EXHIBIT 10.1

 

REINSURANCE AGREEMENT

 

between

 

AMERICAN HERITAGE LIFE INSURANCE COMPANY

 

and

 

ALLSTATE LIFE INSURANCE COMPANY

 

RECITALS

 

This Reinsurance Agreement dated July 13, 2010 (hereinafter “Agreement”) is made
and entered into by and between AMERICAN HERITAGE LIFE INSURANCE COMPANY, a life
insurance company domiciled in the State of Florida (hereinafter “Ceding
Company”) and ALLSTATE LIFE INSURANCE COMPANY, a life insurance company
domiciled in the State of Illinois (hereinafter the “Reinsurer”).

 

WHEREAS, Ceding Company and Reinsurer desire to enter this Agreement, whereby
Ceding Company will cede on a coinsurance basis 100% of any and all liabilities
of the Ceding Company arising under the Policies, except for certain excluded
liabilities.

 

NOW THEREFORE, in consideration of the above stated premises and the promises
and the mutual agreements set forth below the Ceding Company and the Reinsurer
agree as follows.

 

ARTICLE I

DEFINITIONS

 

Unless otherwise defined herein, as used in this Agreement the following terms
shall have the meanings ascribed to them below:

 

A.           “Annual Statement” shall mean the Ceding Company’s Life and
Accident and Health Companies Annual Statement for the General Account as filed
with the Florida Insurance Department.

 

B.             “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

C.             “Effective Date” shall mean the effective date of this Agreement,
which shall be 12:01am on July 1, 2010.

 

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D.            “Excluded Liabilities” shall mean all liabilities and obligations
for consequential, extra-contractual, exemplary, punitive, special or similar
damages or any other amounts due or alleged to be due (other than those arising
under the express terms and conditions of the Policies) which arise from any
real or alleged act, error or omission, whether or not intentional, in bad faith
or otherwise, including without limitation, any act, error or omission relating
to: (i) the underwriting, production, issuance, cancellation or administration
of the Policies; (ii) the handling of claims or disputes in connection with the
Policies; or (iii) the failure to pay or the delay in payment of benefits or
claims, under or in connection with the Policies.

 

E.              “Net Benefits” shall mean the actual amounts paid or incurred by
the Ceding Company with respect to the Policies.

 

F.              “Net Ceded Liabilities” shall mean any and all liabilities of
the Ceding Company arising under or related to the Policies, but shall not
include Excluded Liabilities.

 

G.             “Net Statutory Liabilities” shall have the meaning set forth in
Article V of this Agreement.

 

H.            “Policy or Policies” shall mean the policies and riders defined in
Exhibit A which are underwritten by the Ceding Company.

 

I.                 “Statutory Reserves” means the statutory reserves of the
Ceding Company with respect to the Policies determined pursuant to accounting
practices prescribed by applicable regulatory authorities and in accordance with
sound actuarial practices, as such reserves would have been included in lines 1,
2, 3, 4, and 8 of the NAIC Annual Statement Blank page 3 (2009 format)

 

ARTICLE II

BASIS OF REINSURANCE

 

The Ceding Company agrees to cede and the Reinsurer agrees to accept Net Ceded
Liabilities. The reinsurance provided hereunder shall be on a 100% coinsurance
basis.

 

ARTICLE III

LIABILITY OF REINSURER; COINSURANCE PROVISIONS

 

A.                                   All of the Net Ceded Liabilities shall be
reinsured pursuant to the terms of this Agreement as of the Effective Date.

 

B.                                     The liability of the Reinsurer with
respect to Policies in force on the Effective Date will begin on the Effective
Date.  The liability of the Reinsurer with respect to any application received
or any contract issued after the Effective Date and reinsured hereunder will

 

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begin simultaneously with that of the Ceding Company.  The Reinsurer’s liability
with respect to any Policy will terminate on the date the Ceding Company’s
liability on such contract terminates.  However, termination of this Agreement
will not terminate the Reinsurer’s liability for Net Benefits paid or incurred
by the Ceding Company on or after the Effective Date and prior to the date of
termination. If any of the Policies are reduced or terminated by payment of a
death benefit, withdrawal or surrender, the reinsurance will be reduced
proportionately or terminated.

 

C.                                     The reinsurance provided under this
Agreement is subject to the same limitations and conditions as set forth in the
Policies.

 

D.                                    Ceding Company shall not make any changes
after the Effective Date in the provisions and conditions of any Policy except
with Reinsurer’s prior written consent, including, but not limited to any
changes to comply with any applicable law, rule or regulation.  Such consent
shall not be unreasonably withheld.

 

E.                                      Some of the Policies ceded under this
Agreement provide that the Ceding Company may in its discretion, from time to
time, as provided in the policy or contract, declare interest rates, cost of
insurance rates, purchase payments or other non-guaranteed elements that are or
affect required purchase payments or are used to determine contract values.  The
Ceding Company agrees, while this Agreement is in effect, to set such
discretionary interest rates, cost of insurance rates, or other non-guaranteed
elements to be declared on the Policies and the effective dates thereof only
with Reinsurer’s prior written approval.  However, such prior approval shall not
be required so long as Ceding Company and Reinsurer remain affiliates. The
Ceding Company and Reinsurer agree to fully cooperate in obtaining any required
regulatory approvals in connection with setting or changing such discretionary
interest rates, cost of insurance rates, or other non-guaranteed elements.

 

F.                                      Ceding Company shall not make any
changes or modifications to any of the Policies, nor waive or exercise any of
its rights under any of the Policies without the prior written consent of
Reinsurer. However, such prior approval shall not be required so long as Ceding
Company and Reinsurer remain affiliates.

 

G.                                     Conversions, exchanges, or replacements
of Policies to or with policies not listed in Exhibit A are not reinsured under
this Agreement, unless agreed to in writing by Reinsurer.

 

ARTICLE IV

CLAIMS

 

A.                                   Reinsurer shall not be liable to pay Ceding
Company for any Excluded Liabilities, except to the extent such liabilities or
obligations arise directly from and are proximately caused by the gross
negligence or willful acts or omissions of Reinsurer, its agents, contractors or

 

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employees in the performance of Reinsurer’s duties and obligations under this
Agreement.

 

In the event of a change in the amount of the Ceding Company’s liability on a
Policy due to a misstatement of age or sex, the Reinsurer’s liability will be
changed proportionately.

 

ARTICLE V

RESERVE TRANSFERS

 

Within forty-five (45) days of the latter of the Effective Date or the date
Ceding Company has received approval from all necessary regulatory authorities,
(“Settlement Date”), assets consisting of policy loans (including accrued policy
loan interest), cash and investments, accrued investment income, and uncollected
or deferred premiums net of unearned investment income, shall be transferred by
Ceding Company to Reinsurer with a market value amount calculated as of the
Effective Date equal to the “Net Statutory Liabilities” for the Policies
reinsured under this Agreement plus the Interest Maintenance Reserve adjustment
for current year’s liability gains/losses impacting the positive or negative
reserve balance as a result of this transaction.  The Net Statutory Liabilities
shall equal the Statutory Reserves (net of reserves for any Third-Party
Reinsurance Agreements) plus premium deposit funds plus unearned premiums plus
unearned policy loan interest.  Ceding Company shall also pay to Reinsurer
interest on such amount at the rate of four percent (4%) per annum, simple rate,
beginning on the Effective Date and ending on the Settlement Date.

 

ARTICLE VI

SETTLEMENT AND REPORTING

 

A.                                   While this Agreement is in effect, Ceding
Company shall pay to Reinsurer no less frequently than quarterly, with respect
to the Policies, a reinsurance premium equal to (or the accounting equivalent
of) the sum of Items (a) and (b) less (c) below, where:

 

(a)                                  equals gross premiums collected by Ceding
Company during the settlement period.

 

(b)                                 equals policy loan repayments collected by
Ceding Company with respect to the Policies.

 

(c)                                  equals gross premiums refunded by Ceding
Company during the settlement period to policyholders.

 

B.                                     While this Agreement is in effect,
Reinsurer shall pay to Ceding Company no less frequently than quarterly, a
benefit and expense allowance equal to (or the accounting equivalent of) the sum
of Items (a), (b), (c), (d), and (e), as applicable for the period since the
date of Reinsurer’s last payment to Ceding Company, where:

 

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(a)                                  equals Net Benefits paid or incurred by
Ceding Company with respect to the Policies.

 

(b)                                 equals commissions and other sales
compensation paid or incurred by Ceding Company with respect to the Policies.

 

(c)                                  equals insurance taxes, licenses and fees
(including allocated taxes, licenses and fees, but excluding income taxes) paid
or incurred by Ceding Company with respect to the Policies.

 

(d)                                 equals policy loan distributions to
policyholders paid or incurred by Ceding Company with respect to the Policies.

 

(e)                                  equals general insurance expenses
(including allocated expenses) paid or incurred by Ceding Company with respect
to the Policies.

 

C.                                     Ceding Company will provide Reinsurer
with accounting reports on a time schedule determined by Reinsurer, which
schedule shall be no less frequently than quarterly within fifteen (15) days
following the end of each calendar quarter.  These reports will contain
sufficient information about the Policies to enable the Reinsurer to prepare its
quarterly and annual financial reports.

 

D.                                    Settlements as set out in Article VI,
Paragraphs A and B will occur on a time schedule determined by Reinsurer, which
schedule shall be no less frequently than quarterly within sixty (60) days
following the end of each calendar quarter.

 

ARTICLE VII

TAX MATTERS

 

With respect to this Agreement, the Ceding Company and the Reinsurer hereby make
the election as set forth in Exhibit B and as provided for in section
1.848-2(g)(8) of the Treasury Regulations.  Each of the parties hereto agrees to
take such further actions as may be necessary to ensure the effectiveness of
such election.

 

ARTICLE VIII

RESERVE CREDIT

 

The Reinsurer shall, to the extent necessary, together with all its subsequent
retrocessionaires, establish adequate net reserves, and shall agree in good
faith to take any other steps necessary, pursuant to the requirements of Florida
or any other state or jurisdiction in which the Ceding Company is licensed or
accredited, for the Ceding Company to take statutory credit for reinsurance
ceded to an unadmitted, unauthorized or unaccredited reinsurer, up to the full
amount

 

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of the reserve that the Ceding Company would have established for the Policies
if it had retained the Policies.

 

ARTICLE IX

OVERSIGHTS

 

Unintentional clerical errors, oversights, omissions or misunderstandings in the
administration of this Agreement by either the Ceding Company or the Reinsurer
shall not be deemed a breach of this Agreement provided the clerical error,
oversight, omission or misunderstanding is corrected promptly after discovery. 
Both the Ceding Company and the Reinsurer shall be restored to the positions
they would have occupied had such error, oversight, omission, or
misunderstanding not occurred.

 

ARTICLE X

INSPECTION OF RECORDS

 

Either party, their respective employees or authorized representatives, may
audit, inspect and examine, during regular business hours, at the home office of
either party, any and all books, records, statements, correspondence, reports,
trust accounts and their related documents or other documents that relate to the
Policies covered under this Agreement.  The audited party agrees to provide a
reasonable workspace for such audit, inspection or examination and to cooperate
fully and to faithfully disclose the existence of and produce any and all
necessary and reasonable materials requested by such auditors, investigators, or
examiners. The party performing a routine audit shall provide no less than five
(5) working days advance notice to the other party. The expense of the
respective party’s employee(s) or authorized representative(s) engaged in such
activities will be borne solely by such party.

 

ARTICLE XI

INSOLVENCY

 

A.                                   The portion of any risk or obligation
reinsured by the Reinsurer under this Agreement, when such portion is
ascertained, shall be payable on demand of the Ceding Company at the same time
as the Ceding Company shall pay its net retained portion of such risk or
obligation, and the reinsurance shall be payable by the Reinsurer on the basis
of the liability of the Ceding Company under the Policies without diminution
because of the insolvency of the Ceding Company.  In the event of the insolvency
of the Ceding Company and the appointment of a conservator, liquidator or
statutory successor of the Ceding Company, such portion shall be payable to such
conservator, liquidator or statutory successor immediately upon demand, on the
basis of claims allowed against the Ceding Company by any court of competent
jurisdiction or, by any conservator, liquidator or statutory successor of the
Ceding Company having authority to allow such claims,

 

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without diminution because of such insolvency or because such conservator,
liquidator or statutory successor has failed to pay all or a portion of any
claims.  Payments by the Reinsurer as above set forth shall be made directly to
the Ceding Company or its conservator, liquidator or statutory successor.

 

B.                                     Further, in the event of the insolvency
of the Ceding Company, the liquidator, receiver or statutory successor of the
insolvent Ceding Company shall give written notice to the Reinsurer of the
pendency of any obligation of the insolvent Ceding Company on any Net Ceded
Liability, whereupon the Reinsurer may investigate such claim and interpose 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 Ceding Company or its
liquidator or statutory successor.  The expense thus incurred by the Reinsurer
shall be chargeable, subject to court approval, against the insolvent Ceding
Company as part of the expenses 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 the Reinsurer.

 

C.                                     In the event of the Reinsurer’s
insolvency, any payments due the Reinsurer from the Ceding Company pursuant to
the terms of this Agreement will be made directly to the Reinsurer or its
conservator, liquidator, receiver or statutory successor.

 

ARTICLE XII

ARBITRATION

 

A.                                   Prior to initiation of arbitration, the
Reinsurer and Ceding Company agree that they will first negotiate diligently and
in good faith to agree on a mutually satisfactory resolution of any dispute. 
Provided, however that if any such dispute cannot be resolved within sixty (60)
days (or such longer period as the parties may agree) after written notice
invoking the negotiation period of this Article is delivered by either party,
the Reinsurer and the Ceding Company agree that they will submit this dispute to
arbitration as described below.

 

B.                                     The Reinsurer and the Ceding Company
intend that any and all disputes between them under or with respect to this
Agreement be resolved without resort to any litigation.  Any and all disputes or
differences between the Ceding Company and the Reinsurer arising out of this
Agreement, including, but not limited to, disputes or differences relating to
the interpretation or performance of this Agreement, its formation or validity,
or any transaction under this Agreement, whether arising before or after
termination, shall be submitted to arbitration.  Arbitration shall be the sole
method of dispute resolution, regardless of the insolvency of either party,
unless the conservator, receiver, liquidator or statutory successor is
specifically exempted from arbitration proceeding by applicable state law of the
insolvency.

 

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C.                                     Arbitration shall be initiated by the
delivery of written notice of demand for arbitration (“Arbitration Notice”) by
one party to another.  Such written notice shall contain a brief statement of
the issue(s), remedies sought, and the failure of the parties to reach amicable
agreement as provided in Paragraph A above.

 

D.                                    The arbitrators and umpire shall be
present or former disinterested officers of life reinsurance or insurance
companies other than the two parties to this Agreement or any company owned by,
or affiliated with, either party.  Each party shall appoint an individual as
arbitrator and the two so appointed shall then appoint the umpire.  If either
party refuses or neglects to appoint an arbitrator within thirty (30) days after
delivery of the Arbitration Notice, the other party may appoint the second
arbitrator.  If the two arbitrators do not agree on an umpire within thirty (30)
days of the appointment of the second appointed arbitrator, each of the two
arbitrators shall nominate three individuals.  Each arbitrator shall then
decline two of the nominations presented by the other arbitrator.  The umpire
shall be chosen from the remaining two nominations by drawing lots.

 

E.                                      The arbitration hearings shall be held
in the city in which the Reinsurer’s head office is located or any such other
place as may be mutually agreed.  Each party shall submit its case to the
arbitrators and umpire within one hundred and eighty (180) days of the selection
of the umpire or within such longer period as may be agreed.

 

F.                                      The arbitration panel shall make its
decision with regard to the custom and usage of the insurance and reinsurance
business.  The arbitration panel shall interpret this Agreement as an honorable
engagement; they are relieved of all judicial formalities and may abstain from
following strict rules of law.  The arbitration panel shall be solely
responsible for determining what evidence shall be considered and what procedure
they deem appropriate and necessary in the gathering of such facts or data to
decide the dispute.

 

G.                                     The decision in writing of the majority
of the arbitration panel shall be final and binding upon the parties.  Judgment
may be entered upon the final decision of the arbitration panel in any court
having jurisdiction.

 

H.                                    The jointly incurred costs of the
arbitration are to be borne equally by both parties.  Jointly incurred costs are
specifically defined as any costs that are not solely incurred by one of the
parties (e.g., attorneys’ fees, expert witness fees, travel to the hearing
site, etc.).  Costs incurred solely by one of the parties shall be borne by that
party.  Once the panel has been selected, the panel shall agree on one billable
rate for each of the arbitrators and umpire and that sole cost shall be
disclosed to the parties and become payable as a jointly incurred cost as
described above.

 

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ARTICLE XIII

PARTIES TO AGREEMENT

 

This Agreement is solely between the Ceding Company and the Reinsurer.    Except
as otherwise provided herein, the terms and provisions of this Agreement are
intended solely for the benefit of the parties hereto, and their respective
successors or permitted assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other person, and no such rights
shall be conferred upon any person or entity not a party to this Agreement. 
Ceding Company shall be and remain directly and solely liable to any insured,
contract owner, or beneficiary under any contract reinsured hereunder.

 

ARTICLE XIV

DURATION OF AGREEMENT AND TERMINATION

 

A.                                   Duration.  This agreement will be effective
as of the Effective Date, and will be unlimited as to its duration.

 

B.                                     Termination for New Business.  This
agreement may be terminated for new business by either party with sixty (60)
days prior written notice.

 

ARTICLE XV

GENERAL PROVISIONS

 

A.                                   Entire Agreement.  This Agreement
supercedes any and all prior discussions and understandings between the parties
and constitutes the entire Agreement between the Reinsurer and the Ceding
Company with respect to the Policies.  There are no understandings between the
parties other than as expressed in this Agreement.

 

B.                                     Notices.  Any notice or communication
given pursuant to this Agreement must be in writing and (1) delivered
personally, (2) sent by facsimile transmission, (3) delivered by overnight
express, or (4) sent by registered or certified mail, postage prepaid, to such
address or addresses each party may designate from time to time for receipt of
notices or communications.  The initial notice addresses are as follows:

 

If to the Reinsurer:

 

Allstate Life Insurance Company

 

 

3100 Sanders Rd.

 

 

Northbrook, Illinois 60062

 

 

Attn: John Pintozzi, Chief Financial Officer

 

 

Facsimile No.: (847) 326-7315

 

 

 

If to the Ceding Company:

 

American Heritage Life Insurance Company

 

 

1776 American Heritage Life Drive

 

 

Jacksonville, Florida 32224-6688

 

 

Attn:

Laura Clark, Senior Vice President

 

 

 

Finance and Distribution Support

 

 

Facsimile No.: (904) 992-2658

 

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All notices and other communications required or permitted under the terms of
this Agreement that are addressed as provided in this Article XV shall: (1) if
delivered personally or by overnight express, be deemed given upon delivery;
(2) if delivered by facsimile transmission, be deemed given when electronically
confirmed; and (3) if sent by registered or certified mail, be deemed given when
received.  Any party from time to time may change its address for notice
purposes by giving a similar notice specifying a new address, but no such notice
shall be deemed to have been given until it is actually received by the party
sought to be charged with the contents thereof.

 

C.                                     Expenses.  Except as may be otherwise
expressly provided in this Agreement, whether or not the transactions
contemplated hereby are consummated, each of the parties hereto shall pay its
own costs and expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the transactions contemplated hereby.

 

D.                                    Counterparts.  This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.

 

E.                                      Amendment.  Any modification or
modifications to this Agreement shall be null and void unless made by a written
instrument executed by both parties hereto.

 

F.                                      Assignment; Bind Effect.  Neither this
Agreement nor any of the rights, interests or obligations under this Agreement
shall be assigned, in whole or in part, by either of the parties hereto without
the prior written consent of the other party, which consent shall not be
unreasonably withheld, and any such assignment that is attempted without such
consent shall be null and void.  Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties and their respective successors and permitted assigns.

 

G.                                     Invalid Provisions.  If any provision of
this Agreement is held to be illegal, invalid, or unenforceable under any
present or future law, and if the rights or obligations of the parties hereto
under this Agreement will not be materially and adversely affected thereby,
(1) such provision shall be fully severable; (2) this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part hereof; and (3) the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance herefrom.

 

H.                                    Waiver.  Any term or condition of this
Agreement may be waived in writing at any time by the party that is entitled to
the benefit thereof.  A waiver on one occasion shall not be deemed to be a
waiver of the same or any other breach or nonfulfillment on a future occasion. 
All remedies, either under the terms of this Agreement, or by law or otherwise

 

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afforded, shall be cumulative and not alternative, except as otherwise provided
by law.

 

I.                                         Headings, etc.  The headings used in
this Agreement have been inserted for convenience and do not constitute matter
to be construed or interpreted in connection with this Agreement.  Unless the
context of this Agreement otherwise requires, (1) words using the singular or
plural number also include the plural or singular number, respectively; (2) the
terms “hereof,” “herein,” “hereby,” “hereto,” “hereunder,” and derivative or
similar words refer to this entire Agreement (including the exhibits hereto);
(3) the term “Article” refers to the specified Article of this Agreement;
(d) the term “Exhibit” refers to the specified Exhibit attached to this
Agreement; and (e) the term “party” means, on the one hand, the Ceding Company,
and on the other hand, the Reinsurer.

 

J.                                        Offset.  Any debits or credits
incurred after the Effective Date in favor of or against either the Ceding
Company or the Reinsurer with respect to this Agreement are deemed mutual debits
or credits, as the case may be, and shall be set off against each other dollar
for dollar.

 

K.                                    Compliance with Laws.  The parties hereto
shall at all times comply with all applicable laws in performing their
obligations under this Agreement.

 

L.                                      Survival. All provisions of this
Agreement shall survive its termination to the extent necessary to carry out the
purposes of this Agreement or to ascertain and enforce the parties’ rights or
obligations hereunder existing at the time of termination.

 

M.                                 Calendar Days.  Unless otherwise specified,
all references to “day” in this Agreement shall mean calendar days.

 

N.                                    Governing Law.  This Agreement shall be
governed by the laws of the state of Florida.

 

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IN WITNESS HEREOF, the parties to this Agreement have caused it to be duly
executed in duplicate by their respective officers on the dates shown below.

 

 

ALLSTATE LIFE INSURANCE COMPANY

 

 

 

 

By

/s/ Samuel H. Pilch

 

 

Samuel H. Pilch

 

Title

Group Vice President and Controller

 

 

 

Date

7/13/10

 

 

 

 

AMERICAN HERITAGE LIFE INSURANCE COMPANY

 

 

By

/s/ Samuel H. Pilch

 

 

Samuel H. Pilch

Title

Group Vice President

 

 

Date

7/13/10

 

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EXHIBIT A

ELIGIBLE AND INELIGIBLE POLICIES

 

Policies reinsured under this Agreement shall be all individual universal life
insurance policies, and all endorsements and riders attached thereto, marketed
as the “GoodForLife” product and represented by “Policy Company #66” on Ceding
Company’s Life-70 administration system, including:

 

Universal Life Base Policy

Accidental Death and Severe Injury Rider

Critical Illness Rider

Accelerated Death Benefit Rider

Enhanced Grace Period Rider

Children’s Level Term Rider

Total Disability Premium Waiver Rider

Accidental Death Benefit Rider

Other Insured Person Level Term Rider

Primary Insured Level Term Rider

Future Purchase Option Rider

 

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EXHIBIT B

TAX ELECTION

 

The Ceding Company and the Reinsurer hereby make an election pursuant to
Treasury Regulations Section 1.848-2(g)(8).  This election shall be effective
for the tax year during which the Effective Date falls and all subsequent
taxable years for which this Agreement remains in effect.  Unless otherwise
indicated, the terms used in this Exhibit are defined by reference to Treasury
Regulations Section 1.848-2 as in effect on the date hereof.  As used below, the
term “party” or “parties” shall refer to the Ceding Company or the Reinsurer, or
both, as appropriate.

 

1.                                       The party with the Net Positive
Consideration (as defined in Section 848 of the Code and related Treasury
Regulations) with respect to the transactions contemplated under this Agreement
for any taxable year covered by this election will capitalize specified policy
acquisition expenses with respect to such transactions without regard to the
general deductions limitation of Section 848(c)(1) of the Code.

 

2.                                       The parties agree to exchange
information pertaining to the amount of Net Consideration (as defined in
Section 848 of the Code and related Treasury Regulations) under this Agreement
each year to ensure consistency or as is otherwise required by the Internal
Revenue Service.  The exchange of information each year will follow the
procedures set forth below:

 

(a)                                  By April 1 of each year, the Ceding Company
will submit a schedule to the Reinsurer of its calculation of the Net
Consideration for the preceding calendar year.  This schedule of calculations
will be accompanied by a statement signed by an authorized representative of the
Ceding Company stating the amount of the Net Consideration the Ceding Company
will report in its tax return for the preceding calendar year.

 

(b)                                 Within thirty (30) days of the Reinsurer’s
receipt of the Ceding Company’s calculation, the Reinsurer may contest such
calculation by providing an alternative calculation to the Ceding Company in
writing.  If the Reinsurer does not notify the Ceding Company that it contests
such calculation within said 30-day period, the calculation will be presumed
correct and the Reinsurer shall also report the Net Consideration as determined
by the Ceding Company in the Reinsurer’s tax return for the preceding calendar
year.

 

(c)                                  If the Reinsurer provides an alternative
calculation of the Net Consideration pursuant to clause (b), the parties will
act in good faith to reach an agreement as to the correct amount of Net
Consideration within thirty (30) days of the date the Ceding Company receives
the alternative calculation from the Reinsurer.  When the Ceding Company and the
Reinsurer reach agreement on an amount of Net Consideration, each party shall
report the applicable amount in their respective tax returns for the preceding
calendar year.

 

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