Exhibit 10.(b)

 

Amended Filing Date: October 31, 2003

Original Filing Date: October 17, 2003

 

MODIFIED COINSURANCE AGREEMENT

 

Between

 

FARMERS NEW WORLD LIFE INSURANCE COMPANY

 

And

 

KEMPER INVESTORS LIFE INSURANCE COMPANY

 

Dated as of December 1, 2003

 

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TABLE OF CONTENTS

 

ARTICLE I

  

DEFINITIONS

   4

Section 1.1

  

Definitions

   4

ARTICLE II

  

BASIS OF COINSURANCE AND BUSINESS COINSURED

   8

Section 2.1

  

Post-Closing Contracts

   8

Section 2.2

  

Modified Coinsurance

   9

Section 2.3

  

Certain Contract Elements

   9

Section 2.4

  

Assets and Reserves

   9

Section 2.5

  

Contract and Reserve Assumption Changes

   9

ARTICLE III

  

ACCOUNTINGS AND RESERVE ADJUSTMENTS

   10

Section 3.1

  

Ceding Commission

   10

Section 3.2

  

Payments by the Company and the Reinsurer

   10

Section 3.3

  

Contract Administration

   10

Section 3.4

  

Books and Records

   10

Section 3.5

  

Quarterly Accountings and Payments

   10

Section 3.6

  

General Account Reserve Adjustment

   11

Section 3.7

  

Delayed Payments

   11

Section 3.8

  

Offset Rights

   11

ARTICLE IV

  

REGULATORY MATTERS

   12

Section 4.1

  

Regulatory Matters

   12

ARTICLE V

  

OVERSIGHTS

   12

Section 5.1

  

Oversights

   12

ARTICLE VI

  

CONDITIONS PRECEDENT

   12

Section 6.1

  

Conditions Precedent

   12

ARTICLE VII

  

DUTY OF COOPERATION

   12

Section 7.1

  

Cooperation

   12

ARTICLE VIII

  

DAC TAX

   13

Section 8.1

  

Election

   13

ARTICLE IX

  

INDEMNIFICATION AND RECAPTURE

   14

Section 9.1

  

Reinsurer’s Obligation to Indemnify

   14

Section 9.2

  

Company’s Obligation to Indemnify

   14

Section 9.3

  

Certain Definitions and Procedures.

   15

Section 9.4

  

Recapture Rights

   15

ARTICLE X

  

ARBITRATION

   17

Section 10.1

  

Arbitration

   17

Section 10.2

  

Arbitration Procedures

   17

ARTICLE XI

  

INSOLVENCY

   18

 

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Section 11.1

  

Insolvency Clause

   18

ARTICLE XII

  

DURATION

   19

Section 12.1

  

Duration

   19

Section 12.2

  

Survival

   19

ARTICLE XIII

  

MISCELLANEOUS

   19

Section 13.1

  

Notices

   19

Section 13.2

  

Confidentiality

   20

Section 13.3

  

Entire Agreement

   20

Section 13.4

  

Waivers and Amendments

   20

Section 13.5

  

No Third Party Beneficiaries

   20

Section 13.6

  

Assignment

   21

Section 13.7

  

Governing Law; Venue

   21

Section 13.8

  

Counterparts

   21

Section 13.9

  

Severability

   21

Section 13.10

  

Schedules, Exhibits and Paragraph Headings

   21

Section 13.11

  

Expenses

   21

Section 13.12

  

No Prejudice

   21

Section 13.13

  

Waiver of Defenses

   21

 

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INDEX OF EXHIBITS

 

Exhibit A

 

Recapture Fee Formula

Exhibit B

 

Procedures for Indemnification Claims

Exhibit C

 

List of Contracts Reinsured - Amended

Exhibit D

 

Commission & Expense Allowance - Amended

 

 

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MODIFIED COINSURANCE AGREEMENT

 

THIS MODIFIED COINSURANCE AGREEMENT (this “Agreement”) is made and entered into
as of December 1, 2003, by and between Farmers New World Life Insurance Company,
a Washington domiciled stock life insurance company (the “Company”) and Kemper
Investors Life Insurance Company, an Illinois domiciled stock life insurance
company (the “Reinsurer”).

 

RECITALS

 

WHEREAS, the Company has issued the Contracts (as defined below); and

 

WHEREAS, the Company has agreed to cede and transfer to the Reinsurer all
liabilities arising under the Contracts (which include annuity contracts written
by the Company after the Effective Date) for the consideration specified herein,
and the Reinsurer has agreed to reinsure such liabilities on the terms and
conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual and several promises and
undertakings herein contained, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the Company and the
Reinsurer agree as follows:

 

ARTICLE I

DEFINITIONS

 

Section 1.1 Definitions. The following terms shall have the respective meanings
specified below throughout this Agreement:

 

“Affiliate” means, with respect to any Person, at the time in question, any
other Person Controlling, Controlled by or under common Control with such
Person.

 

“Applicable Law” means any domestic or foreign federal, state or local statute,
law, ordinance or code, or any written rules, regulations or administrative
interpretations issued by any Governmental Authority pursuant to any of the
foregoing, and any order, writ, injunction, directive, judgment or decree of a
court of competent jurisdiction applicable to the parties hereto.

 

“Books and Records” means the originals or copies of all customer lists, policy
information, policy forms and rating plans, disclosure and other documents and
filings, including statutory filings, required under all Applicable Laws,
administrative records, reinsurance records, claim records, sales records,
underwriting records, financial records, Tax records and compliance records in
the possession or control of the Company and relating principally to the
Contracts including, without limitation, any database, magnetic or optical media
(to the extent not subject to licensing restrictions) and any other form of
recorded, computer generated or stored information or process, but excluding:
(a) the Company’s original certificate of incorporation, bylaws, corporate seal,
licenses to do business, minute books and other corporate records relating to
corporate organization and capitalization; (b) original Tax and corporate
accounting records relating to the Business; (c) any original books and records
relating to the Retained Liabilities; and (d) any records that are subject to
attorney-client privilege.

 

4

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“Business” means the marketing, issuing and administering the Contracts in the
United States and the other business activities reasonably related thereto.

 

“Business Day” means any day on which banking institutions in the State of
Washington and Illinois are open for normal business.

 

“Ceding Commission” means the aggregate ceding allowance payable by the
Reinsurer to the Company in connection with the reinsurance of the Contracts
hereunder.

 

“Closing” means the closing of the transactions contemplated by this Agreement.

 

“Closing Date” means the date and time as of which the Closing actually takes
place.

 

“Code” means the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder.

 

“Commissions” means all commissions, expense allowances, benefit credits and
other fees and compensation payable to Producers.

 

“Company Indemnified Parties” shall have the meaning set forth in Section 9.1.

 

“Contracts” means (a) all annuity contracts issued on the forms identified on
Exhibit C hereto, to the extent that such contracts are in effect as of the
Effective Date, and all certificates and participation agreements in effect as
of the Effective Date issued in accordance with the terms of such contracts
(including all supplements, endorsements, riders and ancillary agreements in
connection therewith) and (b) all Post-Closing Contracts. Also included in the
definition of “Contracts” are any such contracts and certificates that have
lapsed and that otherwise would be eligible for inclusion herein, subject to
reinstatement pursuant to reinstatement procedures contained in such contracts
and certificates.

 

“Contractholders” means contractholders, insureds and assignees under the
Contracts.

 

“Control” including the terms “Controlling,” “Controlled by” and “under common
Control with” means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, the holding of policyholders’
proxies by contract other than a commercial contract for goods or non-management
services, or otherwise, unless the power is the result of an official position
with or corporate office held by the Person. Except as provided otherwise in
this Agreement, Control is presumed to exist if any Person, directly or
indirectly, owns, controls, holds with the power to vote, or holds shareholders’
proxies representing majority or more of the voting securities of any other
Person, or holds or controls sufficient policyholders’ proxies, or is entitled
by contract or otherwise, to nominate, appoint or to elect the majority of the
board of directors or comparable governing body of any other Person.

 

5

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“Effective Date” means 12:01a.m. Pacific time on December 1, 2003.

 

“Extra Contractual Obligations” means all liabilities or obligations arising
under or relating to the Contracts, exclusive of liabilities or obligations
arising under the express terms and conditions of the Contracts and the other
Liabilities, but including, without limitation, any liability for fines,
penalties, forfeitures, punitive, special, consequential, exemplary or other
form of extra-contractual damages, which liabilities or obligations arise from
any act, error or omission, whether or not intentional, negligent, in bad faith
or otherwise relating to: (a) the marketing, sale, underwriting, production,
issuance, cancellation or administration of the Contracts; (b) the
investigation, defense, trial, settlement or handling of claims, benefits, or
payments under the Contracts; or (c) the failure to pay, the delay in payment,
or errors in calculating or administering the payment of benefits, claims or any
other amounts due or alleged to be due under or in connection with the
Contracts.

 

“Final and Binding” means with respect to any determinations made in this
Agreement that have the same preclusive effect for all purposes as if such
determinations had been embodied in a final judgment, no longer subject to
appeal, entered by a court of competent jurisdiction, and either the Company or
the Reinsurer may petition a court having jurisdiction over the parties and
subject matter to reduce such decision to judgment.

 

“Governmental Authority” means any court, administrative or regulatory agency or
commission, or other federal, state or local governmental authority or
instrumentality having jurisdiction over any party hereto.

 

“Liabilities” means all gross liabilities and obligations arising under or
relating to the Contracts other than the Retained Liabilities. The Liabilities
shall include, without limitation: (a) the Reserves; (b) all liabilities for
incurred but not reported claims, benefits, interest on claims or other payments
arising under or relating to the Contracts, whether or not (i) included within
the Reserves, or (ii) incurred before or after the Effective Date; (c) all
liabilities arising out of any changes to the terms and conditions of the
Contracts mandated by Applicable Law whether or not incurred before or after the
Effective Date; (d) liabilities for premium Taxes payable, incurred or paid by
the Company on or after the Effective Date (without giving effect to any credits
due to the Company, other than credits for guaranty fund payments that were
assessed after the Effective Date), and for all other Taxes arising out of or
relating to the Business payable on or after the Effective Date (except for
income Taxes imposed on the Company under Subtitle A of the Code); (e)
liabilities for assessments and similar charges in connection with participation
by the Company or the Reinsurer, whether voluntary or involuntary, in any
guaranty association established or governed by any state or other jurisdiction
assessed after the Effective Date; (f) liabilities for Commissions payable with
respect to the Contracts to or for the benefit of the Producers who marketed or
produced the Contracts, in any case payable on or after the Effective Date; (g)
all liabilities for amounts payable on or after the Effective Date for returns
or refunds of Premiums, (h) all unclaimed property liabilities arising under or
relating to the Contracts; and (i) all liabilities relating to the Reinsurer’s
establishment of Non-Guaranteed Elements.

 

6

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“LIBOR” means a rate per annum equal to the [three-month] London Interbank
Offered Rate as published in The Wall Street Journal, Western Edition, in effect
on the Closing Date.

 

“Loss” shall have the meaning set forth in Section 9.3.

 

“NAIC” means the National Association of Insurance Commissioners.

 

“Non-Guaranteed Elements” means cost of insurance charges, loads and expense
charges, credited interest rates, mortality and expense charges, administrative
expense risk charges, as applicable, under the Contracts.

 

“Person” means any individual, corporation, partnership, firm, joint venture,
association, joint-stock company, limited liability company, trust, estate,
unincorporated organization, governmental, judicial or regulatory body, business
unit, division or other entity.

 

“Post-Closing Contracts” shall have the meaning set forth in Section 2.1(a).

 

“Premiums” means premiums, considerations, deposits and similar receipts with
respect to the Contracts.

 

“Producers” means all brokers, agents, general agents, producers or other
Persons who market or produce the Contracts and who (a) have been appointed by
the Company, and (b) are entitled to receive Commissions from the Company.

 

“Quarterly Accounting” shall mean an accounting prepared in accordance with
Washington SAP and delivered by the Company to the Reinsurer in accordance with
Section 3.5 hereof.

 

“Recapture Event” shall have the meaning set forth in Section 9.4.

 

“Recapture Fee” means the amount determined in accordance with the formula set
forth on Exhibit A hereto, which is payable by the Reinsurer or the Company, as
the case may be, in connection with recapture of the Contracts by the Company
pursuant to Section 9.4 hereof.

 

“Recapture Rights” means the right of the Company to recapture the Contracts
pursuant to Section 9.4 hereof.

 

“Reinsurer Indemnified Parties” shall have the meaning set forth in Section 9.2.

 

“Reserve Adjustment” shall have the meaning set forth in Section 3.6.

 

“Reserves” means the sum of all reserves and balance sheet liabilities required
to be maintained by the Company for the Contracts issued by it, calculated
consistent with (a) the reserve requirements, statutory accounting rules and
actuarial principles applicable to the Company under the Applicable Law of each
state in which the Contracts were issued or delivered, and (b) otherwise in
accordance with the methodologies used by the Company to calculate the reserves
and balance sheet liabilities for the Contracts in accordance with Washington
SAP and sound actuarial principles and any valuation bases and methods of
determining reserves as provided in the forms of Contracts, as applicable.

 

7

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“Retained Liabilities” means the liabilities of the Company arising solely from
any of the following: (a) premium Taxes and all other Taxes payable prior to the
Effective Date; (b) amounts payable prior to the Effective Date for returns or
refunds of Premiums; (c) Commissions payable with respect to the Contracts to or
for the benefit of Producers, in any case payable prior to the Effective Date;
(d) assessments and similar charges in connection with participation by the
Company, whether voluntary or involuntary, in any guaranty association
established or governed by any Governmental Authority, assessed before the
Effective Date; (e) death claims under the Contracts which are reported prior to
the Effective Date; (f) any litigation pending as of the Effective Date relating
to the Contracts; and (g) Extra Contractual Obligations.

 

“Taxes” (or “Tax” as the context may require) means any tax, however
denominated, imposed by any Governmental Authority having the power to levy
taxes (a “Taxing Authority”), including, without limitation, any tax imposed
under Subtitle A of the Code and any net income, alternative or add-on minimum
tax, gross income, gross receipts, sales, use, gains, goods and services,
production, documentary, recording, social security, unemployment, disability,
workers’ compensation, estimated, ad valorem, value added, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
capital stock, occupation, personal or real property, environmental or windfall
profit tax, premiums, custom, duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest,
penalty, addition to tax or additional amount imposed by any Taxing Authority
relating thereto.

 

“Washington SAP” means the statutory accounting principles and practices
prescribed or permitted by the Insurance Department of the State of Washington.

 

ARTICLE II

BASIS OF COINSURANCE AND BUSINESS COINSURED

 

Section 2.1 Post-Closing Contracts.

 

(a) On and after the Effective Date, the Company may continue issuing annuity
contracts on the policy forms that would be included in the Contracts in effect
immediately prior to the Effective Date, including without limitation the
issuance of any annuity contract pursuant to any exchange or conversion option
provided under the terms of any Contract issued at any time by the Company (the
“Post-Closing Contracts”), and such Post-Closing Contracts shall be reinsured by
the Reinsurer pursuant to the terms of this Agreement. Either the Company or the
Reinsurer may terminate its obligations under this Section 2.1(a) at any time by
providing written notice of such termination to the other party not later than
30 days prior to the effectiveness of such termination; provided that any such
termination shall not affect the reinsurance hereunder of any Contracts issued
prior to the effective date of such termination.

 

8

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Section 2.2 Modified Coinsurance

 

(a) Subject to the terms and conditions of this Agreement, the Company hereby
cedes on a modified coinsurance basis to the Reinsurer as of the Effective Date,
and the Reinsurer hereby accepts and agrees to indemnity reinsure on a modified
coinsurance basis as of the Effective Date, one hundred percent (100%) of all
Liabilities. This Agreement is an agreement for indemnity reinsurance solely
between the Company and the Reinsurer and shall not create any legal
relationship whatsoever between the Reinsurer and any Person other than the
Company. The reinsurance effected under this Agreement is subject to the same
limitations and conditions specified in the Contracts and shall be maintained in
force, without reduction, unless such reinsurance is terminated, reduced or
recaptured as provided herein.

 

(b) On and after the Effective Date, the Reinsurer shall have the responsibility
for reimbursing the Company for all Liabilities (other than Reserves) in
connection with each quarterly settlement. The Reinsurer will accept the
decision of the Company with respect to the determination and payment of such
Liabilities. For the avoidance of doubt, Reserves are intended to be addressed,
without duplication, in Section 3.6.

 

Section 2.3 Certain Contract Elements. From and after the Effective Date, the
Reinsurer shall have the right to set all Non-Guaranteed Elements. The Reinsurer
hereby acknowledges and agrees that any claim, liability or obligation that
arises out of or relates to the Reinsurer’s establishment of Non-Guaranteed
Elements is included within the Liabilities that the Reinsurer has expressly
assumed pursuant to this Agreement and for which the Reinsurer has agreed to
indemnify the Company pursuant to Article IX of this Agreement.

 

Section 2.4 Assets and Reserves. Notwithstanding anything in this Agreement to
the contrary, the Company shall continue to invest and maintain all assets held
in support of the Reserves and other Liabilities backing the Contracts reinsured
hereunder. Such assets will be segregated to permit the investment results of
the assets to be segregated from the other investments of the Company. On and
after the Effective Date, the Company shall maintain Reserves for the Contracts
ceded hereunder in accordance with applicable statutory and regulatory
requirements. The Reserves shall be calculated consistent with (a) the reserve
requirements, statutory accounting rules and actuarial principles applicable to
the Company under Applicable Law; and (b) otherwise in accordance with the
methodologies used by the Company to calculate the Reserves for the Contracts in
accordance with Washington SAP and sound actuarial principles and any valuation
bases and methods of determining Reserves as provided in the forms of the
Contracts.

 

Section 2.5 Contract and Reserve Assumption Changes. The Company shall not
change (a) the terms and conditions of any Contracts or (b) the assumptions and
methods used to establish the Reserves except as required by Applicable Law.

 

9

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ARTICLE III

ACCOUNTING AND RESERVE ADJUSTMENTS

 

Section 3.1 Ceding Commission. Subject to the terms and conditions of this
Agreement, the Reinsurer shall pay to the Company on the Closing Date a Ceding
Commission in an amount equal to $36,500,000 plus interest on such amount from
and including the Effective Date to but not including the Closing Date, computed
at LIBOR.

 

Section 3.2 Payments by the Company and the Reinsurer

 

(a) To effect the reinsurance of the Contracts on the Effective Date, the
Company has paid on the Closing Date to the Reinsurer an initial reinsurance
premium equal to the Reserves attributable to the Polices as of the Effective
Date.

 

(b) Simultaneously with the payment of the initial reinsurance premium pursuant
to Section 3.2(a), the Reinsurer has paid the Company on the Closing Date an
initial reserve adjustment equal to the Reserves as of the Effective Date.

 

(c) The Reinsurer shall be entitled as reinsurance premium to receive payment of
the Premiums received on and after the Effective Date attributable to the
Contracts net of any refunds which may be made to Contractholders or others.

 

(d) To the extent that the Company recovers amounts from any third party
relating to the Contracts (including, without limitation, Premiums in arrears
from a Contractholder with respect to a reinstated Contract, expense
reimbursement, indemnification) upon receipt of any such amounts the Company
shall transfer such amounts to the Reinsurer, as applicable, and provide the
Reinsurer with any pertinent information that the Company may have relating
thereto.

 

Section 3.3 Contract Administration The Company will administer the Contracts
reinsured hereunder and will perform all accounting for such Contracts. Claims
and benefit payment or settlement made by the Company in good faith including
compromise shall be unconditionally binding on the Reinsurer. In consideration
of the administrative services provided by the Company with respect to the
Contracts following the Effective Date, the Reinsurer shall pay to the Company,
through the Quarterly Accounting for each calendar quarter, an expense allowance
as set forth in Exhibit D.

 

Section 3.4 Books and Records The Company shall maintain and retain title to and
ownership of the Books and Records and shall be entitled to keep and maintain
copies of all Books and Records relating to the administration of the Contracts
after the Effective Date. The Books and Records shall be made available to the
Reinsurer, its auditors or other designees, during normal business hours and at
any time on reasonable notice, for review, inspection, and examination, and for
reproduction to the extent necessary to comply with Applicable Laws, financial
reporting obligations, and audit requirements, at the Company’s expense.

 

Section 3.5 Quarterly Accountings and Payments (a) Beginning with and after the

 

10

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first calendar quarter following the Closing Date, the Company shall provide the
Reinsurer with a Quarterly Accounting as of the end of each calendar quarter, no
later than thirty (30) Business Days after the end of such quarter; provided,
however, that in the event that subsequent data or calculations require revision
of any Quarterly Accounting, the required revision and any appropriate payments
shall be made in cash by the parties within five (5) Business Days after they
mutually agree as to the appropriate revision. The Company shall provide such
Quarterly Accounting in a mutually agreeable format which shall include without
limitation payments contemplated by Sections 2.2(b), 3.2, 3.3 and 3.6.

 

(b) If a Quarterly Accounting reflects a balance due to the Reinsurer, the
amount(s) shown as due shall be paid by the Company within five (5) Business
Days of the delivery of the Quarterly Accounting. If (i) a Quarterly Accounting
reflects a balance due to the Company and (ii) the Reinsurer does not object to
the Quarterly Accounting within five (5) Business Days of its delivery, the
amount(s) shown as due shall be paid by the Reinsurer within seven (7) Business
Days after the date on which the Quarterly Accounting was delivered. Amounts due
from either party pursuant to this Agreement shall be paid net of amounts due
from the other party.

 

Section 3.6 Reserve Adjustment (a) The “Reserve Adjustment” for any calendar
quarter shall be an amount equal to (i) the Reserves at the end of such Calendar
Quarter, minus (ii) the Reserves at the end of the calendar quarter immediately
preceding such calendar quarter, minus (iii) the sum of all net investment
income and capital gains and losses, realized and unrealized, including
amortization of Interest Maintenance Reserve, with respect to assets held by the
Company in support of the Reserves relating to the Contracts during such
calendar quarter. On a quarterly basis, commencing with the first calendar
quarter following the Closing Date, an amount equal to the Reserve Adjustment
will be shown as an amount due to the Reinsurer on the Quarterly Accountings if
the foregoing formula yields a negative amount, or as an amount due to the
Company on such Quarterly Accountings if the formula yields a positive amount.

 

Section 3.7 Delayed Payments If there is a delayed settlement of any payment due
hereunder, interest will accrue on such payment at LIBOR. For purposes of this
Section 3.7, a payment will be considered overdue, and such interest will begin
to accrue, on the date that is five (5) Business Days after the date such
payment is due. For greater clarity, (i) a payment shall be deemed to be due
hereunder on the last date on which such payment may be timely made under the
applicable provision, and (ii) interest will not accrue on any payment due the
Reinsurer hereunder unless the delayed settlement thereof was caused by the
Company.

 

Section 3.8 Offset Rights

 

(a) Any debits or credits incurred on and after the Effective Date in favor of
or against either the Company or the Reinsurer with respect to this Agreement
are deemed mutual debits or credits and shall be set off, and only the balance
shall be allowed or paid. The right of offset will not be affected or diminished
because of the insolvency of either party.

 

(b) Notwithstanding anything to the contrary in this Agreement, each of the
parties hereto acknowledges and agrees that it shall have no right hereunder or
pursuant to law to set off any amounts due or owing (or to become due or owing)
to any other party under this Agreement against any amounts due or owing by such
other party or any of its subsidiaries or Affiliates under any other agreement,
contract or understanding.

 

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ARTICLE IV

REGULATORY MATTERS

 

Section 4.1 Regulatory Matters. If the Company or the Reinsurer receives notice
of, or otherwise becomes aware of, any inquiry, investigation or proceeding from
or at the direction of a Governmental Authority relating to the Contracts, the
Company or the Reinsurer, as applicable, shall promptly notify the other party
thereof, whereupon the parties shall cooperate in good faith and use their
respective commercially reasonable efforts to resolve such matter in a mutually
satisfactory manner in light of all the relevant business, regulatory and legal
facts and circumstances.

 

ARTICLE V

OVERSIGHTS

 

Section 5.1 Oversights. Inadvertent delays, errors or omissions made in
connection with this Agreement or any transaction hereunder shall not relieve
either party from any liability which would have attached had such delay, error
or omission not occurred, provided always that such error or omission is
rectified as soon as possible after discovery, and provided that the party
making such error or omission or responsible for such delay shall be responsible
for any additional liability which attaches as a result.

 

ARTICLE VI

CONDITIONS PRECEDENT

 

Section 6.1 Conditions Precedent. This Agreement shall not become effective
unless and until all Governmental Authorities whose approval is required shall
have approved this Agreement or is deemed approved by Applicable Law, in each
case on or prior to December 31, 2003.

 

ARTICLE VII

DUTY OF COOPERATION

 

Section 7.1 Cooperation. Each party hereto shall cooperate fully with the other
in all reasonable respects in order to accomplish the objectives of this
Agreement.

 

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ARTICLE VIII

DAC TAX

 

Section 8.1 Election. In accordance with Treasury Regulations Section
1.848-2(g)(8), the Company and the Reinsurer hereby elect to determine specified
Contract acquisition expenses with respect to this Agreement without regard to
the general deductions limitation of Section 848(c)(1) of the Code.

 

(a) All uncapitalized terms used herein shall have the meanings set forth in the
regulations under Section 848 of the Code.

 

(b) The party with net positive consideration under this Agreement for each
taxable year shall capitalize specified Contract acquisition expenses with
respect to this Agreement without regard to the general deductions limitation of
Section 848(c)(1) of the Code.

 

(c) Both parties agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency.

 

(d) The Company shall submit a schedule to the Reinsurer by May 1 of each year
of its calculation of the net consideration under this Agreement for the
preceding taxable year. This schedule of calculations shall be accompanied by a
statement signed by an authorized representative of the Company stating that the
Company shall report such net consideration in its federal income tax return for
the preceding taxable year.

 

(e) The Reinsurer may contest such calculation by providing an alternative
calculation to the Company in writing within thirty (30) calendar days after the
date on which the Reinsurer receives the Company’s calculation. If the Reinsurer
does not so notify the Company, the Reinsurer shall report the net consideration
under this Agreement as determined by the Company in the Reinsurer’s federal
income tax return for the preceding taxable year.

 

(f) (i) If the Reinsurer contests the Company’s calculation of the net
consideration under this Agreement, the parties shall act in good faith to reach
an agreement as to the correct amount of net consideration within thirty (30)
calendar days after the date on which the Reinsurer submits its alternative
calculation. If the Company and the Reinsurer reach agreement as to the amount
of net consideration under this Agreement, each party shall report such amount
in its federal income tax return for the preceding taxable year.

 

(ii) If, during such 30-day period, the Reinsurer and the Company are unable to
reach agreement, they shall promptly thereafter cause independent accountants
mutually agreed to by the Reinsurer and the Company (who shall not have any
material relationship with the Reinsurer or the Company) promptly to review
(which review shall commence no later than five (5) calendar days after the
selection of such independent accountants) this Agreement and the calculations
of the Reinsurer and the Company for the

 

13

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purpose of calculating the net consideration under this Agreement. In making
such calculation, such independent accountants shall consider only those items
or amounts in the Reinsurer’s calculation as to which the Company has disagreed.
Such independent accountants shall deliver to the Reinsurer and the Company, as
promptly as practicable (but no later than sixty (60) calendar days after the
commencement of their review), a report setting forth such calculation, which
calculation shall result in a net consideration between the amount thereof shown
in the Reinsurer’s calculation delivered pursuant to Section 8.1(d) and the
amount thereof shown in the Company’s calculation delivered pursuant to Section
8.1(e). Such report shall be Final and Binding upon the Reinsurer and the
Company. The fees, costs and expenses of such independent accountant shall be
borne (i) by the Reinsurer if the difference between the net consideration as
calculated by the independent accountants and the Reinsurer’s calculation
delivered pursuant to Section 8.1(d) is greater than the difference between the
net consideration as calculated by the independent accountants and the Company’s
calculation delivered pursuant to Section 8.1(e), (ii) by the Company if the
first such difference is less than the second such difference, and (iii)
otherwise equally by the Reinsurer and the Company.

 

(g) This election shall be effective for the 2003 taxable year ending December
31, 2003 and for all subsequent taxable years for which this Agreement remains
in effect.

 

(h) Both parties agree to attach a schedule to their respective federal income
tax returns for the first taxable year ending after the date on which this
election becomes effective which identifies this Agreement as a reinsurance
agreement for which an election has been made under Treasury Regulations Section
1.848-2(g)(8).

 

ARTICLE IX

INDEMNIFICATION AND RECAPTURE

 

Section 9.1 Reinsurer’s Obligation to Indemnify. The Reinsurer hereby agrees to
indemnify, defend and hold harmless the Company and its current, former and
future directors, officers, employees, representatives (excluding the
Producers), Affiliates, successors and permitted assigns (collectively, the
“Company Indemnified Parties”) from and against all Losses (as defined below)
asserted against, imposed upon or incurred by any Company Indemnified Party
arising from: (i) the Liabilities; (ii) any breach or nonfulfillment by the
Reinsurer of, or any failure by the Reinsurer to perform, any of the covenants,
terms or conditions of, or any of its duties or obligations under, this
Agreement; or (iii) any enforcement of this indemnity.

 

Section 9.2 Company’s Obligation to Indemnify. The Company hereby agrees to
indemnify, defend and hold harmless the Reinsurer and its current, former and
future directors, officers, employees, representatives (excluding the
Producers), Affiliates, successors and permitted assigns (collectively, the
“Reinsurer Indemnified Parties”) from and against all Losses asserted against,
imposed upon or incurred by any Reinsurer Indemnified Party arising from: (i)
the Retained Liabilities; (ii) any breach or nonfulfillment by the Company of,
or any failure by the Company to perform, any of the covenants, terms or
conditions of, or any of its duties or obligations under, this Agreement; or
(iii) any enforcement of this indemnity.

 

14

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Section 9.3 Certain Definitions and Procedures. For purposes of this Article IX,
“Loss” or “Losses” shall mean actions, claims, losses, liabilities, damages,
costs, expenses (including reasonable attorneys’ fees), interest and penalties.
In the event either the Reinsurer or the Company shall have a claim for
indemnity against the other party under the terms of this Agreement, the parties
shall follow the procedures set forth in Exhibit B.

 

Section 9.4 Recapture.

 

(a) Recapture Events. From and after the Effective Date, any of the following
occurrences shall constitute an event that obligates the Company to exercise the
recapture remedy set forth in this Section 9.4 (individually or collectively, as
the context indicates, a “Recapture Event”):

 

(i) the Reinsurer ceases to maintain (A) an A.M. Best Company rating of at least
[B+], (B) a Standard & Poor’s Corporation insurer financial strength rating of
at least [BB+], or (C) a Moody’s Investors Services, Inc. claims-paying ability
rating of at least [Ba1]; or

 

(ii) the Reinsurer fails to (A) maintain a ratio of (i) Total Adjusted Capital
(as defined in the Risk-Based Capital (RBC) Model Act or in the rules and
procedures prescribed by the NAIC with respect thereto) to (ii) the Company
Action Level RBC (as defined in the Risk-Based Capital (RBC) Model Act or in the
rules and procedures prescribed by the NAIC with respect thereto) of at least
one hundred sixty percent (160%); or (B) maintain a Standard & Poor’s
Corporation’s capital adequacy ratio (calculated in accordance with the rules
and procedures in effect on the date on which this Agreement is executed) of at
least one hundred percent (100%); or

 

(iii) a petition for insolvency, rehabilitation, conservation, supervision,
liquidation or similar proceeding is filed by or against the Reinsurer or its
statutory representative in any jurisdiction;

 

(iv) if the Company shall, for any reason, not be entitled to all relevant
statement credit for the cession of reinsurance hereunder in its annual
statement as filed with its domiciliary state: or

 

(v) if any Person other than one of the Affiliates of the Reinsurer in existence
on the Closing Date acquires or assumes (A) Control of the Reinsurer, whether by
merger, consolidation, stock acquisition, or otherwise (including, without
limitation, the acquisition or assumption of the power to direct the Reinsurer’s
management and policies by means of a management or services agreement or other
contractual arrangement) or (B) all or substantially all of the assets or
liabilities of the Reinsurer by reinsurance (whether indemnity or assumption) or
otherwise.

 

15

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(b) Notice to the Company. The Reinsurer shall provide the Company with:

 

(i) notice of any downgrade in the Reinsurer’s A. M. Best Company rating or its
Standard & Poor’s Corporation insurer financial strength rating or its Moody’s
Investors Services, Inc. claims-paying ability rating within three (3) Business
Days after the Reinsurer’s receipt of notice of such adjustment;

 

(ii) a written report of the calculation of the Reinsurer’s Total Adjusted
Capital and Authorized Control Level RBC (based on the Risk-Based Capital (RBC)
Model Act and/or the rules and procedures) and Standard & Poor’s Corporation’s
capital adequacy ratio (based on the rules and procedures in effect on the date
on which this Agreement is executed) as of the end of each calendar quarter
within fifteen (15) Business Days after the end of such quarter;

 

(iii) notice of the occurrence of any Recapture Event within two (2) Business
Days after its occurrence; and

 

(iv) not less than annually, a written report, in form reasonably satisfactory
to the Company, certifying that no Recapture Event has occurred during the
period covered by such report or is continuing as of the last day of such
period, together with the appropriate calculations and back up reasonably
necessary to substantiate the basis of the Reinsurer’s certification.

 

The Company may, at its own expense, review the Reinsurer’s books and records to
confirm the risk based capital calculations provided by the Reinsurer pursuant
to Section 9.4(b)(ii). In addition, the Reinsurer shall (A) cooperate fully with
the Company and promptly respond to the Company’s inquiries from time to time
concerning the Reinsurer’s financial condition, operating results and any
events, occurrences or other matters which arise on and after the Effective Date
and which reasonably relate to the Business or Reinsurer’s ability to perform
and discharge its obligations under this Agreement and (B) provide to the
Company such financial statements, reports, internal control letters and reports
prepared by auditors and other third parties, and other documents of the
Reinsurer as the Company may reasonably request from time to time.

 

(c) Recapture. Upon the occurrence of any Recapture Event, the Company shall
recapture all of the Contracts ceded hereunder.

 

(d) Recapture Fee. Any recapture by the Company shall not be deemed to have been
consummated until the Company or the Reinsurer, as the case may be, has received
payment of the entire Recapture Fee as determined in accordance with Exhibit A
hereto. The relevant party shall promptly pay the full amount of the Recapture
Fee. Following the consummation of the recapture of Contracts pursuant to this
Section 9.4(d), no additional Premiums, deposits or other amounts payable under
such Contracts shall be ceded to the Reinsurer hereunder.

 

(e) Certain Remedies. The Company and the Reinsurer acknowledge that any damage
caused to the Company by reason of the breach by the Reinsurer or any of its
successors in interest of this Section 9.4 could not be adequately compensated
for in monetary damages alone; therefore, each party agrees that, in addition to
any other remedies at law or

 

16

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otherwise, the Company shall be entitled to specific performance of this Section
9.4 or an injunction to be issued by a court of competent jurisdiction pursuant
to Section 13.7 hereof restraining and enjoining any violation of this Section
9.4, in addition to such other equitable or legal remedies as such court may
determine. The Company and the Reinsurer hereby release, waive and discharge any
and all claims and causes of action asserting in any way that the Company’s
recapture remedy hereunder is not valid, binding or enforceable. The Company and
the Reinsurer are forever estopped and barred from making any such assertion in
any context or forum whatsoever.

 

ARTICLE X

ARBITRATION

 

Section 10.1 Arbitration.

 

(a) After the Effective Date, any dispute between the parties under or with
respect to this Agreement (other than disputes relating to calculations relating
to DAC Tax, which shall be resolved in accordance with Article VIII hereof)
shall be decided through negotiation and, if necessary, arbitration as set forth
in Section 10.2.

 

(b) The parties intend this Section 10.1 to be enforceable in accordance with
the Federal Arbitration Act (9 U.S.C., Section 1) including any amendments to
that Act which are subsequently adopted. In the event that either party refuses
to submit to arbitration as required by Section 10.1(a), the other party may
request the court specified in Section 13.7 to compel arbitration in accordance
with the Federal Arbitration Act.

 

Section 10.2 Arbitration Procedures.

 

(a) Except as expressly provided otherwise in Section 10.1(a), the Company and
the Reinsurer intend that any dispute between them under or with respect to this
Agreement be resolved without resort to any litigation. Accordingly, the Company
and the Reinsurer agree that they will negotiate diligently and in good faith to
agree on a mutually satisfactory resolution of any such dispute; provided,
however, that if any such dispute cannot be so resolved by them within sixty
(60) calendar days (or such longer period as the parties may agree) after
commencing such negotiations, the Company and the Reinsurer agree that they will
submit such dispute to arbitration in the manner specified in, and such
arbitration proceeding will be conducted in accordance with, the Commercial
Arbitration Rules of the American Arbitration Association.

 

(b) The arbitration hearing will be before a panel of three disinterested
arbitrators, each of whom must be a present or former officer of a life
insurance or life reinsurance company familiar with the life insurance and
reinsurance business. The Company and the Reinsurer will each appoint one
arbitrator by written notification to the other party within thirty (30)
calendar days after the date of the mailing of the notification initiating the
arbitration. These two arbitrators will then select the third arbitrator within
thirty (30) calendar days after the date of the mailing of the notification
initiating arbitration.

 

17

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(c) If either the Company or the Reinsurer fails to appoint an arbitrator, or
should the two arbitrators be unable to agree upon the choice of a third
arbitrator, the president of the American Arbitration Association or of its
successor organization or (if necessary) the president of any similar
organization designated by lot of the Company and the Reinsurer within thirty
(30) calendar days after the request will appoint the necessary arbitrators.

 

(d) The arbitrators shall base their decision on the terms and conditions of
this Agreement. However, if the terms and conditions of this Agreement do not
explicitly dispose of an issue in dispute between the parties, the arbitrators
may base their decision on the customs and practices of the life insurance and
life reinsurance industry rather than solely on an interpretation of Applicable
Law. The arbitrators’ decision shall take into account the right to offset
mutual debits and credits as provided in this Agreement. The vote or approval of
a majority of the arbitrators will decide any question considered by the
arbitrators. The place of arbitration will be determined by the arbitrators.
Each decision (including without limitation each award) of the arbitrators will
be Final and Binding on all parties and will be nonappealable, and (at the
request of either the Company and the Reinsurer) any award of the arbitrators
may be confirmed by a judgment entered by the court specified in Section 13.7.
No such award or judgment will bear interest except to the extent applicable in
Section 3.7. In no event, may the arbitrators award punitive or exemplary
damages. Each party will be responsible for paying (a) all fees and expenses
charged by its respective counsel, accountants, actuaries, and other
representatives in conjunction with such arbitration and (b) one-half of the
fees and expenses charged by each arbitrator.

 

ARTICLE XI

INSOLVENCY

 

Section 11.1 Insolvency Clause. In the event of the insolvency of the Company,
all coinsurance made, ceded, renewed or otherwise becoming effective under this
Agreement shall be payable by the Reinsurer directly to the Company or to its
liquidator, receiver or statutory successor on the basis of the liability of the
Company under the Contracts 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 Company shall
give written notice of the pendency of a claim against the Company on a Contract
within a reasonable period of time after such claim is filed in the insolvency
proceedings and that during the pendency of such claim 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 Company or its liquidator or receiver or statutory successor.
It is further understood that the expense thus incurred by the Reinsurer shall
be chargeable, subject to court approval, against the Company as part of the
expense of liquidation to the extent of a proportionate share of the benefit
that may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer.

 

18

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ARTICLE XII

DURATION

 

Section 12.1 Duration This Agreement shall continue in force until the first to
occur of: (i) the Reinsurer’s liability with respect to all Contracts reinsured
hereunder is terminated in accordance with their respective terms and the
Company has received payments that discharge such liability in full in
accordance with the provisions of this Agreement; or (ii) the Contracts are
recaptured in accordance with Section 9.4. In no event shall the interpretation
of this Section 12.1 imply a unilateral right of the Reinsurer to terminate this
Agreement.

 

Section 12.2 Survival. Notwithstanding the other provisions of this Article XII,
the terms and conditions of Article I, VIII, IX and X and Sections 13.2 and
13.11 shall remain in full force and effect after this Agreement is terminated.

 

ARTICLE XIII

MISCELLANEOUS

 

Section 13.1 Notices. Any notice or other communication required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given when (a) mailed by United States registered or certified mail, return
receipt requested, (b) mailed by overnight express mail or other nationally
recognized overnight or same-day delivery service or (c) delivered in person to
the parties at the following addresses:

 

If to the Company, to:

 

Farmers New World Life Insurance Company

Attention: President

 

With copies (which shall not constitute notice) to:

 

Farmers New World Life Insurance Company

C/O - General Counsel Office

4680 Wilshire Boulevard

Los Angeles CA 90010-3807

 

Los Angeles – Corporate Office

4680 Wilshire Boulevard

Los Angeles CA 90010-3807

 

19

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If to the Reinsurer, to:

 

Kemper Investors Life Insurance Company

Attention: General Counsel

 

With copies (which shall not constitute notice) to:

 

Kemper Investors Life Insurance Company

C /O David A. Bowers

1400 American Lane,

Schaumburg, IL 60196

 

Either party may change the names or addresses where notice is to be given by
providing notice to the other party of such change in accordance with this
Section 13.1.

 

Section 13.2 Confidentiality Each of the parties shall maintain the
confidentiality of all information related to the Contracts and all other
information denominated as confidential by the other party provided to it in
connection with this Agreement, and shall not disclose such information to any
third parties without prior written consent of the other party, which shall not
be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing,
each party hereto (and each employee, representative or other agent of each such
party) may disclose to any and all persons, without limitation of any kind, the
U.S. tax treatment and U.S. tax structure of this Agreement and the transactions
contemplated hereby and all materials of any kind (including opinions or other
tax analyses) that are provided to any such party relating to such U.S. tax
treatment and U.S. tax structure. However, any such information relating to the
tax treatment or tax structure is required to be kept confidential to the extent
necessary to comply with any applicable federal or state securities laws.

 

Section 13.3 Entire Agreement. This Agreement and the Exhibits and the Schedules
hereto and thereto contain the entire agreement among the parties with respect
to the subject matter hereof and supersede all prior agreements, written or
oral, with respect thereto.

 

Section 13.4 Waivers and Amendments. Any term or condition of this Agreement may
be waived at any time by the party that is entitled to the benefit thereof. Such
waiver must be in writing and must be executed by an executive officer of such
party. A waiver on one occasion shall not be deemed to be a waiver of the same
or any other term or condition on a future occasion. This Agreement may be
modified or amended only by a writing duly executed by an executive officer of
the Company and the Reinsurer, respectively.

 

Section 13.5 No Third Party Beneficiaries. This Agreement constitutes an
indemnity reinsurance agreement solely between the Company and the Reinsurer,
and is intended solely for the benefit of the parties hereto and their permitted
successors and assigns, and it is not the intention of the parties to confer any
rights as a third-party beneficiary to this Agreement upon any other Person as
to any term, condition or provision of this Agreement.

 

20

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Section 13.6 Assignment. This Agreement shall not be assigned by either of the
parties hereto without the prior written approval of the other party, and any
attempted assignment in violation of this Section shall be void ab initio.

 

Section 13.7 Governing Law; Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON, WITHOUT REGARD
TO ITS CONFLICTS OF LAW DOCTRINE. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF GENERAL AND COMPETENT
JURISDICTION LOCATED WITHIN THE STATE OF WASHINGTON, WITH RESPECT TO ANY LEGAL
ACTION OR PROCEEDING ARISING OUT OF OR CONNECTED WITH THIS AGREEMENT.

 

Section 13.8 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument. Each counterpart may consist
of a number of copies hereof each signed by less than all, but together signed
by all, the parties hereto.

 

Section 13.9 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Applicable Law or
if determined by a court of competent jurisdiction to be unenforceable, and if
the rights or obligations of the Company or the Reinsurer under this Agreement
will not be materially and adversely affected thereby, such provision shall be
fully severable, and this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never been included in this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.

 

Section 13.10 Schedules, Exhibits and Paragraph Headings. Schedules and Exhibits
attached hereto are made a part of this Agreement. Paragraph headings are
provided for reference purposes only and are not made a part of this Agreement.

 

Section 13.11 Expenses. Except as explicitly provided to the contrary herein,
each party shall be solely responsible for all expenses it incurs in connection
with this Agreement or in consummating the transactions contemplated hereby or
performing the obligations imposed hereby, including, without limitation, the
cost of its attorneys, accountants and other professional advisors.

 

Section 13.12 No Prejudice. The parties agree that this Agreement has been
jointly negotiated and drafted by the parties hereto and that the terms hereof
shall not be construed in favor of or against any party on account of its
participation in such negotiations and drafting.

 

Section 13.13 Waiver of Defenses The Reinsurer hereby releases, waives and
discharges any and all claims under this Agreement asserting in any way that
issuance and delivery of a Contract was not in compliance with the Applicable
Laws of all jurisdictions or with the issuing insurance company’s corporate
charter. The Reinsurer is forever estopped and barred from making any such
assertion in any context or forum regarding this Agreement.

 

21

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first set forth above, to be effective as of the Effective Date,
subject to Article VI and the other terms and conditions of this Agreement.

 

FARMERS NEW WORLD LIFE INSURANCE

COMPANY

/s/ C. PAUL PATSIS

--------------------------------------------------------------------------------

C. Paul Patsis

President and Chief Executive Officer

KEMPER INVESTORS LIFE INSURANCE

COMPANY

/s/ DIANE C. DAVIS

--------------------------------------------------------------------------------

Diane C. Davis

President and Chief Executive Officer

 

 

22

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Exhibit A

 

Recapture Fee Formula

 

The amount of the Recapture Fee payable by the Company or the Reinsurer shall be
determined in accordance with the formula set forth below by an actuary mutually
agreed to by the Company and the Reinsurer (the “Actuary”).

 

The Recapture Fee formula shall consist of the following:

 

(a) Payment by the Reinsurer to the Company of the amount of the fees and costs
the Company must pay (as estimated by the Actuary if necessary) to the Actuary
for calculating the Recapture Fee and to any attorneys or other outside
consultants advising the Company in connection with the recapture;

 

(b) Payment by the Reinsurer or the Company, as the case may be, of the
Quarterly Accounting settlement as provided in Section 3.5 determined as of the
effective date of Recapture (the “Recapture Date”);

 

(c) Payment by the Company to the Reinsurer of a terminal reserve adjustment
equal to the Reserves on the Contracts determined as of the Recapture Date;

 

(d) Payment by the Reinsurer to the Company of a terminal reinsurance premium
equal to the Reserves on the Contracts determined as of the Recapture Date; and

 

(e) Payment by the Company to the Reinsurer of the Appraisal Value of the
Contracts subject to recapture (the “Recaptured Business”).

 

Appraisal Value. The Appraisal Value of the Contracts subject to recapture shall
be equal to the expected present value (calculated at an interest rate equal to
LIBOR plus [6.50]%) as of the Recapture Date of the following values for the
Recaptured Business: (a) Statutory Profits, plus (b) Interest on Required
Surplus, minus or plus (c) the increase or decrease in Required Surplus, minus
(d) the Required Surplus as of the Recapture Date.

 

For these purposes, Required Surplus shall be calculated on the assumption that
the ratio of Total Adjusted Capital to Company Action Level RBC, in each case
with respect to the Recaptured Business, shall be 200 percent. Both Total
Adjusted Capital and Company Action Level RBC shall be determined as provided in
the Risk-Based Capital (RBC) Model Act or the NAIC’s rules with respect thereto.
In fixing the other values required by the above formula, the Actuary shall use
its best estimates of future mortality, lapses and surrenders, premium
persistency, producer compensation, other taxes, licenses and fees; provided,
however, that the Actuary shall assume that the unit cost of providing
administrative services for the Recaptured Business shall be the amount that
would be charged by an unaffiliated third-party administrator and shall increase
by an annual rate equal to LIBOR over the estimated cost of such services for
the twelve months immediately following the Recapture Date.

 

 

Exhibit A

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Exhibit B

 

Procedures for Indemnification Claims

 

Section 1. Claims Notice.

 

(a) In the event that either party to this Agreement wishes to assert a claim
for indemnification under this Agreement (including, but not limited to, claims
arising from a claim or demand made, or an action, proceeding or investigation
instituted, by any Person not a party to this Agreement that may result in a
Loss for which indemnification is claimed by a party under this Agreement (a
“Third Party Claim”)), such party seeking indemnification (the “Indemnified
Party”) shall give written notice (a “Claims Notice”) to the other party (the
“Indemnifying Party”). Such Claims Notice shall be delivered to the Indemnifying
Party as promptly as practicable, specifying in detail the facts constituting
the basis for, and the amount of, the claim asserted. The failure by any
Indemnified Party to notify the Indemnifying Party as promptly as practicable
shall relieve any Indemnifying Party from its indemnification obligations only
to the extent such failure or other actions taken by the Indemnified Party in
response to such claim shall actually prejudice an Indemnifying Party.

 

(b) Subject to the provisions of Section 1(c), upon receipt of a Claims Notice
the Indemnifying Party shall have the right to assume the defense and control of
Third Party Claims. In the event the Indemnifying Party exercises such rights to
assume the defense and control of a Third Party Claim, the Indemnified Party
shall have the right but not the obligation reasonably to participate in (but
not control) the defense of Third Party Claims with its own counsel and at its
own expense. Any election by an Indemnifying Party whether to assume the defense
of a Third Party Claim must be received by the Indemnified Party within a
reasonable time period after receipt of the Indemnified Party’s Claims Notice,
and failure to send such notice within a reasonable time shall be deemed an
election not to defend. If the Indemnifying Party elects to assume the defense
of a Third Party Claim, the Indemnifying Party shall select counsel, contractors
and consultants of recognized standing and competence after consultation with
the Indemnified Party; shall take all steps necessary in the defense or
settlement of such Third Party Claims; and shall at all times diligently and
promptly pursue the resolution of such Third Party Claims. The Indemnified Party
shall, and shall cause each of its directors, officers, employees, agents,
representatives, Affiliates and permitted assigns to, cooperate fully with the
Indemnifying Party in the defense of any Third Party Claim defended by the
Indemnifying Party, which cooperation shall include, without limitation,
designating a liaison counsel to whom the Indemnifying Party may direct notices
and other communications, using reasonable efforts to make witnesses available,
and providing records and documents to the extent such witnesses, records and
documents are relevant to the Third Party Claim.

 

(c) The Indemnifying Party shall be authorized to consent to a settlement of, or
the entry of any judgment arising from, any Third Party Claim as to which the
Indemnifying Party has assumed the defense in accordance with the terms of
Section 1(b), without the consent of any Indemnified Party, but only to the
extent that such settlement or entry of judgment (i) provides solely for the
payment of money by the Indemnifying Party at its own expense without any right
of reimbursement from the Indemnified Party, and (ii) provides a complete
release of, or dismissal with prejudice of claims against, any Indemnified Party
potentially

 

Exhibit B

--------------------------------------------------------------------------------

affected by such Third Party Claim from all matters that were or could have been
asserted in connection with such claims. Except as provided above, settlement or
consent to entry of judgment shall require the prior approval of the Indemnified
Party, such approval not to be unreasonably withheld. If requested by the
Indemnifying Party, the Indemnified Party will cooperate with the Indemnifying
Party and its counsel in contesting any Third Party Claim, or, if appropriate
and related to the Third Party Claim in question, in making any counterclaim or
cross-complaint against any Person (other than the Indemnified Party or its
directors, officers, employees, agents, representatives, Affiliates, successors
and permitted assigns). Unless and until the Indemnifying Party elects to defend
the Third Party Claim, the Indemnified Party shall have the right, at its option
and at the Indemnified Party’s expense to do so in such manner as it reasonably
deems appropriate; provided, however, that the Indemnified Party shall not
settle or compromise any Third Party Claim for which it seeks indemnification
hereunder without the prior written consent of the Indemnifying Party (which
shall not be unreasonably withheld).

 

Section 2. Procedures for Direct Claims. In the event any Indemnified Party
shall have a claim for indemnity against any Indemnifying Party that does not
involve a Third Party Claim, the Indemnified Party shall deliver written notice
of such claim with reasonable promptness to the Indemnifying Party specifying in
detail the facts constituting the basis for, and the amount of, the claim
asserted. Provided that notice is delivered prior to the termination of any
applicable statute of limitations, the failure by any Indemnified Party so to
notify the Indemnifying Party shall not relieve the Indemnifying Party from any
liability that it may have to such Indemnified Party with respect to any claim
made pursuant to this Section 2.

 

 

Exhibit B

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Amended Filing Date: October 31, 2003

Original Filing Date: October 17, 2003

 

Amended Exhibit C

 

List of Contracts Reinsured

 

The policy plans subject to reinsurance coverage are the non-qualified issues of
the following:

 

Plans

--------------------------------------------------------------------------------

   Tax Status

--------------------------------------------------------------------------------

   Policy Form(s)

--------------------------------------------------------------------------------

  

Policy Issue Dates

From/Until

--------------------------------------------------------------------------------

Individual Flexible Payment Deferred Annuity

   Non-qualified    1975-491
1981-492
1994-396
1988-493
1994-393
2003-193    1-1-75/12-31-81
1-1-82/12-1-01
9-1-94/current
4-1-89/current
9-1-94/current
2-1-2004/current

Individual Single Premium Deferred Annuity

   Non-qualified    1991-494-495
1994 –394-395
2003-194-195    10-1-91/current
9-1-94/current
2-1-2004/current

 

 

Exhibit C

--------------------------------------------------------------------------------

Amended Filing Date: October 31, 2003

Original Filing Date: October 17, 2003

 

Amended Exhibit D

 

Expense Allowance

 

The expense allowance shall consist of the following:

 

    

Payment

--------------------------------------------------------------------------------

    

$78 per policy on policies issued after 09/30/2003

plus

  

4.84% of first-year premiums after 09/30/2003

plus

  

$3 per policy in force at the beginning of each month during the first year of
the contract

Increased by 2% for inflation at the beginning of each succeeding year.

plus

  

0.01% of total account values in force at the beginning of each month

 

 

Exhibit D