Exhibit 10

 

 

COINSURANCE AGREEMENT

Between

ING USA ANNUITY AND LIFE INSURANCE COMPANY

And

SECURITY LIFE OF DENVER INSURANCE COMPANY

Effective Date: May 1, 2005

 

 

 

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COINSURANCE AGREEMENT

THIS COINSURANCE AGREEMENT (the “Agreement”), is made and entered into as of May
1, 2005 (the “Effective Date”) between Security Life of Denver Insurance
Company, a Colorado-domiciled life insurance company (the “Reinsurer”) and ING
USA Annuity and Life Insurance Company, an Iowa-domiciled life insurance company
(the “Company”).

 

WHEREAS, the Company wishes to cede to the Reinsurer, and the Reinsurer wishes
to indemnity reinsure, on a one-hundred percent (100%) coinsurance basis, the
Covered Contracts (as hereinafter defined); and

 

WHEREAS, the Reinsurer wishes the Company to perform, or cause the performance
of, certain administrative functions with respect to the Covered Contracts;

 

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
set forth below throughout this Agreement:

 

“180-Day Treasury Rate” means the annual yield rate, on the date to which the
180-Day Treasury Rate relates, of actively traded U.S. Treasury securities
having a remaining duration to maturity of six (6) months, as such rate is
published under “Treasury Constant Maturities” in Federal Reserve Statistical
Release H.15(519).

“Actuary” has the meaning set forth in Section 9.3(c) of this Agreement.

“Affiliates” means, with respect to any Person, at the time in question, any
other Person controlling, controlled by or under common control with such
Person.

“Agreement” has the meaning set forth in the preamble.

“Applicable Law” means any constitution, code, statute, law, applicable court
decision, ordinance, regulation, writ, injunction, rule, established principle
of common law, decree or administrative ruling of any Governmental Authority
applicable to a Person or any such Person’s subsidiaries, properties, or assets,
or to such Person’s officers, directors, employees, managing directors, agents,
advisors and other representatives.

“Appraisal Value” has the meaning set forth in Section 9.3(f) of this Agreement.

“Books and Records” means all records and databases and other data and
information (in whatever form maintained) of the Reinsurer relating to the
Covered Contracts.

“Commissioner” means the Insurance Commissioner of the State of Iowa.

“Company” has the meaning set forth in the preamble.

 

 

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“Confidential Information” means all documents and information concerning one
party, any of its Affiliates, the Reinsured Liabilities or the Covered
Contracts, including any information relating to any person who is a beneficiary
directly or indirectly under the Covered Contracts, furnished to the other party
or such other party’s Affiliates or representatives in connection with this
Agreement or the transactions contemplated hereby, except that Confidential
Information shall not include information which: (a) at the time of disclosure
or thereafter is generally available to and known by the public other than by
way of a wrongful disclosure by a party hereto or by any representative of a
party hereto; (b) was available on a nonconfidential basis from a source other
than the parties hereto or their representatives, provided that such source is
not and was not bound by a confidentiality agreement with a party hereto; or (c)
was independently developed without violating any obligations under this
Agreement and without the use of any Confidential Information.

“Covered Contracts” means (i) all contracts that are listed on Schedule 1.1(a)
hereto.

“Day” or “day” means calendar day.

“Effective Date” means the effective date shown in the preamble of this
Agreement.

“Election Notice” has the meaning set forth in Section 9.3(a) of this Agreement.

“Extra Contractual Obligations” means all liabilities or obligations arising
under or relating to the Covered Contracts, exclusive of liabilities or
obligations arising under the express terms and conditions of the Covered
Contracts and the Liabilities, but including, without limitation, any liability
for fines, penalties, forfeitures, punitive, special, consequential, exemplary
or any other form of extra-contractual damages, which liabilities or obligations
arise from any actual or alleged act, error or omission, whether or not
intentional, negligent, or in bad faith by or otherwise relating to: (a) the
marketing, sale, underwriting, production, issuance, cancellation or
administration of the Covered Contracts; (b) the investigation, defense, trial,
settlement or handling of claims, benefits, or payments under the Covered
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 Covered
Contracts. For greater clarity, “Extra Contractual Obligations” shall include
all obligations arising out of any pending litigation or arising out of acts,
error or omissions occurring (or, in the case of omissions, failing to occur) at
any time prior to, on or after the Effective Date by the Company, the Reinsurer
or any other Person.

“Governmental Authority” means any government or political subdivision, board,
commission, court, administrative agency or other instrumentality thereof,
whether federal, state, local or foreign and including any regulatory authority
which may be partly or wholly autonomous.

“Liabilities” means all gross liabilities and obligations arising out of or
relating to the Covered Contracts (excluding Extra Contractual Obligations)
whether incurred before or after the Effective Date, including, without
limitation: (a) the Reserves; (b) all liabilities for benefits or unearned
premiums arising under or relating to the Covered Contracts, whether or not
included within the Reserves; (c) all liabilities arising out of any changes to
the terms and

 

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conditions of the Covered Contracts mandated by Applicable Law; (d)  commissions
payable with respect to the Covered Contracts to or for the benefit of the
producers or intermediaries who marketed or produced the Covered Contracts;
(e) all liabilities for amounts payable for returns or refunds of premiums and
(f) all unclaimed property liabilities arising under or relating to the Covered
Contracts.

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

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

“Recapture Ceding Commission” has the meaning set forth in Section 9.3(e) of
this Agreement.

“Recapture Date” has the meaning set forth in Section 9.3(b) of this Agreement.

“Recapture Fee” has the meaning set forth in Section 9.3(d) of this Agreement.

“Recaptured Business” has the meaning set forth in Section 9.3(c) of this
Agreement.

“Reinsurer” has the meaning set forth in the preamble.

“Reserves” means the aggregate amount of reserves and other liabilities with
respect to the Covered Contracts that are required by SAP.

“SAP” means the statutory accounting practices prescribed or permitted by the
insurance department of the State of Iowa.

“Termination Date” means the date on which this Agreement is terminated in
accordance with the terms and conditions of Article IX hereof.

“Transferred Assets” has the meaning set forth in Section 3.1(a) of this
Agreement.

“Treasury Regulations” means Treasury Regulations (including temporary and
proposed Treasury Regulations) promulgated by the United States Department of
Treasury with respect to the Internal Revenue Code or other federal tax
statutes.

“Triggering Event” means any of the following occurrences:

(i)                        the existence of an insolvency, rehabilitation,
conservation or comparable proceeding by or against the Reinsurer;

 

(ii)                       there has been a material breach of this Agreement by
the Reinsurer and such breach has not been cured within thirty (30) days after
notice;

 

 

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(iii)                      the Company is denied credit on its financial
statements in any jurisdiction (except for New York) with respect to the
reinsurance provided by the Reinsurer, and the Reinsurer does not take all
commercially reasonable steps necessary to enable the Company to obtain credit
on its financial statements within thirty (30) days of the Reinsurer’s receipt
of written notice from the Company as to the occurrence described herein;
provided that the Reinsurer shall not be required to (a) create or establish a
qualifying trust arrangement under New York law or (b) establish a letter of
credit to enable the Company to receive reserve credit in New York if such
action is required as a result of a merger, consolidation, reorganization or
other similar transaction of the Company.

 

ARTICLE II

BASIS OF COINSURANCE AND BUSINESS COINSURED

 

Section 2.1.

Coinsurance.

 

(a)               Subject to the terms and conditions of this Agreement, the
Company hereby cedes on a coinsurance basis to the Reinsurer as of the Effective
Date, and the Reinsurer hereby accepts and agrees to assume and indemnity
reinsure on a coinsurance basis as of the Effective Date, one hundred percent
(100%) of all Liabilities arising under or relating to the Covered Contracts.
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 shall be maintained in force, without reduction,
unless such reinsurance is terminated or reduced as provided herein.

 

(b)               On and after the Effective Date, the Reinsurer will have the
responsibility for paying to or on behalf of the Company, as and when due, all
Liabilities arising under or attributable to the Covered Contracts.

 

(c)               Reserves. On and after the Effective Date, the Reinsurer shall
establish and maintain as a liability on its statutory financial statements,
Reserves for the Covered Contracts ceded hereunder, calculated consistent with
(a) the reserve requirements, SAP and actuarial principles applicable to the
Company under Iowa Law; and (b) otherwise in accordance with any valuation bases
and methods of determining Reserves that may be provided in the Covered
Contracts. The Reinsurer shall provide the Company, no later than forty-five
(45) Days after the end of each calendar year, with copies of all actuarial
opinions and actuarial memoranda and all reserve evaluations pertaining to the
Reserves for the Covered Contracts. The Company agrees that the Reserves that it
establishes and maintains on its statutory financial statements filed with the
State of Iowa with respect to the Covered Contracts shall be consistent with the
Reserves established by the Reinsurer.

 

ARTICLE III

TRANSFER OF ASSETS; ACCOUNTING; ADMINISTRATION

 

Section 3.1.

Payments by the Company.

 

(a)               As consideration for the Reinsurer’s agreement to provide
reinsurance of the Liabilities under the Covered Contracts at the Effective
Date, the Company is transferring, on

 

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the Effective Date, to the Reinsurer, as an initial reinsurance premium, the
assets set forth on Schedule 3.1 (the “Transferred Assets”) and cash having a
value as determined on Schedule 3.1.

 

(b)               The Reinsurer shall be entitled, as additional reinsurance
premium, to immediate payment of amounts equal to Premiums received by the
Company on and after the Effective Date that are attributable to the Covered
Contracts.

 

(c)               To the extent that the Company recovers amounts from any third
party relating to the business attributable to the Covered Contracts (including,
without limitation, Premiums in arrears from a policyholder or ceding company
with respect to a reinstated Covered Contract, litigation recoveries, premium
and reinsurance recoverables), the Company shall, immediately upon receipt of
any such amounts, transfer such amounts to the Reinsurer and provide the
Reinsurer with any pertinent information that the Company may have relating
thereto.

 

Section 3.2.            Delayed Payments. If there is a delayed settlement of
any payment due hereunder, interest will accrue on such payment at the 180-Day
Treasury Rate then in effect. For purposes of this Section 3.2, a payment will
be considered overdue, and such interest will begin to accrue, on the first day
immediately following 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 3.3.            Offset and Recoupment Rights. Any debits or credits
incurred on and after the Effective Date in favor of or against either the
Company or Reinsurer with respect to this Agreement shall be set off and
recouped, and only the net balance shall be allowed or paid. This Section 3.3
shall apply notwithstanding the existence of any insolvency, rehabilitation,
conservatorship or comparable proceeding by or against the Company or the
Reinsurer.

 

Section 3.4.            Administration. The Company will administer, or cause
the administration of, the Covered Contracts and provide quarterly accountings
with respect thereto to the Reinsurer.

 

ARTICLE IV

REINSURANCE CREDIT

 

Section 4.1.            Licenses. At all times during the term of this
Agreement, the Reinsurer shall hold and maintain all licenses and authorizations
required under Applicable Law or otherwise take all commercially reasonable
action that may be necessary (i) so that the Company shall receive full reserve
credits for reinsurance ceded under this Agreement in the statutory financial
statement filed with the Commissioner, and in statutory financial statements
required to be filed with regulatory authority(ies) in such other jurisdictions
in which the Company must file such statements, and (ii) to perform its
obligations hereunder. Notwithstanding the preceding sentence to the contrary,
the Reinsurer shall not be required to (a) create or establish a qualifying
trust arrangement under New York law or (b) establish a letter of credit to
enable the Company to receive reserve credit in New York if such action is
required as a result of a merger, consolidation, reorganization or other similar
transaction of the Company.

 

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Section 4.2.            Reports. At the Company’s request, the Reinsurer shall
provide the Company with its annual and quarterly statutory financial statements
filed with state insurance regulators and a copy of its audited statutory
financial statements along with the audit report thereon.

 

ARTICLE V

OVERSIGHTS; COOPERATION; REGULATORY MATTERS

 

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, further, 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. If (a) the
failure of either party to comply with any provision of this Agreement is
unintentional or the result of a misunderstanding or oversight and (b) such
failure to comply is promptly rectified, both parties shall be restored as
closely as possible to the positions they would have occupied if no error or
oversight had occurred.

 

Section 5.2.            Cooperation. Each party hereto shall cooperate fully
with the other in all reasonable respects in order to accomplish the objectives
of this Agreement.

 

Section 5.3.            Regulatory Matters. If the Company or the Reinsurer
receives notice of, or otherwise becomes aware of, any regulatory inquiry,
investigation or proceeding relating to the Covered 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 VI

DAC TAX

Section 6.1.

Election.

 

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

 

(b)               Each of the Company and the Reinsurer acknowledges that it is
subject to taxation under Subchapter L of the Code and hereby makes the election
contemplated by Section 1.848-2(g)(8) of the Treasury Regulations with respect
to this Agreement. Each of the Company and the Reinsurer (i) agrees that such
election is effective for the taxable year of each party that includes the
Effective Date and for all subsequent years during which this Agreement remains
in effect and (ii) warrants that it will take no action to revoke the election.

 

(c)               Pursuant to Section 1.848-2(g)(8) of the Treasury Regulations,
each of the Company and the Reinsurer hereby agrees (i) to attach a schedule to
its federal income tax return for its first taxable year ending on or after the
Effective Date that identifies this Agreement as a reinsurance agreement for
which the joint election under Section 1.848-2(g)(8) has been made, (ii)

 

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that the party with net positive consideration for this Agreement for each
taxable year will capitalize its specified policy acquisition expenses with
respect to this Agreement without regard to the general deductions limitation of
Section 848(c)(1) of the Code, and (iii) to exchange information pertaining to
the amount of net consideration under this Agreement each year to ensure
consistency or as otherwise required by the Internal Revenue Service. The
Company shall prepare and execute duplicate copies of the schedule described in
the preceding sentence as soon as practicable after the Effective Date and
submit them to the Reinsurer for execution. The Reinsurer shall execute the
copies and return one of them to the Company within thirty (30) days of the
receipt of such copies.

 

(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) 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)                If 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)
days after the date on which the Reinsurer submits its alternative calculation.
If Reinsurer and the Company reach an 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.

 

If, during such period, Reinsurer and the Company are unable to reach an
agreement, they shall promptly thereafter cause a mutually agreed upon
independent accounting firm (the “Independent Accountants”) to promptly review
(which review shall commence no later than five (5) days after the selection of
the Independent Accountants) this Agreement and the calculations of Reinsurer
and the Company for the purpose of calculating the net consideration under this
Agreement. In making such calculation, the Independent Accountants shall
consider only those items or amounts in the Company’s calculation as to which
the Reinsurer has disagreed.

 

The Independent Accountants shall deliver to Reinsurer and the Company, as
promptly as practicable (but no later than thirty (30) 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 Company’s calculation delivered pursuant to Section 6.1(d) and the amount
thereof shown in Reinsurer’s calculation delivered pursuant to Section 6.1(e).
Such report shall be final and binding upon Reinsurer and the Company. The fees,
costs and expenses of the Independent Accountants shall be borne equally by
Reinsurer and the Company.

 

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ARTICLE VII

ARBITRATION

 

Section 7.1.

Arbitration.

 

(a)               After the Effective Date, any dispute between the parties with
respect to the calculation of amounts that are to be calculated, reported, or
that may be audited pursuant to this Agreement (other than disputes relating to:
(i) the assets to be transferred to the Reinsurer, (ii) calculations relating to
DAC tax, which shall be resolved in accordance with Article VI hereof, (iii)
matters relating to whether a Triggering Event has occurred, or (iv) matters
relating to indemnification which shall be resolved in accordance with Article X
hereto), shall be decided through negotiation and, if necessary, arbitration as
set forth in Section 7.2.

 

(b)               The parties intend this Section 7.1 to be enforceable in
accordance with the Federal Arbitration Act (9 U.S.C., Section 1) including any
amendments to that Act that are subsequently adopted. In the event that either
party refuses to submit to arbitration as required by Section 7.1(a), the other
party may request the court specified in Section 11.5 to compel arbitration in
accordance with the Federal Arbitration Act.

 

Section 7.2.

Arbitration Procedure.

 

The Company and Reinsurer intend that any dispute between them arising under
this Agreement (excluding those disputes identified in Section 7.1(a)) be
resolved without resort to any litigation. Accordingly, the Company and
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) days
(or such longer period as the parties may agree) after commencing such
negotiations, the Company and 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.

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 reinsurance company familiar with the reinsurance business, or
other professionals with experience in life insurance or reinsurance, provided
that such professionals shall not have performed services for either party
within the previous five (5) years, and provided further that no arbitrator
shall be a former employee of the Company, the Reinsurer or any of their
Affiliates. The Company and Reinsurer will each appoint one arbitrator by
written notification to the other party within thirty (30) days after the date
of the mailing of the notification initiating the arbitration. These two
arbitrators will then select the third arbitrator within sixty (60) days after
the date of the mailing of the notification initiating arbitration.

If either the Company or 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 will appoint the necessary
arbitrators within thirty (30) days after the request to do so.

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
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dispute between the parties, the arbitrators may base their decision on the
customs and practices of the life insurance and life reinsurance industry
together with an interpretation of the law. The vote or approval of a majority
of the arbitrators will decide any question considered by the arbitrators. The
arbitrators will determine the place of arbitration. Each decision (including
without limitation each award) of the arbitrators will be final and binding on
all parties and will be nonappealable, except that (at the request of either the
Company or Reinsurer) any award of the arbitrators may be confirmed (or, if
appropriate, vacated) by a judgment entered by the court specified in Section
11.4. No such award or judgment will bear interest except as provided in Section
3.2. 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 VII

INSOLVENCY

 

Section 8.1.            Insolvency of the Company. 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 statutory liquidator, receiver or statutory
successor on the basis of the liability of the Company under the Covered
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, receiver or statutory successor of the Company shall give written
notice of the pendency of a claim against the Company on a Covered 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, 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.

 

ARTICLE IX

DURATION; recapture

 

Section 9.1.            Duration. This Agreement shall continue in force until
such time as (i) the Company’s liability with respect to all Covered Contracts
reinsured hereunder is terminated in accordance with their respective terms, or
the Company has elected to recapture the reinsurance of Covered Contracts
following the occurrence of a Triggering Event, and (ii) the Company has
received payments which discharge such liability in full in accordance with the
provisions of this Agreement. In no event shall the interpretation of this
Section 9.1 imply any unilateral right of the Reinsurer to terminate this
Agreement; provided, however, that in the event that the Company fails to timely
pay any material amount due the Reinsurer hereunder, and such amount remains
unpaid for thirty (30) days, the Reinsurer shall have the right to terminate
reinsurance hereunder; provided, however, that the Reinsurer shall have provided
to the Commissioner ninety (90) days’ written notice prior to such termination.
In such case, the provisions of Section 9.3 shall apply as if the Termination
Date were a Recapture Date and the Reinsurer shall be relieved of all liability
under this Agreement to make future payments to the Company.

 

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Section 9.2.            Survival. Notwithstanding the other provisions of this
Article IX, the terms and conditions of Articles I, VI and X and the provisions
of Sections 11.1, 11.4, 11.6, 11.9, 11.10 and 11.12 shall remain in full force
and effect after the Termination Date.

 

Section 9.3.

Recapture.

 

(a)               Upon the occurrence of a Triggering Event, the Company shall
have the right to recapture all, and not less than all, of the reinsurance ceded
under this Agreement, by providing the Reinsurer with written notice of its
intent to effect recapture. The Company shall give the Reinsurer written notice
(the “Election Notice”) specifying (x) the grounds for the exercise of its
remedies pursuant to this Section 9.3 and (y) the fact of recapture and the
effective date of recapture.

 

(b)               Any recapture by the Company shall not be deemed to have been
consummated until (i) the Company has delivered the Election Notice and (ii) the
Company has received the payment of the entire Recapture Fee as determined in
Section 9.3(c) (the “Recapture Date”).

 

(c)               The amount of the Recapture Fee shall be determined in
accordance with the formula set forth below by a nationally recognized actuarial
consulting firm mutually agreed upon by the Company and the Reinsurer (the
“Actuary”).

 

(d)               The “Recapture Fee” shall be equal to (A) + (B) –(C) where (A)
is the Reserves on the Covered Contracts as of the Recapture Date, (B) is the
amount of fees and costs of the Actuary for its work in calculating the
Recapture Fee and of any outside attorneys or other outside consultants advising
the Company in connection with the recapture and (C) is the amount of Recapture
Ceding Commission as determined below.

 

(e)               The “Recapture Ceding Commission” shall be equal to the
Appraisal Value of the Covered Contracts subject to recapture (the “Recaptured
Business”) as of the Recapture Date, adjusted for taxes as provided below.

 

(f)                The “Appraisal Value” of the Recaptured Business shall be
equal to the present value (calculated at an interest rate equal to LIBOR plus
10%) as of the Recapture Date of the following values for the Recaptured
Business: (a) After Tax Statutory Profits, plus (b) After Tax Interest on
Required Surplus, minus or plus (c) the increase or decrease in Required
Surplus, minus (d) the Required Surplus of the Recapture Date.

 

(g)               For purposes of Section 9.3, “Required Surplus” shall be
calculated on the assumption that 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, earned and credited
interest rates, 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 three percent per year over the
estimated cost of such services for the twelve months immediately following the
Recapture Date.

 

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(h)               The Recapture Ceding Commission shall be calculated net of any
Federal or state income Tax credits and charges incurred by the Company as a
result of the recapture of the Recaptured Business. If the Code provisions in
effect as of the Closing are in effect at the time of the recapture, the Company
shall take into account a tax credit for (a) the Recapture Ceding Commission
adjusted for the difference between statutory and tax reserves and (b) the
present value of the tax charge for the DAC Taxes (determined under Section 848
of the Code) generated by the recapture. The present value of the DAC Tax charge
shall be calculated at an interest rate equal to LIBOR plus 10% and shall take
into account the amount and timing of anticipated Tax deductions attributable to
amortization of specified policy acquisition costs pursuant to Section 848 of
the Code. The Recapture Ceding Commission would equal the Appraisal Value net of
such credits and charges.In the event that the Code is amended prior to a
Recapture Date, the Actuary shall make the appropriate adjustment (if any) to
the calculations set forth in the preceding paragraph in order to preserve the
parties’ intent that the Recapture Ceding Commission be calculated net of any
Federal or state income tax credits as a result of the recapture.

 

ARTICLE X

CLAIMS PAYMENT

 

Section 10.1.          Claims Payment. The Company shall notify the Reinsurer of
any payments made or owed under the Covered Contracts and shall provide, if
requested by the Reinsurer, relevant information respecting such payments and an
itemized statement of the amounts paid and owed. Upon receipt of such notice,
the Reinsurer shall promptly but in any event within thirty (30) days reimburse
the Company for the reinsured portion of all payments under the Covered
Contracts.

 

ARTICLE XI

MISCELLANEOUS

 

Section 11.1.          Notices. Any notice, request or other communication to be
given by any party hereunder shall be in writing and shall be delivered
personally, sent by registered or certified, postage prepaid, or by overnight
courier with written confirmation of delivery. Any such notice shall be deemed
given when so delivered personally, or if mailed, on the date shown on the
receipt therefor, or if sent by overnight courier, on the date shown on the
written confirmation of delivery. Such notices shall be given to the following
address:

 

To Reinsurer:

Security Life of Denver Insurance Company

1290 Broadway

Denver, Colorado 80203

Attention: Chief Financial Officer

 

With a concurrent

copy to:

B. Scott Burton

 

 

Corporate General Counsel

ING North America Insurance Corporation

5780 Powers Ferry Road

Atlanta, Georgia 30327

 

 

11

 

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Execution

 

 

To Company:

ING USA Annuity and Life Insurance Company

909 Locust Street

Des Moines, Iowa 50309

Attention: Chief Financial Officer

 

 

With a copy to:

B. Scott Burton

 

 

Corporate General Counsel

ING North America Insurance Corporation

5780 Powers Ferry Road

Atlanta, Georgia 30327

 

Section 11.2.          Entire Agreement. This Agreement may not be amended or
modified in any respect whatsoever except by instrument in writing signed by the
parties hereto. This Agreement and other documents delivered pursuant hereto,
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements understanding
negotiations, discussions, whether oral or written, of the parties.

 

Section 11.3.          Captions. The captions of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.

 

Section 11.4.          Governing Law and Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of Iowa
applicable to contracts entered into therein, without reference to principles of
choice of law or conflicts of laws. Each party hereto irrevocably and
unconditionally submits to the exclusive jurisdiction of any State or Federal
Court sitting in Iowa, over any suit, action or proceeding arising out of or
relating to this Agreement. Each party hereto agrees that service of any
process, summons, notice or document by U.S. registered mail addressed to such
party shall be effective service of process for any action, suit or proceeding
brought against such party in such court. Each party hereto irrevocably and
unconditionally waives any objection to the laying of venue of any such suit,
action or proceeding brought in any such court and any claim that any such
action, suit or proceeding brought in any such court has been brought in an
inconvenient forum. Each party hereto agrees that final judgment in any such
action, suit or proceeding brought in any such court shall be conclusive and
binding upon such party and may be enforced in any other courts to whose
jurisdiction such party may be subject, by suit upon such judgment.

 

Section 11.5.          No Third Party Beneficiaries. Except as otherwise
expressly set forth in any provision of this Agreement, nothing in this
Agreement is intended or shall be construed to give any Person, other than the
parties hereto, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.

 

Section 11.6.          Expenses. Except as otherwise provided herein, the
parties hereto shall each bear their respective expenses incurred in connection
with the negotiation, preparation, execution, and performance of this Agreement
and the transactions contemplated hereby, including, without limitation, all
fees and expenses of counsel, actuaries and other representatives.

 

 

12

 

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Execution

 

 

Section 11.7.          Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
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 of the
parties hereto. Each counterpart may be delivered by facsimile transmission,
which transmission shall be deemed delivery of an originally executed document.

 

Section 11.8.          Severability; Waiver. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction, so
long as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any party. If any provision
of this Agreement is so broad as to be unenforceable, that provision shall be
interpreted to be only so broad as is enforceable. The failure of either party
to enforce any part of this Agreement will not constitute a waiver by such party
of its right to do so, nor will it be deemed to be an act of ratification or
consent. No waiver, modification or amendment of any provision of this
Agreement, including any change to any Schedule to this Agreement, shall be
effective unless specifically made in writing and duly signed by the parties. No
waiver by either party of any violation or default by the other party in the
performance of any promise, term or condition of this Agreement will be
construed to be a waiver by such party of any other or subsequent violation or
default of this Agreement. No prior transactions or dealings between the parties
will be deemed to establish any custom or usage waiving or modifying any
provision hereof.

 

Section 11.9.          Waiver of Jury Trial; Multiplied and Punitive Damages.
Each of the parties hereto irrevocably waives, with respect to any first party
action filed by the other party (but not as to any action by one party against
the other seeking indemnification for a third party claim against the party
initiating the action, to the extent that such damages may be recoverable as
part of the indemnification by the indemnified party) (i) any and all right to
trial by jury, and (ii) any right to punitive, incidental, consequential or
multiplied damages, either pursuant to common law or statute, in any legal
proceedings arising out of or related to this Agreement or the transactions
contemplated hereby.

 

Section 11.10.       Treatment of Confidential Information. The parties agree
that, other than as contemplated by this Agreement and to the extent permitted
or required to implement the transactions contemplated by this Agreement, the
parties will keep confidential and will not use or disclose the other party’s
Confidential Information and the terms and conditions of this Agreement,
including, without limitation, the exhibits and schedules hereto, except as
otherwise required by Applicable Law or any order or ruling of any state
insurance regulatory authority, the Securities and Exchange Commission or any
other Governmental Authority.

 

Section 11.11.       Assignment. No party hereto may assign this Agreement or
any of its obligations hereunder without the prior written consent of the other
parties; provided, however, that this Agreement shall inure to the benefit of
and bind those who, by operation of law, become successors to the parties,
including, without limitation, any liquidator, rehabilitator, receiver or
conservator and any successor, merged or consolidated entity.

 

 

13

 

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14

 

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Execution

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
effective May 1, 2005.

SECURITY LIFE OF DENVER INSURANCE COMPANY

 

By: /s/     Boyd G. Combs                                    ___

Name:     Boyd G. Combs

Title:       Senior Vice President, Tax

 

 

By: /s/     David S. Pendergrass                         ___

Name:     David S. Pendergrass

Title:       Vice President and Treasurer

 

 

 

ING USA ANNUITY AND LIFE

INSURANCE COMPANY

 

 

By: /s/     Boyd G. Combs                                    ___

Name:     Boyd G. Combs

Title:       Senior Vice President, Tax

 

 

By: /s/     David S. Pendergrass                         ___

Name:     David S. Pendergrass

Title:       Vice President and Treasurer

 

 

15

 

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Execution

 

 

Schedule 1.1(a)

Covered Contracts

 

 

 

 

 

 

 

Non-deduc

 

Count

Fund Value

Stat Reserve

Ratio

Tax Reserve

Ratio

Deferred Annuities - MYGA

 

 

 

 

 

 

 

as of 3/31/04

 

 

 

 

 

 

Issue year 2001

 

939,242,449

922,357,261

98.20%

 

 

Issue year 2002

 

1,272,546,779

1,233,579,419

96.94%

 

 

Issue year 2003

 

328,567,040

308,894,856

94.01%

 

 

Total

 

2,540,356,268

2,464,831,536

97.03%

 

 

 

 

 

 

 

 

 

as of 6/30/04

 

 

 

 

 

 

Issue year 2001

 

942,441,254

926,607,600

98.32%

922,706,375

-0.42%

Issue year 2002

 

1,272,292,766

1,234,585,846

97.04%

1,229,937,774

-0.38%

Issue year 2003

 

327,720,213

306,175,878

93.43%

306,142,954

-0.01%

Total

 

2,542,454,233

2,467,369,324

97.05%

2,458,787,104

-0.35%

change in period

 

0.08%

0.10%

0.02%

 

 

 

 

 

 

 

 

 

as of 9/30/04

 

 

 

 

 

 

Issue year 2001

14,457

945,986,156

931,767,631

98.50%

927,717,461

-0.43%

Issue year 2002

18,948

1,272,986

1,237,812,855

97.24%

1,232,436,544

-0.43%

Issue year 2003

6,017

322,101,578

298,883,327

92.79%

298,803,454

-0.03%

Total

39,422

2,541,065,720

2,468,463,813

97.14%

2,458,957,459

-0.39%

change in period

 

-0.05%

0.04%

0.10%

 

 

 

 

 

 

 

 

 

as of 12/31/04

 

 

 

 

 

 

Issue year 2001

14,316

947,520,511

934,999,590

98.68%

930,896,385

-0.44%

Issue year 2002

18,813

1,275,379,225

1,242,213,591

97.40%

1,236,715,668

-0.44%

Issue year 2003

5,895

317,790,321

293,823,966

92.46%

293,727,073

-0.03%

Total

39,024

2,540,690,057

2,471,037,147

97.26%

2,461,339,126

-0.39%

change in period

-1.01%

-0.01%

0.10%

0.12%

 

 

 

 

as of 3/31/05

 

 

 

 

 

 

Issue year 2001

14,182

949,628,400

938,172,876

98.79%

934,092,317

-0.43%

Issue year 2002

18,650

1,277,374,660

1,245,448,276

97.51%

1,239,833,042

-0.43%

Issue year 2003

5,784

311,452,366

287,933,633

92.57%

287,822,641

-0.03%

Total

38,616

2,538,455,426

2,471,554,785

97.36%

2,461,748,001

-0.40%

change in period

-1.05%

-0.09%

0.02%

0.11%

 

 

 

 

 

 

 

 

 

as of 5/1/05

 

 

 

 

 

 

Issue year 2001

14,148

951,227,141

939,944,398

98.82%

935,886,500

-0.43%

Issue year 2002

18,593

1,277,729,549

1,246,332,595

97.54%

1,240,674,687

-0.45%

Issue year 2003

5,747

309,831,967

286,390,742

92.60%

286,270,262

-0.04%

Total

38,488

2,538,788,657

2,472,667,734

97.40%

2,462,831,449

-0.40%

change in period

-0.33%

0.01%

0.07%

0.07%

 

 

 

 

 

 

 

 

 

 

 

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

Execution

 

 

Schedule 3.1

Transferred Assets

 

ASSET_CLASS2_ID

Data

Total

BIG Private

Count of SLD XFER?

9

 

Sum of Adjusted BV_AI

$16,647,289

 

Sum of WTD AVG DUR

2.62

 

Sum of WTD AVG BOOK YIELD

7.52

 

Sum of WTD AVG RW

13.48

 

Sum of WTD AVG YTM

6.00

BIG Public

Count of SLD XFER?

48

 

Sum of Adjusted BV_AI

$77,553,860

 

Sum of WTD AVG DUR

6.09

 

Sum of WTD AVG BOOK YIELD

6.56

 

Sum of WTD AVG RW

13.75

 

Sum of WTD AVG YTM

6.65

EMD

Count of SLD XFER?

62

 

Sum of Adjusted BV_AI

$84,806,332

 

Sum of WTD AVG DUR

8.15

 

Sum of WTD AVG BOOK YIELD

7.13

 

Sum of WTD AVG RW

12.86

 

Sum of WTD AVG YTM

6.34

IG Corp

Count of SLD XFER?

441

 

Sum of Adjusted BV_AI

$1,835,244,700

 

Sum of WTD AVG DUR

6.31

 

Sum of WTD AVG BOOK YIELD

5.40

 

Sum of WTD AVG RW

8.41

 

Sum of WTD AVG YTM

5.16

IG Private Corp

Count of SLD XFER?

36

 

Sum of Adjusted BV_AI

$297,897,843

 

Sum of WTD AVG DUR

5.78

 

Sum of WTD AVG BOOK YIELD

5.85

 

Sum of WTD AVG RW

10.00

 

Sum of WTD AVG YTM

5.70

US Treasury & Agency

Count of SLD XFER?

11

 

Sum of Adjusted BV AI

$216,239,301

 

Sum of WTD AVG DUR

4.65

 

Sum of WTD AVG BOOK YIELD

3.89

 

Sum of WTD AVG RW

0.55

 

Sum of WTD AVG YTM

4.25

Total Count of SLD XFER?

607

Total Sum of Adjusted BV_AI

$2,528,389,324

Total Sum of WTD AVG DUR

6.13

Total Sum of WTD AVG BOOK YIELD

5.43

Total Sum of WTD AVG RW

8.27

Total Sum of WTD AVG YTM

5.24

 

 

Cash

$      198,000,000

 

 

Total transfer

$  2,726,389,324