of the Reinsurer any information requested by the Reinsurer in
advance of the audit.
2. Each party, or its duly authorized representative, shall have access at
any reasonable time during regular business hours to the original and any
non-identical copies of all electronic and hard copy papers, books,
records and documents relating or referring to, connected with or
affecting reinsurance under this Agreement that are within the possession
or control of the other party.
ARTICLE IX
CONFIDENTIALITY
The Reinsurer and the Ceding Company may come into the possession or knowledge
of Confidential Information of either party in fulfilling their obligations
under this Agreement. The Reinsurer and the Ceding Company agree to hold such
information in confidence and to take all reasonable steps to ensure that such
Confidential Information is not disclosed in any form by any means by its
employees or third parties of any kind, except by advance written authorization
by an officer of the Reinsurer or the Ceding Company; provided however, that the
Reinsurer and the Ceding Company will be deemed to have satisfied their
obligations as to the Confidential Information by protecting its confidentiality
in the same manner that they would protect their own proprietary or confidential
information of like kind which will be at least a reasonable manner or, if it is
determined that such disclosure is necessary in order to avoid a violation or
potential violation of legal obligations in accordance with the following:
If the Reinsurer or the Ceding Company, their employees, directors or advisers
are requested or required (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand or similar
process) to disclose Confidential Information, it will promptly notify the other
party in writing. The party notified will promptly determine whether to contest
such attempted discovery by legal means or to waive compliance by the notifying
party with the terms of this Agreement. If, in the opinion of its counsel, the
Reinsurer or the Ceding Company is subject to contempt, sanction or other
penalty for failure to disclose the requested Confidential Information, it may,
without violating the terms of this Agreement, disclose only that portion of the
Confidential Information that counsel advises is legally required to be
disclosed, provided that it exercises all reasonable efforts to preserve the
confidentiality of such information, including, without limitation, by
cooperating with the Reinsurer or the Ceding Company in obtaining a protective
order or other reliable assurance that the Confidential Information will be
protected from redisclosure, provided, however, that all expenses of such
efforts (other than allocated costs of home office employees at such location)
shall be borne by the party whose confidential information is sought to be
disclosed.
Notwithstanding anything in this Article IX to the contrary, both the Ceding
Company and the Reinsurer (and each employee, representative, or other agent of
either of them) may disclose to any and all persons, without limitation of any
kind, the tax treatment and tax structure contemplated by this Agreement and all
materials of any kind (including opinions or other tax analyses) that are
provided to either the Ceding Company or the Reinsurer relating to such tax
treatment and tax structure.
ARTICLE X
INSOLVENCY
1. In the event of the insolvency of the Ceding Company, reinsurance shall be
payable on the basis of reported claims allowed in liquidation proceedings
against the Ceding Company, subject to the Reinsurer's right of offset
provided in Article II, Section 2, and subject to court approval, without
diminution because of the insolvency of the Ceding Company. Payments shall
be made directly to the Ceding Company or its domiciliary liquidator,
except as provided in N.Y. Ins. Law ss. 1308 or as provided in I.C.
27-9-3-30.1.
2. In the event of the insolvency of the Ceding Company, the domiciliary
liquidator, receiver or statutory successor of the Ceding Company shall
give the Reinsurer written notice of the pendency of a claim on a Contract
made against the Reinsurer within a reasonable time after such claim is
filed in the liquidation proceeding. During the pendency of the claim, the
Reinsurer may investigate the claim and interpose in the proceeding where
such claim is to be adjudicated at its own expense, any defenses that the
Reinsurer considers available to the Ceding Company or its liquidator,
receiver or statutory successor. If two or more assuming insurers are
involved in the same claim and a majority in interest elect to interpose a
defense to the claim, the claim shall be apportioned under the terms of the
reinsurance agreement as though the expense had been incurred by the Ceding
Company.
3. A proportionate share of the expense thus incurred by the Reinsurer shall
be charged, subject to court approval, against the Ceding Company as part
of the expense of liquidation, commensurate with the benefit which may
accrue to the Ceding Company as a result of the defense undertaken by the
Reinsurer.
4. The Reinsurer's liability will not increase as a result of the insolvency
of the Ceding Company.
5. In the event of the insolvency of the Reinsurer, the liability of the
Reinsurer shall not terminate but shall continue with respect to the
reinsurance ceded to the Reinsurer by the Ceding Company prior to the date
of such insolvency, and the Ceding Company shall continue to have a
security interest in any and all sums held by or under deposit in the name
of the Reinsurer.
ARTICLE XI
PARTIES TO THE AGREEMENT
This is an Agreement for indemnity reinsurance solely between the Ceding Company
and the Reinsurer. The acceptance of reinsurance hereunder will not create any
right or legal relation whatsoever between the Reinsurer and any annuitant,
contract owner, beneficiary or other insurance company affiliate under any
contracts of the Ceding Company which may be reinsured or retroceded hereunder.
In no instance shall anyone other than the Ceding Company or the Reinsurer have
any rights under this Agreement.
ARTICLE XII
DURATION AND TERMINATION OF
AGREEMENT
1. Except as otherwise provided, this Agreement is unlimited in duration.
2. This Agreement can be terminated for new business by either the Ceding
Company or the Reinsurer, subject to thirty (30) days advance written
notice.
3. The Reinsurer may terminate this Agreement if the Ceding Company breaches a
covenant contained in Article VI.
4. The Ceding Company may terminate this Agreement if the Ceding Company is
unable to secure reserve credit as described in Article XIII, Section 1.
5. This Agreement is automatically terminated when all GB risks terminate.
ARTICLE XIII
RESERVE CREDIT
1. RESERVE CREDIT
It is the intention of the Ceding Company and the Reinsurer that the Ceding
Company receive full statutory accounting credit for reinsurance ceded to
the Reinsurer pursuant to this Agreement in all jurisdictions in which the
Ceding Company is authorized to do business or accredited as a reinsurer.
In addition to the requirements of other provisions of this Agreement, the
Reinsurer agrees to take any other steps necessary for the Ceding Company
to receive such statutory accounting treatment. If, despite its best
efforts, the Reinsurer is unable or fails to comply with the terms of this
section, it shall immediately notify the Ceding Company, and the Ceding
Company shall have the right to terminate this Agreement and recapture all
reinsurance hereunder pursuant to Articles VII and XII.
2. TRUST
In order to meet its obligations in Article XIII, section 1, the Reinsurer
shall enter into a trust agreement with the Ceding Company, as beneficiary,
and Bank of New York, as Trustee, pursuant to which the Reinsurer, as
grantor, shall establish a Trust Account with the Trustee for the sole use,
benefit and security of the Ceding Company for the payment of valid claims
of the Ceding Company's United States policyholders and ceding insurers,
their assigns, and successors in interest. The Reinsurer and the Trust
Account shall comply with the applicable provisions of I.C. 27-6-10-14 as
well as the relevant provisions of other states' laws, including but not
limited to those of the State of New York, and the Trust Account shall be
managed and maintained according to the following additional terms
and conditions:
A. Prior to depositing assets with the Trustee, the Reinsurer shall
execute assignments, endorsements in blank, or transfer legal title to
the Trustee of all shares, obligations or any other assets requiring
assignments, and take any other steps required in order that the Ceding
Company, or the Trustee upon the direction of the Ceding Company, may
whenever necessary, negotiate any such assets without consent or
signature from the Reinsurer or any other person or entity.
B. From time to time, but no less frequently than quarterly, the Ceding
Company shall deposit the Reinsurer's share of premium payments (net
commissions) received by it for insuring the GB risks attributable to
Contracts directly into the Trust Account. Deposit by the Ceding Company
of premium payments directly into the Trust Account shall constitute
payment by the Ceding Company of premiums to the Reinsurer pursuant to
Article III, Section 1, and, subject to quarterly reconciliations, shall
satisfy the Ceding Company's obligation to pay such premiums to the
Reinsurer.
C. The assets in the Trust Account shall be invested and reinvested by the
Reinsurer so as to satisfy its obligation to ensure that the Ceding
Company receives full statutory accounting credit for reinsurance ceded
to the Reinsurer in all jurisdictions in which the Ceding Company is
authorized to do business or accredited as a reinsurer. All investments
shall be limited to those permitted by Title 11 New York Codes, Rules
and Regulations ss. 126 and any successor thereto.
D. If, at the end of any calendar quarter, the Treaty Reserve for the
Reinsurer's share of the GB risks on the Contracts exceeds the fair
market value of assets in the Trust Account, the Reinsurer shall deposit
cash or securities eligible under the Reinsurer's Guidelines in an
amount equal to the shortfall into the Trust Account, or furnish one or
more letters of credit consistent with the terms of Article XIII,
section 3. However, if at the end of any calendar quarter the fair
market value of assets in the Trust Account exceeds the Treaty Reserve
required for the Reinsurer's share of the GB risks, the Reinsurer may
request that the Ceding Company execute a "Withdrawal Notice" (as that
term is defined in the Trust Agreement) providing for an amount not
greater than such excess to be withdrawn from the Trust Account by the
Ceding Company and delivered to the Reinsurer, consistent with
applicable legal requirements. The Ceding Company shall execute the
Withdrawal Notice and forward it promptly to the Trustee. In addition,
the Reinsurer shall have the discretion to add additional amounts to the
Trust Account or to refrain from withdrawing excess funds from the Trust
Account. All withdrawals of assets from the Trust shall be made by the
Ceding Company.
E. The Reinsurer shall pay all trustee and custodial fees for the Trust
Account. Assets in the Trust Account shall not be used to pay any such
fees.
F. The Ceding Company and the Reinsurer agree that the assets in the Trust
Account may be withdrawn by the Ceding Company at any time, notwith-
standing any provisions in this Agreement to the contrary. In order to
withdraw funds the Ceding Company shall execute a Withdrawal Notice and
forward it to the Trustee. Any such withdrawals shall be applied only
for the following purposes:
(i) to reimburse the Ceding Company for the Reinsurer's share of
premiums returned to the Policyholders on account of cancellations
of such policies;
(ii) to reimburse the Ceding Company for the Reinsurer's share of
surrenders and benefits or losses paid by the Ceding Company
pursuant to the provisions of the policies reinsured under this
Agreement;
(iii) to fund an account with the Ceding Company in an amount at least
equal to the deduction, for reinsurance ceded, from the Ceding
Company's liabilities for policies ceded under this Agreement.
Such account shall include, but not be limited to, amounts for
policy reserves, reserves for claims and losses incurred
(including losses incurred but not reported), loss adjustment
expenses, and unearned premiums; and
(iv) to pay any other amounts the Ceding Company claims are due under
this Agreement.
The foregoing limitation on the use of withdrawn funds shall apply to
the Ceding Company or any successor, including, without limitation, any
liquidator, rehabilitator, receiver or conservator of the Ceding
Company, and shall apply without diminution because of insolvency on the
part of the Ceding Company or the Reinsurer.
G. In the event: (1) the Ceding Company terminates this Agreement and
recaptures the GB risks pursuant to Article VII, Section 1 but the
Reinsurer fails to pay the Ceding Company the recapture settlement
amount due, if any, on the next business day following the end of the
recapture notification period; (2) the Ceding Company terminates this
Agreement or this Agreement terminates automatically pursuant to any of
the provisions set forth in Article XII; or (3) the Reinsurer fails to
pay any amount for a terminal accounting and settlement when such
amount is due pursuant to Article III, Section 8, the Ceding Company
may withdraw all or a portion of the assets from the Trust Account
simply by providing Trustee with a Withdrawal Notice.
H. Transfers to the Ceding Company by the Trustee of cash and equivalent
assets withdrawn from the Trust Account pursuant to Subsection F above
shall constitute payment by the Reinsurer pursuant to this Agreement
and shall discharge the Reinsurer of the obligation which gave rise to
the withdrawal.
I. The Reinsurer shall not retrocede any portion of any GB risk covered by
this Agreement in a manner: (1) which would require the transfer of
assets from the Trust Account or of assets which would otherwise have
been deposited into the Trust Account to the retrocessionaire; or (2)
which would otherwise diminish the Ceding Company's claim to or interest
in such assets.
J. Assets deposited in the Trust Account shall be valued according to their
current fair market value, and shall consist only of cash, certificates
of deposit, and investments of the types specified in paragraphs (1),
(2), (3), (8) and (10) of subsection (a) of section 1404 of the New York
Insurance Law, and such investments shall under no circumstances include
issues made by an entity that is a parent, subsidiary or affiliate of
either the Ceding Company or the Reinsurer.
3. LETTERS OF CREDIT
A. If, for any reason, at the end of a calendar quarter the assets held in
the Trust Account described in Article XIII, Section 2 are not adequate
to satisfy the Reinsurer's obligation contained in Article XIII, Section
1, then the Reinsurer shall be the applicant for, and shall provide the
Ceding Company with letters of credit made payable to the Ceding
Company in an amount sufficient to meet such obligation, after taking
into account the assets already contained in the Trust Account. The
amount of such letters of credit shall be adjusted periodically so that
the amount of such letters of credit is at least equal to the amount
specified in this subsection as of the last day of each calendar
quarter. Any letters of credit entered into pursuant to this subsection
shall comply with all applicable laws, including but not limited to the
insurance laws of the States of Indiana and New York.
B. The Reinsured and the Ceding Company agree that any letters of credit
provided by the Reinsurer may be drawn upon by the Ceding Company at
any time, notwithstanding any other provisions in this Agreement, and be
utilized and applied by the Ceding Company or any successor by operation
of law of the Ceding Company, including, without limitation, any
liquidator, rehabilitator, receiver or conservator of the Ceding
Company, without diminution because of insolvency on the part of the
Ceding Company or the Reinsurer, only for the following purposes:
i. to reimburse the Ceding Company for the Reinsurer's share of
premiums returned to owners of Contracts reinsured under this
Agreement on account of cancellations of GB benefits;
ii. to reimburse the Ceding Company for the Reinsurer's share of
surrenders and benefits or losses paid by the Ceding Company
under the terms and provisions of the Contracts reinsured
under this Agreement;
iii. to fund an account with the Ceding Company in an amount at least
to the deduction, for reinsurance ceded, from the Ceding
Company's liabilities for Contracts ceded under this Agreement; and
iv. to pay any other amounts the Ceding Company claims are due
under this Agreement.
C. The Ceding Company agrees to return promptly to the Reinsurer any
amounts drawn on such letters of credit in excess of the actual amounts
required for Subparagraphs B(i), B(ii), and B(iii), above, or in the
case of Subparagraph B(iv), above, any amounts that are subsequently
determined to be in excess of the amounts due.
D. Payment to the Ceding Company by the issuing banks of amounts drawn on
the letters of credit pursuant to Subparagraphs B(i), B(ii) and B(iv),
above, shall constitute payment by the Reinsurer pursuant to this
Agreement and shall discharge the Reinsurer of the obligation which
gave rise to the draw, provided however the Reinsurer may later contest
whether it had failed to reimburse or pay the Ceding Company as required
by this Agreement.
4. JURISDICTION ISSUES
To the extent necessary to comply with Indiana Code section 27-6-10-12 or
otherwise meet its obligations pursuant to Article XIII, Section 1, the
Reinsurer hereby agrees to the following:
A. In the event that the Reinsurer fails to perform its obligations under
the terms of this Agreement, the Reinsurer, at the request of the Ceding
Company shall:
(i) submit to the jurisdiction of any court with jurisdiction in any
state of the country-regionplaceUnited States;
(ii) comply with all requirements necessary to give the court described
in clause (i) above jurisdiction;
(iii) abide by the final decision of the court or of any appellate
court in the event of an appeal; and
iv) designate the commissioner or an attorney licensed in, and
having offices in, StateplaceIndiana as its true and lawful
attorney upon whom may be served any lawful process in any
action, suit, or proceeding instituted by or on behalf of the
Ceding Company.
B. This Article XIII, Section 4 is not intended to conflict with or
override the obligation of the parties to arbitrate their disputes
pursuant to Article XIV.
ARTICLE XIV
ARBITRATION
1. ARBITRATION
If the Ceding Company and the Reinsurer cannot mutually resolve a dispute
regarding the interpretation or operation of this Agreement, the dispute
shall be decided through arbitration as set forth in Schedule E. The
arbitrators shall 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 shall be no appeal from their
decision, except that either party may petition a court having
jurisdiction over the parties and the subject matter to reduce the
arbitrator's decision to judgment.
2. FEDERAL ARBITRATION ACT
The parties intend this article to be enforceable in accordance with the
Federal Arbitration Act (9 U.S.C., Section 1) including any amendments to
that Act which are subsequently adopted. In the event that either party
refuses to submit to arbitration as required by paragraph 1, the other
party may request a United States Federal District Court to
compel arbitration in accordance with the Federal Arbitration Act. Both
parties consent to the jurisdiction of such court to enforce this article
and to confirm and enforce the performance of any award of the arbitrators.
ARTICLE XV
DEFERRED ACQUISITION COST
TAX ELECTION
1. The Reinsurer and the Ceding Company each acknowledge that it is subject to
taxation under Subchapter "L" of the Internal Revenue Code of 1986 (the
"Code").
2. With respect to this Agreement, the Reinsurer and the Ceding Company agree
to the following pursuant to Section 1.848-2(g)(8) of the Income Tax
Regulations, whereby:
A. Each party shall attach a schedule to its federal income tax return
which identifies this Agreement for which the joint election under the
Regulation has been made;
B. The party with net positive consideration, as defined in the Regulation
promulgated under Code Section 848, for this Agreement for each taxable
year, shall capitalize specified policy acquisition expenses with
respect to this Agreement without regard to the general deductions
limitation of Section 848(c)(1);
C. Each party agrees to exchange information pertaining to the amount of
net consideration under this Agreement each year to ensure consistency;
and
D. This election shall be effective for the year that this Agreement was
entered into and for all subsequent years that this Agreement remains
in effect.
ARTICLE XVI
ENTIRE AGREEMENT
1. This Agreement represents the entire agreement between the parties with
respect to the business being reinsured hereunder and supercedes any prior
oral or written agreement between the parties regarding its subject matter.
2. Any changes or modifications to the Agreement will be null and void unless
made by amendment to the Agreement and signed by both parties.
3. A waiver of a right created by this Agreement shall constitute a waiver
only with respect to the particular circumstance for which it is given and
not a waiver of any future circumstance.
ARTICLE XVII
MISCELLANEOUS
1. CURRENCY
All currency will be payable in United States dollars.
2. HEADINGS AND SCHEDULES
Headings are not a part of this Agreement and shall not affect its terms. The
attached Schedules are a part of this Agreement.
3. NOTICES
All notices and communications hereunder shall be in writing and, except in
those instances when actual notice is required, shall be deemed given: (a)(i)
when delivered personally, (ii) when made or given via facsimile transmission or
electronic media, or (iii) when mailed by certified mail or registered mail
(return receipt requested); and (b) when addressed as provided below.
All notices or communications to the Reinsurer under this Agreement shall be
addressed as follows:
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇
Chief Financial Officer
Lincoln National Reinsurance Company (Barbados) Limited
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
All notices and communications to the Ceding Company under this Agreement shall
be directed to:
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇
Second Vice President
The Lincoln National Life Insurance Company
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
4. SEVERABILITY
If any term or provision of this Agreement shall be held void, illegal, or
unenforceable, the validity of the remaining portions or provisions shall not be
affected thereby.
5. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of Indiana.
6. SUCCESSORS AND ASSIGNS
This Agreement may not be assigned by either party without the prior written
consent of the other. The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
7. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same instrument.
8. AMENDMENT OR WAIVER
No amendment or waiver of any provision of this Agreement shall be effective
unless set forth in writing, signed by duly authorized officers of the 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. INTERPRETATION
For purposes of this Agreement, the words "hereof," "herein," "hereby," and
other words of similar import refer to this Agreement as a whole unless
otherwise indicated. Whenever the words "include," "includes," or "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation." Whenever the singular is used herein, the same shall
include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate.
10. INVESTIGATIONS
The Ceding Company will notify the Reinsurer immediately, in writing, of any and
all investigations of the Ceding Company or its directors, principal officers or
shareholders conducted by any federal, state or local governmental or regulatory
agency other than routine state or federal examinations. Likewise, the Reinsurer
will notify the Ceding Company immediately, in writing, of any and all
investigations of the Reinsurer or its directors, principal officers or
shareholders conducted by any federal, state or local governmental or regulatory
agency other than routine state or federal examinations.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: _________________________ Date: _______________________
▇▇▇▇▇ ▇. ▇▇▇▇▇
Second Vice President
LINCOLN NATIONAL REINSURANCE COMPANY (BARBADOS) LIMITED
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇ Date: March 3, 2005
▇▇▇▇▇ ▇. ▇▇▇▇
Chief Financial Officer
SCHEDULES
SCHEDULE A GB REINSURANCE BENEFITS
SCHEDULE B CONTRACTS WITH ACCEPTED COVERAGES
SCHEDULE C PREMIUM RATES
SCHEDULE D REPORTS
SCHEDULE E ARBITRATION
SCHEDULE A
GB REINSURANCE BENEFITS
Each contract listed in Schedule B contains one or more GB. GBs which are
covered by this Agreement include the following:
Guarantee of Principal Death Benefit
Enhanced Guaranteed Minimum Death Benefit
5% Step-Up Death Benefit
Estate Enhancement Benefit
Accumulated Benefit Enhancement
Lincoln SmartSecurity(R) Advantage (formerly Principal Security Benefit)
With Five Year Optional Reset
Guaranteed Income Benefit
Lincoln SmartSecurity(R) Advantage (formerly Principal Security Benefit)
With One Year Automatic Reset
4LATERSM Advantage
The GB will be calculated for various Contracts as follows:
Guarantee of Principal Death Benefit, death benefit is the greater of:
1) the contract value; or
2) the sum of all purchase payments decreased by withdrawals
(including applicable charges and premium taxes incurred) in the
same proportion that withdrawals (including any applicable charges
and premium taxes incurred) reduced the contract value. For
contracts under the dollar for dollar provision the sum of all
purchase payments will be reduced by the sum of all withdrawals '
(including applicable charges and premium taxes incurred).
Enhanced Guaranteed Minimum Death Benefit, death benefit is the
greatest of:
1) the contract value; or
2) the sum of all purchase payments decreased by withdrawals
(including applicable charges and premium taxes incurred) in the same
proportion that withdrawals (including any applicable charges and
premium taxes incurred) reduced the contract value. For contracts
purchased prior to June 2, 2003 (or later depending upon the state)
the sum of all purchase payments will be reduced by the sum of all
withdrawals (including applicable charges and premium taxes incurred);
or
3) the highest contract value which the contract attains on any contract
anniversary (including inception date), determined before the
allocation of any purchase payments on that contract anniversary, prior
to the 81st birthday of the insured. The highest contract value is
increased by purchase payments and is decreased by withdrawals
subsequent to that anniversary date (including applicable charges and
premium taxes incurred) in the same proportion that withdrawals
(including applicable charges and premium taxes incurred) reduced the
contract value. For contracts purchased prior to June 2, 2003 (or
later depending upon the state) the highest contract value will be
reduced by the sum of all withdrawals (including applicable charges and
premium taxes incurred).
5% Step-Up Death Benefit, death benefit is the greater of:
1) the death benefit under the Enhanced Guaranteed Minimum Death Benefit;
or
2) the accumulation of all purchase payments minus the accumulation of all
withdrawals, including any applicable charges and premium tax incurred.
These purchase payments, withdrawals, including any applicable charges
and premium tax incurred are accumulated at an annual rate of 5% from
the date of the transaction to the earlier of the date of death or the
contract anniversary immediately preceding the insured's 81st birthday.
Each transaction is accumulated separately to a maximum of 200% of the
transaction. The accumulation as of the contract anniversary
immediately preceding the 81st birthday of the insured will then be
increased by purchase payments made on or subsequent to that contract
anniversary and decreased by withdrawals, including any applicable
charges and premium tax incurred, if any, on or subsequent to the
contract anniversary.
Estate Enhancement Benefit, death benefit is the greater of:
1) the death benefit under the 5% Step-Up Death Benefit; or
2) the contract value plus an amount equal to the enhancement rate times
the lesser of: (1) the contract earnings; or (2) the covered earnings
limit. If there are no contract earnings, there will not be an amount
provided under this item.
Contract earnings equals:
1. the contract value; minus
2. the contract value as of the effective date of this rider
(determined before the allocation of any purchase payments
on that date); minus
3. each purchase payment that is made to the contract on or
after the effective date of the rider; plus
4. the amount by which each withdrawal made on or after the
effective date of the rider exceeded the contract earnings
immediately prior to the withdrawal.
The covered earnings limit equals 200% of:
1. the contract value as of the effective date of this rider
(determined before the allocation of any purchase payments
on that date); plus
2. each purchase payment that is made to the contract on or
after the effective date of the rider, prior to the contract
anniversary immediately preceding the 76th birthday of
the oldest of the contract owner, joint owner or annuitant;
minus
3. the amount by which each withdrawal made on or after the
effective date of the rider exceeded the contract earnings
immediately prior to the withdrawal.
Accumulated Benefit Enhancement, death benefit is the greater of:
1) the death benefit chosen under the contract; or
2) the sum of all purchase payment made under the new contract plus the
enhancement amount minus all withdrawals, including any applicable
charges and any premium tax incurred. However, if the death occurs in
the first contract year, only 75% of the enhancement amount will be
used to calculate this benefit.
The enhancement amount is equal to the excess of the prior contract's
documented death benefit(s) over the actual cash surrender value
received by Lincoln Life. However, Lincoln will impose a limit on the
prior contract's death benefit equal to the lesser of 1) 140% of the
prior contract's cash value; or 2) the prior contract's cash value
plus $400,000.
In addition, if the actual cash surrender value received by Lincoln is
less than 95% of the documented cash value from the prior insurance
company, the prior contract's death benefit will be reduced
proportionately according to the reduction in cash value amounts.
Lincoln SmartSecurity(R) Advantage (formerly known as Principal Security
Benefit) With Five Year Optional Reset
This benefit provides a guarantee equal to the initial purchase
payment (or contract value if elected after contract issue) as
adjusted for purchase payments, step-ups and withdrawals. Access to the
guaranteed amount is gained through withdrawals each benefit year until
the guaranteed amount is depleted. On the effective date of the rider
the annual withdrawal limit is 7% of the guaranteed amount. The annual
withdrawal limit is increased by 7% of any additional purchase payment.
If the cumulative amounts withdrawn from the contract during the
benefit year are within the annual withdrawal limit then: 1) the
withdrawal will reduce the guaranteed amount by the amount of the
withdrawal on a dollar-for-dollar basis; and 2) the annual withdrawal
limit will remain the same.
When cumulative amounts withdrawn from the contract during the benefit
year exceed the annual withdrawal limit: 1) the guaranteed amount is
reduced to the lesser of the contract value immediately following the
withdrawal or the guaranteed amount immediately prior to the withdrawal
less the amount of the withdrawal; and 2) the annual withdrawal limit
will be the lesser of: a) the annual withdrawal limit immediately prior
to the withdrawal; or b) the greater of: i) 7% of the guaranteed amount
immediately following the withdrawal; or ii) 7% of the contract value
immediately following the withdrawal; or c) the new guaranteed amount.
After the 5th anniversary of the rider, the contract holder may elect to
reset the guaranteed amount to an amount equal to the contract value on
the effective date of the election of the reset. Additional resets are
permitted, but you must wait at least 5 years between each reset.
The annual withdrawal limit will also reset after a reset of the
guaranteed amount to the greater of: 1) the immediately prior annual
withdrawal limit; or 2) 7% of the new (reset) guaranteed amount.
Guaranteed Income Benefit
The i4LIFE(R) Advantage Guaranteed Income Benefit provides that regular
income payments will never be less than a guaranteed minimum amount,
regardless of the actual investment performance of your contract. The
guaranteed income benefit is initially equal to 75% of the initial
regular income payment.
The guaranteed income benefit is reduced by withdrawals (other than
regular income payments) in the same proportion that the withdrawals
reduce the account value.
If the regular income payment would otherwise be less than the
guaranteed amount, the account value will be reduced by the additional
amount needed to produce the guaranteed payment. If the account value
reaches zero the access period will end, but the guaranteed income
benefit will continue to be paid for the remainder of the annuitant's
life.
A 4% assumed interest rate will be used to calculate the regular income
benefit.
An access period of at least 15 years must be selected to receive the
guaranteed income benefit.
If the guaranteed income benefit is purchased on or after April 10,
2006, an automatic step-up feature is included. After the periodic
income commencement date, the guaranteed income benefit will
automatically step-up every three years to 75% of the current regular
income payment, if that result is greater than the immediately prior
guaranteed income benefit. The step-up will occur on every third
periodic income commencement date anniversary during a 15-year step-up
period. At the end of a 15-year step-up period, the contract owner may
elect a new 15-year step-up period.
Lincoln SmartSecurity(R) Advantage (formerly known as Principal Security
Benefit) With One Year Automatic Reset
This benefit provides a guarantee equal to the initial purchase payment
(or contract value if elected after contract issue), with automatic
annual resets setting the guaranteed amount equal to the greater of the
current contract value or previous guaranteed amount, as adjusted
for purchase payments, step-ups and withdrawals. The automatic annual
resets to the guaranteed amount will occur for the first 10 benefit
anniversaries following owner election. Access to the guaranteed amount
is gained through withdrawals each benefit year until the guaranteed
amount is depleted. On the effective date of the rider the annual
withdrawal limit is 5% of the guaranteed amount. The annual withdrawal
limit is increased by 5% of any additional purchase payment.
The annual withdrawal limit will also reset after an automatic annual
reset of the guaranteed amount to the greater of: 1) the immediately
prior annual withdrawal limit; or 2) 5% of the new (reset) guaranteed
amount.
If the cumulative amounts withdrawn from the contract during the benefit
year are within the annual withdrawal limit thenthe withdrawal will
reduce the guaranteed amount by the amount of the withdrawal on a
dollar-for-dollar basis.
When cumulative amounts withdrawn from the contract during the benefit
year exceed the annual withdrawal limit: 1) the guaranteed amount is
reduced to the lesser of the contract value immediately following the
withdrawal or the guaranteed amount immediately prior to the withdrawal
less the amount of the withdrawal; and 2) the annual withdrawal
limit will be the lesser of: a) the annual withdrawal limit immediately
prior to the withdrawal; or b) the greater of: i) 5% of the guaranteed
amount immediately following the withdrawal; or ii) 5% of the contract
value immediately following the withdrawal; or c) the new
guaranteed amount.
The guaranteed amount will automatically step-up to the contract value
on each benefit year anniversary up to and including the tenth benefit
year if: a) the contract owner or joint owner is still living; and b)
the contract value as of the valuation date, after the deduction of any
withdrawals (including charges and other deductions), the rider charge
and account fee plus any purchase payments made on that date is greater
than the guaranteed amount immediately preceding the valuation date.
Anytime after the 10th anniversary of the rider, the contract holder may
elect to begin a new 10 year automatic annual reset period and reset the
guaranteed amount to an amount equal to the contract value on the
effective date of the election of the reset. Additional owner elected
resets and election of the onset of a new 10 year automatic annual reset
period are permitted as long as the owner and annuitant are under age
81.
Newer options of the Lincoln SmartSecurity(R) Advantage 1-Year have a
single or joint lifetime payment option. Payment of the maximum annual
withdrawal is guaranteed for the lifetime of the contract owner, or fo
the lifetime of the contract owner and his or her spouse, as long as:
1) no withdrawals are made during the waiting period; 2) the maximum
annual withdrawal amount has not been reduced to zero due to previous
excess withdrawals. The waiting period is defined as the later of: 1) 3
years from the effective date of the rider; or 2) age 65 of the single
life or when youngest of the contract owner or spouse is 65.
If any withdrawal is made during the waiting period, the maximum annual
withdrawal amount will not last for the lifetime and, unless certain
situations are met, is available only until the guaranteed amount equals
zero.
4LATERSM Advantage
This optional benefit provides an income base during the deferral phase
of a variable annuity which can then be used to establish a minimum
payout floor for i4LIFE(R) Advantage regular income payments. The
minimum payout floor, called the 4LATERSM Advantage Guaranteed Income
Benefit, ensures that the contractowner will receive a payout amount
equal to the guaranteed income benefit regardless of market performance.
The income base is a value established when 4LATERSM Advantage is
purchased, and is used to calculate the 4LATERSM Advantage Guaranteed
Income Benefit at a later date. The income base is equal to either the
purchase payments or the contract value, depending on when the
rider is purchased. The income base is automatically increased by the
amount of additional purchase payments, and is reduced by withdrawals in
the same proportion that the withdrawals reduce the contract value.
The income base is automatically enhanced by 15% at the end of each
3-year waiting period. In addition, the contract owner may choose to
reset the income base to the current contract value if the contract
value has grown beyond the 15% enhancement.
The 4LATERSM Advantage Guaranteed Income Benefit guarantees that the
regular income payments under i4LIFE(R) Advantage will never be less
than a minimum payout floor, regardless of actual investment
performance. This benefit is available for purchase when i4LIFE(R)
Advantage is elected. The guaranteed income benefit is established
during the deferral phase of the contract, and is based on the greater
of the income base or contract value on the periodic income commencement
date. The value of the 4LATERSM Advantage Guaranteed Income Benefit will
automatically step-up every three years to 75% of the then current
regular income payment, if that result is greater than the immediately
prior 4LATERSM Advantage Guaranteed Income Benefit. The step-up will
occur on every third periodic income commencement date during a 15-year
step-up period.
SCHEDULE B
CONTRACTS WITH ACCEPTED COVERAGES
Contracts covered by this Agreement include all Contracts issued by the Ceding
Company from the following list:
ChoicePlus Variable Annuity
ChoicePlus Access Variable Annuity
ChoicePlus Bonus Variable Annuity
ChoicePlus II Variable Annuity
ChoicePlus II Access Variable Annuity
ChoicePlus II Bonus Variable Annuity
ChoicePlus II Advance Variable Annuity
ChoicePlus Assurance (A Share) (includes wrap fee version)
ChoicePlus Assurance (B Share)
ChoicePlus Assurance (C Share)
ChoicePlus Assurance (Bonus)
ChoicePlus Assurance (L Share)
ChoicePlus Momentum Income Option
ChoicePlus Design (includes all share classes)
American Legacy I
American Legacy II
American Legacy III
American Legacy III Plus
American Legacy III View
American Legacy III C-Share
Shareholders Advantage (includes wrap fee version)
American Legacy Design (includes all share classes)
Multi-Fund 1
Multi-Fund 2
Multi-Fund 3
Multi-Fund 4
Multi-Fund 5
Accru Variable
Annuity Accru ChoicePlus
SCHEDULE C
PREMIUM RATE SCHEDULE
Initial Reinsurance Premium:
The Initial Reinsurance Premium shall equal the Treaty Reserve applicable to
each Individual Policy on the date it is first covered by this Agreement. For
all business issued by the Ceding Company after the Effective Date, the Initial
Premium shall be zero.
Ongoing Reinsurance Premium Rates:
Effective from Treaty Effective Date through date of first amendment, if any:
Contracts Issued Contracts Issued
Type of Benefit Prior to 7/01/03 After 6/30/03 All Contracts
_______________________________________________________________________________________________________________________
GMDB Type Base Reinsurance Base Reinsurance Expense, Profit,
Premium Premium and Risk Charge
Annual Rate Annual Rate Annual Rate Applied to:
ROP - Employer VA 0.015% 0.020% 0.050% Account Value
ROP - Individual VA 0.050% 0.100% 0.050% Account Value
EGMDB 0.320% 0.200% 0.050% Account Value
EGMDB with 5% Rollup 0.590% 0.260% 0.050% Account Value
CIGNA 5% Rollup 0.620% 0.460% 0.050% Account Value
Legacy 7 Yr Ratchet 0.110% 0.100% 0.050% Account Value
EEB 0.500% 0.500% 0.050% Account Value
EEB with 5% Rollup 0.620% 0.620% 0.050% Account Value
GLB Type Base Reinsurance Base Reinsurance Expense, Profit,
Premium Premium and Risk Charge
Annual Rate Annual Rate Annual Rate Applied to:
LSSA - 5 Yr Optional Reset 0.400% 0.400%** 0.050% Guar. Ben. (#)
LSSA - 1 Yr Automatic Reset 0.550% 0.550%** 0.050% Guar. Ben. (#)
LSSA - 1 Yr Automatic Reset -
Single Life Option
LSSA - 1 Yr Automatic Reset -
Joint Life Option
4LATER Advantage
GIB on I4L 0.400% 0.400% 0.050% Account Value
Increasing GIB
Reinsurer's Expense, Profit, and Risk Charge (EPRC):
EPRC shall equal the annual rates shown above, payable quarterly in arrears.
Monthly Payment of Reinsurance Premium:
Both the Base Reinsurance Premium and the EPRC are payable in arrears after the
end of each calendar month. The monthly payment for each benefit type shall be
computed by adding the appropriate Base Reinsurance Premium annual rate to the
EPRC annual rate, then dividing the total by twelve and multiplying the result
times the average monthly account value [(#) times average monthly LNAR instead
of account value for GMWB] corresponding to the reinsured MNAR or LNAR.
**LSSA Reinsurance Premium:
The Ceding Company's contract charges for both LSSA options are based on the GB,
not account value, and are waived under certain conditions. Both the Base
Reinsurance Premium and the EPRC for LSSA shall be calculated on the GB base and
waived whenever the Ceding Company's contract requires its charge to be waived.
For LSSA- 5 Year Optional Reset contracts issued on or after the Amendment Date,
the base reinsurance premium annual rate is increased from .400% to .450%.
LSSA-1 Year Automatic Reset is added to this Agreement effective as of the
Amendment Date.
SCHEDULE D
REPORTS
Within 30 days after the end of each calendar month, the Ceding Company will
furnish the Reinsurer with a summary report that includes claims, statutory
reserves, tax reserves, Treaty Reserves and calculated reinsurance premium for
the business covered by this Agreement.
SCHEDULE E
ARBITRATION
To initiate arbitration, either the Ceding Company or the Reinsurer shall notify
the other party in writing of its desire to arbitrate, stating the nature of its
dispute and the remedy sought. The party to which the notice is sent shall
respond to the notification in writing within ten (10) days of its receipt.
The arbitration hearing shall be before a single arbitrator. In order to be
eligible to serve as an arbitrator, an individual must not be a present or
former officer, attorney or consultant of the Ceding Company or the Reinsurer or
of either of their affiliates. The arbitrator must be neutral, impartial, and
disinterested.
The Ceding Company and the Reinsurer shall each name three candidates to serve
as an arbitrator. The Ceding Company and the Reinsurer shall take turns striking
the name of one of the remaining candidates from the initial six candidates
until only one candidate remains. If the candidate so chosen shall decline to
serve as the arbitrator, the candidate whose name was stricken last shall be
nominated as the arbitrator. This process shall continue until a candidate has
been chosen and has accepted. The first turn at striking the name of a candidate
shall belong to the party that is responding to the other party's initiation of
the arbitration. Once chosen, the arbitrator is empowered to decide all
substantive and procedural issues.
It is agreed that the arbitrator shall be neutral, impartial, and disinterested
regarding the dispute on the basis described in the "Arbitration" article of the
Agreement. Therefore, at no time will either the Ceding Company or the Reinsurer
contact or otherwise communicate with any person who is to be or has been
designated as a candidate to serve as an arbitrator concerning the dispute,
except upon the basis of jointly drafted communications provided by both the
Ceding Company and the Reinsurer to inform the individual actually chosen as
arbitrator of the nature and facts of the dispute. Likewise, any written or oral
arguments provided to the arbitrator concerning the dispute shall be coordinated
with the other party and shall be provided simultaneously to the other party or
shall take place in the presence of the other party. Further, at no time shall
any arbitrator be informed that the arbitrator has been named or chosen by one
party or the other.
The arbitration hearing shall be held on the date fixed by the arbitrator. In no
event shall this date be later than six months after the appointment of the
arbitrator. The arbitration hearing shall be held in StateStateFort ▇▇▇▇▇,
StateIndiana. As soon as possible, the arbitrator shall establish prearbitration
procedures as warranted by the facts and issues of the particular case. At least
ten (10) days prior to the arbitration hearing, each party shall provide the
other party and the arbitrator with a detailed statement of the facts and
arguments it will present at the arbitration hearing. The arbitrator may
consider any relevant evidence; he or she shall give the evidence such weight as
he or she deems it entitled to after consideration of any objections raised
concerning it. The party initiating the arbitration shall have the burden of
proving its case by a preponderance of the evidence. Each party may examine any
witnesses who testify at the arbitration hearing. Within twenty (20) days after
the end of the arbitration hearing, the arbitrator shall issue a written
decision that sets forth his or her findings and any award to be paid as a
result of the arbitration, except that the arbitrator may not award punitive or
exemplary damages. In his or her decision, the arbitrator shall also apportion
the costs of arbitration, which shall include, but not be limited to, his or her
own fees and expenses.
