Exhibit 2.12
RETROCESSIONAL REINSURANCE AGREEMENT
(hereinafter called this "AGREEMENT")
between
XL LIFE LTD.
(hereinafter called the "COMPANY"),
AND
ANNUITY AND LIFE REASSURANCE, LTD.
(hereinafter called the "RETROCESSIONAIRE")
WHEREAS, the Retrocessionaire has previously entered into the
Original Reinsurance Agreements (all capitalized terms as defined below), and
WHEREAS, at the request of the Retrocessionaire and with the
agreement of the various Cedents under the Original Reinsurance Agreements, the
Company has entered into various novation agreements whereby the Original
Reinsurance Agreements have been incorporated into and superseded by the Novated
Reinsurance Agreements, with the Company as the reinsurer under each of the
Novated Reinsurance Agreements and the Retrocessionaire not being a party to any
of the Novated Reinsurance Agreements, and
WHEREAS, the Company would not have entered into the Novated
Reinsurance Agreements if this Agreement had not been entered into with the
Retrocessionaire,
NOW THEREFORE, in consideration of the premises and agreements
herein contained, the Company and the Retrocessionaire do hereby agree as
follows:
ARTICLE 1
REINSURING CLAUSE
The Company hereby cedes to the Retrocessionaire, and the
Retrocessionaire hereby accepts as retrocessional reinsurance, and shall
indemnify the Company for, the Quota Share Percentage of the Company's
Reinsurance Loss. The retrocession established by this Agreement shall be on a
modified co-insurance basis, so that the Company shall retain, as funds
withheld, all amounts due to the Retrocessionaire hereunder, and cash settlement
by the Company to the Retrocessionaire shall be made pursuant to, and only
pursuant to, Article 16 hereof.
ARTICLE 2
DEFINITIONS
"Administration Agreement" means the Administration Agreement,
effective as of the Effective Date, between the Company and the
Retrocessionaire.
"Basket of Assets" means a group of assets (including without
limitation a notional cash balance (the "Cash Component"), which may be positive
or negative) identified as such on a register in the records of the Company as
set forth in Article 16, consisting only of Permitted Assets, each of which
(other than the Cash Component) must actually be held by the Company
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during the time of inclusion in the Basket of Assets, but which shall not be
segregated or subject to any actual or implied trust, lien or other encumbrance,
and their notional inclusion in the Basket of Assets shall not create a trust,
lien or other right as respects such assets as respects any person, including,
without limitation, the Retrocessionaire or any Cedent.
"Ceding Commission" means the ceding commission described in Article
5.
"Cedent" means a party reinsured under any Novated Reinsurance
Agreement or Original Reinsurance Agreement.
"Company" means XL Life Ltd.
"Company's Cost of Collateral" means, for any calendar month, the
weighted average cost (expressed as an annual percentage rate) of the most
costly 10% (as determined in good faith by the Company) of the collateral
actually used by the Company during such month to support the statutory reserves
on the Novated Reinsurance Agreements.
"Crediting Rate" means, for the first year of this Agreement, an
annual effective rate, determined as of the first business day of each quarter,
based upon the l0-year U.S. Treasury Bond "on the run rate" and thereafter for
each quarter shall be the one month LIBOR rate for such quarter, determined as
of the first business day of such quarter, unless, as respects such quarter, the
Company and the Retrocessionaire agree upon a different rate.
"Effective Date" means December 31,2002.
"Gross GAAP Benefit Required Amount" means, as of any time of
calculation, an amount equal to the Quota Share Percentage of the aggregate
gross GAAP benefit reserves required for the liability assumed under the Novated
Reinsurance Agreements, as determined by the Company.
"Insolvency of the Retrocessionaire" means the institution of any
proceeding for the reorganization or rehabilitation (save for a solvent
reorganization or rehabilitation), administration, dissolution, liquidation,
bankruptcy, granting of a moratorium of payment, receivership, assignment for
the benefit of creditors or suspension of payment of the Retrocessionaire, and
any equivalent or analogous procedure under the law of any jurisdiction,
including, without limitation, an administrative suspension by an insurance
regulatory authority.
"Interest Credit Amount" means, for any calendar month, an amount
equal to one-twelfth of the Crediting Rate for such month times the simple
average of the Mod-Co Account Balances on the first and last days of such month,
with such balances calculated in each case after giving effect to all other
notional transactions in the Mod-Co Account on such day.
"Master Agreement" means the Master Agreement dated as of December
31, 2002 among the Company, the Retrocessionaire, and Viva Reassurance, Ltd., to
which this Agreement is an exhibit.
"Mod-Co Account" is the notional account established pursuant to
Article 16.
"Mod-Co Account Balance" means, as of any date, the notional balance
of the Mod-Co Account on such date.
"Mod-Co Required Amount" means, at any time, an amount equal to one
hundred-four percent (104%) of the Gross GAAP Benefit Required Amount at such
time.
"Novated Reinsurance Agreements" means those agreements listed on
Schedule A hereto.
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"Original Reinsurance Agreements" means those agreements between the
Retrocessionaire and the respective Cedents that were novated as of the
Effective Date and have become the Novated Reinsurance Agreements.
"Permitted Assets" means cash or any assets permitted by Regulation
114 of the New York Insurance Department.
"Quota Share Percentage" means 50%.
"Reinsurance Loss" means all of the Company's liability of any
nature whatever under or relating to any of the Novated Reinsurance Agreements,
including, without limitation, liability for payments made by the Cedents
thereunder, claims, risks, damages, penalties, allocated loss adjustment
expenses, unallocated loss adjustment expenses, prejudgment interest, statutory
penalties, ex gratia payments, loss in excess of policy limits, extra
contractual obligations, tax liabilities (other than the Company's own income
tax) including, without limitation, federal excise taxes and proxy DAC tax
reimbursements, brokerage commission payments and payments or expenses incurred
by the Company due to the insolvency of any Cedent.
"Retrocessionaire" means Annuity and Life Reinsurance, Ltd.
"Retrocessional Default Event" means any of the following: (i) the
failure of the Retrocessionaire to make a payment required by Article 7.A or
Article 16.E, (ii) the Insolvency of the Retrocessionaire; (iii) the downgrading
of the Standard & Poor's rating of the Retrocessionaire to below BB or the
withdrawal of such rating; (iv) the public announcement by the Retrocessionaire
(including without limitation a notification to a regulatory or rating agency,
even if not otherwise public), or the Company's reasonable determination
notwithstanding the lack of such public announcement, that the Retrocessionaire
has entered runoff and will no longer write new business; (v) the
Retrocessionaire's GAAP net worth falls below US$100,000,000; or (vi) any
default by the Retrocessionaire under Sections 6.2(b), 6.3, 6.4, or Article 12
of the Master Agreement.
"Statutory Reserve Expense Payment" means, for any calendar month,
the product of (x) an amount equal to the Total Statutory Reserves as of the
last calendar day of such month, times (y) one-twelfth of the sum of (i) the
Company's Cost of Collateral for such month plus (ii) fifteen (15) basis points.
Statutory Reserve Expense Payments are not Reinsurance Loss.
"Termination Date" means the date this Agreement terminates, as
determined pursuant to Article 19.
"Total Statutory Reserves" means, at any time, an amount equal to
the Quota Share Percentage of the aggregate of all statutory reserves required
for the liability assumed under the Novated Reinsurance Agreements.
"Value," with respect to any asset in the Basket of Assets at any
time, means the lesser of the book value of such asset at such time and the
market value of such asset at such time, as determined by the Company in its
reasonable judgment. "Value," with respect to the Basket of Assets as a whole at
any time, means the sum, over all of the assets comprised by the Basket of
Assets at such time, including the Cash Component, of the Values of such assets
at such time.
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ARTICLE 3
TERM, TERRITORY, AND CANCELLATION
The liability of the Retrocessionaire shall commence obligatorily
and simultaneously with that of the Company under the Novated Reinsurance
Agreements in respect of all Reinsurance Loss wheresoever occurring. For the
avoidance of doubt, Reinsurance Loss includes, without limitation, amounts due
under any Novated Reinsurance Agreement at the Effective Date by reason of not
having been paid under the corresponding Original Reinsurance Agreement and
further includes amounts becoming due under the Novated Reinsurance Agreements
after the Effective Date but arising out of liabilities or events prior to the
Effective Date.
Except as provided in Article 14 and Article 19, the coverage period
of this Agreement is the same as the longest coverage period of any of the
Novated Reinsurance Agreements and this Agreement is continuous and
non-cancelable and shall not expire until the last policy under the Novated
Reinsurance Agreements has been recaptured or has otherwise expired, but this
Agreement may nevertheless terminate as provided in Article 19.
ARTICLE 4
NO RETENTION, NO LIMIT OF LIABILITY
HEREUNDER
A. NO RETENTION
The Company shall have no retention under this Agreement, and the
Retrocessionaire's coverage hereunder shall attach at the first dollar of
Reinsurance Loss incurred by the Company.
B. NO LIMIT OF LIABILITY
The Retrocessionaire's liability hereunder as respects Reinsurance
Loss shall not be subject to any limit of liability.
ARTICLE 5
RETROCESSIONAL PREMIUM
AND CEDING COMMISSION
A. INITIAL RETROCESSIONAL PREMIUM
At and as of the Effective Date, the Company shall cede to the
Retrocessionaire an initial retrocessional premium equal to the Gross GAAP
Benefit Required Amount at such date, which amount is estimated to be
$50,600,000 and is subject to a one-time true-up as provided in the Master
Agreement. The Company shall not pay such retrocessional premium to the
Retrocessionaire in cash but shall retain such amount as funds withheld pursuant
to Article 16 hereof.
B. ONGOING RETROCESSIONAL PREMIUM
From and after the Effective Date, the Company shall retrocede to
the Retrocessionaire the Quota Share Percentage of the premiums received on the
Novated Reinsurance Agree-
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ments, it being understood that the Retrocessionaire bears the credit risk
of the Company's being able to collect premiums from the Ceding Companies and
that premium retrocession shall not take place until the Company actually
receives (whether in cash or by offset or by account credit) the corresponding
reinsurance premium. The Company shall not pay such retrocessional premium to
the Retrocessionaire in cash but shall retain all such amounts as funds withheld
pursuant to Article 16 hereof.
C. CEDING COMMISSION
(1) On or before the Effective Date, the Retrocessionaire shall
pay to the Company an initial ceding commission equal to
US$26,120,000. This amount shall be deemed fully earned as of
the Effective Date, and no part thereof shall ever be returned
to the Retrocessionaire.
(2) The Retrocessionaire shall further allow to the Company, as
additional ceding commission hereunder, (a) the monthly
Statutory Reserve Expense Payments and (b) the Quota Share
Percentage of the allowances the Company must allow its Ceding
Companies in respect of the business retroceded hereunder. The
monthly Statutory Reserve Expense Payments shall be deemed
fully earned at each month's end, and the amounts set forth in
clause (b) shall be earned by the Company vis-a-vis the
Retrocessionaire at the same time such amounts are earned by
the Cedent(s) vis-a-vis the Company.
D. INDEMNITY AGAINST FEDERAL EXCISE TAX LIABILITY
If and to the extent that the Company incurs Federal Excise Tax
liability on account of an assertion by the Internal Revenue Service that the
retrocession pursuant this Agreement gives rise to such liability, the
Retrocessionaire shall indemnify the Company against such Federal Excise Tax
liability. The Company's decision as to whether and to what extent to contest
such an assertion by the Internal Revenue Service shall be final and binding
upon the Retrocessionaire.
ARTICLE 6
CLAIMS CONTROL AND LOSS SETTLEMENTS;
ADMINISTRATION; RETROCESSIONAIRE'S
ABSOLUTE OBLIGATION TO FOLLOW THE
COMPANY'S FORTUNES AND SETTLEMENTS
A. FOLLOW FORTUNES/SETTLEMENTS
The Company and/or its agents or authorized representatives shall
have sole control of, and shall exercise full discretion with respect to, all
actions taken or not taken in respect of claims settlements under any of the
Novated Reinsurance Agreements and all interpretations and waivers with respect
thereto. Such settlements, interpretations, and waivers, and other actions,
including payments on account whether under the strict conditions of such
Novated Reinsurance Agreement, by compromise, or otherwise, including asserted
ex gratia payments, loss in excess of policy limits, and extra contractual
obligations, shall be absolutely and unconditionally binding upon the
Retrocessionaire, the intent being that the Retrocessionaire shall, in every
case, absolutely and unconditionally follow the fortunes and settlements of the
Company in respect of the risks reinsured hereunder. The parties expressly
contract out of, and reject, any rule of law that
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would otherwise permit the Retrocessionaire to challenge or question the
Company's coverage, payment, or other claim adjustment or settlement
determinations (including compromises in respect thereof and asserted ex gratis
payments, loss in excess of policy limits and extra contractual obligations)
absent intentional fraud by the Company in making such adjustments or
determinations:
B. ADMINISTRATION
The Retrocessionaire shall, at the request of the Company and
without the payment of additional consideration, perform such functions as
respects the administration of this Agreement as the Company may request or as
may be embodied in the Administration Agreement as in effect from time to time,
including without limitation administration of claims and the furnishing to the
Company, or to the Retrocessionaire on behalf of the Company, such periodic
and/or ad hoc reports as may be set forth in the Administration Agreement or as
the Company may reasonably require. To the extent the Company withdraws from the
Retrocessionaire the obligation to provide such reports, the parties shall
establish a protocol for such reporting as may be reasonably required to
implement and administer this Agreement on an ongoing basis. References to the
"Company" performing various functions or taking various actions in this
Agreement shall include functions performed and actions taken hereunder by the
Retrocessionaire at the request of the Company.
C. RETROCESSIONAIRE'S OPTION NOT TO PARTICIPATE IN CONTEST
(1) Notwithstanding Article VI.A above, if the Company determines
to deny in whole or in part any claim, or determines to
participate in a Cedent's contest of a claim, the Company
shall provide the Retrocessionaire with such notice of such
determination as is reasonable in the circumstances, and
Retrocessionaire may, at its sole option, pay under this
Agreement the full amount of such claim that would due
hereunder as if the Company were not so denying the claim.
Upon making such payment, the Retrocessionaire shall not be
liable for any other amounts that may become due as respects
such claim, including, without limitation, penalties or extra
contractual obligations.
(2) The Company shall not be obligated to provide the
Retrocessionaire with the notice set forth in paragraph (1)
above with respect to claims handled by the Retrocessionaire
under the Administration Agreement.
(3) The sole remedy of the Retrocessionaire for a failure by the
Company to provide notice pursuant to this Article VI.C is
relief from the obligation to reimburse the Company for
extra-contractual or similar liabilities, to the extent that
the Retrocessionaire sustains the burden of proving that it
would have exercised the option set forth in paragraph (1)
above had it received timely notice. In no event and under no
circumstances shall the Retrocessionaire be relieved of its
obligation to reimburse the Company for contractual benefits
by reason of any lack of notice hereunder.
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ARTICLE 7
REMITTANCES
A. MECHANICS OF PAYMENT; RETROCESSIONAIRE MUST PLACE THE COMPANY IN FUNDS IN
CERTAIN CIRCUMSTANCES
Whenever a payment by the Company to a Cedent is due and
(1) such payment would cause the Mod-Co Account Balance to fall
below the Mod-Co Required Amount, or
(2) the Mod-Co Account Balance is already below the Mod-Co
Required Amount, or
(3) a Retrocessional Default Event is then pending,
then the Company may notify the Retrocessionaire of the amount of such payment
and the date on which it is scheduled to be made ("Due Date"), and the
Retrocessionaire shall pay to the Company, in cash or Permitted Assets and
without offset, the Quota Share Percentage of such amount not later than two (2)
business days prior to the Due Date, provided, however, that if the Company does
not so notify the Retrocessionaire within ten (10) business days of a Due Date,
the Company may at any time thereafter provide such notice to the
Retrocessionaire and the Retrocessionaire shall make the required payment within
eight (8) business days after the date of such notice. Failure by the Company to
provide such notice shall not relieve the Retrocessionaire of any liability
hereunder.
Except to the extent set forth in the preceding paragraph, cash
settlement by the Retrocessionaire to the Company is governed by Article 16
hereof.
B. WAIVER OF CERTAIN DEFENSES
In addition to the absolute and unconditional obligation to "Pay
First/Litigate Later" set forth in Article 7.E hereof, the Retrocessionaire
hereby waives all defenses to payment based upon a failure, delay, lack of
timeliness, promptness or diligence by the Company in exercising any right
hereunder, and the Retrocessionaire agrees that any partial exercise of any
right by the Company shall not preclude any other or further exercise of such
right and the Retrocessionaire further agrees that the waiver of, or failure to
exercise, any right by the Company shall not constitute a waiver of, or failure
to exercise, any other right by the Company.
C. INTEREST RATE ON LATE PAYMENTS
Any payment hereunder that is not made when due shall bear interest
at the annual rate of 400 basis points over the prime rate as listed from time
to time in the Wall Street Journal.
▇. ▇▇▇▇▇-UP IN CERTAIN CIRCUMSTANCES
All sums payable by the Retrocessionaire hereunder shall be made in
freely transferable, cleared, and immediately available funds without any
set-off, deduction or withholding unless such set-off, deduction or withholding
is required by an applicable law, judicial or administrative decision, or
practice of any relevant governmental authority, or by any combination thereof.
If the Retrocessionaire is so required to set-off, deduct or withhold, then the
Retrocessionaire shall pay to the Company, in addition to the payment which the
Company is otherwise entitled, such additional amount as is necessary to ensure
that the net amount actually received by the Company (free and clear of any
set-off, deduction or withholding) will equal the full amount
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which the Company would have received had no such set-off, deduction or
withholding been required.
E. PAY FIRST/LITIGATE LATER
Notwithstanding any asserted defense to liability or any actual or
perceived defects of form or substance, whether in the provision of any notice,
in the presentation of a claim, or otherwise, the Retrocessionaire is absolutely
and unconditionally obligated to pay amounts due to the Company under Article
7.A above or Article 16.E below no later than the date set forth in the
applicable Article. The Retrocessionaire agrees that its obligation to pay as
set forth in the preceding sentence is subject to no conditions precedent or
subsequent (except as provided in the last sentence of this Article 7.E). This
timely payment obligation is not subject to arbitration, is agreed to be
specifically enforceable, and the Company shall be entitled to its full costs,
including attorneys' fees, in any proceeding to enforce it. If the
Retrocessionaire disputes the existence or amount of any asserted liability
hereunder, it must pay first and thereafter initiate proceedings pursuant to
Article 13 to recover the amount allegedly overpaid.
ARTICLE 8
SALVAGE, SUBROGATION, AND
OTHER RECOVERIES
A. IN GENERAL
The Retrocessionaire shall be credited with its share of all
subrogations and other recoveries (collectively, "Recovery" or "Recoveries")
received by the Company on account of the Novated Reinsurance Agreements, such
Recoveries to be effected by crediting the Mod-Co Account with the amount of the
Recovery.
Any such crediting to the Mod-Co Account shall be made by the
Company within ten (10) days of the Company's receipt of any Recovery. The
control and administration of claims and pursuit of rights of Recoveries and
remedies, whether by subrogation or otherwise, under or with respect to the
Novated Reinsurance Agreements shall be the responsibility and right of the
Company, and the Retrocessionaire shall absolutely and unconditionally abide by
the settlements of losses, incurrence of extra contractual loss, and pursuit of
such recoveries or remedies by the Company.
B. OTHER REINSURANCE
The Company is hereby granted permission to purchase other
reinsurance for the portion, if any, of its liability on the Novated Reinsurance
Agreements that is not retroceded hereunder. All such other reinsurance shall be
solely for the benefit of the Company and shall be wholly ignored when
calculating the Company's Reinsurance Loss.
C. OFFSETS
The Retrocessionaire and the Company agree that the Company may, at
its option, offset any amounts due to the Company under this Agreement against
any sums due from the Company to the Retrocessionaire under this Agreement or
any other agreement. The Retrocessionaire and the Company further agree that,
except as provided in the next sentence, the Retrocessionaire may not offset any
amounts due by the Retrocessionaire under this Agreement, and must pay such
amounts as provided in Articles 7 and 16. Notwithstanding the foregoing, in the
event of an insolvency of the Company (on substantially the same terms as the
Insolvency of the
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Retrocessionaire), the Retrocessionaire may, at its option, offset any sums due
to the Retrocessionaire under this Agreement against any sums due from the
Retrocessionaire to the Company under this Agreement or any other agreement.
ARTICLE 9
AMENDMENTS AND ALTERATIONS
The Company has the right, with the consent of the Retrocessionaire,
which consent shall not be unreasonably withheld or delayed, to amend terms of
the Novated Reinsurance Agreements, and the Retrocessionaire shall be absolutely
and unconditionally bound by the consequences thereof. No change in the terms
and conditions of the Novated Reinsurance Agreements shall discharge the
Retrocessionaire hereunder. If the Retrocessionaire declines to consent to an
amendment for any reason, then the Company may, at its option and in lieu of
asserting that the refusal to consent was unreasonable, recapture the Novated
Reinsurance Agreement as to which the amendment was proposed, which recapture
shall be treated as a partial recapture pursuant to Article 19.D.
ARTICLE 10
ERRORS AND OMISSIONS
No omission or error by the Company shall relieve the
Retrocessionaire of any liability hereunder.
ARTICLE 11
NO RESCISSION OR OTHER RIGHTS
IN RESPECT OF FORMATION OR
PERFORMANCE OF THIS AGREEMENT;
WAIVER OF DOCTRINE OF UTMOST
GOOD FAITH
Subject only to the following sentence, the Retrocessionaire
absolutely and unconditionally waives any and all rights (whether for
affirmative recovery or otherwise) or defenses it may have arising out of or
otherwise in connection with the formation of this Agreement, including without
limitation any rights of rescission and any related defenses. This waiver is in-
tended to be the broadest permitted by law and expressly includes waiver of the
Retrocessionaire's defense of intentional fraud by or on behalf of the Company,
but the Retrocessionaire retains the right to seek damages recovery on account
of any alleged intentional fraud. For the avoidance of doubt, and further in
support of the foregoing: the Retrocessionaire acknowledges that (i) it was the
reinsurer under the Original Reinsurance Agreements and is fully familiar with
the Original Reinsurance Agreements having entered into and performed them prior
to the execution of the Novated Reinsurance Agreements, (ii) it participated in
the negotiation of the Novated Reinsurance Agreements, (iii) it has reviewed
this Agreement and the Novated Reinsurance Agreements and has had, and has
availed itself of, the opportunity to review such records and documentation, and
to obtain such information, as it wished covering this Agreement and the Novated
Reinsurance Agreements, (iv) it is understood and agreed that the
Retrocessionaire has not relied on any statement by or on behalf of the Company
in the formation of this Agreement,
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and the Retrocessionaire further acknowledges that there is not and could not be
information in the possession of the Company that would have caused the
Retrocessionaire not to enter into this Agreement. Further, the Retrocessionaire
absolutely and irrevocably waives resort to the doctrine of "utmost good faith"
or any similar doctrine in connection with the formation or performance of this
Agreement.
ARTICLE 12
GOVERNING LAW
This Agreement shall be interpreted and governed by the laws of the
State of New York applicable to contracts made and wholly to be performed in
such state, except that to the extent a claim arises out of or relates to
reinsurance of punitive or other exemplary damages, the recoverability of such
claim shall be governed by the law of the jurisdiction whose law would govern
under New York choice of law rules applied without regard to this clause and
without regard to the public policy issues related to recoverability of
indemnity for such punitive or exemplary damages.
ARTICLE 13
ARBITRATION
Any dispute, controversy, or claim arising out of or relating to
this Agreement or to the breach, termination, or asserted invalidity thereof,
shall be fully and finally determined in a binding arbitration to be conducted
in ▇▇▇▇▇▇▇▇, Bermuda, or such other place as all parties to the arbitration may
unanimously agree. The arbitration shall be administered by the American
Arbitration Association ("AAA") and shall be conducted under the Commercial
Arbitration Rules and other procedures thereof. There shall be no
party-appointed arbitrators; the panel shall consist of three disinterested
active or retired officers of United States life insurance or life reinsurance
companies with at least 20 years' experience in such field, each of whom shall
be appointed by the AAA, provided, however, that each party shall have the right
to exercise two peremptory challenges of the arbitrators so appointed, in which
event the AAA shall appoint a replacement arbitrator for each arbitrator so
challenged.
The parties shall initially split equally the cost of bringing panel
members to Bermuda for hearing and deliberations. The panel may prescribe
reasonable rules and regulations governing the course and conduct of the
arbitration proceeding, including without limitation discovery by the parties.
Any order as to the costs of the arbitration shall be in the sole discretion of
the Board, who may direct to whom and by whom and in what manner they shall be
paid.
ARTICLE 14
NON-SEVERABILITY
The Retrocessionaire agrees that this Agreement has been entered
into by the Company on the basis that it applies to all of the Novated
Reinsurance Agreements and that the Company would not have entered into the
Novated Reinsurance Agreements or this Agreement if this Agreement were to cover
less than all the Novated Reinsurance Agreements, and the parties agree that,
subject to the next sentence, if this Agreement becomes applicable to less than
all of the Novated Reinsurance Agreements, then the Company in its sole
discretion may terminate this
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Agreement pursuant to Article 19. The provisions of the preceding sentence do
not apply where this Agreement applies to less than all the Novated Reinsurance
Agreements solely because a Novated Reinsurance Agreement is terminated,
recaptured, or declared void.
ARTICLE 15
NO WAIVER
No consent or waiver, express or implied, by any party to or of any
breach or default by any other party in the performance of its obligations
hereunder shall be construed to be a consent or waiver to or of any other breach
or default in the performance of obligations by such other party hereunder.
Failure by any party to complain of any act or failure to act of any other party
or to declare any other party in default or breach, irrespective of the duration
of such default or breach, shall not constitute a waiver by such party of its
rights hereunder.
ARTICLE 16
ESTABLISHMENT AND MAINTENANCE OF
THE MOD-CO ACCOUNT AND THE
BASKET OF ASSETS
A. ESTABLISHMENT OF THE MOD-CO ACCOUNT AND THE BASKET OF ASSETS
As of the Effective Date, the Company shall establish:
(1) A notional account in its records (the "Mod-Co Account"),
which shall have no assets, and shall be used solely for
purpose of calculation of the funds withheld by the Company
under this Agreement, as hereinafter provided. At all times
and for all purposes under this Agreement, the balance of
funds withheld shall be deemed to be equal to the Mod-Co
Account Balance.
(2) A register in its records listing the Permitted Assets
constituting the Basket of Assets. Upon creation of the Basket
of Assets as of the Effective Date, the Company shall set the
Cash Component so that the Value of the Basket of Assets
equals the Mod-Co Account Balance as of such date and giving
effect to the transactions contemplated by this Agreement to
take place on such date.
B. ADDITIONS TO AND SUBTRACTIONS FROM THE MOD-CO ACCOUNT
(1) Immediately prior to the Effective Date, the Mod-Co Account
Balance shall equal zero.
(2) The following amounts shall be added to the Mod-Co Account
Balance as of the dates indicated:
(a) the initial retrocessional premium set forth in Article
5.A, as of the Effective Date;
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(b) the amount, if any, relating to the Novated Reinsurance
Agreements that is deposited by the Retrocessionaire
with the Company pursuant to the one-time true-up
referred to in Article 5.A, as of the date of such
deposit;
(c) the Quota Share Percentage of all amounts (net of all
allowances or expenses reimbursement in favor of the
Cedents) received by the Company from Cedents under the
Novated Reinsurance Agreements, as of the date of
receipt;
(d) the Interest Credit Amount for each calendar month, as
of the last day of such month;
(e) the amount of each payment by the Retrocessionaire on
account of a Basket of Assets Deficit (as provided in
Article 16.E), as of the date of such payment;
(f) the amount of each payment by the Retrocessionaire
pursuant to Article 7.A, as of the date of such payment;
and
(g) the amount of each Recovery credit (as provided in
Article 8), as of the date of such credit.
(3) The following amounts shall be subtracted from the Mod-Co
Account Balance as of the dates indicated:
(a) the Quota Share Percentage of the amount of all
Reinsurance Loss paid by the Company, as of the date of
such payment;
(b) the amount of the Statutory Reserve Expense Payment for
each calendar month, as of the last day of such month;
and
(c) the amount of any payment to the Retrocessionaire
pursuant to Article 16.E below, as of the date of such
payment.
(4) At such time, and from time to time, as the Company determines
the Value of the Basket of Assets, the Mod-Co Account Balance
shall be set equal to such Value.
C. ADJUSTMENTS TO THE BASKET OF ASSETS
(1) At any time and from time to time, the Company in its sole
discretion may remove assets from or add assets to the Basket
of Assets. Substitutions of assets shall be treated as
combined removals and additions of the affected assets.
(a) When an asset is removed from the Basket of Assets, the
Cash Component shall be increased by the Value of the
asset so removed.
(b) When an asset is added to the Basket of Assets, the Cash
Component shall be decreased by the Value of the asset
so added.
(c) A sale of an asset in the Basket of Assets shall be
treated as a removal of such asset, and the Cash
Component shall be adjusted as set forth in subparagraph
(a) above, without reference to the actual proceeds of
the sale.
Page 13
(d) Any earnings on the assets in the Basket of Assets shall
not be included in the Value thereof, shall not affect
the Cash Component, and shall be deemed to have been
distributed to the Company as and when earned.
(2) At any time after the Effective Date that the Mod-Co Account
Balance is increased or decreased as set forth in Article 16.B
above, other than pursuant to paragraph (4) thereof, the Cash
Component shall be increased or decreased in the same amount.
D. CONTINUING CALCULATIONS AS RESPECTS THE MOD-CO ACCOUNT AND BASKET OF
ASSETS
As of the Effective Date and as of the end of each calendar quarter,
or more frequently if the Company determines to do so, the Company shall
calculate the Value of the Basket of Assets. At such time, the (i) Value of the
Basket of Assets shall be compared to (ii) the current Mod-Co Required Amount,
using the Gross GAAP Benefit Required Amount at such time. If (ii) is greater
than (i), the difference is the "Basket of Assets Deficit."
E. PAYMENTS AS RESPECTS CALCULATIONS
If the calculation pursuant to Article 16.D results in a Basket of
Assets Deficit, then within ten (10) days of the Company's sending of notice
thereof, the Retrocessionaire shall pay to the Company in cash or Permitted
Assets and without offset the amount of the Basket of Assets Deficit. If such
calculation results in a Value of the Basket of Assets that is greater than one
hundred ten percent (110%) of the current Gross GAAP Benefit Required Amount
(the amount excess of 110% is the "Excess Amount"), then the Company shall
notify the Retrocessionaire promptly of the Excess Amount, and, if the
Retrocessionaire so requests, unless the Excess Amount in the meantime has been
reduced to zero (or is negative), or the Company reasonably believes that
payment will cause the Value of the Basket of Assets to be less than the current
Mod-Co Required Amount, the Company shall pay to the Retrocessionaire the Excess
Amount (or the present remaining portion thereof) within ten (10) days of
receipt of such request.
From the Effective Date to and including June 30, 2003, the Company
intends (but is not obligated) to waive payment of the Basket of Assets Deficit
by the Retrocessionaire (but not to the extent that such deficit is caused by
the Mod-Co Account Balance being less than the 100% of the Gross GAAP Benefit
Required Amount) in order to permit the Mod-Co Account Balance to grow to the
Mod-Co Required Amount by natural accretion.
ARTICLE 17
NOTICE
Notices under this Agreement if made by facsimile or electronic mail
and are effective when sent and if made by mail or hand delivery, are effective
when received. Notice shall be sent to the following addresses.
Page 14
If to the Company:
c/o XL Capital Ltd
One Bermudiana Road
▇▇▇▇▇▇▇▇ ▇▇ JX, Bermuda
Attn: ▇▇▇▇▇ de St. Paer, ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Retrocessionaire:
Cumberland House
One Victoria Street
▇▇▇▇▇▇▇▇ ▇▇ 11, Bermuda
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇, Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
ARTICLE 18
COMPANY'S RIGHT TO COSTS OF
ENFORCEMENT
The Retrocessionaire agrees that in the event the Company is
required to incur costs, including, without limitation, reasonable attorneys
fees and expenses, in enforcing any right hereunder, that the Retrocessionaire
shall pay such costs to the Company and that the payment of such costs shall be
an obligation of, and amount due from, the Retrocessionaire under this
Agreement.
ARTICLE 19
TERMINATION
A. AUTOMATIC TERMINATIONS
This Agreement shall automatically terminate upon the Insolvency of
the Retrocessionaire, and the date of such Insolvency shall be the Termination
Date.
B. TERMINATION OF ENTIRE AGREEMENT AT COMPANY'S OPTION
(1) At its sole option, the Company may terminate this Agreement:
(a) at or after the twentieth (20th) anniversary of the
effective date of this Agreement;
(b) at any time, as and to the extent provided in Article
14; or
(c) upon a Retrocessionaire Default Event (other than the
Insolvency of the Retrocessionaire).
(2) The Company shall terminate this Agreement when, in its
reasonable judgment, it determines that it has no further
obligations under any of the Novated Reinsurance Agreements.
Page 15
(3) This Agreement shall be terminated if, through any combination
of terminations of the Novated Reinsurance Agreements,
recaptures by the Cedents thereof, or partial recaptures by
the Company pursuant to Article 19.D, there are no Novated
Reinsurance Agreements retroceded hereunder.
Termination by the Company shall be made by serving notice thereof
on the Retrocessionaire, stating the reason therefor, and the effective date of
such notice (as determined pursuant to Article 17) shall be the Termination
Date.
C. EFFECT OF TERMINATION
(1) Upon termination of this Agreement, the Company shall
calculate the Mod-Co Account Balance as of the Termination
Date, as follows:
(a) The Company shall give effect as of the Termination Date
to all amounts then due to or from any Cedent, whether
or not paid.
(b) The Termination Date shall be treated as though it were
the last calendar day of a month, with the calculations
set forth in Article l6.B(2)(c) and l6.B(3)(b) being
pro-rated for any partial actual month.
(c) The Value of the Basket of Assets shall be determined as
of the Termination Date, giving effect to the
calculations in subparagraphs (a) and (b) above, and the
Mod-Co Account Balance shall be set equal to such Value.
(2) The Company shall determine the Gross GAAP Benefit Required
Amount as of the Termination Date, giving effect to the extent
applicable to the transactions described in paragraph (l)(a)
above.
(3) The Retrocessionaire shall pay the Company the Commutation
Amount (as defined below), and this Agreement shall thereupon
be fully and finally commuted and discharged, with the Company
thereafter having no further liability hereunder to the
Retrocessionaire and the Retrocessionaire thereafter having
no further liability hereunder to the Company. Payment of the
Commutation Amount by the Retrocessionaire shall be made,
first, by the Retrocessionaire's permitting the Company to
retain the funds withheld under this Agreement (the amount
thereof, for the avoidance of doubt, being equal to the Mod-Co
Account Balance calculated pursuant to paragraph (1) above)
and, second, to the extent that the amount of such funds
withheld is less than the Commutation Amount, in cash in
immediately available funds. If the Commutation Amount is less
than the Mod-Co Account Balance, then the Company shall pay
the difference to the Retrocessionaire.
(4) The "Commutation Amount" is the Gross GAAP Benefit Required
Amount calculated pursuant to paragraph (2) above plus an
appropriate provision for losses incurred but not reported if
termination occurs pursuant to Article l9.B(l)(a) or l9.B(2)
and is otherwise one hundred seven and one-half percent
(107 1/2%) of such Gross GAAP Benefit Required Amount.
Page 16
D. RECAPTURE OF LESS THAN ALL NOVATED REINSURANCE AGREEMENTS
In the event of a Retrocessionaire Default Event, the Company may,
at any time and at its option, recapture less than all of the Novated
Reinsurance Agreements ("Partial Recapture") and terminate this Agreement as to
the agreements so recaptured. (Alternatively, in the event of a Retrocessionaire
Default Event the Company may, at any time at its option, terminate this
Agreement in its entirety pursuant to Article l9.B(l)(c).) In the event of a
Partial Recapture, this Agreement shall be terminated and commuted as to the
recaptured Novated Reinsurance Agreements as set forth in Article 19.C above,
with the termination being treated as having taken place pursuant to Article
l9.B(l)(a) and the Mod-Co Account and the Basket of Assets being allocated to
recaptured and non-recaptured agreements pro rata to the Gross GAAP Benefit
Required Amount. This Agreement shall not terminate, but shall continue, as
respects the Novated Reinsurance Agreements that are not recaptured. A Partial
Recapture shall not result in the return to the Retrocessionaire of any
portion of the Ceding Commission.
ARTICLE 20
GRANT BY RETROCESSIONAIRE
OF A SECURITY INTEREST
The Retrocessionaire hereby pledges as security to the Company, and
grants a lien to the Company on, all of the Retrocessionaire's rights and
interests in, or with respect to, the Original Reinsurance Agreements and the
Novated Reinsurance Agreements, including, without limitation, any payments owed
to or received by the Retrocessionaire thereunder, to secure all its obligations
to the Company under this Agreement, including, without limitation, the
Retrocessionaire's obligations pursuant to Article 16.E. The Retrocessionaire
covenants to execute such other and further documentation as may be necessary to
give the Company a first, prior, perfected charge on such rights under Bermuda
law and corresponding security interests under the law of such other
jurisdictions as the Company may reasonably require.
ARTICLE 21
INSOLVENCY
In the event of the insolvency of the Company, this reinsurance
shall be payable directly to the Company, or to its liquidator, receiver,
conservator or statutory successor immediately upon demand on the basis of the
liability of the Company without diminution because of the insolvency of the
Company or because the liquidator, receiver, conservator or statutory successor
of the Company has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor of
the Company shall give written notice to the Retrocessionaire of the pendency of
a claim against the Company which would involve a possible liability on the part
of the reinsurers, indicating the policy reinsured, within a reasonable time
after such claim is filed in the conservation or liquidation proceeding or in
the receivership. It is further agreed that during the pendency of such claim
the Retrocessionaire may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defense or
defenses that they may deem available to the Company or its liquidator,
receiver, conservator, or statutory successor. The expense thus incurred by the
Retrocessionaire shall be chargeable, subject to the approval of the Court,
against the Company as part of the ex-
Page 17
pense of conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to the Company solely as a result of the defense
undertaken by the Retrocessionaire.
Where the Retrocessionaire and any other reinsurer of the Company
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 Agreement as though such expense had been incurred by the Company.
ARTICLE 22
ASSIGNMENT
The Retrocessionaire may not assign this Agreement without the
written consent of the Company, which consent may be given or withheld in the
sole discretion of the Company.
The Company may not assign this Agreement to an unrelated third
party without the written consent of the Retrocessionaire, which consent will
not be unreasonably withheld or delayed, but the Company may without such
consent assign this Agreement to any affiliate of XL Capital Ltd to which it
assigns the Novated Reinsurance Agreements.
ARTICLE 23
ENTIRE AGREEMENT
This Agreement represents the entire agreement and understanding
among the parties hereto with respect to the terms and conditions of the
retrocessional arrangement specified in the Master Agreement and shall supersede
all other oral or written agreements or disclosures between the parties hereto
relating to such arrangement, including (except as set forth herein by express
cross reference to the Master Agreement) without limitation the terms of the
Master Agreement itself relating to retrocessional arrangement specified
therein.
[THE REMAINDER OF THIS PAGE IS DELIBERATELY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed in duplicate by their duly authorized representatives.
XL LIFE LTD.
Signed in Hamilton, Bermuda,
this 31st day of December, 2002 By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Secretary
Reference:
ANNUITY AND LIFE REASSURANCE, LTD.
And signed in Hamilton, Bermuda,
this 31st day of December, 2002 By: /s/ R ▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Title: SVP & Chief Underwriter
Reference:
SCHEDULE A
LIST OF NOVATED REINSURANCE AGREEMENTS
- ZURICH ▇▇▇▇▇▇ YRT INFORCE TREATY
Reinsurance Agreement effective October 1, 2000, between Federal ▇▇▇▇▇▇
Life Assurance Company and ALRe.
- ZURICH ▇▇▇▇▇▇ TERM COINSURANCE TREATIES
Term Life Coinsurance Agreement effective April 1, 2000, and all
subsequent amendments, between Zurich Life Insurance Company of America
and ALRe.
Term Life Coinsurance Agreement effective April 1, 2000, and all
subsequent amendments, between Federal ▇▇▇▇▇▇ Life Assurance Company and
ALRe.
Term Life Coinsurance Agreement effective October 31, 2000, and all
subsequent amendments, between Fidelity Life Association and ALRe.
- PROTECTIVE TERM YRT TREATIES
Yearly Renewable Term Reinsurance Agreement effective January 1, 2000, and
all subsequent amendments, between Protective Life Insurance Company and
ALRe, covering level term policies directly written by Protective Life
Insurance Company.
Yearly Renewable Term Reinsurance Agreement effective January 1, 2000, and
all subsequent amendments, between Protective Life Insurance Company and
ALRe, covering level term policies directly written by Mennonite Mutual
Aid Association and 100% coinsured by Protective Life Insurance Company.
- EMPIRE GENERAL TERM YRT TREATIES
Yearly Renewable Term Reinsurance Agreement effective January 1, 2000, and
all subsequent amendments, between Empire General Life Assurance Company
and ALRe, covering level term policies.
Yearly Renewable Term Reinsurance Agreement effective October 1, 2000, and
all subsequent amendments, between Empire General Life Assurance Company
and ALRe, covering level term policies.
- PHOENIX COINSURANCE TERM TREATIES
Automatic Coinsurance Agreement No. 3017 effective January 1, 2000, and
all subsequent amendments, between PHL Variable Insurance Company and
ALRe, covering PTC-10 policies.
Automatic Coinsurance Agreement No. 3012 effective January 1, 2000, and
all subsequent amendments, between PHL Variable Insurance Company and
ALRe, covering PTC-20 policies.
Automatic Coinsurance Agreement No. 3027 effective March 3, 2000, and all
subsequent amendments, between Phoenix Life Insurance Company, Phoenix
Life and Annuity Company, and ALRe, covering PES-10 policies.
Automatic Coinsurance Agreement No. 3031 effective March 3, 2000, and all
subsequent amendments, between Phoenix Life Insurance Company, Phoenix
Life and Annuity Company, and ALRe, covering PES-20 policies.
Automatic Coinsurance Agreement No. 3078 effective February 25, 2002, and
all subsequent amendments, between Phoenix Life Insurance Company, PHL
Variable Insurance Company, and ALRe, covering PTC-20 policies.
Automatic Coinsurance Agreement No. 3073 effective February 25, 2002, and
all subsequent amendments, between Phoenix Life Insurance Company, Phoenix
Life and Annuity Company, and ALRe, covering PES-20 policies.
Reinsurance Agreement No. 2846 effective October 1, 1998, and all
subsequent amendments, between Phoenix Life Insurance Company and ALRe.
