FACULTATIVE NON-BULK YRT NON-REFUND AGREEMENT
CEDING COMPANY: Aid Association for Lutherans
Appleton, Wisconsin
Referred to as the Ceding Company in this Agreement.
REINSURER: Allianz Life Insurance Company of North America
Minneapolis, Minnesota
Referred to as Allianz Life in this Agreement.
ACCEPTED COVERAGES: Life Insurance
Waiver of Premium
Accidental Death
EFFECTIVE DATE: May 1, 2000
In Witness Whereof the Ceding Company and Allianz Life have signed, duly attested, and dated hereunder by their
respective authorized officers.
AID ASSOCIATION FOR LUTHERANS ALLIANZ LIFE INSURANCE COMPANY OF NORTH AMERICA
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Signature Signature
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Title Title
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Attested Attested
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Title Title
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Date Date
TABLE OF CONTENTS
ARTICLE I - BASIS OF REINSURANCE.........................................................................3
ARTICLE II - TYPE OF REINSURANCE.........................................................................4
ARTICLE III - FACULTATIVE SUBMISSIONS....................................................................5
ARTICLE IV - COMMENCMENT AND TERMINATION OF LIABILITY....................................................6
ARTICLE V - REINSURANCE PREMIUM RATES....................................................................7
ARTICLE VI - AMOUNT AT RISK..............................................................................8
ARTICLE VII - PAYMENT OF REINSURANCE PREMIUMS...........................................................10
ARTICLE IX - PREMIUM TAXES..............................................................................11
ARTICLE X - CLAIMS......................................................................................12
ARTICLE XI - EXTRA-CONTRACTUAL DAMAGES..................................................................16
ARTICLE XII - POLICY CHANGES............................................................................17
ARTICLE XIII - RECAPTURE AND RETENTION CHANGES..........................................................19
ARTICLE XIV - INSPECTION OF RECORDS.....................................................................20
ARTICLE XV - ERRORS.....................................................................................21
ARTICLE XVI - ARBITRATION...............................................................................22
ARTICLE XVII - INSOLVENCY...............................................................................25
ARTICLE XVIII - ENTIRE CONTRACT PROVISION...............................................................27
ARTICLE XIV - NON-PARTICIPATING AND NON-REFUND..........................................................28
ARTICLE XX - HEADINGS...................................................................................29
ARTICLE XXI - PARTIES TO AGREEMENTS.....................................................................30
ARTICLE XXII - SEVERABILITY CLAUSE......................................................................31
ARTICLE XXII - DURATION OF AGREEMENT....................................................................32
ARTICLE XXIV - DAC TAX..................................................................................33
SCHEDULE A - RETENTION LIMITS...........................................................................34
SCHEDULE B..............................................................................................35
SCHEDULE C - ACCEPTED PLANS OF INSURANCE AND RATES......................................................36
SCHEDULE D - YEARLY RENEWABLE TERM PREMIUMS, PREMIUMS FOR BENENFIT COVERAGES AND SUBSTANDARD FLAT EXTRAS FOR
CONVERSIONS.............................................................................................37
SCHEDULE E - POLICY LIMITS..............................................................................38
ARTICLE I - BASIS OF REINSURANCE
Commencing on the Effective Date, the Ceding Company may submit any of its individual life insurance risks,
underwritten with the Ceding Company's then existing individual risk underwriting rules and written procedures,
under the Accepted Plans of Insurance as listed in Schedule C, on a facultative basis, subject to the provisions of
this agreement. These provisions may be changed or modified by written agreement between the parties named in
Article XX.
The Ceding Company may at any time submit insurance risks under the Accepted Plans of Insurance as listed in
Schedule C on a facultative basis subject to the provisions of this agreement.
ARTICLE II - TYPE OF REINSURANCE
The individual life reinsurance covered by this agreement shall be upon the yearly renewable term plan for the net
amount at risk, or on another basis, as set forth in Article VI.
ARTICLE III - FACULTATIVE SUBMISSIONS
In applying to Allianz Life for facultative individual life reinsurance, the Ceding Company shall use a form in
substantial accord with Schedule B of this agreement. The Ceding Company shall submit copies of the original
application, medical examiners' reports, inspection records, attending physicians' statements plus any other papers
or information that may have a bearing on the insurability of the risk. Upon receipt of such application, Allianz
Life shall examine the papers and promptly notify the Ceding Company of its decision. Allianz Life shall have the
option of accepting, rating or rejecting each risk.
The Ceding Company shall furnish Allianz Life with any specimen copies of its individual life insurance
applications, policy forms, rider forms, conditional receipt, temporary receipt, reinstatement rules, placement
requirements, and any tables of rates and values which may be required for the proper administration of the
business reinsured under this agreement, and shall keep Allianz Life informed with respect to any modifications of
such rules, requirements, or forms under which reinsurance may be desired. The Ceding Company must follow its
written procedures for the delivery of its policies, including evidence of good health and collection of premiums
and be in compliance with relevant laws of all applicable jurisdictions. Exceptions to following the Ceding
Company's written procedures can be granted only by written approval from Allianz Life.
ARTICLE IV - COMMENCMENT AND TERMINATION OF LIABILITY
Facultative Business:
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Except as hereinafter provided regarding Conditional Receipt and Temporary Insurance Receipt coverage, the
liability of Allianz Life on individual life facultative reinsurance offers that are accepted and acknowledged by
the Ceding Company shall commence and terminate simultaneously with that of the Ceding Company notwithstanding the
other provisions of this agreement.
Acceptance of Allianz Life's offer of reinsurance by the Ceding Company shall be in accordance with the terms
contained in that offer and the provisions of this agreement. If Allianz Life's offer is not accepted, such offer
shall terminate on the earlier of: (1) the date the Ceding Company withdraws its application; or (2) the
termination date in Allianz Life's offer. The date of termination may be extended by written request from the
Ceding Company, unless Allianz Life has denied in writing such request.
Allianz Life will not be liable for a claim incurred under the terms of a Conditional Receipt or Temporary
Insurance Receipt for a risk which has been submitted to Allianz Life on a facultative basis.
Conversions and Internal Replacements:
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For conversions and internal replacements originally ceded under this agreement, issued as new policies, the
liability of Allianz Life under the new policy shall begin immediately subsequent to the termination of Allianz
Life's liability under the original policy.
Amount:
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The amount of reinsurance under this agreement with respect to any policy reinsured shall be maintained in force
without reduction, unless reinsurance is terminated or reduced as otherwise provided in this agreement.
ARTICLE V - REINSURANCE PREMIUM RATES
Standard and Substandard Premiums:
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Allianz Life anticipates that the yearly renewable term rates attached in Schedule C will be continued indefinitely
for all individual life reinsurance cessions to which such rates shall apply. However, if any one or more of such
premium rates for any policy year or years after the first shall be less than the net premium rate or rates based
on the 1980 CSO Table at 4.5% interest for the applicable mortality rating, only the latter rate or rates shall be
guaranteed by Allianz Life.
Flat Extra Premiums:
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Refer to Schedule C, attached.
Waiver of Premium:
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Refer to Schedule C, attached.
Accidental Death Benefit:
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Refer to Schedule C, attached.
Term Renewals and Term Conversion Premiums:
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Refer to Schedule C and Schedule D, attached.
Interim Billing of Premiums for Additional Periods:
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If the original policy is issued with insurance for an additional period, the reinsurance premium for such an
additional period shall be computed at the second policy year premium rate and the premium for the first full
policy year shall be computed at the first year rate. A policy fee shall not be payable for additional term
periods unless the policy terminates in the first policy year.
ARTICLE VI - AMOUNT AT RISK
The individual life reinsurance of Allianz Life shall be upon the yearly renewable term plan for the net amount at
risk for which the Ceding Company has paid premiums. If the Ceding Company retains a portion of the risk, such
retention shall be maintained unchanged except as allowed in Article XIII.
Level Term Plans:
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If the individual life insurance reinsured is issued as a level term plan, Allianz Life's net amount at risk shall
equal the face amount of the insurance reinsured.
Reducing Term Plans:
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If the individual life insurance reinsured is issued as a reducing term plan. Allianz Life's net amount at risk
for the first policy year shall equal the face amount of the life insurance reinsured as of the beginning of the
first policy year. After the first policy year, Allianz Life's net amount at risk for each of the policy years two
through ten, inclusive, shall be reduced by one-ninth of the difference between (a) the face amount of the life
insurance reinsured as of the beginning of the first policy year, and (b) the face amount of the life insurance
reinsured as of the beginning of the tenth policy year. Allianz Life's net amount at risk for each of the ten
policy years, during the ten policy year period after the first ten policy years, shall be the prior policy year's
net amount at risk, less an amount equal to one-tenth of the difference between (a) the face amount of the life
insurance reinsured as of the beginning of the policy year immediately preceding the period involved, and (b) the
face amount of the life insurance reinsured as of the beginning of the last policy year of the period involved.
Universal/Variable Life Plans:
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Allianz Life's net amount at risk for Universal/Variable life plans shall be proportionate to the Ceding Company's
actual net amount at risk or a mutually acceptable approximation agreed to in writing by all parties.
ARTICLE VI - AMOUNT AT RISK (continued)
A Plan Other Than a Level Term Plan, Reducing Term Plan, or Universal/Variable Life Plan:
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Allianz Life's net amount at risk for the first policy year shall equal the face amount of the individual life
insurance reinsured. After the first policy year, Allianz Life's net amount at risk for each of the policy years
two through ten, inclusive, shall be reduced by an amount equal to one-ninth of the cash value of the life
insurance reinsured as of the end of the tenth policy year.
Allianz Life's net amount at risk for each of the ten policy years, during any ten policy year period after the
first ten policy years, shall be the prior year's net amount at risk less an amount equal to one-tenth of the
difference between (a) the cash value of the life insurance reinsured as of the end of the policy year immediately
preceding the period involved, and (b) the cash value of the life insurance reinsured as of the end of the last
policy year of the period involved.
ARTICLE VII - PAYMENT OF REINSURANCE PREMIUMS
Reinsurance premiums are to be paid annually at Allianz Life's home office without regard to the frequency of
payment stipulated in the policy issued by the Ceding Company. At the beginning of each month, Allianz Life will
send the Ceding Company a statement showing premiums falling due during the month and premiums for any new
reinsurance. The statement will also show any premium refunds due the Ceding Company.
Payments:
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Within thirty (30) days after the receipt of the statement, the Ceding Company will pay Allianz Life the net
amount shown in the statement. If any reinsurance premium is not paid within the allotted time, Allianz Life may
terminate the reinsurance by giving the Ceding Company thirty (30) days written notice. The Ceding Company will be
liable for the payment of reinsurance premiums to the effective date of termination. After the effective date of
termination, an interest charge of 1% per month will be made on the then accumulated unpaid reinsurance premium.
If a statement shows that a net balance is payable to the Ceding Company, Allianz Life shall pay promptly to the
Ceding Company the amount of the net balance.
Terminations:
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The Ceding Company will give Allianz Life timely notice of all policy terminations and changes that affect the
reinsurance. Unearned reinsurance premiums will be refunded except that policy fees are not refundable on any
mid-policy year termination.
ARTICLE IX - PREMIUM TAXES
Allianz Life shall reimburse the Ceding Company for any state premium taxes the latter may be required to pay upon
the Ceding Company's written request within five years from the date of payment with respect to that part of
premiums received under the Ceding Company's original policies which are remitted to Allianz Life as reinsurance
premiums.
ARTICLE X - CLAIMS
Notice of Claims:
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The Ceding Company will notify Allianz Life as soon as reasonably possible after it receives notice of a claim on a
policy reinsured hereunder.
Proofs:
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Copies of proofs or other written documentation relating to any claim reimbursable under this agreement shall be
furnished to Allianz Life. With respect to the claim administration, negotiation, payment, denial, or settlement
of any claim or legal proceeding, the Ceding Company shall act with good faith and in accordance with its standard
practices applicable to all claims, whether reinsured or not.
Receipt of Premium:
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Receipt by Allianz Life of the initial reinsurance premium and of each subsequent reinsurance premium, in
accordance with the provisions of Article VII of this agreement, shall be a condition precedent to Allianz Life's
indemnification of the reinsurance to the Ceding Company.
Incontestable Policies:
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If a claim is made to the Ceding Company on a policy which is incontestable, Allianz Life shall accept the decision
of the Ceding Company in payment or settlement of that claim. Allianz Life shall indemnify the Ceding Company for
Allianz Life's percentage of reinsurance liability upon receiving proof of loss and notice that the Ceding Company
has paid the claim.
Contestable:
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If a claim is contestable and the Ceding Company has more net amount at risk than Allianz Life, Allianz Life shall
abide the issue as it shall be settled by the Ceding Company for Allianz Life's percentage of reinsurance liability
upon receipt of proof of loss and of payment by the Ceding Company to the claimant.
ARTICLE X - CLAIMS (continued)
If a claim is contestable and Allianz Life has more net amount at risk than the Ceding Company, all documentation
in connection with such claim shall be submitted to Allianz Life for its advice and counsel on the claim before
conceding any liability, making any settlement, or denying benefits. However, such consultation shall not impair
the Ceding Company's freedom to determine its action on the claim.
Contest:
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The Ceding Company will notify Allianz Life of its intention to contest, compromise, or litigate a claim or to
appeal a judgment under the insurance involving this reinsurance. Allianz Life shall be afforded the opportunity
to be associated, either together with the other Reinsurers on automatic reinsurance or independently on
facultative reinsurance, with the Ceding Company in defense of such claim, suit, or proceeding. Allianz Life will
pay its share of the payment and specific expenses, including attorney's fees, arbitration or court costs,
penalties, interest and any judgments, special investigations or similar expenses, but excluding salaries of
employees, therein involved, unless it declines to be a party to the contest, compromise or litigation, in which
case Allianz Life will pay the Ceding Company its share of the full amount of the reinsurance and thereby be fully
discharged of any further liability and subsequent expenses.
Reinsurance Liability:
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Reinsurance liability shall include indemnification of the Ceding Company by Allianz Life for amounts attributable
to the Ceding Company's percentage share of (a) the contractual benefit on a policy reinsured under this agreement;
and (b) any unusual expenses incurred by or reimbursed by the Ceding Company, arising from the defense or
investigation of a claim for liability on a policy reinsured under this agreement or from the taking up or
rescinding of such a policy.
ARTICLE X - CLAIMS (continued)
In no event shall the following be items of reinsurance liability:
1. routine investigation or administrative expenses, excluding fees and expenses of commercial inspection
agencies.
2. salaries of employees or other internal expenses of the Ceding Company, other than travel expenses in
connection with an investigation.
3. expenses incurred in connection with a dispute or contest arising out of conflicting claims of entitlement
to policy proceeds or benefits which the Ceding Company admits are payable.
4. expenses, fees, settlement, or judgments arising out of or in connection with claims made against the
Ceding Company for extra-contractual damages as more fully described within the Extra-Contractual Damages
Article.
Payment of Claims:
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Indemnification of Allianz Life's percentage of liability on account of death shall be made in one lump sum,
regardless of the Ceding Company's mode of settlement. Unless otherwise agreed between Allianz Life and the Ceding
Company, there shall be no netting against payments due under this agreement.
Interpleader:
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Except as stated in the Reinsurance Liability provision above, payment of a claim will include amounts paid by the
Ceding Company into a court of appropriate jurisdiction in connection with a dispute or contest arising out of
conflicting claims of entitlement to policy proceeds. However, Allianz Life is not liable for double or additional
payment of policy proceeds.
ARTICLE X - CLAIMS (continued)
Waiver of Premium:
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If a claim is approved for Waiver of Premium benefits on a policy reinsured hereunder, the Ceding Company shall
continue to pay reinsurance premiums less any applicable allowances to Allianz Life, excluding the premium for
Waiver of Premium reinsurance. Allianz Life shall pay to the Ceding Company its proportionate share of the
premiums at
the rate applicable to the original policy for the covered life and supplementary benefits reinsured under this
agreement.
Misstatement of Age or Sex:
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In the event that the amount of insurance provided by a policy or policies reinsured under this agreement is
increased or reduced because of a misstatement of age or sex established after the death of the insured, the
reinsurance liability of Allianz Life shall increase or reduce in an amount equal to the amount of the increase or
reduction of the original insurance multiplied by the proportion represented by Allianz Life's percentage
immediately prior to the discovery of such misstatement of age or sex. Reinsurance in force with Allianz Life
shall be reformed on the basis of the adjusted amounts, using values applicable to the correct age and sex. Any
adjustment in reinsurance premiums required by such reformation shall be made without interest.
Interest:
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If the Ceding Company pays or reimburses interest on the contractual benefit of a policy reinsured under this
agreement, Allianz Life shall indemnify the Ceding Company for Allianz Life's percentage of such interest.
ARTICLE XI - EXTRA-CONTRACTUAL DAMAGES
Extra-contractual damages include punitive damages, consequential damages, and compensatory damages. In no event
shall Allianz Life participate in such damages which are awarded against the Ceding Company as a result of an act,
omission, or course of conduct committed by the Ceding Company or its Agent in connection with the insurance
reinsured under this agreement. Allianz Life shall, however, pay its share of statutory penalties awarded if
Allianz Life elected to join in the contest of the coverage in question.
The parties recognize that circumstances may arise in equity which would require Allianz Life, to the extent
permitted by law, to share proportionately in certain assessed damages. Such circumstances are difficult to define
in advance, but generally would be those situations in which Allianz Life was an active party and directed,
consented to, or ratified in writing the act, omission, or course of conduct which ultimately results in the
assessment of punitive, statutory, and/or compensatory damages. In such situations, the Ceding Company and Allianz
Life would share such damages so assessed in proportion to the risk insured.
For the purposes of this provision, the following definitions shall apply:
Punitive Damages are those awarded as a penalty the amount of which is not governed nor fixed by statute;
Statutory Penalties are those amounts which are awarded as a penalty but fixed in amount by statute;
Compensatory Damages are those amounts awarded to compensate for the actual damages sustained and are not awarded
as a penalty nor fixed in amount by statute.
ARTICLE XII - POLICY CHANGES
Changes:
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If any change is made in the plan of the original policy reinsured facultatively with Allianz Life, including any
change in status caused by the application of a nonforfeiture provision, a corresponding change shall be made in
the reinsurance. If a change is made in the underwriting classification of the original policy reinsured with
Allianz Life, a corresponding change shall be made in the reinsurance subject to the prior approval of Allianz Life
if the original policy was facultatively submitted to Allianz Life.
The parties hereto may from time to time agree, in writing, that other methods of changing or reducing the
reinsurance with Allianz Life shall apply in a given case without otherwise affecting the terms of this agreement.
Increases:
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If life insurance on a reinsured policy is increased and the increase is subject to new underwriting evidence, then
the increase of life insurance on the reinsured policy will be handled the same as the issuance of a new policy.
If the increase is not subject to new underwriting evidence, then the increase shall be automatically accepted by
Allianz Life. Reinsurance rates will be based on the original issue age, duration since issuance of the original
policy and the original underwriting classification.
ARTICLE XII - POLICY CHANGES (continued)
Reductions and Terminations:
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If a policy of life insurance issued by the Ceding Company is terminated or reduced, the reinsurance with respect
to that policy shall be reduced in life manner as of the same date and time. If any portion of insurance retained
by the Ceding Company is reduced or terminated, the reinsurance with respect to other policies issued on the same
life shall be simultaneously reduced or terminated, so that the Ceding Company maintains their original retention.
In such cases, the reinsurance to be reduced or terminated shall be determined by the chronological order in which
it was effected, the first effected being the first reduced or terminated, and so on. Two or more policies issued
on the same date shall be considered one policy.
If the reinsurance on any particular policy has been ceded to more that one reinsurer, the reduction shall be
applied to all reinsurers on such policy in proportion to the amounts originally ceded to each reinsurer. In no
case shall the Ceding Company be required to assume a risk in excess of its regular retention limit at the time of
issue of the original policy under which reinsurance is being terminated.
Reinstatements:
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If a facultative policy reinsured hereunder lapses for nonpayment of premium and reinstatement is applied for, all
papers in connection with said reinstatement shall be forwarded to Allianz Life for its review and approval. Upon
such approval, the Ceding Company shall pay Allianz Life all reinsurance premiums in arrears in connection with the
reinstatement with interest at the same rate and in same manner as the Ceding Company received under its policy.
ARTICLE XIII - RECAPTURE AND RETENTION CHANGES
If the Ceding Company increases its retention limits, the Ceding Company may reduce the reinsurance on all risks
except those on which it kept amounts that were less than the maximum retention limits in effect when the original
insurance was issued. The retention limits of the Ceding Company as of the effective date of this agreement are
shown in Schedule A. Special reduced or zero limits for specific underwriting hazards or impairments not described
in Schedule A shall not be considered to be maximum limits of retention. The amounts recaptured will be sufficient
to increase the Ceding Company's retention to the new limits. If there are other reinsurers, the reduction on each
risk will be divided according to each reinsurer's portion of the total reinsurance on the risk. If the
reinsurance is reduced on any risk, similar reductions shall be made on all risks eligible for recapture. The
Ceding Company shall give written notice to Allianz Life ninety (90) days prior to the effective date of its
increase in retention for new issues. Recapture available hereunder shall be effected not less than ninety (90)
days after written notice is received by Allianz Life. The reinsurance in force shall then be reduced as provided
herein upon the later of the anniversary date next following, or the twentieth anniversary date.
The above recapture provisions do not apply to risks that are accruing benefits under the waiver of premium
provisions of the policy; these risks must be recaptured as soon as they are no longer collecting waiver of premium
benefits.
The reduction in reinsurance due to recapture of accidental death benefits will be effective on the first policy
anniversary following the written notice to recapture.
ARTICLE XIV - INSPECTION OF RECORDS
Allianz Life may, at any time with reasonable notice, inspect all books, documents and procedures which relate to
reinsurance under this agreement. Such inspection shall take place in the offices of the Ceding Company or that of
its agent or broker during normal business hours.
ARTICLE XV - ERRORS
Except for a violation of Article IV on Commencement and Termination of Liability, if either the Ceding Company or
Allianz Life shall fail to perform an obligation under this agreement and such failure shall be the result of an
error on the part of the Ceding Company or Allianz Life, such error shall be corrected by restoring both the Ceding
Company and Allianz Life to the positions they would have occupied had no such error occurred. An "error" is a
clerical mistake made inadvertently and exclude errors of judgment and all other forms of error.
This provision shall apply only to clerical errors relating to the administration of reinsurance covered by this
agreement and not to the administration of the insurance provided by the Ceding Company to its insured. Any
negligent or deliberate acts or omissions by the Ceding Company regarding the insurance provided are the
responsibility of the Ceding Company and its liability insurer, if any, but not that of Allianz Life.
There is a mutual obligation on both the Ceding Company and Allianz Life to ensure that all errors are identified
and corrected in an equitable manner at the earliest possible date.
ARTICLE XVI - ARBITRATION
It is the intention of the Ceding Company and Allianz Life that the customs and practices of the insurance and
reinsurance industry shall be given full effect in the operation and interpretation of this agreement. The parties
agree to act in all things with good faith. If Allianz Life or the Ceding Company cannot mutually resolve a
dispute which arises out of or relates to this agreement, the dispute shall be decided through arbitration as set
forth in this provision. The arbitrators shall base their decision on the terms and conditions of this agreement
and, if 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 the arbitrators' decision, and the
parties may reduce that decision to judgment. This article shall survive the termination of this agreement.
To initiate arbitration, either the Ceding Company or Allianz Life 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) working days of its receipt.
Arbitrators:
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The arbitration hearing shall be before a panel of three arbitrators, each of whom must be a present or former
officer of a life insurance company. An arbitrator may not be a present or former officer, attorney or consultant
of the Ceding Company, Allianz Life or either party's affiliates.
ARTICLE XVI - ARBITRATION (continued)
Selection of Arbitrators:
-------------------------
The Ceding Company and Allianz Life shall each name three (3) candidates to serve as an arbitrator. The Ceding
Company and Allianz Life shall each choose one candidate from the other party's list and these two candidates shall
serve as the first two arbitrators. If one or more candidates so chosen shall decline to serve as an arbitrator,
the party which named such candidate shall add an additional candidate to its list and the other party shall again
choose one candidate from the list. This process shall continue until two arbitrators have been chosen and have
accepted. The Ceding Company and Allianz Life
shall each present their initial list of three (3) candidates by written notification to the other party within
twenty-five (25) working days of the date of the mailing of the notification initiating the arbitration. Any
subsequent additions to the list which are required shall be presented within ten (10) working days of the date the
naming party receives notice that a chosen candidate has declined to serve.
The two arbitrators shall then select the third arbitrator from the four (4) candidates remaining on the lists of
the Ceding Company and Allianz Life within fourteen (14) days of the acceptance of their positions as arbitrators.
If the two arbitrators cannot agree on the choice of the third, then this choice shall be referred back to the
Ceding Company and Allianz Life. The Ceding Company and Allianz Life shall take turns striking the name of one of
the candidates from the remaining four (4) candidates until only one candidate remains. If the candidate so chosen
shall decline to serve as the third arbitrator, the candidate whose name was stricken last shall be nominated as
the third arbitrator. This process shall continue until a candidate has been chosen and has accepted. This
candidate shall serve as the third arbitrator. The first turn at striking the name of a candidate shall belong to
the party that is initiating the arbitration. Once chosen, the arbitrators are empowered to decide all substantive
and procedural issues by a majority of votes.
ARTICLE XVI - ARBITRATION (continued)
Communications:
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It is agreed that each of the three arbitrators should be impartial regarding the dispute and should resolve the
dispute on the basis described in this provision. Therefore, at no time will either the Ceding Company or Allianz
Life contact or otherwise communicate with any person who 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 Allianz Life to inform those candidates actually chosen as arbitrators of the nature and facts
of the dispute. Likewise, any written or oral arguments provided to the arbitrators 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.
Hearing:
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The arbitration hearing shall be held on the date fixed by the arbitrators. In no event shall this date be later
than six (6) months after the appointment of the third arbitrator. As soon as possible, the arbitrators shall
establish pre-arbitration procedures as warranted by the facts and issues of the particular case. At least ten
(10) working days prior to the arbitration hearing, each party shall provide the other party and the arbitrators
with a detailed statement of the facts and arguments it will present at the arbitration hearing. The arbitrators
may consider any relevant evidence; they shall give the evidence such weight as they deem it entitled to after
consideration 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) working days after the end of the arbitration hearing, the
arbitrators shall issue a written decision. In their decision the arbitrators shall apportion the costs of
arbitration, which shall include, but not limited to their own fees and expenses as they deem appropriate.
ARTICLE XVII - INSOLVENCY
In the event of insolvency of the Ceding Company, all reinsurance claims payable shall be paid directly to its
liquidator, receiver, or statutory successor without diminution because of the insolvency of the Ceding Company or
because such liquidator, receiver, or statutory successor has failed to pay all or a portion of any claim.
Notice:
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In the event of insolvency of the Ceding Company, the liquidator, receiver, or statutory successor shall give
Allianz Life written notice of the pendency of a claim on a policy reinsured within a reasonable time, in no event
to exceed one year, after such claim is filed in the insolvency proceeding.
Investigation:
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During the pendency of a claim, Allianz Life may investigate such claim and interpose in the name of the Ceding
Company, its liquidator, receiver or statutory successor, but at its own expense, in the proceeding where such
claim is to be adjudicated, any defense or defenses which Allianz Life may deem available to the Ceding Company or
its liquidator, receiver, or statutory successor.
The expense thus incurred by Allianz Life shall be chargeable, subject to court approval, against the Ceding
Company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may
accrue to the Ceding company solely as a result of the defense undertaken by Allianz Life. Where two or more
reinsurers are involved in the same claim and a majority in interest elect to interpose a defense to such claim,
the expense shall be apportioned as though such expense had been incurred by the Ceding Company.
ARTICLE XVII - INSOLVENCY (continued)
Cancellation Option:
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In the event of insolvency of Allianz Life, the Ceding Company, upon written notice within ninety (90) days, may at
its option cancel this agreement effective retroactively to the date of such insolvency as it relates to the
renewal of existing reinsurance. Allianz Life shall then make proper financial adjustment from the effective
cancellation date and remain liable for the payment of any claim which had occurred prior to the date of
cancellation whether or not due proof of such claim had actually been received by such date.
Right to Offset:
----------------
In the event of the insolvency of either the Ceding Company or Allianz Life, any amounts owed by Allianz Life to
the Ceding Company and by the Ceding Company to Allianz Life with respect to this agreement, shall be offset, as
permitted by law, against each other with the balance to be paid by the appropriate party.
ARTICLE XVIII - ENTIRE CONTRACT PROVISION
This agreement represents the entire agreement between Allianz Life and the Ceding Company and supercedes, with
respect to its subject matter, any prior oral or written agreements between the parties. No modification of any
provision of this agreement shall be effective unless set forth in a written amendment to this agreement which is
executed by both parties. A waiver shall constitute a waiver only with respect to the particular circumstances for
which it is given and not a waiver of any future circumstances.
ARTICLE XIV - NON-PARTICIPATING AND NON-REFUND
Allianz Life does not participate in dividends, if any, that are payable nor does it pay any refunds resulting from
the experience of policies reinsured under this agreement.
ARTICLE XX - HEADINGS
Paragraph headings and Article heading are not controlling or binding provisions of this agreement.
ARTICLE XXI - PARTIES TO AGREEMENTS
This is an agreement solely between the Ceding Company and Allianz Life. The acceptance of reinsurance hereunder
shall not create any right or legal relationship whatsoever between Allianz Life and the insured or the beneficiary.
ARTICLE XXII - SEVERABILITY CLAUSE
If any provision of this agreement is declared or found to be illegal, unenforceable or void by any administrative
agency, regulatory body, or court of competent jurisdiction, such finding shall not affect the remaining provisions
of this Agreement, and all other provisions hereof shall remain in full force and effect.
ARTICLE XXII - DURATION OF AGREEMENT
This agreement shall be unlimited as to its duration but may be amended at any time in writing by mutual consent of
the two parties as signed by a vice president or other senior officer. This agreement may be terminated as to
further new reinsurance by either party with ninety (90) days written notice to the other. Such terminations as to
new reinsurance shall not affect existing reinsurance which shall remain in force as long as such policies shall
remain in force and reinsurance premiums are paid when due, regardless of any change in ownership, merger, or
acquisition of either company.
ARTICLE XXIV - DAC TAX
The Ceding Company and Allianz Life hereby agree to the following pursuant to Section 1.848-2(g)(8) of the Income
Tax Regulation issued December 1992, under Section 848 of the Internal Revenue Code of 1986.
1. The term "party" will refer to either the Ceding Company or Allianz Life as appropriate.
2. The terms used in this Article are defined by reference to Regulation 1.848-2 in effect December 1992.
3. The party with the net positive consideration for this Agreement for each taxable year will capitalize
specified policy acquisition expenses with respect to this Agreement without regard to the general deductions
limitation of Section 848(c)(1).
4. 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.
5. Allianz Life will submit a schedule to the Ceding Company by April 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 stating that Allianz Life will report such net consideration in its tax return for the preceding
calendar year.
6. The Ceding Company may contest such calculation by providing an alternative calculation to Allianz Life by
May 1, of the year following the end of the taxable year. If the Ceding Company does not notify Allianz Life
of May 1, the new considerations reported in the respective tax returns will be the value as defined in Item 5
above.
7. If the Ceding Company submits its alternative calculation, the parties will act in good faith to reach an
agreement on the correct amount within thirty (30) days of company and Allianz Life reach agreement on an
amount of the net consideration, each party shall report such amount in their respective tax returns for the
previous calendar year.
SCHEDULE A - RETENTION LIMITS
Life Insurance: $1,000,000
Disability - Premium Waiver and Disability Waiver: Same amount as life.
Applicant Insurance: Same amount as life without regard to amount of regular life insurance on applicant's
life.
Accidental Death Benefit: $300,000 participation limit in all insurers. This maximum includes Accidental Loss of
Life, Limb, or Sight benefit (principal sum). The Ceding Company's Accidental Death Benefit is the same as its
participation limit.
Guaranteed Purchase Option: Retain completely.
Immediate and Deferred Annuities: Retain completely. Usual issue limit is $150,000 of premium in any one year on
any life but larger amounts may be issued on approval of the vice president and actuary - insurance service.
Rules governing retention limits:
1. Retention limits may be exceeded by as much as $25,000 to avoid reinsurance or to round out the amount of
reinsurance required.
2. Reinsurance in not applied for in amounts under $10,000.
3. For previously issued certificates: (a) use net amount at risk for level premium plans; (b) use 100% of
current amount at risk for decreasing term plans or riders.
4. Amounts below the Ceding Company's retention limits may be reinsured according to guidelines established
by the supervising officer of life underwriting or the senior underwriting officer.
5. For new applications for insurance, decreasing term plans and riders are considered at 100% of initial
risk.
SCHEDULE B
SCHEDULE C - ACCEPTED PLANS OF INSURANCE AND RATES
Plans of Insurance: All Single Life Plans
Percentage Used to Create YRT Rates:
All Policy
Years
-----
Nonsmoker 72%
Smoker 129%
Other Specifications:
CONVERSIONS: Conversions will be reinsured on a YRT basis at original issue age, smoking habit and duration since
issue. See the attached Schedule D.
SUBSTANDARD PREMIUMS: Substandard table extras will be reinsured using 25% per table rating, applying the
appropriate YRT rate. Permanent flat extras will be reinsured at 0% first year and 80% renewal years of the
permanent flat extra premium charged. Temporary flat extras will be reinsured at 90% in all years.
DIVIDENDS AND CASH VALUE: Allianz Life will not participate in dividends or cash value.
EXPENSE CHARGES: The Ceding Company will retain all expense charges.
DEFICIENCY RESERVES: Allianz Life will not set up deficiency reserves on its portion of the risk.
SCHEDULE D - YEARLY RENEWABLE TERM PREMIUMS, PREMIUMS FOR BENENFIT COVERAGES AND SUBSTANDARD FLAT EXTRAS FOR
CONVERSIONS
Individual Life Reinsurance:
The rates shown in this schedule apply to reinsurance cessions of $20,000 or more. The total individual life
reinsurance premium on standard cessions and on those cessions with a percentage rating consists of the appropriate
rate per $1,000 applied to the amount at risk plus an annual policy fee of $20.00 per cession.
Rates for females equal the rates for males four years younger; except that rates for females aged zero to ten
equal the rates for males of the same ages and rates for females aged eleven to fourteen equal those for males aged
ten.
Flat Extra:
On substandard cessions involving flat extra premiums payable for periods of more than five years, the comparable
reinsurance flat extra premium in the first year is zero and in renewal years is 90% of the gross flat extra
premium charged by the Ceding Company.
Waiver of Premium:
In the first policy year the reinsurance is zero. In renewal years the reinsurance premium equals 90% of the gross
disability premium charged by the Ceding Company. Waiver of premium benefits will not begin before age 15 nor
after age 60 and will require a waiting period of at least six months.
Accidental Death Benefit:
In the first policy year the premium is zero. In renewal years the premium is 90% of the gross premium charged by
the Ceding Company.
SCHEDULE E - POLICY LIMITS
Minimum Cession Size:
Minimum Cession Size for Facultative Business: the minimum initial amount to be reinsured is $20,000.
Trivial Amounts:
Reinsurance may be terminated at the option of the Ceding Company on any cession where the net amount at risk
reinsured becomes less then $3,000, providing it has been in force three years.
FACULTATIVE YEARLY RENEWABLE TERM
REINSURANCE AGREEMENT
CEDING COMPANY: AID ASSOCIATION FOR LUTHERANS
(hereinafter referred to as the Ceding Company)
REINSURER: CONTINENTAL ASSURANCE COMPANY OF CHICAGO, ILLINOIS
(hereinafter referred to as Continental)
ACCEPTED COVERAGES: As defined in the Accepted Coverages Schedule
EFFECTIVE DATE: September 15, 1994
Commencing of the Effective Date, the Ceding Company may submit any of its excess insurance risks under Accepted
Coverages subject to the provisions of the Agreement.
This Agreement consists of the following sections:
SECTION I FACULTATIVE REINSURANCE
SECTION II BASIS OF REINSURANCE AND PREMIUMS
SECTION III STANDARD PROVISIONS
SECTION IV SPECIAL PROVISIONS
SECTION V SCHEDULES
These sections or parts of these sections may be changed or modified only upon written agreement between the Ceding
Company and Continental.
SECTION I
FACULTATIVE REINSURANCE
o The Ceding Company may submit any of its insurance risks on Accepted Coverages to Continental for
reinsurance on a facultative basis. Continental may decline to quote on specific facultative risks.
o In order to apply for facultative reinsurance the Ceding Company shall mail to Continental an Application
for Reinsurance, copies of the original application, all medical examinations, microscopical reports,
inspections reports and all other information which the Ceding Company has pertaining to the insurability of
the risk. Any other information subsequently available to the Ceding Company which is pertinent to the
question of assuming the risk shall be transmitted promptly to Continental. Continental shall have the
option of declining or making an offer on any application for facultative reinsurance.
o Continental will have no liability on a facultative submission by the Ceding Company until an
unconditional offer to reinsure has been made in writing by Continental and accepted in writing by the Ceding
Company. Continental's unconditional offer will expire at the end of 90 (ninety) days from the date of the
unconditional offer, unless an earlier date is specified in the offer.
o The Ceding Company will submit to Continental any additional information requested on all pending
applications within 60 (sixty) days from Continental's request or Continental will close its file on the case.
o Continental will not incur any liability under and Conditional Receipt issued by the Ceding Company for a
risk submitted to Continental on a facultative basis.
SECTION II
BASIS OF REINSURANCE AND PREMIUMS
o Life insurance will be reinsured on the Yearly Renewable Term Plan (YRT) for the net amount at risk. The
amount at risk reinsured with the Reinsurer shall not at any point exceed the initial amount ceded to the
Reinsurer. The net amount at risk each year will be determined as follows:
o For Universal Life policies the reinsured net amount shall be calculated by the Ceding Company using their
normal calculations and the reinsurance amount adjusted quarterly. This reinsured amount will be in
proportions to the Ceding Company's Net Amount at risk, less retention, if applicable.
o For other life policies, the reinsured net amount at risk is the face amount reinsured less the
interpolated cash value at the end of the year. During the first 10 years, interpolated cash values will
be determined by a straight line interpolation between zero and the actual 10th year cash value. During
the second 10 years, interpolated cash values will be determined by a straight line interpolation between
the actual 10th year and the actual 20th year cash values. Interpolated cash values in each succeeding
10-year period will be calculated in a consistent manner.
o Cash values for term plans with a coverage period of 20 years or less are considered nil.
o Reinsurance premiums are to be paid annually in advance and will be determined as follows:
o For Life insurance on a risk classified as standard, the premium rates in the Premium Rates Schedule shall
apply.
o For Life insurance on a risk classified as multiple table substandard, the appropriate rates from the
Premium Rates Schedules will be increased by the appropriate multiples as defined in the Premium Rates
Schedules.
o For Life insurance issued with flat extra premiums, of five years or less, the premiums determined in
accordance with Paragraphs (1) or (2) of this provision will be increased in all policy years or until
premiums cease or rating removed by 90% of the extra premiums applicable to the initial amount reinsured.
SECTON II
(continued)
BASIS OF REINSURANCE AND PREMIUMS
o For Life insurance issued with flat extra premiums of more than five years, the premiums will e increased
in the initial policy years by 25% of the extra premiums and in all subsequent years by 90% of the
extra premiums.
o The reinsurance premium rates for Disability Waiver of Premium Benefits risk will be 25% of the annual
rate charged for the benefits in the original policies for the first year, and 85% of this annual rate
for renewal years.
o The reinsured disability waiver of premium benefit shall be the policyholder's waived gross premium which
corresponds to Continental's portion of the life insurance risk. The Ceding Company remains obligated
to pay reinsurance premiums to Continental while the insured life is disabled.
o The reinsurance premium rates for insurance benefits issued as a result of a continuation, as defined in
Section III. D, are shown in the premium Rates Schedules. The premium rates are to be entered based
on the age at issue and duration since issue of the original insurance. Portions of a year will be
considered one full duration.
o The rates in the YRT premium Rates Schedule are guaranteed for one year from the effective date of the
treaty.
o Payment of Reinsurance Premiums
o Within 45 days following the close of the calendar month, the Ceding Company will forward to Continental a
statement of premium due. The statement will show the premiums due on any new reinsurance effected
during the month, renewal premiums and any adjustments due to changes or termination, in accordance
with the reporting requirements set forth in the Reporting Requirements Schedule.
o The Ceding Company will remit a check for the balance indicated to Continental along with the statement of
premium due or will submit a request for payment of any net amount due the Ceding Company.
o If any reinsurance premium is not paid within the allotted time, Continental may terminate the Reinsurance
on all new and existing inforce by giving the Ceding Company written notice. The Ceding Company will
be liable for the payment of reinsurance premium to the effective date of termination plus the
termination charge specified in Section III, K. Failure by continental to exercise its right under
this paragraph in any specific situation will not be a waiver of Continental's right to do so at a
later date.
o Balances remaining unpaid for more than 45 days from the date due will incur interest calculated from that
date using the 7 year "on the run" US Treasury Bond rate reported for the last working date of the
calendar month in the Wall Street Journal or a comparable publication.
o The Ceding Company and Continental may exercise at any time, the right to offset any undisputed debts or
credits, liquidated or unliquidated, whether on account of premiums or on account losses or otherwise,
due from either party to the other under this agreement or under any other Reinsurance Agreement with
Continental.
QUARTERLY RESERVES AND VALUATION
o The Ceding Company shall submit information for valuation and reserve calculation by the 20th of the month
following the close of each calendar quarter.
BULK REPORTING REQUIREMENTS
o The Ceding Company will not change its existing self administered reporting practices in effect on or
after the effective date, unless the Ceding Company notifies Continental in writing and Continental
approves of such changes.
SECTION III
STANDARD PROVISIONS
ERRORS AND OMMISSIONS
o This Agreement shall not be abrogated by the failure of either the Ceding Company or Continental to comply
with any of the terms of the 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 of
Continental. Both parties shall be returned to the position they would have occupied had no such
oversight, misunderstanding or clerical error occurred. This provision shall not apply if the Ceding
Company fails to notify Continental in writing of its unconditional acceptance of an offer for
reinsurance made by Continental upon receipt of a facultative application from the Ceding Company.
This provision shall cease five years after the termination of the last policy known to be reinsured
under this agreement.
TERMINATIONS OF AND CHANGES TO INSURANCE RISKS
o If the Ceding Company retains a portion of the risk on the policy (ies) reinsured under this agreement and
any portion of the Ceding Company's insurance risk on the life of the insured terminates or reduces,
whether or not covered by this agreement, the reinsurance will be reduced in proportion to the
original policy.
o The Ceding Company will notify Continental of all policy terminations, deaths and changes that affect the
reinsurance as they occur. Unearned reinsurance premiums will be refunded except that cession fees as
defined in the Premium Rates Schedule are not refundable on any off anniversary termination.
o If the reinsured net amount at risk on any policy falls below $1,000 the cession will be terminated.
REINSTATEMENTS
o If an insurance policy on a life on which reinsurance has been accepted facultatively by Continental
lapses for nonpayment of premiums, copies of the application for reinstatement and any other relevant
papers shall be referred to Continental for its underwriting evaluation prior to actual reinstatement
by the Ceding Company. Continental will notify the Ceding Company in writing of its underwriting
decision on all such reinstatement requests. A reinstatement notice shall be mailed to Continental
as soon as possible after reinsurance is effected.
o In connection with all reinstatements, the Ceding Company shall pay to Continental all reinsurance
premiums in arrears.
CONTINUATIONS
o Continuation of a policy reinsured under this agreement shall remain reinsured with Continental under this
agreement or another agreement between the Ceding Company and Continental. For the purpose of this
agreement, continuations shall be defined as exchanges, conversions, or reissues of any other policy
that was originally reinsured with Continental.
FORMS
o The Ceding Company shall furnish Continental with any specimen copies of its applications, policy forms,
rider forms and any tables of rates and values which may be required for the proper administration of
the business reinsured under this agreement, and shall keep Continental informed with documentation as
to any modifications or new forms under which reinsurance may be desired.
CLAIMS
o The Ceding Company will notify Continental of each claim promptly after first receipt of such
information. Continental shall be consulted before admission or acknowledgment of claim liability is
made by the Ceding Company if:
o The claim is in the contestable period, or
o The claim is a conditional receipt claim, or
o The amount retained by the Ceding Company is less than the total amount reinsured in all companies.
o The Ceding Company will promptly notify Continental of its intention to contest insurance reinsured under
this agreement or to assert defenses to a claim for such insurance. If Continental agrees to
participate in the contest or assertion of defenses and the Ceding Company's contest of such insurance
results in the reduction of its liability, Continental will share in such reduction in proportion to
Continental's liability. Continental will pay its share of the unusual expenses of the contest in
addition to its share of the claim itself. Routine expenses incurred in the normal settlement of
uncontested claims, including interpleader cases, and the salary of an officer or employee of the
Ceding Company are excluded from this provision. If Continental declines to participate in the
contest or assertion of defenses, Continental will discharge all of its liability by payment of the
full amount of the reinsurance to the Ceding Company.
o Copies of the proofs of claim obtained by the Ceding Company, together with the amount payable or paid on
such claim, will be furnished to Continental as soon as possible.
o Continental will be liable to the Ceding Company for the benefits reinsured hereunder to the same extent
as the Ceding Company is liable to the Insured for such benefits, and all reinsurance will be subject
to the terms and conditions of the policy under which the Ceding Company will be liable.
o For life and accidental death claims, Continental will pay its share in a lump sum to the Ceding Company
without regard to the form of claim settlement of the Ceding Company. For a waiver of premium
disability claim, Continental will pay its share of each gross premium as the premiums are waived by
the Ceding Company.
o Continental agrees to pay to the Ceding Company a proportionate share of any interest paid out to the
claimant by the Ceding Company. Continental's liability to pay interest will be discharged on the
date that Continental issues payment to the Ceding Company.
o Continental reserves the right to withhold any claim payments in accordance to Section II.
o In the event the amount of insurance provided by a policy or policies reinsured hereunder is increased or
reduced because of a misstatement of age or sex established after the death of the insured,
Continental will share in the increase, up to Continental's maximum limit, or reduction in the
proportion that the net liability of Continental bore to the sum of the retained net liability of the
Ceding Company and the net liability of other reinsurers immediately prior to such increase or
reduction. The reinsurance with Continental shall be immediately prior to such increase or
reduction. The reinsurance with Continental shall be rewritten from commencement on the basis of the
adjusted amounts using premiums and reserves at the correct age, and sex. The adjustment for the
difference in premiums shall be made without interest.
o In no event will Continental participate in punitive or compensatory damages which are awarded against the
Ceding Company as a result of an act, omission or course of conduct committed solely by the Ceding
Company in connection with the insurance reinsured under this Agreement. Continental will, however,
pay its share of statutory penalties awarded against the Ceding Company in connection with insurance
reinsured under this Agreement if Continental elected join in the contest of the coverage in question.
o The parties recognize that circumstances may arise in which equity would require Continental, to the
extent permitted by law, to share proportionately in certain assessed damages. Such circumstances
are difficult to define in advance, but generally would be those situations in which Continental was
an active party and directed, consented to, or ratified the act, omission, or course of conduct of the
Ceding Company which ultimately results in the assessment of punitive and/or compensatory damages.
In such situations, the Ceding Company and Continental would share such damages so assessed in
equitable proportions. Routine expenses incurred in the normal settlement of uncontested claims, in
the submission of interpleaders and the salary of an officer or employee of the Ceding Company are
excluded from this provision.
For the purpose of this provision, the following definitions shall apply:
"Punitive Damages" are those damages awarded as a penalty, the amount of which is not governed nor
fixed by statue.
"Statutory Penalties" are those amounts which are awarded as a penalty, but fixed in amount by statue.
"Compensatory Damages"are those amounts awarded to compensate for the actual damages sustained, and
are not awarded as penalty, nor fixed in amount of statute.
RECAPTURE PRIVILEGE
If the Ceding Company increases its retention limits, the Ceding Company may reduce the reinsurance in accordance
with the following provisions.
o The Ceding Company kept its full retention in accordance with the retention limits in effect when the
original insurance was issued. (Refer to the Retention Limits Schedule).
o The life and waiver of premium benefits in the policy must have been reinsured with Continental for a
period of twenty (20) years.
o The reduction in the reinsurance of Accidental Death Benefits will be effective on the first policy
anniversary following the notice of election to recapture.
o The amounts recaptured from all reinsurers will be sufficient to increase the Ceding Company's retention
on the risk to the new limits.
o If there are other reinsurers, the reduction on Continental's risk will be determined according to
continental's portion of the total reinsurance on the risk.
o If the reinsurance is reduced on any risk, similar reductions will be made on all risks eligible for
recapture. This includes policies currently on waiver of premium claim.
INSPECTION OF RECORDS
Continental shall have the right, at any reasonable time, to inspect, at the office of the Ceding Company, all
books, records and documents relating to the reinsurance under this Agreement.
Insolvency
o In the event of insolvency of the Ceding Company, Continental's liability for claims will continue to be
in accordance with the terms of the agreement. Payment of reinsurance claims less any reinsurance
premiums due Continental will be made directly to the liquidator, receiver or statutory successor of
the Ceding Company without diminution of the insolvency of the Ceding Company.
o In the event of insolvency of the Ceding Company, the liquidator, receiver or statutory successor will
give Continental written notice of any pending claim and Continental may, at its own expense,
investigate the claim and interpose any defense which it deems appropriate to the Ceding Company or
its liquidator, receiver or statutory successor. If the Ceding Company benefits from the defense
undertaken by Continental, an equitable share of the expenses incurred by Continental will be
chargeable to the Ceding Company as part of the expense of liquidation.
o In the event of insolvency of either the Ceding Company or Continental, any debts or credits due the other
party, whether matured or unmatured, under this Agreement or any other agreement, which exist on the
date of the entry of a receivership or liquidation order, shall be deemed mutual debts or credits as
the case may be and shall be set off and only the balance shall be allowed or paid.
o Continental's liability will not increase as a result of the insolvency of the Ceding Company.
PARTIES TO THE AGREEMENT
This is an Agreement for indemnity reinsurance solely between the Ceding Company and Continental. The acceptance
of reinsurance hereunder shall not create any right or legal relation whatever between Continental and any insured
or any beneficiary under any policies of the Ceding Company which may be reinsured hereunder.
TERMINATION CHARGE
If Continental exercises it rights to terminate all new and existing inforce reinsurance as stipulated under
Section II, an appropriate charge will be determined by, and paid to, Continental. Such termination charge will
be determined so as to approximate the excess of deferred acquisition expenses plus equity in unearned premium
reserve over the benefit reserve plus unearned premium reserve for the business being terminated hereunder. The
calculation of the components of the charge will be Continental's usual calculation methods and will be in
accordance with the GAAP principals as outlined in FAS60 or FAS97, as appropriate.
DURATION OF AGREEMENT
This Agreement will be effective on and after the Effective Date stated on the cover page. Other than for
nonpayment of reinsurance premiums and/or failure to comply with reporting requirements, as provided in the
Reporting Requirements Schedule, the Agreement is unlimited in duration but may be amended by mutual consent of the
Ceding Company and Continental.
This Agreement may be terminated as to new reinsurance by either party's giving ninety (90) days written notice to
the other. However, if the Ceding Company changes its underwriting rules and Continental does not approve of such
changes in writing, this Agreement may be terminated for new business immediately by Continental. Termination as
to new reinsurance does not affect existing reinsurance.
ARBITRATION
o It is the intention of continental and the Ceding Company that the customs and practices of the insurance
and reinsurance industry shall be given full effect in the operation and interpretation of this Agreement. The
parties agree to act in all things with the highest good faith. If Continental or the Ceding Company cannot
mutually resolve a dispute which arises out of or relates to this Agreement however, the dispute shall be
decided through arbitration.
o Disagreements between Continental and the Ceding Company will be submitted to three arbitrators who must
be officers of other life insurance companies. Within sixty (60) days of the date of notice of the intent to
submit the dispute to arbitration, Continental and the Ceding Company will each appoint one arbitrator and the
third will be selected by these two arbitrators. If agreement cannot be reached on the selection of the third
arbitrator, each arbitrator shall nominate three (3) candidates within ten (10 ) days thereafter, two of whom
the other shall decline, and the decision shall be made by drawing lots.
o 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, and any court
having jurisdiction of the subject matter and the parties may reduce that decision to judgement.
o The arbitration hearing shall be held on the date fixed by the arbitrators. In no event shall this date
be later than six (6) months after the appointment of the third arbitrator. As soon as possible, the
arbitrators shall establish prearbitration procedures as warranted by the facts and issues of the particular
case. At least ten (10) days prior to the arbitration hearings, each party shall provide the other party and
the arbitrators with a detailed statement of the facts and arguments it will present at the arbitration
hearing. The arbitrators may consider any relevant evidence; they shall give the evidence such weight as
they deem 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 arbitrators shall issue a written decision. In their decision, the arbitrators
shall apportion the costs of arbitration, which shall include but not be limited to their own fees and
expenses, as they deem appropriate.
CURRENCY
All currency will be payable in United States dollars.
CHOICE OF LAW AND FORUM
Illinois law shall govern the terms and conditions of the Agreement. In the case of arbitration, the arbitration
hearing shall take place in Chicago, Illinois, and the Uniform Arbitration Act shall control except as provided in
Section III of this Agreement.
DAC TAX ELECTON STATEMENT
The Ceding Company and Continental hereby agree to the following pursuant to Section 1.8482(g)(8) of the Income Tax
Regulation issued December 1992, under Section 848 of the Internal Revenue Code of 1986, as amended. This
election shall be effective for 1992 and all-subsequent taxable years for which this agreement remains in effect.
o The term "party" will refer to either the Ceding Company or Continental as appropriate
o The terms used in this article are defined by reference to Regulation 1.848-2 in effect December 1992.
o The party with 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).
o Both parties agree to exchange information pertaining to the amount of net consideration under this
agreement each year to ensure consistency or is otherwise required by the Internal Revenue Service.
o Continental will submit a schedule to the Ceding Company by February 1, of each year of its calculation of
the net consideration for the preceding calendar year. This schedule will be accompanied by a statement
stating that Continental will report such net consideration in its tax return for the preceding calendar year.
o The Ceding Company may contest such calculation by providing an alternative calculation to Continental
within 30 days of the Ceding Company's receipt of Continental's calculation. If the Ceding Company does not
so notify Continental. Continental will report the net consideration as determined by Continental in
Continental's tax return for the previous calendar year.
o If the Ceding Company contests Continental's Calculation of the net consideration, the parties will act in
good faith to reach an agreement as to the correct amount within 30 days of the date the Ceding Company
submits its alternative calculation. If the Ceding Company and Continental reach agreement on an amount of
the net consideration, each party shall report such amount in their respective tax returns for the previous
calendar year.
ENTIRE CONTRACT
This agreement shall constitute the entire agreement between the parties with respect to the business being
reinsured thereunder and that there are no understandings between the parties other than in the agreement.
Any changes or modification to the agreement shall be null and void unless made by amendment to the agreement and
signed by both parties.
SECTION IV
SPECIAL PROVISIONS
NONE
SECTION V
SCHEDULES
SCHEDULE A RETENTION LIMITS
SCHEDULE B ACCEPTED COVERAGES
SCHEDULE C PREMIUM RATES
SCHEDULE A
RETENTION LIMITS SCHEDULE
The retention limits of the Ceding Company for all ages and ratings shall be $1,000,000.00.
SCHEDULE B
ACCEPTED COVERAGES SCHEDULE
Accepted coverages shall include individual life insurance policies written by the Ceding Company.
AUTOMATIC REINSURANCE AGREEMENT
Between the
AID ASSOCIATION FOR LUTHERANS
Appleton, Wisconsin
And the
NORTH AMERICAN REASSURANCE COMPANY
New York, New York
AUTOMATIC REINSURANCE AGREEMENT
CONTENTS
ARTICLE I Basis of Reinsurance
Automatic Coverage
Special Automatic Coverage
Limited Retention
Exceptions to Automatic Coverage
Facultative Reinsurance
ARTICLE II Facultative Submissions
Preparation of Cession Form
Policy Forms, Rate Book
ARTICLE III Commencement & Termination of Liability
ARTICLE IV Oversights - Clerical Errors
ARTICLE V Plan of Reinsurance
ARTICLE VI Reinsurance Premiums
ARTICLE VII Tax Credits
ARTICLE VIII Experience Refunds
ARTICLE IX Premium Accounting
ARTICLE X Reductions
ARTICLE XI Retention Limit Increases (Recapture)
ARTICLE XII Reinstatements
ARTICLE XIII Policy Changes
ARTICLE XIV Settlement of Claims
ARTICLE XV Inspection of Records
ARTICLE XVI Insolvency
ARTICLE XVII Arbitration
ARTICLE XVIII Parties to Agreement
ARTICLE XIX Duration of Agreement
EXHIBIT A Reinsurance Cession Form
SCHEDULE I Limits of Retention
SCHEDULE II Annual Decrement Percentage
AUTOMATIC REINSURANCE AGREEMENT
This agreement between the Aid Association for Lutherans, a corporation organized under the laws of the State of
Wisconsin, hereinafter referred to as the "Company", and the North American Reassurance Company, a corporation
organized under the laws of the State of New York, hereinafter referred to as the "North American Re", Witnesseth
as Follows:
ARTICLE 1
BASIS OF REINSURANCE
1. On and after the 15th day of March, 1988, amounts of Individual Life and Waiver of Premium Disability
Insurance which are in excess of the Company's retention and which have been issued directly by the Company on
lives whose surnames are spelled commencing with any letter from A to Z, inclusive, on the plans of insurance
stated in Exhibit B, shall be reinsured with the North American RE. At the option of the company,
reinsurance may be ceded to the North American RE on an automatic basis as provided in Paragraphs 2, 3 and 4
of this Article or applications for reinsurance may be made to the North American RE on a facultative basis as
provided in Paragraph 6 of this Article.
Automatic Coverage
2. Except as specified in Paragraph 5, whenever the Company retains its maximum limit of retention as
indicated in Schedule I, the company shall cede and the North American RE shall automatically accept such Life
reinsurance as provided herein with a corresponding amount of Waiver of Premium, if any, on the same terms and
for an amount not exceeding the following limits:
Standard- $2,500,000
Table A/B - $2,000,000
Table C/D - $$1,500,000
Table E/P - $1,000,000
Special Automatic Coverage
3. Even though the Company may already be on a risk for its maximum limit of retention under policies
previously issued and therefore unable to retain any part of the insurance currently applied for, the Company,
without retaining any more for its own account, shall still have the right to cede automatically the full
amount of new insurance, within the limits specified above, on the same terms on which it would be willing to
accept the risk for its own account if it did not already have its maximum limit of retention
Limited Retention
4. When the Company retains for its own account less than its regular maximum limit of retention for the
risk, the automatic coverage shall be for an amount equal to the amount retained by the Company on the current
application.
Exceptions to Automatic Coverage
5. Reinsurance shall not be ceded automatically to the North American RE on any life if:
(a) The amount of Life insurance in force plus the amount currently being applied for on that life in all
companies exceeds Five Million Dollars ($5,000,000), or
(b) The substandard mortality rating assessed to the risk exceeds Class P (500%), or
(c) The insurance is the result of a group conversion where full evidence of insurability has not been
secured, or
(d) The Company has submitted the risk to another reinsurer for facultative consideration.
Facultative Reinsurance
6. Applications for reinsurance of amounts in excess of the automatic limits provided above, and any risk
which the Company does not care to cede to the North American RE automatically or which may not be so ceded
under the terms of this Agreement, may be submitted for reinsurance upon a facultative basis.
ARTICLE II
Facultative Submissions
1. When the Company submits a risk to the North American Re upon a facultative basis, copies of the original
application, all medical examinations, microscopical reports, inspection to the insurablity of the risk shall
be sent to the North American RE along with the appropriately completer sections of the Faulutative
Reinsurance Deeddd form as shown in Exhibit A. The North American shall promptly notify the Company of its
decision on that risk.
Preparation of Cession Form
2. After the first premium has been received by the Company on an automatic case or on a facultative case
accepted by the North American Re, the Company shall complete and send to the North American Re a reinsurance
cession form as shown in Exhibit A.
Policy Forms, Rate Book
3. The Company shall file with the North American Re copies of all its present policy forms, its rate book
and reserve factors for special plans of insurance which are not readily available in published volumes. If
new forms are published or if changes are made in the material already filed as provided above, the Company
agrees to promptly file the new or revised copies of such material with the North American Re.
ARTICLE III
Commencement & Termination of Liability
1. On automatic reinsurance coverage, the liability of the North American Re shall commence simultaneously
with that of the Company.
2. On facultative reinsurance coverage, the liability of the North American Re shall commence simultaneously
with that of the company provided the Company has accepted, during the lifetime of the insured, a
facultative offer made by the North American Re on that life.
3. The liability of the North American Re shall terminate simultaneously with that of the Company, unless it
is terminated earlier in the accordance with Articles X or XI.
ARTICLE IV
Oversights - Clerical Errors
1. Should the Company fail to cede reinsurance that otherwise would have been ceded on an automatic basis in
accordance with the provisions of this Agreement, or should either the Company or the North American Re
fail to comply with any of the other terms of this Agreement, and if this is shown to be unintentional and
the result of a misunderstanding, oversight or clerical error on the part of either the Company or the
North American Re, then this Agreement shall not be deemed abrogated thereby, but both companies shall be
restored to the position they would have occupied had no such oversight, misunderstanding, or clerical
error occurred.
ARTICLE V
Plan of Reinsurance
1. Reinsurance of Life risks shall be on the Yearly Renewable Term plan. The amount at risk for this plan
shall be calculated as follows.
(A) For Universal Life type plans, at issue and decennially thereafter the Company shall project and report to
North American Re estimated Cash Values to be used in the calculation of the reinsured risk
amount. The reinsured net amount at risk for Death Benefit Option 2 plans shall equal the
Specified Amount less the amount retained by the Company less an estimated annual decrement
percentage in the reinsured net amount at risk. The annual decrement percentage is shown in
Schedule II. The reinsured net amount at risk for Death Benefit Option 2 plans shall equal the
Specified Amount less the amount retained by the Company.
(B) For permanent plans other than Universal Life type plans, the initial risk amount and the risk amounts for
policy years 10, 20, and subsequent decennial anniversaries shall be defined as the difference
between the initial sum reinsured and the Cash Value payable at the end of the policy year on
that sum reinsured. Should the policy expire or mature as an endowment according to its original
terms at a time other than a decennial anniversary, the risk amount at the time of such expiry or
maturity shall be defined as the initial sum reinsured less the cash value on that sum at
maturity or expiry.
(C) The risk amount for interim policy durations shall be calculated by straight line interpolation between
the two surrounding precise risk amounts as calculated in (B) above.
(D) However, on decreasing term plans or level term plans where the duration at issue or renewal is twenty
years or less, the risk amount shall be defined as the death benefit payable on the Company's
plan corresponding to the amount reinsured without deduction of Cash Values.
(E) Where permanent plans issued by the Company provide for the return of Cash Value or reserve at death, the
risk amount during such return period shall be defined as the Face Amount reinsured exclusive of
the return feature but without any reduction in the risk amount for the Cash Value.
2. Reinsurance of Disability benefits shall be on a coinsurance basis in accordance with the original form of
the Company.
ARTICLE VI
Reinsurance Premiums
Life Premiums
1. Until further notice, reinsurance premiums shall be at the rates given in the attached Exhibit B. The
North American Re guarantees that premium rates for a given attained age, rating and duration shall not
exceed the higher of the rate shown in the attached schedule (Exhibit B) for that age, rating and duration
or the one year term rate on the appropriate multiple of the 1958 CSO table at 21/2%.
ARTICLE VII
Tax Credits
1. North American Re shall not reimburse the Company for premium taxes.
ARTICLE VIII
Experience Refunds
1. The schedule of reinsurance premiums applicable to reinsurance ceded under the terms of this Agreement has
been especially designed to require minimum cash outlay. Therefore, reinsurance cede under the terms of
this Agreement will not be considered eligible for the participation in experience refunds.
ARTICLE IX
Premium Accounting
1. Reinsurance premiums shall be paid annually, but if a reinsurance policy is terminated or reduced in
accordance with the provisions of the Agreement, the North American RE shall refund to the Company the
unearned portion of the reinsurance premium.
2. Promptly at the end of each calendar month the Company shall send to the North American Re a statement of
premiums together with a remittance covering the amount due for all outstanding new reinsurance upon which
cessions have been received by the North American Re and renewal premiums for all renewal reinsurances
falling due within such month. The statement shall also include any adjustments in reinsurance
premiums. The North American Re shall verify the statement within a reasonable time.
ARTICLE X
Reductions
1. If on a life reinsured hereunder any portion of the insurance carried by the Company shall be reduced or
terminated, the amount of reinsurance carried by the Company on that life shall be reduced by a like
amount as of the date and time of the termination of the original insurance. Should the amount of
insurance terminated exceed the total amount of reinsurance carried by the Company on the life, all such
reinsurance shall be terminated.
2. The reduction shall be applied first to the reinsurance directly applicable to the Company's policy which
is reduced or cancelled, the reinsurance of the North American Re being reduced by an amount which shall
be the same proportion of the amount of insurance terminated that the North American Re's reinsurance bore
to the total amount of reinsurance under that particular policy.
3. If any portion of the terminated insurance was retained by the Company, a reduction equal to the amount of
such retention shall be made in the reinsurance in force under all other policies on the life, if any,
each reinsurer sharing in the reduction according to its proportion of that reinsurance on the life not
directly applicable to the policy of the company which was terminated. The principle to be observed
being always that the retention of the company is to be maintained unchanged.
4. It is agreed however, that in no case shall the Company be required to assume a risk for an amount in
excess of its regular retention limit for the age at issue and mortality rating of the policy under which
reinsurance is being terminated. If the cancellation of reinsurance in accordance with the above rules
would have this result, the amount of reinsurance to be cancelled shall be such that the Company shall be
placed upon the risk for its regular limit of retention.
5. If the reinsured net amount at risk for a policy reinsured hereunder falls below $15,000, the reinsurance
coverage shall be terminated in accordance with the trivial cancellation amount as indicated in Schedule I
of this Agreement.
ARTICLE XI
Retention Limit Increase (Recapture)
1. If the Company increases its limit of retention a corresp9onding reduction may be made at the option of
the company in the reinsurance in force on all lives on which the company had its maximum limit of
retention at the time reinsurance was ceded. However:
A. No risk shall be recaptured prior to the policy anniversary (earliest recapture date) specified in Exhibit
B.
B. Risks wholly reinsured because the Company's normal schedule of retention provides for zero retention at
the particular age and rating assigned to the risk shall not be considered eligible for recapture.
2. Recapture shall be effected as follows:
A. After the retention increase is effected, the Company shall promptly notify the North American Re of its
intention to recapture.
B. Eligible policies shall be recaptured on first policy anniversary following the notice of intention to
recapture.
C. All eligible policies shall be recaptured unless there is mutual agreement to the contrary expressed in
writing.
D. If the Company has reinsured any portion of the risk in another company the reduction in reinsurance ceded
under this Agreement shall be in the same proportion to the total reduction in reinsurance as the
amount reinsured under the Agreement bears to the total reinsurance on the risk.
E. In determining the new retention for a particular policy, the age and rating at issue should be used.
F. If at the time of recapture the risk is an active claim for Waiver of Premium Disability the Life risk
shall still be considered eligible for recapture. However, the Disability reinsurance shall
remain in force until such time as the policy is returned to a premium paying status. The
Disability risk shall be recaptured upon such return to premium paying status. However, if
within two years of said recapture the Waiver of Premium claim is resumed due to an extension of
the initial disablement the North American Re shall be liable for payment of its share of
premiums waived by the Company subject to collection of Disability premiums on North American
Re's share of the risk for the period in which the policy was in a premium paying status.
ARTICLE XII
Reinstatements
1. Should an insured under a lapsed or surrendered policy apply for reinstatement of that policy in
accordance with the terms of the policy or the practices of the Company, the Company may automatically
reinstate any reinsurance on that policy provided the reinsurance was originally ceded on an automatic
basis or the application for reinstatement is made within 90 days of the date of lapse. Otherwise, the
reinstatement application shall be submitted to the North American Re for facultative consideration.
2. Premiums and interest on reinstated reinsurance shall be payable only to the extent that the Company
collects premiums and interest on such insurance.
ARTICLE XIII
Policy Changes
1. If any change which affects the reinsurance hereunder shall be made in the policy issued by the Company to
the insured, the Company shall, within a reasonable time, notify the North American Re of such change.
The rules of the company governing changes n policy contracts which affect reinsurance shall be accepted
as satisfactory by the North American Re.
ARTICLE XIV
Settlement of Claims
1. In the case of a claim of a claim on a reinsured policy, whether claim payment is made under the strict
policy conditions or compromised for a lesser amount, the settlement made by the Company shall be
unconditionally binding upon the North American R. If the Company has no part of the risk on a
contestable claim and the risk amount is in excess of $25,000, the North American RE shall be consulted
before admission of the claim is made by the Company. However, such consultation shall not impair the
company's freedom to determine the proper action on the claim and the settlement made by the Company shall
still be unconditionally binding on the North American Re.
2. The Company shall furnish the North American Re with copies of the proofs of claim, together with any
information the Company may possess in connection with the claim. Payment in settlement of the
reinsurance under a claim approved and paid by the company for a life reinsured hereunder shall be made by
the North American Re upon the receipt of the claim papers.
3. The North American Re shall share in the expense of any contest or compromise of a claim in the same
proportion that the net amount at risk reinsured with the North American Re bears to the total net risk of
the Company under all policies on that life being contested by the Company and shall share in the total
amount of any reduction in liability in the same proportion. Compensation of salaried officers and
employees of the company and any possible extrcontractual damages shall not be considered claim expenses.
4. In the event of an increase or reduction in the amount of the company's insurance on any policy reinsured
hereunder because of a misstatement of age or sex being established after the death of the Insured, the
Company and the North American Re shall share in such increase ore reduction in proportion to their
respective net amounts at risk under such policy.
5. If a claim is approved for Waiver of Premium benefit on a reinsured policy, the Company shall continue to
pay the premiums for reinsurance except the premium for Disability reinsurance. The North American Re
shall pay its pro rata portion of the premiums waived on the original policy including the premiums for
benefits that remain in effect during disability.
ARTICLE XV
Inspection of Records
1. The North American Re shall have the right at all reasonable times and for any reasonable purpose to
inspect at the office of the Company all books and documents referring to reinsurance ceded to the North
American Re.
ARTICLE XVI
Insolvency
1. In the event of the insolvency of the company all reinsurance made, ceded, renewed or otherwise becoming
effective under this Agreement shall be payable by the North American Re directly to the company or to its
liquidator, receiver, or statutory successor on the basis of the liability of the company under the
contract or contracts reinsured without diminution because of the insolvency of the company. It is
understood, however, that in the event of the insolvency of the Company, the liquidator or receiver or
statutory successor of the insolvent Company shall give written notice of the pendency of a claim against
the insolvent Company 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 the North American Re may investigate
such claim and inter pose, at its own expense, in the proceeding where such claim is to be adjudicated any
defense or defenses, which it may deem available to the Company or to its liquidator or receiver or
statutory successor.
2. It is further understood that the expense thus incurred by the North American Re shall be chargeable,
subject to court approval, against the insolvent Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Company solely as a result of the
defense undertaken by the North American Re. Where two or more assuming insurers are involved in the
same claim and a majority in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of the Reinsurance Agreement as though such expense had been
incurred by the Company.
ARTICLE XVII
Arbitration
1. In the event of any difference arising hereafter between the contracting parties with reference to any
transaction under this Agreement, the same shall be referred to three arbitrators who must be executive
officers of life insurance or life reinsurance companies other than the two parties to this Agreement or
their affiliates, each of the contracting companies to appoint one of the arbitrators and such two
arbitrators to select the third. Should the two arbitrators not be able to agree on the choice of the
third, then the appointment shall be left to the President of the American Council of Life Insurance or
its successor organization.
2. The arbitrators shall consider this Reinsurance Agreement not merely as a legal document but also as a
gentlemen's agreement. They shall decide by a majority vote of the arbitrators. There shall be no
appeal from their written decision.
3. Each party shall bear the expense of its own arbitration, including its arbitrator and outside attorney
fees, and shall jointly and equally bear with the other party the expense of the third arbitrator. Any
remaining costs of the arbitration proceedings shall be apportioned by the Board of Arbitrator.
ARTICLE XVIII
Parties to Agreement
1. This is an Agreement solely between the Company and the North American Re. The acceptance of reinsurance
hereunder shall not create any right or legal relations whatever between the North American Re and the
insured or the beneficiary under any policies of the Company which may be reinsured hereunder.
ARTICLE XIX
Duration of Agreement
1. This Agreement shall be unlimited as to its duration but may be cancelled at any time, insofar as it
pertains to the handling of new business thereafter, by either party giving ninety (90) days' notice of
cancellation in writing. The North American Re shall continue to accept reinsurance in accordance with
this Agreement during the ninety (90) day period aforesaid. The reinsurance with the North American Re on
all policies reinsured under this Agreement shall be maintained in force as long as such policies shall
remain in force and reinsurance premiums are paid when due (except as provided under Articles X and XI)
and the North American Re shall remain liable thereon until the termination or expiry of the insurance
reinsured.
EXHIBIT B
Reinsurance Premiums
1. Plans Covered: Horizon III (Universal Life); Yearly Renewable Term; Permanent Plans other than Horizon
III; Cost of Living (COL) Benefit Rider.
2. Standard Reinsurance Premiums:
A. Horizon III Reinsurance ceded on this plan shall employ individual cessions using annual reinsurance
premiums. The reinsurance premiums shall equal the greater of
a. the Annual Current Cost of Insurance Rates attached to this Exhibit B, or
b. the Annual Cost of Insurance Rates actually charged the insured, less the following percentage reductions.
Policy Years
1 2-10 11+
Nonsmoker 100% 24% 17%
Smoker 100% 14% 7%
B. Cost of Living Rates: In addition to the premium indicated in A, above, for the basic policy at issue a
one time single reinsurance premium in accordance with the rate schedule identified as Schedule
I, attached to Addendum I appended to this Agreement shall be due when reinsurance is generated
by the COL Rider.
C. YRT Plan: Reinsurance ceded on this plan shall employ individual cessions using annual reinsurance
premiums. The reinsurance premiums shall equal the greater of:
a. the Annual Current Cost of Insurance Rates for the one million dollar band attached to this Exhibit B, or
b. the million dollar band for the Annual cost of Insurance Rates actually charged the insured, less the
following percentage reductions.
Policy Years
1 2-10 11+
70% 25% 12%
D. Permanent Plans other than Universal Life: Reinsurance ceded on these plans shall employ individual
cessions using annual reinsurance premiums.
3. Multiple Table Substandard Reinsurance Risk Premiums:
A. For the Horizon III plan and the COL Rider: The percentage reductions specified in Section II,
A, above shall apply to multiple table substandard premiums.
B. For the YRT plan: The percentage reductions specified in Section II, C, above shall apply to
multiple table substandard premiums.
C. For Permanent Plans other than Universal Life: Multiple table substandard premiums are as indicated in
the YRT rate schedule.
4. Flat Extra Substandard Reinsurance Premiums
A. Permanent Flat Extra Premiums are ones assessed for more than 5 years. North American Re should receive
its proportionate share of any such premiums less the following percentage reductions.
a. For the Horizon III plan: Same as indicated in Section II, A.
b. For the YRT plan: Same as indicated in Section II, C.
c. For Permanent Plans other than Universal Life:
First Year 75%
Renewal Years 10%
B. Temporary Flat Extra Premiums are ones assessed for 5 years or less. North American Re should receive
its proportionate share of any such premiums less a 10% reduction in all policy years.
5. Premiums for Disability Waiver Benefit: North American Re shall receive its proportionate share of
disability premiums less the following percentage reductions:
A. For the Horizon III plan: Same as indicated in Section II, A.
B. For the YRT plan: Same as indicated in Section II, C.
C. For Permanent plans other than Universal Life
First Year 75%
Renewal Years 10%
6. Maximum Amount of Reinsurance on One Life on the Above Reinsurance Premiums: $5,000,000.
7. Recapture: Reinsurance ceded on the above rates shall not be eligible for recapture before the following
policy anniversaries:
A. For the Horizon III plan: the fifth policy anniversary.
B. For the YRT plan: the tenth policy anniversary.
C. For the Permanent plans other than Universal Life: the tenth policy anniversary.
LIMITS OF RETENTION
Aid Association for Lutherans
Life
$1,000,000
Waiver of Premium
Same as Life
Accidental Death Benefit
$300,000
(Fully Retained)
Retention Corridor: The Company will over-retain up to an additional $50,000 to avoid the necessity of reinsuring
modest amounts of reinsurance.
Trivial Amount Cancellation Point: Whenever the reinsured net amount at risk for a policy drops to $15,000 the
reinsurance cession shall be terminated du to trivial amounts.
