Exhibit 10.29

 

COINSURANCE AGREEMENT

 

 

between

 

ATHENE LIFE RE LTD.

 

and

 

AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY

 

effective as of July 1, 2009

 

 

Treaty Number 070109

 

(CD Annuity Transaction)

 

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TABLE OF CONTENTS

 

ARTICLE I GENERAL PROVISIONS

1

 

 

 

Section 1.01

Defined Terms

1

Section 1.02

Other Definitional Provisions

6

 

 

ARTICLE II COVERAGE

6

 

 

 

Section 2.01

Scope of Coverage

6

Section 2.02

Underwriting of Policies Subject to Reinsurance

7

Section 2.03

Retention

7

Section 2.04

Policy Changes

7

Section 2.05

Reinstatement of Surrendered Policies

8

Section 2.06

Misstatement of Fact

8

Section 2.07

Credited Rates and Non-Guaranteed Elements

8

Section 2.08

Programs of Internal Replacement

8

 

 

ARTICLE III REINSURED PREMIUMS

8

 

 

 

Section 3.01

Reinsurance Premiums

8

 

 

ARTICLE IV POLICY EXPENSES

9

 

 

 

Section 4.01

Commissions and Policy Issuance Fee

9

Section 4.02

Administration Fee

9

Section 4.03

Renewal Commissions

9

 

 

ARTICLE V C-4 RISK CHARGE

9

 

 

 

Section 5.01

C-4 Risk Charge

9

 

 

ARTICLE VI GUARANTY FUND ASSESSMENTS

9

 

 

 

Section 6.01

Guaranty Fund Assessments

9

 

 

ARTICLE VII CLAIMS

10

 

 

 

Section 7.01

Claims Payment

10

Section 7.02

Claims Settlement

10

Section 7.03

Recoveries

10

 

 

ARTICLE VIII REPORTING AND SETTLEMENTS

11

 

 

 

Section 8.01

Ceding Company Reporting

11

Section 8.02

Reinsurer Reporting

12

Section 8.03

Settlements

12

 

 

ARTICLE IX CREDIT FOR REINSURANCE

14

 

 

 

Section 9.01

Reserves

14

Section 9.02

Form of Security

14

Section 9.03

Funds Withheld Account

15

Section 9.04

Reinsurance Trust

17

Section 9.05

Letters of Credit

19

Section 9.06

Priority of Withdrawal

20

 

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Section 9.07

Investment Management

20

 

 

ARTICLE X ADMINISTRATION

21

 

 

 

Section 10.01

Policy Administration

21

Section 10.02

Record Keeping

21

 

 

ARTICLE XI TERM AND TERMINATION

22

 

 

 

Section 11.01

Duration of Agreement

22

Section 11.02

Termination

22

Section 11.03

Termination Payment

23

Section 11.04

Survival

24

 

 

ARTICLE XII RECAPTURE

24

 

 

 

Section 12.01

Recapture

24

 

 

ARTICLE XIII ERRORS AND OMISSIONS

24

 

 

 

Section 13.01

Errors and Omissions

24

 

 

ARTICLE XIV DISPUTE RESOLUTION

24

 

 

 

Section 14.01

Negotiation

24

Section 14.02

Arbitration

25

 

 

ARTICLE XV INSOLVENCY

26

 

 

 

Section 15.01

Insolvency

26

 

 

ARTICLE XVI TAXES

27

 

 

 

Section 16.01

Taxes

27

Section 16.02

Premium Tax

28

Section 16.03

Excise Tax

28

 

 

ARTICLE XVII REPRESENTATIONS, WARRANTIES AND COVENANTS

28

 

 

 

Section 17.01

Representations and Warranties of the Ceding Company

28

Section 17.02

Covenants of the Ceding Company

30

Section 17.03

Representations and Warranties of the Reinsurer

31

Section 17.04

Covenants of the Reinsurer

32

 

 

ARTICLE XVIII MISCELLANEOUS

33

 

 

 

Section 18.01

Currency

33

Section 18.02

Interest

33

Section 18.03

Right of Setoff and Recoupment

33

Section 18.04

No Third Party Beneficiaries

33

Section 18.05

Amendment

33

Section 18.06

Notices

33

Section 18.07

Consent to Jurisdiction

34

Section 18.08

Service of Process

35

Section 18.09

Inspection of Records

35

Section 18.10

Confidentiality

35

Section 18.11

Successors

36

 

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Section 18.12

Entire Agreement

36

Section 18.13

Severability

36

Section 18.14

Construction

36

Section 18.15

Non-Waiver

36

Section 18.16

Further Assurances

37

Section 18.17

Governing Law

37

Section 18.18

Counterparts

37

 

Schedules

I.

Reinsured Policy Forms

II.

Underwriting Guidelines

 

Exhibits

A.

Monthly Accounting Report

B.

Quarterly Accounting Report

C.

Reinsured Policies Report

D.

Trust Agreement

E.

Investment Management Agreement

 

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COINSURANCE AGREEMENT

 

This COINSURANCE AGREEMENT (the “Agreement”), effective as of July 1, 2009, is
made by and between AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY, an
insurance company organized under the laws of the State of Iowa (the “Ceding
Company”) and ATHENE LIFE RE LTD., a reinsurance company organized under the
laws of Bermuda (the “Reinsurer”).

 

WITNESSETH:

 

WHEREAS, the Ceding Company desires to cede and the Reinsurer desires to accept
a specified quota share of the Reinsured Policies (as defined below) subject to
the terms, conditions and limitations contained herein.

 

NOW, THEREFORE, in consideration of the mutual promises and agreements contained
herein, the Ceding Company and the Reinsurer hereby agree as follows:

 

ARTICLE I

GENERAL PROVISIONS

 

SECTION 1.01             DEFINED TERMS.  AS USED IN THIS AGREEMENT, THE
FOLLOWING TERMS SHALL HAVE THE FOLLOWING MEANINGS:

 

“Action” shall mean any claim, action, suit, arbitration or proceeding by or
before any governmental authority.

 

“Administration Fee” shall have the meaning specified in Section 4.02.

 

“Affiliate” shall mean, with respect to any person, any other person that
directly or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such specified person; provided,
that “control” (including, with correlative meanings, “controlled by” and “under
common control with”), as used with respect to any person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such person, whether through the ownership of voting
securities, by agreement or otherwise.

 

“Agreement” shall have the meaning specified in the Preamble hereto.

 

“Authorized Representative” shall have the meaning specified in
Section 15.01(a).

 

“Business Day” shall mean any day other than a Saturday, Sunday or any other day
on which banking institutions are authorized or required by law or executive
order to close in Des Moines, Iowa or Hamilton, Bermuda.

 

“C-4 Risk Charge” shall have the meaning specified in Section 5.01.

 

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“Ceded Reserves” shall have the meaning set forth in Section 9.01.

 

“Ceding Company” shall have the meaning specified in the Preamble hereto.

 

“Claims” shall have the meaning specified in Section 7.01.

 

“Commissions” shall have the meaning specified in Section 4.01.

 

“Contested Claim” shall have the meaning specified in Section 7.02(b).

 

“Effective Date” shall mean July 1, 2009.

 

“Embedded Value” shall mean the present value of (a) projected future investment
earnings on the Ceded Reserves, determined based on the asset portfolio as of
the date as of which the calculation is made, minus (b) the Quota Share of
projected future Claims, minus (c) future Policy Expenses, each determined
(i) from the date as of which the calculation is made to the date on which no
Reinsured Policy is projected to be outstanding, (ii) based on the pricing
assumptions and policy decrements for the Reinsured Policies and Reinsured
Liabilities as used by the Ceding Company and the Reinsurer on the Effective
Date and (iii) based on a discount rate equal to ten percent (10%); provided,
however, that the Embedded Value shall in no event be less than zero (0).

 

“Embedded Value Report” shall have the meaning specified in Section 11.03(c).

 

“Excluded Liabilities” shall mean (i) Extra-Contractual Obligations, (ii) any
liabilities other than liabilities related to partial surrenders, full
surrenders, death claims, annuity payouts under Supplementary Contracts or other
contractual benefits under the Reinsured Policies and (iii) any ex gratia
payments made by the Ceding Company (i.e., payments the Ceding Company is not
required to make under the terms of the Reinsured Policies).

 

“Extra-Contractual Obligations” shall mean any liabilities or obligations not
arising under the express terms and conditions of, or in excess of the
applicable policy limits of, the Reinsured Policies, including liabilities or
obligations for fines, penalties, taxes, fees, forfeitures, compensatory
damages, and punitive, special, treble, bad faith, tort, exemplary or other
forms of extra-contractual damages awarded against or paid by the Ceding
Company, which liabilities or obligations arise from any act, error or omission
committed by the Ceding Company, whether or not intentional, negligent, in bad
faith or otherwise relating to (i) the form, marketing, sale, underwriting,
production, issuance, cancellation or administration of the Reinsured Policies,
(ii) the investigation, defense, trial, settlement or handling of claims,
benefits or payments under the Reinsured Policies, (iii) 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 Reinsured Policies, or (iv) the failure of the Reinsured
Policies to qualify for their intended tax status.

 

“Factual Information” shall have the meaning specified in Section 17.01(d).

 

“Funds Withheld Account” shall have the meaning specified in Section 9.02(a).

 

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“Funds Withheld Adjustment” shall mean, as of any date of determination, an
amount equal to (a) Ceded Reserves minus (b) the Statutory Carrying Value of
assets held in the Funds Withheld Account minus (c) the market value of assets
held in any Reinsurance Trust minus (d) the amount available under outstanding
Letters of Credit minus (e) any amounts due and unpaid by the Ceding Company
under Sections 8.03(a), (b) or (c).

 

“Funds Withheld Amount” shall mean, as of the relevant date of determination,
the Statutory Carrying Value of all assets deposited in the Funds Withheld
Account.

 

“Funds Withheld Excess Withdrawals” shall have the meaning specified in
Section 9.03(f).

 

“Gross Reserves” shall mean the gross reserves of the Ceding Company in respect
of the Reinsured Policies, as determined in accordance with Section 9.01.

 

“Guaranty Fund Assessment” shall mean an assessment or similar charge arising on
account of or in connection with participation, whether voluntary or
involuntary, in any guaranty association or comparable entity established or
governed by any state or other jurisdiction.

 

“IMR” shall mean the interest maintenance liability reserve with respect to the
assets in the Funds Withheld Account determined in accordance with SAP,
consisting of after-tax unamortized deferred gains and losses in respect of such
assets.

 

“Initial Deposit Amount” shall mean $3,050,000.00.

 

“Investment Management Agreement” shall have the meaning specified in
Section 9.07(a).

 

“Investment Manager” shall have the meaning specified in Section 9.07(a).

 

“Letter of Credit” shall have the meaning specified in Section 9.02(c).

 

“Letter of Credit Excess Withdrawal” shall have the meaning specified in
Section 9.05(c).

 

“Material Adverse Effect” shall mean, with respect to either the Ceding Company
or the Reinsurer, a material adverse effect upon (a) the business, operations,
properties, financial condition, prospects or assets of such party, (b) the
ability of such party to perform and comply with its obligations hereunder,
(c) the validity, legality or enforceability of this Agreement, or (d) the
timing or amount of the cash flows attributable to the business reinsured under
this Agreement.

 

“Monthly Accounting Period” shall have the meaning specified in Section 8.01(a).

 

“Monthly Accounting Report” shall have the meaning specified in Section 8.01(a).

 

“Monthly Net Settlement Amount” shall have the meaning specified in
Section 8.03(b).

 

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“Net Settlement Amount” shall mean the Monthly Net Settlement Amount or the
Quarterly Net Settlement Amount, as applicable.

 

“Non-Payment Event” shall have the meaning specified in Section 11.02(b).

 

“Non-Public Personal Information” shall have the meaning specified in
Section 18.10(c).

 

“Objection Notice” shall have the meaning specified in Section 9.03(h).

 

“Permitted Assets” shall mean cash, securities listed by the Securities
Valuation Office of the National Association of Insurance Commissioners and
qualifying as admitted assets of the Ceding Company under the applicable laws of
the State of Iowa, or any other form of security acceptable to the Iowa
Insurance Commissioner, or any combination of the above.

 

“Permits” shall have the meaning specified in Section 17.01(g).

 

“Person” shall mean and include an individual, a corporation, a partnership, an
association, a trust, an unincorporated organization or a government or
political subdivision thereof.

 

“Policy Expenses” shall have the meaning specified in Section 4.02.

 

“Policy Issuance Fee” shall have the meaning specified in Section 4.01.

 

“Premium Tax” shall have the meaning specified in Section 16.02.

 

“Proprietary Information” shall have the meaning specified in Section 18.10(b).

 

“Qualified U.S. Financial Institution” shall mean an institution that is
(a) organized or licensed under the laws of the Unites States or any state of
the United States; (b) is regulated, supervised and examined by federal or state
authorities having regulatory authority over banks and trust companies; and
(c) has been determined by either the Iowa Insurance Commissioner, or the
securities valuation office of the National Association of Insurance
Commissioners, to meet such standards of financial condition and standing as are
considered necessary and appropriate to regulate the quality of financial
institutions whose letters of credit will be acceptable to the Iowa Insurance
Commissioner.

 

“Quarterly Accounting Period” shall have the meaning specified in
Section 8.01(b).

 

“Quarterly Accounting Report” shall have the meaning specified in
Section 8.01(b).

 

“Quarterly Net Settlement Amount” shall have the meaning specified in
Section 8.03(c).

 

“Quota Share” shall be eighty percent (80%).

 

“Receiver” shall have the meaning specified in Section 11.03(a).

 

“Reinsurance Premiums” shall have the meaning specified in Section 3.01.

 

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“Reinsurance Trust” shall have the meaning specified in Section 9.02(b).

 

“Reinsurance Trust Excess Withdrawals” shall have the meaning specified in
Section 9.04(f).

 

“Reinsured Liabilities” shall mean the liabilities of the Ceding Company that
relate to partial surrenders, full surrenders, death claims, annuity payouts
under Supplementary Contracts and other contractual benefits, in each case,
under the Reinsured Policies; provided that in no case shall “Reinsured
Liabilities” include any Excluded Liabilities.

 

“Reinsured Policies” shall mean all single premium deferred annuity contracts on
the policy forms listed on Schedule I, including any amendments, riders or
endorsements attached thereto and all Supplementary Contracts, written by the
Ceding Company on or following the Effective Date through, but excluding, the
date this Agreement is terminated.

 

“Reinsured Policies Report” shall have the meaning specified in Section 8.01(c).

 

“Reinsurer” shall have the meaning specified in the Preamble hereto.

 

“Renewal Commissions” shall have the meaning specified in Section 4.03.

 

“SAP” shall mean the statutory accounting principles and practices prescribed or
permitted for Iowa life insurance companies by the Iowa Insurance Division.

 

“Similar Policy Form” shall have the meaning specified in Section 2.01(d).

 

“Statutory Carrying Value” shall mean, with respect to any asset held by the
Ceding Company in the Funds Withheld Account, as of the relevant date of
determination, the amount permitted to be carried by the Ceding Company as an
admitted asset consistent with SAP, as such amount is adjusted in accordance
with Section 9.03(h).

 

“Supplementary Contracts” shall mean all supplementary contracts, whether with
or without life contingencies, issued by the Ceding Company in exchange for a
Reinsured Policy.

 

“Terminal Accounting Period” shall have the meaning specified in
Section 8.01(b).

 

“Termination Effective Date” shall mean the date on which the liability of the
Reinsurer with respect to all of the Reinsured Policies is terminated pursuant
to Section 11.02(b), (c) or (d) or the effective date of the rejection of this
Agreement by any Receiver.

 

“Underwriting Guidelines” shall mean the underwriting guidelines set forth in
Schedule II, as amended in accordance with Section 2.02(b).

 

“U.S. GAAP” means accounting principles generally accepted in the United States.

 

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SECTION 1.02             OTHER DEFINITIONAL PROVISIONS.

 

(A)                                  FOR PURPOSES OF THIS AGREEMENT, THE WORDS
“HEREOF,” “HEREIN,” “HEREBY” AND OTHER WORDS OF SIMILAR IMPORT REFER TO THIS
AGREEMENT AS A WHOLE, INCLUDING ALL SCHEDULES AND EXHIBITS TO THIS AGREEMENT,
UNLESS OTHERWISE INDICATED.

 

(B)                                 WHENEVER THE SINGULAR IS USED HEREIN, THE
SAME SHALL INCLUDE THE PLURAL, AND WHENEVER THE PLURAL IS USED HEREIN, THE SAME
SHALL INCLUDE THE SINGULAR, WHERE APPROPRIATE.

 

(C)                                  THE TERM “INCLUDING” MEANS “INCLUDING BUT
NOT LIMITED TO.”

 

(D)                                 WHENEVER USED IN THIS AGREEMENT, THE
MASCULINE GENDER SHALL INCLUDE THE FEMININE AND NEUTRAL GENDERS AND VICE VERSA.

 

(E)                                  THE SCHEDULES AND EXHIBITS HERETO ARE
HEREBY INCORPORATED BY REFERENCE INTO THE BODY OF THIS AGREEMENT.

 

(F)                                    ALL REFERENCES HEREIN TO ARTICLES,
SECTIONS, SUBSECTIONS, PARAGRAPHS, EXHIBITS AND SCHEDULES SHALL BE DEEMED
REFERENCES TO ARTICLES AND SECTIONS AND SUBSECTIONS AND PARAGRAPHS OF, AND
EXHIBITS AND SCHEDULES TO, THIS AGREEMENT UNLESS THE CONTEXT SHALL OTHERWISE
REQUIRE.

 

(G)                                 ALL TERMS DEFINED IN THIS AGREEMENT SHALL
HAVE THE DEFINED MEANING WHEN USED IN ANY SCHEDULE, EXHIBIT, CERTIFICATE, REPORT
OR OTHER DOCUMENTS ATTACHED HERETO OR MADE OR DELIVERED PURSUANT HERETO UNLESS
OTHERWISE DEFINED THEREIN.

 

ARTICLE II

COVERAGE

 

SECTION 2.01             SCOPE OF COVERAGE.

 

(A)                                  THIS AGREEMENT SHALL BE EFFECTIVE AS OF
12:01 A.M. ON THE EFFECTIVE DATE.

 

(B)                                 THIS AGREEMENT IS AN AGREEMENT FOR INDEMNITY
REINSURANCE MADE SOLELY BETWEEN THE CEDING COMPANY AND THE REINSURER.

 

(C)                                  SUBJECT TO THE TERMS, CONDITIONS AND LIMITS
OF THIS AGREEMENT (INCLUDING THE EXCLUSION FROM COVERAGE OF EXCLUDED
LIABILITIES), THE CEDING COMPANY SHALL AUTOMATICALLY CEDE AND THE REINSURER
SHALL AUTOMATICALLY REINSURE THE QUOTA SHARE OF THE REINSURED LIABILITIES.

 

(D)                                 THE CEDING COMPANY SHALL DELIVER NOTICE TO
THE REINSURER TEN (10) BUSINESS DAYS PRIOR TO ISSUING CONTRACTS ON POLICY FORMS
THAT ARE SUBSTANTIALLY SIMILAR TO THE FORMS SET FORTH ON SCHEDULE I OR ISSUING
CONTRACTS PROVIDING SUBSTANTIALLY SIMILAR ECONOMIC BENEFITS TO POLICYHOLDERS AS
TO BE PROVIDED BY THE REINSURED POLICIES (EACH A “SIMILAR POLICY FORM”).  THE
REINSURER SHALL HAVE THE RIGHT TO AMEND SCHEDULE I TO ADD ANY SIMILAR POLICY
FORM TO SCHEDULE I AND INCLUDE CONTRACTS ON ANY SIMILAR POLICY FORM AS REINSURED
POLICIES UNDER THIS

 

6

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AGREEMENT.  THE CEDING COMPANY SHALL PROVIDE TO THE REINSURER ANY ADDITIONAL
INFORMATION RELATING TO ANY SIMILAR POLICY FORM OR CONTRACTS WRITTEN ON ANY
SIMILAR POLICY FORM AS IS REASONABLY REQUESTED BY THE REINSURER FROM TIME TO
TIME.

 

(E)                                  SUBJECT TO THE TERMS, CONDITIONS AND LIMITS
OF THIS AGREEMENT (INCLUDING THE EXCLUSION FROM COVERAGE OF EXCLUDED LIABILITIES
AND EXCLUDING THE INVESTMENT PERFORMANCE OF THE ASSETS IN THE FUNDS WITHHELD
ACCOUNT), THE REINSURER SHALL FOLLOW THE FORTUNES OF THE CEDING COMPANY, AND TO
THAT END THE REINSURER’S LIABILITY FOR THE REINSURED POLICIES SHALL BE IDENTICAL
TO THAT OF THE CEDING COMPANY AND SHALL BE SUBJECT TO THE SAME RISKS, TERMS,
CONDITIONS, INTERPRETATIONS, WAIVERS, MODIFICATIONS, ALTERATIONS AND
CANCELLATIONS AS THE RESPECTIVE INSURANCES OF THE CEDING COMPANY, SUBJECT IN
EACH CASE TO THE CEDING COMPANY’S DUTY TO ADHERE TO THE UNDERWRITING GUIDELINES
AND ITS OBLIGATIONS PURSUANT TO ARTICLE X.

 

(F)                                    NOTWITHSTANDING ANYTHING TO THE CONTRARY
HEREIN, THE REINSURER SHALL NOT BE LIABLE FOR ANY EXCLUDED LIABILITIES.

 

SECTION 2.02             UNDERWRITING OF POLICIES SUBJECT TO REINSURANCE.

 

(A)                                  THE REINSURER SHALL ONLY BE REQUIRED TO
AUTOMATICALLY REINSURE POLICIES WHICH HAVE BEEN UNDERWRITTEN IN ACCORDANCE WITH
THE UNDERWRITING GUIDELINES.

 

(B)                                 THE CEDING COMPANY SHALL NOT, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE REINSURER, MAKE ANY CHANGES TO THE UNDERWRITING
GUIDELINES WHICH ARE MATERIAL TO THE BUSINESS REINSURED UNDER THIS AGREEMENT. 
ANY POLICIES WRITTEN BY THE CEDING COMPANY AFTER ANY SUCH CHANGES ARE MADE TO
THE UNDERWRITING GUIDELINES WITHOUT THE PRIOR WRITTEN CONSENT OF THE REINSURER
SHALL ONLY BE REINSURED POLICIES HEREUNDER IF THE REINSURER CONSENTS TO
INCLUDING SUCH POLICIES AS REINSURED POLICIES.

 

SECTION 2.03             RETENTION.  THE CEDING COMPANY SHALL RETAIN, NET AND
UNREINSURED, AT ITS OWN RISK AND LIABILITY, TWENTY PERCENT (20%) OF THE
LIABILITIES WITH RESPECT TO EACH OF THE REINSURED POLICIES, AND THE CEDING
COMPANY SHALL NOT TRANSFER, ASSIGN, CONVEY, REINSURE OR OTHERWISE DISPOSE OF ITS
SHARE OF THE LIABILITIES WITH RESPECT TO THE REINSURED POLICIES WITHOUT THE
PRIOR WRITTEN CONSENT OF THE REINSURER; PROVIDED THAT THE CEDING COMPANY MAY
REINSURE ANY OR ALL OF SUCH RETENTION TO A WHOLLY-OWNED SUBSIDIARY OF THE CEDING
COMPANY IF: (A) SUCH WHOLLY-OWNED SUBSIDIARY OF THE CEDING COMPANY IS
CONTRACTUALLY REQUIRED TO RETAIN SUCH AMOUNTS AT ITS OWN RISK AND LIABILITY
WITHOUT THE BENEFIT OF REINSURANCE AND (B) THE CEDING COMPANY CONTINUES TO
PROVIDE ALL CLAIM MANAGEMENT AND ADMINISTRATION SERVICES WITH RESPECT TO SUCH
POLICIES RETAINED BY SUCH WHOLLY-OWNED SUBSIDIARY OF THE CEDING COMPANY IN
ACCORDANCE WITH ARTICLE X.

 

SECTION 2.04             POLICY CHANGES.

 

(A)                                  THE CEDING COMPANY WILL NOT, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE REINSURER, TERMINATE, AMEND, MODIFY OR WAIVE ANY
PROVISION OR PROVISIONS OF THE REINSURED POLICIES WHICH ARE MATERIAL TO THE
BUSINESS REINSURED UNDER THIS AGREEMENT.

 

(B)                                 ANY SUCH TERMINATIONS, AMENDMENTS,
MODIFICATIONS OR WAIVERS MADE WITHOUT THE PRIOR WRITTEN CONSENT OF THE REINSURER
SHALL BE DISREGARDED FOR PURPOSES OF THIS

 

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AGREEMENT, AND THE REINSURANCE WITH RESPECT TO THE AFFECTED POLICY WILL CONTINUE
AS IF SUCH TERMINATION, AMENDMENT, MODIFICATION OR WAIVER HAD NOT BEEN MADE.

 

SECTION 2.05             REINSTATEMENT OF SURRENDERED POLICIES.  IF A REINSURED
POLICY THAT HAS BEEN SURRENDERED IS REINSTATED ACCORDING TO ITS TERMS AND THE
CEDING COMPANY’S REINSTATEMENT POLICIES, THE REINSURER WILL, UPON NOTIFICATION,
AUTOMATICALLY REINSTATE THE REINSURANCE WITH RESPECT TO SUCH REINSURED POLICY;
PROVIDED, THAT, TO THE EXTENT THAT THE REINSTATEMENT OF SUCH REINSURED POLICY
REQUIRES PAYMENT OF PREMIUMS IN ARREARS OR REIMBURSEMENT OF CLAIMS PAID, THE
CEDING COMPANY SHALL PAY TO THE REINSURER ALL REINSURANCE PREMIUMS IN ARREARS
AND THE QUOTA SHARE OF ALL REIMBURSEMENTS OF CLAIMS PAID ON SUCH REINSURED
POLICY.

 

SECTION 2.06             MISSTATEMENT OF FACT.  IN THE EVENT OF A CHANGE IN THE
AMOUNT PAYABLE UNDER A REINSURED POLICY DUE TO A MISSTATEMENT IN FACT, THE
REINSURER’S LIABILITY WITH RESPECT TO SUCH REINSURED POLICY WILL CHANGE
PROPORTIONATELY. THE REINSURED POLICY WILL BE REWRITTEN FROM COMMENCEMENT ON THE
BASIS OF THE ADJUSTED AMOUNTS USING PREMIUMS AND SUCH OTHER TERMS BASED ON THE
CORRECT FACTS, AND THE PROPER ADJUSTMENT FOR THE DIFFERENCE IN REINSURANCE
PREMIUMS, WITHOUT INTEREST, WILL BE MADE.

 

SECTION 2.07             CREDITED RATES AND NON-GUARANTEED ELEMENTS.  THE CEDING
COMPANY WILL BE RESPONSIBLE FOR DETERMINING CREDITED INTEREST RATES AND OTHER
NON-GUARANTEED ELEMENTS OF THE REINSURED POLICIES; PROVIDED, THAT THE REINSURER
MAY PROVIDE RECOMMENDATIONS REGARDING CREDITED INTEREST RATES AND OTHER
NON-GUARANTEED ELEMENTS OF THE REINSURED POLICIES TO THE CEDING COMPANY AND, IF
SO PROVIDED, THE CEDING COMPANY WILL NOT UNREASONABLY TAKE ACTIONS THAT
CONTRAVENE SUCH RECOMMENDATIONS AND THE CEDING COMPANY MAY NOT CHANGE THE
CREDITED INTEREST RATE OR ANY OTHER NON-GUARANTEED ELEMENTS ON EXISTING
REINSURED POLICIES WITHOUT THE REINSURER’S CONSENT.

 

SECTION 2.08             PROGRAMS OF INTERNAL REPLACEMENT.  THE CEDING COMPANY
SHALL NOT SOLICIT, OR ALLOW ITS AFFILIATES TO SOLICIT, DIRECTLY OR INDIRECTLY,
POLICY HOLDERS OF THE REINSURED POLICIES IN CONNECTION WITH ANY PROGRAM OF
INTERNAL REPLACEMENT.  THE TERM “PROGRAM OF INTERNAL REPLACEMENT” MEANS ANY
PROGRAM SPONSORED OR SUPPORTED BY THE CEDING COMPANY OR ANY OF ITS AFFILIATES
THAT IS OFFERED TO A CLASS OF POLICY OWNERS AND IN WHICH A REINSURED POLICY OR A
PORTION OF A REINSURED POLICY IS EXCHANGED FOR ANOTHER POLICY THAT IS WRITTEN BY
THE CEDING COMPANY OR ANY AFFILIATE OF THE CEDING COMPANY OR ANY SUCCESSOR OR
ASSIGNEE OF ANY OF THEM.

 

ARTICLE III

 

REINSURED PREMIUMS

 

SECTION 3.01             REINSURANCE PREMIUMS.  THE PAYMENT OF REINSURANCE
PREMIUMS IS A CONDITION PRECEDENT TO THE LIABILITY OF THE REINSURER UNDER THIS
AGREEMENT.  THE CEDING COMPANY SHALL PAY TO THE REINSURER THE QUOTA SHARE OF THE
GROSS PREMIUMS RECEIVED BY THE CEDING COMPANY WITH RESPECT TO THE REINSURED
POLICIES (THE “REINSURANCE PREMIUMS”).  SUCH REINSURANCE PREMIUMS SHALL BE
PAYABLE IN ACCORDANCE WITH SECTION 8.03.

 

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ARTICLE IV

 

POLICY EXPENSES

 

SECTION 4.01             COMMISSIONS AND POLICY ISSUANCE FEE.  IN CONNECTION
WITH THE ISSUANCE OF EACH REINSURED POLICY, THE REINSURER SHALL PAY TO THE
CEDING COMPANY AN EXPENSE ALLOWANCE RELATED TO SUCH REINSURED POLICY IN AN
AMOUNT EQUAL TO (A) THE QUOTA SHARE OF COMMISSIONS PAID BY THE CEDING COMPANY IN
CONNECTION WITH THE SALE OF SUCH REINSURED POLICY, WHICH AMOUNT SHALL NOT EXCEED
THREE AND ONE-HALF PERCENT (3.50%) OF THE INITIAL PREMIUM OF SUCH REINSURED
POLICY (THE “COMMISSIONS”) PLUS (B) A PER POLICY ISSUANCE FEE EQUAL TO THE QUOTA
SHARE OF $145 (THE “POLICY ISSUANCE FEE”).

 

SECTION 4.02             ADMINISTRATION FEE.  ON A MONTHLY BASIS, THE REINSURER
SHALL PAY TO THE CEDING COMPANY AN EXPENSE ALLOWANCE RELATED TO ALL REINSURED
POLICIES (THE “ADMINISTRATION FEE” AND, TOGETHER WITH THE COMMISSIONS AND THE
POLICY ISSUANCE FEES, THE “POLICY EXPENSES”) IN AN AMOUNT EQUAL TO THE QUOTA
SHARE OF (A) $3.00 MULTIPLIED BY (B) (I) THE NUMBER OF REINSURED POLICIES IN
FORCE ON THE FIRST DAY OF THE RELEVANT MONTH PLUS THE NUMBER OF REINSURED
POLICIES IN FORCE ON THE LAST DAY OF THE RELEVANT MONTH, DIVIDED BY (II) TWO
(2).  A THREE PERCENT (3%) PER ANNUM INFLATION FACTOR WILL BE ADDED TO THE
ADMINISTRATION FEE COMMENCING ON THE FIRST ANNIVERSARY OF THIS AGREEMENT.  THE
POLICY EXPENSES SHALL BE PAYABLE BY THE REINSURER TO THE CEDING COMPANY IN
ACCORDANCE WITH SECTION 8.03.

 

SECTION 4.03             RENEWAL COMMISSIONS.  THE REINSURER SHALL PAY ITS QUOTA
SHARE OF ANY RENEWAL COMMISSIONS PAID BY THE CEDING COMPANY FOR ANY REINSURED
POLICIES (THE “RENEWAL COMMISSIONS”); PROVIDED THAT THE REINSURER HAS AGREED IN
WRITING TO THE PAYMENT OF SUCH RENEWAL COMMISSIONS PRIOR TO THE PAYMENT THEREOF
BY THE CEDING COMPANY.  SUCH RENEWAL COMMISSIONS SHALL BE PAYABLE IN ACCORDANCE
WITH SECTION 8.03.

 

ARTICLE V

 

C-4 RISK CHARGE

 

SECTION 5.01             C-4 RISK CHARGE.  THE REINSURER WILL REIMBURSE THE
CEDING COMPANY FOR THE ECONOMIC COST OF FUNDING THE STATUTORY RISK-BASED-CAPITAL
ASSOCIATED WITH C-4 RISK (THE “C-4 RISK CHARGE”) QUARTERLY IN AN AMOUNT EQUAL TO
23 BASIS POINTS PER ANNUM (0.23%) MULTIPLIED BY THE AVERAGE OF CEDED RESERVES
DURING THE RELEVANT QUARTERLY PERIOD.  THE C-4 RISK CHARGE SHALL BE PAYABLE IN
ACCORDANCE WITH SECTION 8.03.

 

ARTICLE VI

 

GUARANTY FUND ASSESSMENTS

 

SECTION 6.01             GUARANTY FUND ASSESSMENTS.  THE REINSURER SHALL
REIMBURSE THE CEDING COMPANY FOR THE QUOTA SHARE OF ANY GUARANTY FUND
ASSESSMENTS PAID BY THE CEDING COMPANY WITH RESPECT TO ANY REINSURED POLICY.  TO
THE EXTENT THERE IS ANY RECOVERY OF GUARANTY FUND ASSESSMENTS PAID BY THE
REINSURER, THE CEDING COMPANY SHALL PROMPTLY PAY THE QUOTA SHARE OF SUCH
RECOVERY TO THE REINSURER.

 

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ARTICLE VII

 

CLAIMS

 

SECTION 7.01             CLAIMS PAYMENT.  SUBJECT TO SECTION 7.02, THE REINSURER
SHALL PAY TO THE CEDING COMPANY THE QUOTA SHARE OF THE CLAIMS PAID BY THE CEDING
COMPANY IN ACCORDANCE WITH SECTION 8.03.  “CLAIMS” WILL CONSIST OF CLAIMS, NET
OF APPLICABLE SURRENDER CHARGES AND MARKET VALUE ADJUSTMENTS, IF ANY, FOR
BENEFITS RELATED TO PARTIAL SURRENDERS, FULL SURRENDERS, DEATH CLAIMS, ANNUITY
PAYOUTS UNDER SUPPLEMENTARY CONTRACTS AND OTHER CONTRACTUAL BENEFITS UNDER THE
REINSURED POLICIES.  CLAIMS SHALL NOT INCLUDE ANNUITIZATIONS UNDER THE REINSURED
POLICIES, ANY EXCLUDED LIABILITIES OR ANY LIABILITIES OTHER THAN THE REINSURED
LIABILITIES.

 

SECTION 7.02             CLAIMS SETTLEMENT.

 

(A)                                  THE CEDING COMPANY IS RESPONSIBLE FOR THE
SETTLEMENT OF CLAIMS IN ACCORDANCE WITH ARTICLE X, APPLICABLE LAW AND POLICY
TERMS.

 

(B)                                 THE CEDING COMPANY WILL NOTIFY THE REINSURER
PROMPTLY OF ITS INTENTION TO INVESTIGATE, CONTEST, COMPROMISE OR LITIGATE ANY
CLAIM INVOLVING A REINSURED POLICY (ANY SUCH CLAIM, A “CONTESTED CLAIM”).  THE
CEDING COMPANY WILL PROVIDE THE REINSURER ALL RELEVANT INFORMATION AND
DOCUMENTS, AS SUCH BECOME AVAILABLE, PERTAINING TO CONTESTED CLAIMS AND WILL
PROMPTLY REPORT ANY DEVELOPMENTS DURING THE REINSURER’S REVIEW.

 

(C)                                  SUBJECT TO SECTION 2.01(F) RELATING TO
EXCLUDED LIABILITIES, THE REINSURER WILL REIMBURSE THE CEDING COMPANY FOR ITS
QUOTA SHARE OF THE REASONABLE EXPENSES OF ANY CONTEST OR COMPROMISE OF A CLAIM,
AND WILL SHARE IN THE REDUCTION OF LIABILITY IN THE SAME PROPORTION.  IF THE
REINSURER SO ELECTS, IT MAY DISCHARGE ITS LIABILITY WITH RESPECT TO ANY
CONTESTED CLAIM BY PAYING TO THE CEDING COMPANY ITS QUOTA SHARE OF SUCH CLAIM AS
ORIGINALLY PRESENTED TO THE CEDING COMPANY AND, THEREAFTER, WILL HAVE NO
OBLIGATION TO THE CEDING COMPANY FOR REIMBURSEMENT OF EXPENSES RELATED TO THE
CONTEST OF SUCH CLAIM AND WILL NOT SHARE IN ANY SUBSEQUENT REDUCTION IN
LIABILITY RELATING TO SUCH CLAIM.

 

(D)                                 IF THE REINSURER DOES NOT ELECT TO DISCHARGE
ITS LIABILITY WITH RESPECT TO ANY CONTESTED CLAIM AS SET FORTH IN
SECTION 7.02(C), THE CEDING COMPANY WILL PROMPTLY ADVISE THE REINSURER OF ALL
SIGNIFICANT DEVELOPMENTS, INCLUDING NOTICE OF LEGAL PROCEEDINGS (INCLUDING, BUT
NOT LIMITED TO, CONSUMER COMPLAINTS OR ACTIONS BY GOVERNMENTAL AUTHORITIES)
INITIATED IN CONNECTION WITH SUCH CONTESTED CLAIM.

 

SECTION 7.03             RECOVERIES.  SUBJECT TO SECTION 7.02(C), IF THE CEDING
COMPANY OBTAINS ANY RECOVERIES IN RESPECT OF A CLAIM PAID BY IT IN ACCORDANCE
WITH THE TERMS OF ANY REINSURED POLICY, THE CEDING COMPANY SHALL PROMPTLY PAY TO
THE REINSURER THE QUOTA SHARE OF SUCH RECOVERIES.

 

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ARTICLE VIII

 

REPORTING AND SETTLEMENTS

 

SECTION 8.01             CEDING COMPANY REPORTING.

 

(A)                                  WITHIN EIGHT (8) BUSINESS DAYS FOLLOWING
THE END OF EACH CALENDAR MONTH OTHER THAN A CALENDAR MONTH FOLLOWING WHICH A
QUARTERLY ACCOUNTING REPORT WILL BE DELIVERED UNDER SECTION 8.01(B), THE CEDING
COMPANY SHALL DELIVER TO THE REINSURER AN ACCOUNTING REPORT (A “MONTHLY
ACCOUNTING REPORT”) SUBSTANTIALLY IN THE FORM SET FORTH IN EXHIBIT A FOR THE
IMMEDIATELY PRECEDING CALENDAR MONTH (A “MONTHLY ACCOUNTING PERIOD”).

 

(B)                                 WITHIN EIGHT (8) BUSINESS DAYS FOLLOWING THE
END OF EACH CALENDAR QUARTER AND ANY TERMINATION EFFECTIVE DATE, THE CEDING
COMPANY SHALL DELIVER TO THE REINSURER AN ACCOUNTING REPORT (A “QUARTERLY
ACCOUNTING REPORT”) SUBSTANTIALLY IN THE FORM SET FORTH IN EXHIBIT B FOR THE
IMMEDIATELY PRECEDING CALENDAR QUARTER (A “QUARTERLY ACCOUNTING PERIOD”) OR, IN
THE CASE OF TERMINATION, THE PERIOD FROM THE END OF THE IMMEDIATELY PRECEDING
QUARTERLY ACCOUNTING PERIOD TO THE DATE ON WHICH THIS AGREEMENT IS TERMINATED
(THE “TERMINAL ACCOUNTING PERIOD”), AS APPLICABLE.

 

(C)                                  WITHIN EIGHT (8) BUSINESS DAYS FOLLOWING
THE END OF EACH MONTHLY ACCOUNTING PERIOD, THE CEDING COMPANY SHALL DELIVER TO
THE REINSURER A REPORT OF THE REINSURED POLICIES (A “REINSURED POLICIES REPORT”)
SUBSTANTIALLY IN THE FORM SET FORTH IN EXHIBIT C AND SERIATIM INFORMATION WITH
RESPECT TO EACH OF THE REINSURED POLICIES WHICH SHALL BE REDACTED SUCH THAT IT
DOES NOT INCLUDE INFORMATION IDENTIFIABLE TO AN INDIVIDUAL POLICYHOLDER.

 

(D)                                 THE CEDING COMPANY SHALL DELIVER TO THE
REINSURER (I) A COPY OF ITS UNAUDITED ANNUAL STATEMENT (BLUE BOOK) WITHIN EIGHT
(8) BUSINESS DAYS FOLLOWING THE FILING THEREOF WITH THE IOWA INSURANCE DIVISION
BUT NO LATER THAN MARCH 1 OF EACH YEAR, (II) A COPY OF ITS AUDITED ANNUAL
STATUTORY FINANCIAL STATEMENTS WITHIN EIGHT (8) BUSINESS DAYS FOLLOWING THE
FILING THEREOF WITH THE IOWA INSURANCE DIVISION BUT NO LATER THAN JUNE 1 OF EACH
YEAR, (III) A COPY OF ITS UNAUDITED QUARTERLY STATUTORY FINANCIAL STATEMENTS
WITHIN EIGHT (8) BUSINESS DAYS FOLLOWING THE FILING THEREOF WITH THE IOWA
INSURANCE DIVISION BUT NO LATER THAN FORTY-FIVE (45) CALENDAR DAYS AFTER THE END
OF EACH CALENDAR QUARTER, (IV) A COPY OF THE AUDITED ANNUAL FINANCIAL STATEMENTS
OF AMERICAN EQUITY INVESTMENT LIFE HOLDING CO. WITHIN EIGHT (8) BUSINESS DAYS
FOLLOWING THE FILING THEREOF WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION BUT NO LATER THAN MARCH 31 OF EACH YEAR AND (V) A COPY OF THE
UNAUDITED QUARTERLY FINANCIAL STATEMENTS OF AMERICAN EQUITY INVESTMENT LIFE
HOLDING CO. WITHIN EIGHT (8) BUSINESS DAYS FOLLOWING THE FILING THEREOF WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION BUT NO LATER THAN MAY 31,
AUGUST 31 AND NOVEMBER 30 OF EACH YEAR, AS APPLICABLE.

 

(E)                                  UPON REQUEST, THE CEDING COMPANY WILL
PROMPTLY PROVIDE THE REINSURER WITH ANY ADDITIONAL INFORMATION RELATED TO THE
REINSURED POLICIES WHICH THE REINSURER REQUIRES IN ORDER TO COMPLETE ITS
FINANCIAL STATEMENTS.

 

(F)                                    THE CEDING COMPANY ACKNOWLEDGES THAT
TIMELY AND CORRECT COMPLIANCE WITH THE REPORTING REQUIREMENTS OF THIS AGREEMENT
ARE A MATERIAL ELEMENT OF THE CEDING

 

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COMPANY’S RESPONSIBILITIES HEREUNDER AND AN IMPORTANT BASIS OF THE REINSURER’S
ABILITY TO REINSURE THE RISKS HEREUNDER.  CONSISTENT AND MATERIAL NON-COMPLIANCE
WITH REPORTING REQUIREMENTS, INCLUDING EXTENDED DELAYS, WILL CONSTITUTE A
MATERIAL BREACH OF THE TERMS OF THIS AGREEMENT.

 

SECTION 8.02             REINSURER REPORTING.  THE REINSURER SHALL DELIVER TO
THE CEDING COMPANY (A) A COPY OF ITS AUDITED ANNUAL STATUTORY FINANCIAL
STATEMENTS OR UNAUDITED ANNUAL STATUTORY FINANCIAL STATEMENTS, IN EACH CASE,
WITHIN EIGHT (8) BUSINESS DAYS FOLLOWING THE FILING THEREOF WITH THE BERMUDA
MONETARY AUTHORITY, WHICH FILING IS DUE BY APRIL 30 OF EACH YEAR, AND (B) A COPY
OF ITS UNAUDITED QUARTERLY STATUTORY FINANCIAL STATEMENTS WITHIN EIGHT
(8) BUSINESS DAYS AFTER THE COMPLETION THEREOF BUT NO LATER THAN SIXTY (60)
CALENDAR DAYS AFTER THE END OF EACH QUARTER.

 

SECTION 8.03             SETTLEMENTS.

 

(A)                                  UNTIL SUCH TIME THAT CREDIT FOR REINSURANCE
IS NOT PROVIDED THROUGH THE FUNDS WITHHELD ACCOUNT AS SPECIFIED IN
SECTION 9.02(A), A DAILY SETTLEMENT AMOUNT SHALL BE CALCULATED ON EACH BUSINESS
DAY BY THE CEDING COMPANY ON THE BASIS OF REINSURANCE PREMIUMS WITH RESPECT TO
REINSURED POLICIES ISSUED DURING THE PREVIOUS BUSINESS DAY, COMMISSIONS AND
POLICY ISSUANCE FEES WITH RESPECT TO REINSURED POLICIES ISSUED DURING THE
PREVIOUS BUSINESS DAY AND CLAIMS PAID BY THE CEDING COMPANY DURING THE PREVIOUS
BUSINESS DAY.  ON EACH BUSINESS DAY, THE CEDING COMPANY SHALL EFFECTUATE THE
PAYMENT OF SUCH DAILY SETTLEMENT AMOUNT BY (I) DEPOSITING SUCH REINSURANCE
PREMIUMS, NET OF ANY COMMISSIONS AND POLICY ISSUANCE FEES THEN DUE, INTO THE
FUNDS WITHHELD ACCOUNT AND (II) WITHDRAWING THE QUOTA SHARE OF SUCH CLAIMS FROM
THE FUNDS WITHHELD ACCOUNT.

 

(B)                                 THE NET BALANCE PAYABLE UNDER THIS AGREEMENT
FOR EACH MONTHLY ACCOUNTING PERIOD (AS SET FORTH IN THE APPLICABLE MONTHLY
ACCOUNTING REPORT, THE “MONTHLY NET SETTLEMENT AMOUNT”) SHALL BE PAYABLE AS
FOLLOWS:

 

(I)                                     IF THE MONTHLY NET SETTLEMENT AMOUNT
INDICATED IN THE MONTHLY ACCOUNTING REPORT IS POSITIVE, THE CEDING COMPANY SHALL
DEPOSIT SUCH AMOUNT INTO THE FUNDS WITHHELD ACCOUNT, OR, IF A FUNDS WITHHELD
ACCOUNT IS NOT BEING USED TO PROVIDE CREDIT FOR REINSURANCE, PAY SUCH AMOUNT TO
THE REINSURER, ON THE DATE OF DELIVERY OF THE MONTHLY ACCOUNTING REPORT TO THE
REINSURER; OR

 

(II)                                  IF THE MONTHLY NET SETTLEMENT AMOUNT
INDICATED IN THE MONTHLY ACCOUNTING REPORT IS NEGATIVE, THE CEDING COMPANY SHALL
WITHDRAW THE ABSOLUTE VALUE OF SUCH NEGATIVE AMOUNT FROM THE FUNDS WITHHELD
ACCOUNT ON THE DATE THAT IS FIVE (5) BUSINESS DAYS FOLLOWING THE DELIVERY OF THE
MONTHLY ACCOUNTING REPORT TO THE REINSURER; PROVIDED, THAT IF THE ABSOLUTE VALUE
OF SUCH NEGATIVE MONTHLY NET SETTLEMENT AMOUNT IS GREATER THAN THE STATUTORY
CARRYING VALUE OF THE ASSETS IN THE FUNDS WITHHELD ACCOUNT AS OF THE LAST DAY OF
THE RELEVANT MONTHLY ACCOUNTING PERIOD, THEN THE REINSURER SHALL PAY THE AMOUNT
OF SUCH DIFFERENCE TO THE CEDING COMPANY NO LATER THAN EIGHT (8) BUSINESS DAYS
AFTER THE RECEIPT BY THE REINSURER OF THE APPLICABLE MONTHLY ACCOUNTING REPORT.

 

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(C)                                  THE NET BALANCE PAYABLE UNDER THIS
AGREEMENT FOR EACH QUARTERLY ACCOUNTING PERIOD AND ANY TERMINAL ACCOUNTING
PERIOD (AS SET FORTH IN THE APPLICABLE QUARTERLY ACCOUNTING REPORT, THE
“QUARTERLY NET SETTLEMENT AMOUNT”) SHALL BE PAYABLE AS FOLLOWS:

 

(I)                                     IF THE QUARTERLY NET SETTLEMENT AMOUNT
INDICATED IN THE QUARTERLY ACCOUNTING REPORT IS POSITIVE, THE CEDING COMPANY
SHALL DEPOSIT SUCH AMOUNT INTO THE FUNDS WITHHELD ACCOUNT, OR, IF A FUNDS
WITHHELD ACCOUNT IS NOT BEING USED TO PROVIDE CREDIT FOR REINSURANCE, PAY SUCH
AMOUNT TO THE REINSURER, ON THE DATE OF DELIVERY OF THE QUARTERLY ACCOUNTING
REPORT TO THE REINSURER; AND

 

(II)                                  IF THE QUARTERLY NET SETTLEMENT AMOUNT
INDICATED IN THE QUARTERLY ACCOUNTING REPORT IS NEGATIVE, THE CEDING COMPANY
SHALL WITHDRAW THE ABSOLUTE VALUE OF SUCH NEGATIVE AMOUNT FROM THE FUNDS
WITHHELD ACCOUNT ON THE DATE THAT IS FIVE (5) BUSINESS DAYS FOLLOWING THE
DELIVERY OF THE QUARTERLY ACCOUNTING REPORT TO THE REINSURER; PROVIDED, THAT IF
THE ABSOLUTE VALUE OF SUCH NEGATIVE QUARTERLY NET SETTLEMENT AMOUNT IS GREATER
THAN THE STATUTORY CARRYING VALUE OF THE ASSETS IN THE FUNDS WITHHELD ACCOUNT AS
OF THE LAST DAY OF THE RELEVANT QUARTERLY ACCOUNTING PERIOD, THEN THE REINSURER
SHALL PAY THE AMOUNT OF SUCH DIFFERENCE TO THE CEDING COMPANY NO LATER THAN
EIGHT (8) BUSINESS DAYS AFTER THE RECEIPT BY THE REINSURER OF THE APPLICABLE
QUARTERLY ACCOUNTING REPORT.

 

(D)                                 THE FUNDS WITHHELD ADJUSTMENT PAYABLE UNDER
THIS AGREEMENT FOR EACH QUARTERLY ACCOUNTING PERIOD AND ANY TERMINAL ACCOUNTING
PERIOD (AS SET FORTH IN THE APPLICABLE QUARTERLY ACCOUNTING REPORT) SHALL BE
PAYABLE AS FOLLOWS:

 

(I)                                     IF THE FUNDS WITHHELD ADJUSTMENT IS
POSITIVE, THE REINSURER SHALL DEPOSIT PERMITTED ASSETS WITH A STATUTORY CARRYING
VALUE EQUAL TO SUCH POSITIVE AMOUNT INTO THE FUNDS WITHHELD ACCOUNT NO LATER
THAN EIGHT (8) BUSINESS DAYS AFTER THE RECEIPT BY THE REINSURER OF THE
APPLICABLE QUARTERLY ACCOUNTING REPORT; PROVIDED THAT, IF CREDIT FOR REINSURANCE
IS BEING PROVIDED THROUGH A REINSURANCE TRUST OR A LETTER OF CREDIT PURSUANT TO
SECTION 9.02, THE REINSURER MAY SATISFY ITS OBLIGATIONS PURSUANT TO THIS
SECTION 8.03(D)(I) BY DEPOSITING PERMITTED ASSETS WITH A MARKET VALUE EQUAL TO
SUCH POSITIVE AMOUNT IN A REINSURANCE TRUST OR PROVIDING A LETTER OF CREDIT WITH
AN AVAILABLE AMOUNT EQUAL TO SUCH POSITIVE AMOUNT, IN EACH CASE, NO LATER THAN
EIGHT (8) BUSINESS DAYS AFTER THE RECEIPT BY THE REINSURER OF THE APPLICABLE
QUARTERLY ACCOUNTING REPORT;

 

(II)                                  IF THE FUNDS WITHHELD ADJUSTMENT IS
NEGATIVE, ON THE DATE OF DELIVERY OF THE QUARTERLY ACCOUNTING REPORT, THE CEDING
COMPANY SHALL WITHDRAW THE ABSOLUTE VALUE OF SUCH NEGATIVE AMOUNT FROM THE FUNDS
WITHHELD ACCOUNT AND PAY THE ABSOLUTE VALUE OF SUCH NEGATIVE AMOUNT TO THE
REINSURER; PROVIDED, THAT, IF THE ABSOLUTE VALUE OF SUCH NEGATIVE AMOUNT IS
GREATER THAN THE STATUTORY CARRYING VALUE OF THE ASSETS HELD IN THE FUNDS
WITHHELD ACCOUNT, THE CEDING COMPANY SHALL PERMIT THE REINSURER TO WITHDRAW
ASSETS FROM ANY REINSURANCE TRUST AND/OR REDUCE THE AVAILABLE AMOUNT OF ANY
LETTER OF CREDIT IN AN AMOUNT EQUAL TO THE ABSOLUTE VALUE OF SUCH NEGATIVE
AMOUNT.

 

(E)                                  ANY AMOUNT DUE UNDER THIS AGREEMENT SHALL
BE PAID BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS TO THE ACCOUNT OR
ACCOUNTS DESIGNATED BY THE RECIPIENT.

 

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ARTICLE IX

 

CREDIT FOR REINSURANCE

 

SECTION 9.01             RESERVES.  THE REINSURER SHALL ESTABLISH RESERVES IN
RESPECT OF THE REINSURED POLICIES (THE “CEDED RESERVES”) IN AN AMOUNT EQUAL TO
THE QUOTA SHARE OF THE GROSS RESERVES.  THE GROSS RESERVES SHALL BE CALCULATED
IN GOOD FAITH ON A SERIATIM BASIS BY THE CEDING COMPANY IN ACCORDANCE WITH SAP,
USING THE HIGHEST VALUATION INTEREST RATES PERMITTED UNDER SAP GUIDELINES FOR
THE LIABILITIES CEDED.  IN NO EVENT SHALL GROSS RESERVES INCLUDE (A) ADDITIONAL
ACTUARIAL RESERVES (AS USED IN CONNECTION WITH SAP), IF ANY, ESTABLISHED BY THE
CEDING COMPANY AS A RESULT OF ITS ANNUAL CASH FLOW TESTING, (B) ANY ASSET
VALUATION RESERVES (AS USED IN CONNECTION WITH SAP) ESTABLISHED BY THE CEDING
COMPANY, OR (C) ANY OTHER RESERVE NOT DIRECTLY ATTRIBUTABLE TO SPECIFIC
REINSURED POLICIES.

 

SECTION 9.02             FORM OF SECURITY.  THE REINSURER SHALL ENSURE THAT THE
CEDING COMPANY WILL RECEIVE CREDIT FOR THE REINSURANCE EFFECTED HEREUNDER ON ITS
STATUTORY FINANCIAL STATEMENTS FILED IN THE STATE OF IOWA AND ALL OTHER STATES
IN WHICH IT MUST FILE STATUTORY FINANCIAL STATEMENTS.  IN ORDER TO PROVIDE THE
CEDING COMPANY WITH SUCH CREDIT FOR REINSURANCE FOR THE CEDED RESERVES, THE
REINSURER SHALL:

 

(A)                                  REQUEST THE CEDING COMPANY TO ESTABLISH A
SEGREGATED ACCOUNT (THE “FUNDS WITHHELD ACCOUNT”), PURSUANT TO A TRUST AGREEMENT
ATTACHED AS EXHIBIT D, WITH A QUALIFIED UNITED STATES FINANCIAL INSTITUTION
MEETING THE REQUIREMENTS SET FORTH IN SECTION 9.03;

 

(B)                                 ESTABLISH A UNITED STATES TRUST ACCOUNT (A
“REINSURANCE TRUST”) (NAMING THE REINSURER AS THE GRANTOR AND THE CEDING COMPANY
AS THE BENEFICIARY) WITH A QUALIFIED UNITED STATES FINANCIAL INSTITUTION MEETING
THE REQUIREMENTS SET FORTH IN SECTION 9.04;

 

(C)                                  CAUSE TO REMAIN IN FULL FORCE AND EFFECT
ONE OR MORE LETTERS OF CREDIT (EACH, A “LETTER OF CREDIT”) MEETING THE
REQUIREMENTS SET FORTH IN SECTION 9.05;

 

(D)                                 UTILIZE ANY OTHER METHOD PERMITTED BY THE
IOWA INSURANCE DIVISION (INCLUDING BECOMING LICENSED AS A LIFE INSURANCE COMPANY
IN THE STATE OF IOWA); OR

 

(E)                                  PROVIDE A COMBINATION OF ITEMS (A), (B),
(C) AND (D) ABOVE.

 

THE REINSURER SHALL DETERMINE THE METHOD BY WHICH THE REINSURER PROVIDES CREDIT
FOR REINSURANCE HEREUNDER FOR THE CEDED RESERVES, AS LONG AS SUCH METHOD IS SET
FORTH IN THIS SECTION 9.02; PROVIDED, THAT ANY ELECTION BY THE REINSURER TO
SECURE ITS OBLIGATIONS HEREUNDER FOR THE CEDED RESERVES THROUGH THE USE OF ANY
METHOD OTHER THAN THAT SET FORTH IN SECTION 9.02(A) SHALL BE SUBJECT TO THE
CONSENT OF THE CEDING COMPANY (SUCH CONSENT NOT TO BE UNREASONABLY WITHHELD);
PROVIDED, FURTHER, NO CONSENT OF THE CEDING COMPANY SHALL BE REQUIRED IF THE
CEDING COMPANY IS IN BREACH OF ANY PROVISION OF THIS AGREEMENT AND SUCH BREACH
HAS NOT BEEN CURED WITHIN FIFTEEN (15) BUSINESS DAYS AFTER THE REINSURER HAS
PROVIDED NOTICE OF SUCH BREACH TO THE CEDING COMPANY.  IF THE RELEVANT LAWS OR
REGULATIONS OF THE STATE OF IOWA ARE AMENDED OR THERE IS A CHANGE IN LEGAL
STATUS BY EITHER THE CEDING COMPANY OR THE REINSURER SUBSEQUENT TO THE EFFECTIVE
DATE OF THIS AGREEMENT, AND IF, AS A RESULT OF SUCH CHANGE, A DIFFERENT AMOUNT
OR A DIFFERENT TYPE OF SECURITY IS NECESSARY TO MAINTAIN THE CEDING COMPANY’S
CREDIT FOR REINSURANCE, THE REINSURER

 

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MAY, SUBJECT TO THE CONSENT OF THE CEDING COMPANY (SUCH CONSENT NOT TO BE
UNREASONABLY WITHHELD), ADJUST THE AMOUNT OF SECURITY OR CHANGE THE TYPE OF
SECURITY TO COMPLY WITH THE REVISED REQUIREMENTS.  SUCH ADJUSTMENTS MAY INCLUDE
REDUCING THE SECURITY IN OR TERMINATING IN ITS ENTIRETY THE FUNDS WITHHELD
ACCOUNT, ANY REINSURANCE TRUST OR ANY LETTER OF CREDIT.  THE REINSURER AND THE
CEDING COMPANY WILL COOPERATE IN GOOD FAITH TO EFFECTUATE THIS PROVISION. 
FURTHERMORE, IN THE EVENT AT ANY TIME THE FUNDS WITHHELD ACCOUNT, ANY
REINSURANCE TRUST OR ANY LETTER OF CREDIT BECOMES UNNECESSARY IN ORDER FOR THE
CEDING COMPANY TO RECEIVE CREDIT FOR REINSURANCE UNDER THIS AGREEMENT, THE
CEDING COMPANY AND THE REINSURER SHALL COOPERATE IN GOOD FAITH TO TERMINATE THE
FUNDS WITHHELD ACCOUNT, ANY REINSURANCE TRUST OR ANY LETTER OF CREDIT, AND ALL
OTHER TERMS AND CONDITIONS OF THIS AGREEMENT SHALL REMAIN IN FULL FORCE AND
EFFECT.

 

SECTION 9.03             FUNDS WITHHELD ACCOUNT.

 

(A)                                  ON AUGUST 18, 2009, THE CEDING COMPANY
DEPOSITED PERMITTED ASSETS WITH A STATUTORY CARRYING VALUE, AS OF THE DATE OF
SUCH DEPOSIT, EQUAL TO THE INITIAL DEPOSIT AMOUNT IN THE FUNDS WITHHELD ACCOUNT.

 

(B)                                 THE FUNDS WITHHELD AMOUNT SO HELD IN THE
FUNDS WITHHELD ACCOUNT SHALL INCREASE OR DECREASE AT THE END OF EACH BUSINESS
DAY, MONTHLY ACCOUNTING PERIOD AND QUARTERLY ACCOUNTING PERIOD BASED ON THE
SETTLEMENT PROCEDURES SET FORTH IN SECTION 8.03.

 

(C)                                  THE CEDING COMPANY SHALL ESTABLISH AND
MAINTAIN AN ACCOUNT PAYABLE TO THE REINSURER ON ITS STATUTORY BOOKS AND RECORDS
IN THE AMOUNT OF THE FUNDS WITHHELD AMOUNT.  THE ASSETS CONSTITUTING THE FUNDS
WITHHELD AMOUNT SHALL BE INVESTED IN AND CONSIST ONLY OF PERMITTED ASSETS AND
SHALL BE VALUED ACCORDING TO THEIR STATUTORY CARRYING VALUE.

 

(D)                                 THE FUNDS WITHHELD ACCOUNT SHALL REMAIN IN
EFFECT FOR AS LONG AS THE REINSURER HAS OUTSTANDING OBLIGATIONS UNDER THIS
AGREEMENT, UNTIL THE REINSURER EFFECTUATES THE PROVISION OF ALL OF THE
REINSURANCE CREDIT REQUIRED TO BE PROVIDED TO THE CEDING COMPANY HEREUNDER
THROUGH THE USE OF ANY METHOD OTHER THAN THE METHOD SET FORTH IN
SECTION 9.02(A) OR UNTIL EARLIER TERMINATED BY MUTUAL AGREEMENT.  THE FUNDS
WITHHELD ACCOUNT SHALL BE ESTABLISHED AND MAINTAINED BY THE CEDING COMPANY
EXCLUSIVELY FOR THE PURPOSES SET FORTH IN THIS AGREEMENT.

 

(E)                                  NOTWITHSTANDING ANY OTHER PROVISION HEREOF,
ASSETS HELD IN THE FUNDS WITHHELD ACCOUNT MAY BE WITHDRAWN BY THE CEDING COMPANY
AT ANY TIME AND SHALL BE UTILIZED AND APPLIED BY THE CEDING COMPANY OR ANY OF
ITS SUCCESSORS IN INTEREST BY OPERATION OF LAW, INCLUDING ANY LIQUIDATOR,
REHABILITATOR, RECEIVER OR CONSERVATOR OF THE CEDING COMPANY, WITHOUT DIMINUTION
BECAUSE OF INSOLVENCY ON THE PART OF THE CEDING COMPANY OR THE REINSURER, ONLY
FOR THE FOLLOWING PURPOSES:

 

(I)                                     TO REIMBURSE THE CEDING COMPANY FOR THE
QUOTA SHARE OF PREMIUMS WHICH ARE RETURNED TO THE OWNERS OF THE REINSURED
POLICIES BECAUSE OF CANCELLATIONS OF SUCH REINSURED POLICIES;

 

(II)                                  TO REIMBURSE THE CEDING COMPANY FOR THE
QUOTA SHARE OF CLAIMS PAID PURSUANT TO THE PROVISIONS OF THE REINSURED POLICIES;

 

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(III)                               TO PAY ANY OTHER AMOUNTS WHICH THE CEDING
COMPANY CLAIMS ARE DUE UNDER THIS AGREEMENT; AND

 

(IV)                              TO PAY ANY NET SETTLEMENT AMOUNT OR FUNDS
WITHHELD ADJUSTMENT DUE FROM THE CEDING COMPANY TO THE REINSURER.

 

NOTWITHSTANDING THE FOREGOING, OTHER THAN WITHDRAWALS MADE BY THE CEDING COMPANY
FOR THE PURPOSE OF EFFECTUATING THE PAYMENT OF DAILY SETTLEMENT AMOUNTS UNDER
SECTION 8.03(A), THE CEDING COMPANY SHALL ONLY WITHDRAW FUNDS FROM THE FUNDS
WITHHELD ACCOUNT UPON PROVIDING THE REINSURER WITH WRITTEN NOTICE AT LEAST FIVE
(5) BUSINESS DAYS PRIOR TO SUCH WITHDRAWAL.

 

(F)                                    THE CEDING COMPANY SHALL PROMPTLY RETURN
TO THE FUNDS WITHHELD ACCOUNT ANY ASSETS WITHDRAWN IN EXCESS OF THE ACTUAL
AMOUNTS REQUIRED IN PARAGRAPHS (I) THROUGH (IV) IMMEDIATELY ABOVE OR ANY AMOUNTS
THAT ARE SUBSEQUENTLY DETERMINED NOT TO BE DUE UNDER PARAGRAPH (III) IMMEDIATELY
ABOVE (“FUNDS WITHHELD EXCESS WITHDRAWALS”).  THE CEDING COMPANY SHALL ALSO PAY
INTEREST ON ANY FUNDS WITHHELD EXCESS WITHDRAWALS AT A RATE EQUAL TO THE
PORTFOLIO YIELD ON THE ASSETS IN THE FUNDS WITHHELD ACCOUNT FOR THE CALENDAR
QUARTER IMMEDIATELY PRECEDING THE DATE OF DETERMINATION FROM AND INCLUDING THE
DATE OF WITHDRAWAL TO BUT EXCLUDING THE DATE ON WHICH THE FUNDS WITHHELD EXCESS
WITHDRAWAL IS RETURNED TO THE FUNDS WITHHELD ACCOUNT.  ANY FUNDS WITHHELD EXCESS
WITHDRAWALS SHALL BE HELD BY THE CEDING COMPANY OR ANY SUCCESSOR IN INTEREST OF
THE CEDING COMPANY IN TRUST FOR THE BENEFIT OF THE REINSURER AND SHALL AT ALL
TIMES BE MAINTAINED SEPARATE AND APART FROM ANY ASSETS OF THE CEDING COMPANY,
FOR THE SOLE PURPOSES DESCRIBED IN PARAGRAPHS (I) THROUGH (IV) IMMEDIATELY
ABOVE.

 

(G)                                 THE CEDING COMPANY AND THE REINSURER AGREE
THAT ANY IMR REQUIRED TO BE MAINTAINED WITH RESPECT TO ASSETS IN THE FUNDS
WITHHELD ACCOUNT SHALL BE CEDED TO AND HELD BY THE REINSURER AND THE CEDING
COMPANY SHALL HAVE NO OBLIGATION TO ESTABLISH ANY IMR RELATED TO SUCH ASSETS. 
ANY IMR WITH RESPECT TO ASSETS IN THE FUNDS WITHHELD ACCOUNT SHALL BE CALCULATED
BY THE REINSURER.

 

(H)                                 DETERMINATIONS OF STATUTORY IMPAIRMENTS OF
ASSETS HELD IN THE FUNDS WITHHELD ACCOUNT WHICH ARE MADE BY THE CEDING COMPANY
WILL BE SUBJECT TO THE CONSENT OF THE REINSURER (SUCH CONSENT NOT TO BE
UNREASONABLY WITHHELD).  NOTWITHSTANDING ARTICLE XIV, ANY DISAGREEMENTS WITH
RESPECT TO THE DETERMINATIONS OF STATUTORY IMPAIRMENTS OF ASSETS HELD IN THE
FUNDS WITHHELD ACCOUNT SHALL BE SUBJECT TO THIS SECTION 9.03(H).  THE CEDING
COMPANY SHALL PROMPTLY NOTIFY THE REINSURER IN WRITING IF THE CEDING COMPANY
DETERMINES THAT ANY ASSETS HELD IN THE FUNDS WITHHELD ACCOUNT HAVE BECOME
IMPAIRED FOR PURPOSES OF DETERMINING STATUTORY CARRYING VALUE.  SUCH NOTICE
SHALL DESCRIBE ANY SUCH ASSETS, THE REASON FOR THE IMPAIRMENT AND THE EFFECT ON
STATUTORY CARRYING VALUE OF SUCH ASSETS.  THE REINSURER SHALL HAVE TEN
(10) BUSINESS DAYS TO PROVIDE WRITTEN NOTICE OF ITS WITHHOLDING OF CONSENT (THE
“OBJECTION NOTICE”) TO ANY SUCH IMPAIRMENT TO THE CEDING COMPANY AND IF THE
REINSURER FAILS TO PROVIDE SUCH OBJECTION NOTICE TO THE CEDING COMPANY WITHIN
SUCH TIME PERIOD, THE REINSURER SHALL BE DEEMED TO HAVE CONSENTED TO SUCH
IMPAIRMENT.  DURING THE TEN (10) BUSINESS DAYS IMMEDIATELY FOLLOWING THE
DELIVERY OF AN OBJECTION NOTICE, THE CEDING COMPANY AND THE REINSURER WILL SEEK
IN GOOD FAITH TO RESOLVE ANY DISPUTES AS TO THE DETERMINATION OR CALCULATION OF
STATUTORY IMPAIRMENTS OF ASSETS HELD IN THE FUNDS WITHHELD ACCOUNT, AND IN THE
EVENT SUCH DISPUTE IS THE RESULT OF THE CEDING COMPANY’S INDEPENDENT AUDITOR’S
DETERMINATION OR CALCULATION OF STATUTORY IMPAIRMENTS OF ASSETS

 

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HELD IN THE FUNDS WITHHELD ACCOUNT, THE CEDING COMPANY AGREES TO REASONABLY
COOPERATE WITH THE REINSURER IN PRESENTING FACTS AND EVIDENCE TO SUCH
INDEPENDENT AUDITOR IN APPEALING SUCH DETERMINATION OR CALCULATION.  IN THE
EVENT THAT A DISPUTE AS TO THE DETERMINATION OR CALCULATION OF STATUTORY
IMPAIRMENTS OF ASSETS HELD IN THE FUNDS WITHHELD ACCOUNT IS NOT RESOLVED WITHIN
FIVE (5) CALENDAR DAYS PRIOR TO THE DATE ON WHICH THE CEDING COMPANY IS REQUIRED
TO FILE A STATUTORY FINANCIAL STATEMENT WITH AN APPLICABLE INSURANCE REGULATOR,
THEN THE PARTIES SHALL USE REASONABLE EFFORTS AND WORK TOGETHER IN GOOD FAITH TO
RESOLVE SUCH DISPUTE PRIOR TO THE DATE ON WHICH THE CEDING COMPANY IS REQUIRED
TO FILE THE RELEVANT STATUTORY FINANCIAL STATEMENT WITH THE RELEVANT INSURANCE
REGULATOR, AND IF THE PARTIES ARE UNABLE TO RESOLVE SUCH DISPUTE PRIOR TO SUCH
DATE, THEN THE CEDING COMPANY MAY USE ITS INDEPENDENT AUDITOR’S GOOD FAITH
CALCULATION OF STATUTORY IMPAIRMENTS FOR PURPOSES OF PREPARING ITS STATUTORY
FINANCIAL STATEMENTS.  EXCEPT AS OTHERWISE SET FORTH IN THIS SECTION 9.03(H), NO
STATUTORY IMPAIRMENT THAT IS SUBJECT TO DISPUTE PURSUANT TO THIS
SECTION 9.03(H) SHALL BE EFFECTIVE PRIOR TO THE RESOLUTION OF SUCH DISPUTE.

 

(I)                                     SUBJECT TO SECTION 9.02, IN THE EVENT
THAT THE REINSURER ELECTS TO PROVIDE THE CEDING COMPANY WITH REINSURANCE CREDIT
THROUGH THE USE OF ANY METHOD OTHER THAN THE METHOD SET FORTH IN
SECTION 9.02(A), THE CEDING COMPANY SHALL TRANSFER ASSETS FROM THE FUNDS
WITHHELD ACCOUNT TO THE REINSURER WITH A STATUTORY CARRYING VALUE EQUAL TO ANY
REINSURANCE CREDIT PROVIDED UNDER SUCH ALTERNATIVE METHODS; PROVIDED, THAT THE
CEDING COMPANY AND THE REINSURER SHALL REASONABLY AGREE UPON THE ASSETS TO BE
TRANSFERRED AND THE CEDING COMPANY AND THE REINSURER SHALL ATTEMPT TO ENSURE
THAT THE MARKET VALUE TO BOOK VALUE RATIO OF THE ASSETS SO TRANSFERRED IS
SUBSTANTIALLY THE SAME AS THE MARKET VALUE TO BOOK VALUE RATIO OF THE ASSETS
HELD IN THE FUNDS WITHHELD ACCOUNT IMMEDIATELY PRIOR TO SUCH TRANSFER.

 

(J)                                     THE REINSURER SHALL BEAR THE
ADMINISTRATIVE COSTS AND EXPENSES RELATED TO THE ESTABLISHMENT AND MAINTENANCE
OF THE FUNDS WITHHELD ACCOUNT, INCLUDING THE FEES OF ANY INVESTMENT MANAGER
APPOINTED PURSUANT TO SECTION 9.07.  THE CEDING COMPANY SHALL PROMPTLY FORWARD
TO THE REINSURER ANY INVOICE IT RECEIVES RELATING TO SUCH COSTS AND EXPENSES. 
ON THE EIGHTH (8TH) BUSINESS DAY FOLLOWING THE DATE ON WHICH IT DELIVERS SUCH
INVOICE TO THE REINSURER, THE CEDING COMPANY SHALL AUTHORIZE THE WITHDRAWAL OF
THE AMOUNT OF SUCH COSTS AND EXPENSES FROM THE FUNDS WITHHELD ACCOUNT; PROVIDED
THAT IF SUCH AMOUNT IS GREATER THAN THE STATUTORY CARRYING VALUE OF THE ASSETS
IN THE FUNDS WITHHELD ACCOUNT, THEN THE REINSURER SHALL PAY THE AMOUNT OF SUCH
DIFFERENCE TO THE CEDING COMPANY NO LATER THAN EIGHT (8) BUSINESS DAYS FOLLOWING
THE DELIVERY OF SUCH INVOICE TO THE REINSURER.

 

SECTION 9.04             REINSURANCE TRUST.

 

(A)                                  ANY TRUST AGREEMENT ESTABLISHING A
REINSURANCE TRUST FOR THE BENEFIT OF THE CEDING COMPANY SHALL COMPLY IN ALL
RESPECTS WITH THE STATUTES AND REGULATIONS OF THE STATE OF IOWA.

 

(B)                                 THE ASSETS DEPOSITED IN SUCH REINSURANCE
TRUST SHALL (I) BE VALUED ACCORDING TO THEIR CURRENT FAIR MARKET VALUE AND
(II) CONSIST ONLY OF PERMITTED ASSETS.

 

(C)                                  PRIOR TO DEPOSITING ASSETS WITH THE
TRUSTEE, THE REINSURER SHALL EXECUTE ASSIGNMENTS, ENDORSEMENTS IN BLANK OR
TRANSFER LEGAL TITLE TO THE TRUSTEE OF ALL SHARES, OBLIGATIONS OR ANY OTHER
ASSETS REQUIRING ASSIGNMENTS, IN ORDER THAT THE CEDING COMPANY, OR THE TRUSTEE
UPON

 

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THE DIRECTION OF THE CEDING COMPANY, MAY WHENEVER NECESSARY NEGOTIATE ANY SUCH
ASSETS WITHOUT CONSENT OR SIGNATURE FROM THE REINSURER OR ANY OTHER ENTITY.

 

(D)                                 ALL SETTLEMENTS OF ACCOUNT UNDER SUCH A
TRUST AGREEMENT BETWEEN THE CEDING COMPANY AND THE REINSURER SHALL BE MADE IN
CASH OR ITS EQUIVALENT.

 

(E)                                  NOTWITHSTANDING ANY OTHER PROVISION HEREOF,
ASSETS IN ANY REINSURANCE TRUST MAY BE WITHDRAWN BY THE CEDING COMPANY AT ANY
TIME AND SHALL BE UTILIZED AND APPLIED BY THE CEDING COMPANY OR ANY OF ITS
SUCCESSORS IN INTEREST BY OPERATION OF LAW, INCLUDING ANY LIQUIDATOR,
REHABILITATOR, RECEIVER OR CONSERVATOR OF THE CEDING COMPANY, WITHOUT DIMINUTION
BECAUSE OF INSOLVENCY ON THE PART OF THE CEDING COMPANY OR THE REINSURER, ONLY
FOR THE FOLLOWING PURPOSES:

 

(I)                                     TO REIMBURSE THE CEDING COMPANY FOR THE
QUOTA SHARE OF PREMIUMS WHICH ARE RETURNED TO THE OWNERS OF THE REINSURED
POLICIES BECAUSE OF CANCELLATIONS OF SUCH REINSURED POLICIES;

 

(II)                                  TO REIMBURSE THE CEDING COMPANY FOR THE
QUOTA SHARE OF CLAIMS PAID PURSUANT TO THE PROVISIONS OF THE REINSURED POLICIES;

 

(III)                               TO FUND AN ACCOUNT WITH THE CEDING COMPANY
(WHEN COMBINED WITH ANY FUNDS WITHHELD AMOUNT AND AMOUNTS AVAILABLE UNDER
LETTERS OF CREDIT PURSUANT TO SECTION 9.05) IN AN AMOUNT AT LEAST EQUAL TO THE
CEDING COMPANY’S DEDUCTION FOR REINSURANCE CEDED ON CEDED RESERVES;

 

(IV)                              TO PAY ANY OTHER AMOUNTS WHICH THE CEDING
COMPANY CLAIMS ARE DUE UNDER THIS AGREEMENT; AND

 

(V)                                 TO PAY ANY NET SETTLEMENT AMOUNT OR FUNDS
WITHHELD ADJUSTMENT DUE FROM THE CEDING COMPANY TO THE REINSURER.

 

NOTWITHSTANDING THE FOREGOING, THE CEDING COMPANY SHALL NOT WITHDRAW FUNDS FROM
ANY REINSURANCE TRUST UNTIL THE EXPIRATION OF ANY PAYMENT PERIODS ACCORDED THE
REINSURER UNDER SECTION 8.03, AND THEN ONLY UPON PROVIDING THE REINSURER WITH
WRITTEN NOTICE AT LEAST FIVE (5) BUSINESS DAYS PRIOR TO SUCH WITHDRAWAL.

 

(F)                                    THE CEDING COMPANY SHALL PROMPTLY RETURN
TO THE REINSURANCE TRUST ANY ASSETS WITHDRAWN IN EXCESS OF THE ACTUAL AMOUNTS
REQUIRED IN PARAGRAPHS (I) THROUGH (V) IMMEDIATELY ABOVE OR ANY AMOUNTS THAT ARE
SUBSEQUENTLY DETERMINED NOT TO BE DUE UNDER PARAGRAPH (IV) IMMEDIATELY ABOVE
(“REINSURANCE TRUST EXCESS WITHDRAWALS”).  THE CEDING COMPANY SHALL ALSO PAY
INTEREST ON ANY REINSURANCE TRUST EXCESS WITHDRAWALS AT A RATE EQUAL TO SIX
PERCENT (6%) PER ANNUM FROM AND INCLUDING THE DATE OF WITHDRAWAL TO BUT
EXCLUDING THE DATE ON WHICH THE REINSURANCE TRUST EXCESS WITHDRAWAL IS RETURNED
TO THE REINSURANCE TRUST.  ANY REINSURANCE TRUST ASSETS WITHDRAWN BY THE CEDING
COMPANY, INCLUDING ANY REINSURANCE TRUST EXCESS WITHDRAWALS, SHALL BE HELD BY
THE CEDING COMPANY OR ANY SUCCESSOR IN INTEREST OF THE CEDING COMPANY IN TRUST
FOR THE BENEFIT OF THE REINSURER AND SHALL AT ALL TIMES BE MAINTAINED SEPARATE
AND APART FROM ANY ASSETS OF THE CEDING COMPANY, FOR THE SOLE PURPOSES DESCRIBED
IN PARAGRAPHS (I) THROUGH (V) IMMEDIATELY ABOVE.

 

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(G)                                 THE REINSURER MAY SEEK THE APPROVAL OF THE
CEDING COMPANY (WHICH APPROVAL SHALL NOT BE UNREASONABLY OR ARBITRARILY WITHHELD
OR DELAYED) TO WITHDRAW FROM THE REINSURANCE TRUST ALL OR ANY PART OF THE ASSETS
CONTAINED THEREIN AND TRANSFER SUCH ASSETS TO THE REINSURER, PROVIDED THAT:

 

(I)                                     THE REINSURER SHALL, AT THE TIME OF SUCH
WITHDRAWAL, REPLACE THE WITHDRAWN ASSETS WITH OTHER QUALIFIED ASSETS HAVING A
MARKET VALUE AT LEAST EQUAL TO THE MARKET VALUE OF THE ASSETS WITHDRAWN; OR

 

(II)                                  AFTER SUCH WITHDRAWALS AND TRANSFERS, THE
MARKET VALUE OF THE ASSETS HELD IN THE REINSURANCE TRUST IS NO LESS THAN 102% OF
(A) CEDED RESERVES MINUS (B) THE BOOK VALUE OF ASSETS IN THE FUNDS WITHHELD
ACCOUNT, IF ANY, MINUS (C) THE AMOUNT AVAILABLE UNDER LETTERS OF CREDIT PURSUANT
TO SECTION 9.05.

 

(H)                                 THE REINSURER SHALL BEAR THE ADMINISTRATIVE
COSTS AND EXPENSES RELATED TO THE ESTABLISHMENT AND MAINTENANCE OF THE
REINSURANCE TRUST, INCLUDING THE FEES OF ANY INVESTMENT MANAGER APPOINTED
PURSUANT TO SECTION 9.07.

 

SECTION 9.05             LETTERS OF CREDIT.

 

(A)                                  EACH LETTER OF CREDIT SHALL BE CLEAN,
IRREVOCABLE, UNCONDITIONAL, “EVERGREEN” AND ISSUED OR CONFIRMED BY A QUALIFIED
UNITED STATES FINANCIAL INSTITUTION FOR THE BENEFIT OF THE CEDING COMPANY.

 

(B)                                 NOTWITHSTANDING ANY OTHER PROVISION HEREOF,
ANY LETTERS OF CREDIT MAY BE DRAWN UPON IN FULL OR IN PART AT ANY TIME AND SHALL
BE UTILIZED AND APPLIED BY THE CEDING COMPANY OR ANY OF ITS SUCCESSORS IN
INTEREST BY OPERATION OF LAW, INCLUDING ANY LIQUIDATOR, REHABILITATOR, RECEIVER
OR CONSERVATOR OF THE CEDING COMPANY, WITHOUT DIMINUTION BECAUSE OF INSOLVENCY
ON THE PART OF THE CEDING COMPANY OR THE REINSURER, ONLY FOR THE FOLLOWING
PURPOSES:

 

(I)                                     TO REIMBURSE THE CEDING COMPANY FOR THE
QUOTA SHARE OF PREMIUMS WHICH ARE RETURNED TO THE OWNERS OF THE REINSURED
POLICIES BECAUSE OF CANCELLATIONS OF SUCH REINSURED POLICIES;

 

(II)                                  TO REIMBURSE THE CEDING COMPANY FOR THE
QUOTA SHARE OF CLAIMS PAID PURSUANT TO THE PROVISIONS OF THE REINSURED POLICIES;

 

(III)                               TO FUND AN ACCOUNT WITH THE CEDING COMPANY
(WHEN COMBINED WITH ANY FUNDS WITHHELD AMOUNT, THE MARKET VALUE OF ANY ASSETS
HELD IN A REINSURANCE TRUST PURSUANT TO SECTION 9.04 AND ANY UNDRAWN AMOUNTS
AVAILABLE UNDER LETTERS OF CREDIT PURSUANT TO THIS SECTION 9.05) IN AN AMOUNT AT
LEAST EQUAL TO THE CEDING COMPANY’S DEDUCTION FOR REINSURANCE CEDED ON CEDED
RESERVES;

 

(IV)                              TO PAY ANY OTHER AMOUNTS WHICH THE CEDING
COMPANY CLAIMS ARE DUE UNDER THIS AGREEMENT; AND

 

(V)                                 TO PAY ANY NET SETTLEMENT AMOUNT OR FUNDS
WITHHELD ADJUSTMENT DUE FROM THE CEDING COMPANY TO THE REINSURER.

 

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NOTWITHSTANDING THE FOREGOING, THE CEDING COMPANY SHALL NOT DRAW UPON ANY LETTER
OF CREDIT UNTIL THE EXPIRATION OF ANY PAYMENT PERIODS ACCORDED THE REINSURER
UNDER SECTION 8.03, AND THEN ONLY UPON PROVIDING THE REINSURER WITH WRITTEN
NOTICE AT LEAST FIVE (5) BUSINESS DAYS PRIOR TO SUCH DRAW.

 

(C)                                  THE CEDING COMPANY SHALL PROMPTLY RETURN TO
THE REINSURER ANY AMOUNTS WITHDRAWN IN EXCESS OF THE ACTUAL AMOUNTS REQUIRED IN
PARAGRAPHS (I) THROUGH (V) IMMEDIATELY ABOVE OR ANY AMOUNTS THAT ARE
SUBSEQUENTLY DETERMINED NOT TO BE DUE UNDER PARAGRAPH (IV) IMMEDIATELY ABOVE
(“LETTER OF CREDIT EXCESS WITHDRAWALS”).  THE CEDING COMPANY SHALL ALSO PAY
INTEREST ON ANY LETTER OF CREDIT EXCESS WITHDRAWALS AT A RATE EQUAL TO SIX
PERCENT (6%) PER ANNUM FROM AND INCLUDING THE DATE OF WITHDRAWAL TO BUT
EXCLUDING THE DATE OF RETURN TO THE REINSURER.  ANY AMOUNTS WITHDRAWN UNDER A
LETTER OF CREDIT, INCLUDING ANY LETTER OF CREDIT EXCESS WITHDRAWALS, SHALL BE
HELD BY THE CEDING COMPANY OR ANY SUCCESSOR IN INTEREST OF THE CEDING COMPANY IN
TRUST FOR THE BENEFIT OF THE REINSURER AND SHALL AT ALL TIMES BE MAINTAINED
SEPARATE AND APART FROM ANY ASSETS OF THE CEDING COMPANY, FOR THE SOLE PURPOSES
DESCRIBED IN PARAGRAPHS (I) THROUGH (V) IMMEDIATELY ABOVE.

 

SECTION 9.06             PRIORITY OF WITHDRAWAL.  NOTWITHSTANDING ANY OTHER
PROVISION OF THIS AGREEMENT:

 

(A)                                  THE CEDING COMPANY AND ITS SUCCESSORS IN
INTEREST SHALL ONLY WITHDRAW ASSETS FROM THE REINSURANCE TRUST TO THE EXTENT THE
SUM OF (I) THE THEN-CURRENT FUNDS WITHHELD AMOUNT PLUS (II) THE FUNDS WITHHELD
EXCESS WITHDRAWALS HAS BEEN REDUCED TO ZERO; AND

 

(B)                                 THE CEDING COMPANY AND ITS SUCCESSORS IN
INTEREST SHALL ONLY DRAW UPON LETTERS OF CREDIT TO THE EXTENT THE SUM OF (I) THE
THEN-CURRENT FUNDS WITHHELD AMOUNT PLUS (II) THE FUNDS WITHHELD EXCESS
WITHDRAWALS PLUS (III) THE THEN-CURRENT MARKET VALUE OF THE ASSETS HELD IN THE
REINSURANCE TRUST PLUS (IV) THE REINSURANCE TRUST EXCESS WITHDRAWALS HAS BEEN
REDUCED TO ZERO.

 

SECTION 9.07             INVESTMENT MANAGEMENT.

 

(A)                                  PURSUANT TO AN INVESTMENT MANAGEMENT
AGREEMENT ATTACHED AS EXHIBIT E (THE “INVESTMENT MANAGEMENT AGREEMENT”), ATHENE
ASSET MANAGEMENT, LLC HAS BEEN APPOINTED AS INVESTMENT MANAGER TO PROVIDE
INVESTMENT MANAGEMENT SERVICES WITH RESPECT TO THE ASSETS HELD IN THE FUNDS
WITHHELD ACCOUNT (THE “INVESTMENT MANAGER”).  THE CEDING COMPANY SHALL NOT
REMOVE OR REPLACE THE INVESTMENT MANAGER WITHOUT THE PRIOR WRITTEN CONSENT OF
THE REINSURER; PROVIDED THAT THE CEDING COMPANY MAY, IN ITS SOLE DISCRETION,
REMOVE THE INVESTMENT MANAGER IN THE EVENT THAT THE INVESTMENT MANAGER IS NO
LONGER AN AFFILIATE OF THE REINSURER.  IN THE EVENT THAT THE INVESTMENT MANAGER
IS REMOVED OR RESIGNS, THE CEDING COMPANY SHALL APPOINT A REPLACEMENT INVESTMENT
MANAGER AS DIRECTED BY THE REINSURER; PROVIDED THAT, IF THE INVESTMENT MANAGER
IS REMOVED BECAUSE IT IS NO LONGER AN AFFILIATE OF THE REINSURER, THEN THE
REPLACEMENT INVESTMENT MANAGER SHALL BE SELECTED BY THE REINSURER BUT SHALL BE
SUBJECT TO THE CONSENT OF THE CEDING COMPANY (WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD).  THE REPLACEMENT INVESTMENT MANAGER SHALL ACCEPT ITS
APPOINTMENT BY ENTERING INTO AN INVESTMENT MANAGEMENT AGREEMENT IN A FORM
ACCEPTABLE TO THE CEDING COMPANY AND THE REINSURER, AND SUBSTANTIALLY SIMILAR TO
THE INVESTMENT MANAGEMENT AGREEMENT.  THE REINSURER SHALL APPOINT ATHENE ASSET

 

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MANAGEMENT, LLC AS INVESTMENT MANAGER TO PROVIDE INVESTMENT MANAGEMENT SERVICES
WITH RESPECT TO THE ASSETS HELD IN ANY REINSURANCE TRUST ESTABLISHED UNDER THIS
AGREEMENT.

 

(B)                                 THE REINSURER SHALL INDEMNIFY THE CEDING
COMPANY FOR ANY LOSS, LIABILITY OR DAMAGE RESULTING FROM ANY CLAIM BROUGHT
AGAINST THE CEDING COMPANY BY THE COUNTERPARTY TO, AND ARISING OUT OF, ANY SWAP,
FUTURE, OPTION OR OTHER DERIVATIVE TRANSACTION WHICH IS EXECUTED BY THE
INVESTMENT MANAGER IN THE CEDING COMPANY’S NAME IN ACCORDANCE WITH THE
INVESTMENT MANAGEMENT AGREEMENT.

 

ARTICLE X

 

ADMINISTRATION

 

SECTION 10.01       POLICY ADMINISTRATION.  THE CEDING COMPANY SHALL PROVIDE ALL
REQUIRED, NECESSARY AND APPROPRIATE CLAIMS, ADMINISTRATIVE AND OTHER SERVICES,
INCLUDING REPORTING UNDER ARTICLE VIII, WITH RESPECT TO THE REINSURED POLICIES. 
THE CEDING COMPANY SHALL USE REASONABLE CARE IN ITS UNDERWRITING, ADMINISTRATION
AND CLAIMS PRACTICES WITH RESPECT TO THE REINSURED POLICIES AND IN ADMINISTERING
AND PERFORMING ITS DUTIES UNDER THIS AGREEMENT AND SUCH PRACTICES,
ADMINISTRATION AND PERFORMANCE SHALL (A) BE CONSISTENT WITH THE CEDING COMPANY’S
EXISTING PRACTICES, ADMINISTRATION AND PERFORMANCE AND THE UNDERWRITING
GUIDELINES; (B) CONFORM WITH LAW; (C) NOT BE FRAUDULENT AND (D) BE NO LESS
FAVORABLE THAN THOSE USED BY THE CEDING COMPANY WITH RESPECT TO OTHER POLICIES
OF THE CEDING COMPANY NOT REINSURED BY THE REINSURER.  THE CEDING COMPANY SHALL
NOT OUTSOURCE ANY UNDERWRITING FUNCTIONS, ADMINISTRATIVE FUNCTIONS OR CLAIMS
ADMINISTRATION WITH RESPECT TO THE REINSURED POLICIES OR THIS AGREEMENT WITHOUT
THE PRIOR WRITTEN CONSENT OF THE REINSURER.  IF THE REINSURER CONSENTS TO ANY
SUCH OUTSOURCING, THE CEDING COMPANY SHALL SECURE THE REINSURER’S RIGHT TO AUDIT
AND INSPECT THE PARTY PERFORMING SUCH OUTSOURCED SERVICES.

 

SECTION 10.02       RECORD KEEPING.

 

(A)                                  THE CEDING COMPANY SHALL MAINTAIN ALL
RECORDS AND CORRESPONDENCE FOR SERVICES PERFORMED BY THE CEDING COMPANY
HEREUNDER RELATING TO THE REINSURED POLICIES IN ACCORDANCE WITH INDUSTRY
STANDARDS OF INSURANCE RECORD KEEPING.  IN ADDITION, SUCH RECORDS SHALL BE MADE
AVAILABLE FOR EXAMINATION, AUDIT, AND INSPECTION BY THE DEPARTMENT OF INSURANCE
OF ANY STATE WITHIN WHOSE JURISDICTION THE CEDING COMPANY OR THE REINSURER
OPERATES. THE CEDING COMPANY AND THE REINSURER FURTHER AGREE THAT IN THE EVENT
OF THE TERMINATION OF THIS AGREEMENT, ANY SUCH RECORDS IN THE POSSESSION OF THE
REINSURER SHALL PROMPTLY BE DUPLICATED AND FORWARDED TO THE CEDING COMPANY
UNLESS OTHERWISE INSTRUCTED.

 

(B)                                 THE CEDING COMPANY SHALL ESTABLISH AND
MAINTAIN AN ADEQUATE SYSTEM OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL
REPORTING RELATING TO THE REINSURED POLICIES INCLUDING ASSOCIATED DOCUMENTATION
AND SHALL MAKE SUCH DOCUMENTATION AVAILABLE FOR EXAMINATION AND INSPECTION BY
THE REINSURER.  ALL REPORTS PROVIDED BY THE CEDING COMPANY PURSUANT TO
ARTICLE VIII SHALL BE PREPARED IN ACCORDANCE WITH SUCH SYSTEM AND PROCEDURES AND
SHALL BE CONSISTENT WITH THE CEDING COMPANY’S BOOKS AND RECORDS.

 

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ARTICLE XI

 

TERM AND TERMINATION

 

SECTION 11.01       DURATION OF AGREEMENT.  SUBJECT TO SECTION 11.02, THIS
AGREEMENT IS UNLIMITED AS TO ITS DURATION.

 

SECTION 11.02       TERMINATION.

 

(A)                                  TERMINATION BY REINSURER.  THE REINSURER
MAY, IN ITS SOLE DISCRETION, TERMINATE THIS AGREEMENT AS TO THE REINSURANCE OF
NEW POLICIES BY PROVIDING THIRTY (30) CALENDAR DAYS PRIOR WRITTEN NOTICE TO THE
CEDING COMPANY.  ALL THEN IN FORCE REINSURED POLICIES WILL REMAIN REINSURED
POLICIES UNTIL THE EXPIRATION THEREOF.  DURING THE THIRTY (30) CALENDAR DAY
NOTIFICATION PERIOD, THE CEDING COMPANY WILL CONTINUE TO CEDE AND THE REINSURER
WILL CONTINUE TO ACCEPT POLICIES COVERED UNDER THE TERMS OF THIS AGREEMENT.

 

(B)                                 TERMINATION FOR NON-PAYMENT.  EITHER PARTY
MAY TERMINATE THIS AGREEMENT AS TO ALL REINSURED POLICIES IF THE OTHER PARTY
FAILS TO PAY ANY AMOUNTS DUE UNDER THIS AGREEMENT WITHIN THIRTY (30) CALENDAR
DAYS FOLLOWING WRITTEN NOTICE OF NON-PAYMENT FROM THE NON-DEFAULTING PARTY (A
“NON-PAYMENT EVENT”); PROVIDED, THAT REINSURANCE THAT IS TERMINATED DUE TO
NON-PAYMENT BY THE CEDING COMPANY MAY BE REINSTATED BY THE CEDING COMPANY,
SUBJECT TO THE REINSURER’S APPROVAL, WITHIN SIXTY (60) CALENDAR DAYS OF THE DATE
OF TERMINATION, AND UPON PAYMENT OF ALL AMOUNTS IN ARREARS INCLUDING ANY
INTEREST ACCRUED THEREON; PROVIDED, FURTHER, THAT THE REINSURER SHALL HAVE NO
LIABILITY FOR THE PAYMENT OF ANY CLAIMS UNDER THE REINSURED POLICIES THAT ARE
INCURRED BETWEEN THE DATE OF TERMINATION AND THE DATE OF THE REINSTATEMENT OF
THE REINSURANCE.

 

(C)                                  TERMINATION FOR MATERIAL BREACH.  IN
ADDITION TO ALL OTHER RIGHTS AND REMEDIES AVAILABLE UNDER THIS AGREEMENT, EITHER
PARTY MAY TERMINATE THIS AGREEMENT AS TO ALL REINSURANCE POLICIES BY PROVIDING
THE OTHER PARTY WITH A MINIMUM OF THIRTY (30) CALENDAR DAYS PRIOR WRITTEN NOTICE
IN THE EVENT THE OTHER PARTY COMMITS A MATERIAL BREACH OF ANY PROVISION OF THIS
AGREEMENT, WHICH NOTICE SHALL SPECIFY THE NATURE OF SUCH MATERIAL BREACH. THE
BREACHING PARTY SHALL HAVE TWENTY (20) CALENDAR DAYS FROM THE DATE OF THE
BREACHING PARTY’S RECEIPT OF THE FOREGOING NOTICE TO CURE SUCH MATERIAL BREACH
TO THE REASONABLE SATISFACTION OF THE NON-BREACHING PARTY. IF THE BREACH IS
CURED, THE OTHER PARTY SHALL PROVIDE WRITTEN NOTICE TO THE CURING PARTY THAT THE
BREACH HAS BEEN ADEQUATELY CURED. IN THE EVENT THE BREACHING PARTY FAILS TO CURE
THE MATERIAL BREACH WITHIN SUCH TWENTY (20) CALENDAR DAY PERIOD, THEN, AT THE
OPTION OF THE NON-BREACHING PARTY AND UPON NOTICE, THIS AGREEMENT WILL TERMINATE
UPON EXPIRATION OF THE THIRTY (30) CALENDAR DAY NOTICE PERIOD. NOTWITHSTANDING
THE FOREGOING, THE PARTIES SHALL COOPERATE WITH EACH OTHER TO EFFECT A CURE OF
ANY BREACH OF THE TERMS OF THIS AGREEMENT.

 

(D)                                 TERMINATION FOR INSOLVENCY OF REINSURER. 
THE CEDING COMPANY MAY TERMINATE THIS AGREEMENT AS TO ALL REINSURED POLICIES IN
THE EVENT THAT THE REINSURER BECOMES INSOLVENT (AS SET FORTH IN ARTICLE XV) BY
PROMPTLY PROVIDING THE REINSURER OR ITS AUTHORIZED REPRESENTATIVE WITH WRITTEN
NOTICE OF TERMINATION, TO BE EFFECTIVE AS OF THE DATE ON WHICH THE REINSURER’S
INSOLVENCY IS ESTABLISHED BY THE AUTHORITY RESPONSIBLE FOR SUCH DETERMINATION. 
ANY

 

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REQUIREMENT FOR A NOTIFICATION PERIOD PRIOR TO THE TERMINATION OF THIS AGREEMENT
SHALL NOT APPLY UNDER SUCH CIRCUMSTANCES.

 

SECTION 11.03       TERMINATION PAYMENT.

 

(A)                                  IN THE EVENT THAT THIS AGREEMENT IS
TERMINATED AS TO ALL REINSURED POLICIES (INCLUDING IF THIS AGREEMENT IS REJECTED
BY ANY LIQUIDATOR, RECEIVER, REHABILITATOR, TRUSTEE OR SIMILAR PERSON ACTING ON
BEHALF OF THE CEDING COMPANY (A “RECEIVER”)), A NET ACCOUNTING AND SETTLEMENT AS
TO ANY BALANCE DUE UNDER THIS AGREEMENT WILL BE UNDERTAKEN BY THE CEDING COMPANY
IN ACCORDANCE WITH ARTICLE VIII.  IN ADDITION, ON THE DATE OF DELIVERY OF THE
QUARTERLY ACCOUNTING REPORT RELATED TO SUCH TERMINATION, THE CEDING COMPANY
SHALL TRANSFER ALL ASSETS IN THE FUNDS WITHHELD ACCOUNT TO THE REINSURER, AND
THE REINSURER WILL PAY TO THE CEDING COMPANY, WITHIN FIFTEEN (15) BUSINESS DAYS
AFTER RECEIPT OF THE QUARTERLY ACCOUNTING REPORT, AN AMOUNT EQUAL TO THE CEDED
RESERVES AS OF THE TERMINATION EFFECTIVE DATE.

 

(B)                                 THE REINSURER’S RIGHT TO TERMINATE THE
REINSURANCE PROVIDED HEREUNDER WILL NOT PREJUDICE ITS RIGHT TO COLLECT PREMIUMS,
AND APPLICABLE INTEREST AS SPECIFIED IN SECTION 18.02, FOR THE PERIOD DURING
WHICH SUCH REINSURANCE WAS IN FORCE, THROUGH AND INCLUDING ANY NOTICE PERIOD.

 

(C)                                  IF THIS AGREEMENT IS TERMINATED BY THE
REINSURER AS A RESULT OF A NON-PAYMENT EVENT OR OTHER MATERIAL BREACH BY THE
CEDING COMPANY OR IS REJECTED BY A RECEIVER OF THE CEDING COMPANY, THE CEDING
COMPANY WILL PROVIDE TO THE REINSURER WITHIN FORTY-FIVE (45) CALENDAR DAYS AFTER
THE TERMINATION EFFECTIVE DATE, A WRITTEN REPORT WHICH DOCUMENTS THE CEDING
COMPANY’S GOOD FAITH CALCULATION OF THE EMBEDDED VALUE AS OF THE TERMINATION
EFFECTIVE DATE (THE “EMBEDDED VALUE REPORT”) AND WILL PAY AN AMOUNT EQUAL TO THE
EMBEDDED VALUE TO THE REINSURER UPON DELIVERY OF SUCH NOTICE.  THE CEDING
COMPANY WILL PROVIDE THE REINSURER WITH REASONABLE ACCESS TO KNOWLEDGEABLE
PERSONNEL TO PROMPTLY ASSIST IN THE EVALUATION OF SUCH CALCULATION.  WITHIN
THIRTY (30) CALENDAR DAYS AFTER RECEIPT OF THE EMBEDDED VALUE REPORT, THE
REINSURER SHALL NOTIFY THE CEDING COMPANY IN WRITING IF THE REINSURER DISAGREES
WITH THE CEDING COMPANY’S CALCULATION OF THE EMBEDDED VALUE.  DURING THE TEN
(10) BUSINESS DAYS IMMEDIATELY FOLLOWING THE DELIVERY OF SUCH NOTICE OF
DISAGREEMENT, THE CEDING COMPANY AND THE REINSURER WILL SEEK IN GOOD FAITH TO
RESOLVE ANY DISPUTES AS TO SUCH CALCULATION.  NOTWITHSTANDING ARTICLE XIV OF
THIS AGREEMENT, ANY AND ALL DISPUTES AS TO THE CALCULATION OF THE EMBEDDED VALUE
THAT HAVE NOT BEEN RESOLVED DURING SUCH TEN (10) BUSINESS DAY PERIOD SHALL BE
SUBMITTED TO AN INDEPENDENT ACTUARIAL FIRM REASONABLY AGREED TO BY EACH OF THE
CEDING COMPANY AND THE REINSURER FOR REVIEW AND DETERMINATION.  THE PARTIES
SHALL INSTRUCT THE INDEPENDENT ACTUARIAL FIRM TO RENDER ITS DECISION AS TO THE
APPROPRIATE CALCULATION OF THE EMBEDDED VALUE WITHIN THIRTY (30) CALENDAR DAYS
AFTER THE SUBMISSION OF THE MATTER FOR ITS REVIEW (OR AS SOON THEREAFTER AS
POSSIBLE).  THE PARTIES AGREE THAT THE ARBITRATION CONDUCTED BY THE INDEPENDENT
ACTUARIAL FIRM SHALL BE A “BASEBALL ARBITRATION”.  AS SUCH, THE INDEPENDENT
ACTUARIAL FIRM SHALL EVALUATE WHICH OF THE PARTIES’ TWO CALCULATIONS OF THE
EMBEDDED VALUE IS MORE REASONABLE IN LIGHT OF THE EVIDENCE PROVIDED BY BOTH
PARTIES IN CONNECTION WITH THEIR RESPECTIVE SUBMISSIONS TO THE INDEPENDENT
ACTUARIAL FIRM.  THE INDEPENDENT ACTUARIAL FIRM SHALL SELECT ONE AND ONLY ONE OF
THE CALCULATIONS OF THE EMBEDDED VALUE SUBMITTED BY THE TWO PARTIES.  THE
INDEPENDENT ACTUARIAL FIRM’S DECISION SHALL BE FINAL AND BINDING UPON EACH OF
THE CEDING COMPANY AND THE REINSURER.  IN THE EVENT THAT THE AMOUNT OF THE
EMBEDDED VALUE (AS SUCH EMBEDDED VALUE IS AGREED TO BY THE PARTIES OR

 

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FINALLY DETERMINED BY THE INDEPENDENT ACTUARIAL FIRM) EXCEEDS THE AMOUNT OF THE
EMBEDDED VALUE PAYMENT MADE BY THE CEDING COMPANY TO THE REINSURER PURSUANT TO
THE FIRST SENTENCE OF THIS SECTION 11.03(C), THEN THE CEDING COMPANY SHALL PAY
THE AMOUNT OF SUCH DIFFERENCE TO THE REINSURER WITHIN TWO (2) BUSINESS DAYS
FOLLOWING THE DATE ON WHICH THE EMBEDDED VALUE IS AGREED TO BY THE PARTIES OR
FINALLY DETERMINED BY THE INDEPENDENT ACTUARIAL FIRM.  ALL FEES AND EXPENSES
RELATING TO THE WORK PERFORMED BY THE INDEPENDENT ACTUARIAL FIRM PURSUANT TO
THIS SECTION 11.03(C) SHALL BE SHALL BE SHARED EQUALLY BETWEEN THE CEDING
COMPANY AND THE REINSURER.

 

SECTION 11.04       SURVIVAL.  ALL PROVISIONS OF THIS AGREEMENT WILL SURVIVE ANY
TERMINATION OF THIS AGREEMENT TO THE EXTENT NECESSARY TO CARRY OUT ITS PURPOSE.

 

ARTICLE XII

 

RECAPTURE

 

SECTION 12.01       RECAPTURE.  THE REINSURED POLICIES MAY NOT BE RECAPTURED.

 

ARTICLE XIII

 

ERRORS AND OMISSIONS

 

SECTION 13.01       ERRORS AND OMISSIONS.

 

(A)                                  ANY UNINTENTIONAL OR ACCIDENTAL FAILURE TO
COMPLY WITH THE TERMS OF THIS AGREEMENT WHICH CAN BE SHOWN TO BE THE RESULT OF
AN OVERSIGHT OR CLERICAL ERROR RELATING TO THE ADMINISTRATION OF REINSURANCE BY
EITHER PARTY WILL NOT CONSTITUTE A BREACH OF THIS AGREEMENT.  UPON DISCOVERY,
THE ERROR WILL BE PROMPTLY CORRECTED SO THAT BOTH PARTIES ARE RESTORED TO THE
POSITION THEY WOULD HAVE OCCUPIED HAD THE OVERSIGHT OR CLERICAL ERROR NOT
OCCURRED.  IN THE EVENT A PAYMENT IS CORRECTED, THE PARTY RECEIVING THE PAYMENT
SHALL BE ENTITLED TO INTEREST IN ACCORDANCE WITH SECTION 18.02.  SHOULD IT NOT
BE POSSIBLE TO RESTORE BOTH PARTIES TO THIS POSITION, THE PARTY RESPONSIBLE FOR
THE OVERSIGHT OR CLERICAL ERROR WILL BE RESPONSIBLE FOR ANY RESULTING
LIABILITIES AND EXPENSES.

 

(B)                                 IF THE CEDING COMPANY HAS FAILED TO CEDE
REINSURANCE AS PROVIDED UNDER THIS AGREEMENT OR HAS FAILED TO COMPLY WITH
REPORTING REQUIREMENTS WITH RESPECT TO BUSINESS CEDED HEREUNDER, THE REINSURER
MAY REQUIRE THE CEDING COMPANY TO AUDIT ITS RECORDS FOR SIMILAR ERRORS AND TAKE
REASONABLE ACTIONS NECESSARY TO CORRECT ERRORS AND AVOID SIMILAR ERRORS. 
FAILING PROMPT CORRECTION, THE REINSURER MAY LIMIT ITS LIABILITY TO THE
CORRECTLY REPORTED REINSURED POLICIES.

 

ARTICLE XIV

 

DISPUTE RESOLUTION

 

SECTION 14.01       NEGOTIATION.

 

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(A)                                  WITHIN FIFTEEN (15) CALENDAR DAYS AFTER THE
REINSURER OR THE CEDING COMPANY HAS GIVEN THE OTHER PARTY WRITTEN NOTIFICATION
OF A SPECIFIC DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT, EACH PARTY
WILL APPOINT A DESIGNATED OFFICER OF ITS COMPANY TO ATTEMPT TO RESOLVE SUCH
DISPUTE.  THE OFFICERS WILL MEET AT A MUTUALLY AGREEABLE LOCATION AS SOON AS
REASONABLY POSSIBLE AND AS OFTEN AS REASONABLY NECESSARY IN ORDER TO GATHER AND
FURNISH THE OTHER WITH ALL APPROPRIATE AND RELEVANT INFORMATION CONCERNING THE
DISPUTE.  THE OFFICERS WILL DISCUSS THE MATTER IN DISPUTE AND WILL NEGOTIATE IN
GOOD FAITH WITHOUT THE NECESSITY OF FORMAL ARBITRATION PROCEEDINGS.  DURING THE
NEGOTIATION PROCESS, ALL REASONABLE REQUESTS MADE BY ONE OFFICER TO THE OTHER
FOR INFORMATION WILL BE HONORED.  THE SPECIFIC FORMAT FOR SUCH DISCUSSIONS WILL
BE DECIDED BY THE DESIGNATED OFFICERS.

 

(B)                                 IF THE OFFICERS CANNOT RESOLVE THE DISPUTE
WITHIN THIRTY (30) CALENDAR DAYS OF THEIR FIRST MEETING, THE DISPUTE WILL BE
SUBMITTED TO FORMAL ARBITRATION PURSUANT TO SECTION 14.02, UNLESS THE PARTIES
AGREE IN WRITING TO EXTEND THE NEGOTIATION PERIOD FOR AN ADDITIONAL THIRTY (30)
CALENDAR DAYS.

 

SECTION 14.02       ARBITRATION.

 

(A)                                  IT IS THE INTENTION OF THE REINSURER AND
THE CEDING COMPANY THAT THE CUSTOMS AND PRACTICES OF THE INSURANCE AND
REINSURANCE INDUSTRY WILL BE GIVEN FULL EFFECT IN THE OPERATION AND
INTERPRETATION OF THIS AGREEMENT.  THE PARTIES AGREE TO ACT IN ALL MATTERS WITH
THE UTMOST GOOD FAITH.  HOWEVER, IF THE REINSURER AND THE CEDING COMPANY CANNOT
MUTUALLY RESOLVE A DISPUTE THAT ARISES OUT OF OR RELATES TO THIS AGREEMENT,
INCLUDING, WITHOUT LIMITATION, THE VALIDITY OF THIS AGREEMENT, AND THE DISPUTE
CANNOT BE RESOLVED THROUGH THE NEGOTIATION PROCESS, THEN, EXCEPT AS OTHERWISE
PROVIDED IN SECTION 9.03(H) (RELATING TO STATUTORY IMPAIRMENTS OF ASSETS HELD IN
THE FUNDS WITHHELD ACCOUNT), AND SECTION 11.03(C) (RELATING TO THE EMBEDDED
VALUE OF THE REINSURED POLICIES), THE DISPUTE WILL BE FINALLY SETTLED BY
ARBITRATION IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 14.02.

 

(B)                                 TO INITIATE ARBITRATION, EITHER THE CEDING
COMPANY OR THE REINSURER WILL NOTIFY THE OTHER PARTY BY CERTIFIED MAIL OF ITS
DESIRE TO ARBITRATE, STATING THE NATURE OF THE DISPUTE AND THE REMEDY SOUGHT.

 

(C)                                  ANY ARBITRATION PURSUANT TO THIS
SECTION 14.02 WILL BE CONDUCTED BEFORE A PANEL OF THREE ARBITRATORS WHO WILL BE
CURRENT OR FORMER OFFICERS OF LIFE INSURANCE OR LIFE REINSURANCE COMPANIES OTHER
THAN THE PARTIES TO THIS AGREEMENT, THEIR AFFILIATES OR SUBSIDIARIES, 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.  EACH OF THE ARBITRATORS WILL BE FAMILIAR WITH THE
PREVAILING CUSTOMS AND PRACTICES FOR REINSURANCE IN THE LIFE INSURANCE AND LIFE
REINSURANCE INDUSTRY IN THE UNITED STATES.  EACH OF THE PARTIES WILL APPOINT ONE
ARBITRATOR AND THE TWO SO APPOINTED WILL SELECT THE THIRD ARBITRATOR WHO SHALL
BE INDEPENDENT AND IMPARTIAL.  IF EITHER PARTY REFUSES OR FAILS TO APPOINT AN
ARBITRATOR WITHIN SIXTY (60) CALENDAR DAYS AFTER THE OTHER PARTY HAS GIVEN
WRITTEN NOTICE TO SUCH PARTY OF ITS ARBITRATOR APPOINTMENT, THE PARTY THAT HAS
GIVEN NOTICE MAY APPOINT THE SECOND ARBITRATOR.  IF THE TWO ARBITRATORS DO NOT
AGREE ON A THIRD ARBITRATOR WITHIN THIRTY (30) CALENDAR DAYS OF THE APPOINTMENT
OF THE SECOND ARBITRATOR, THEN THE THIRD ARBITRATOR SHALL BE SELECTED BY THE
ARIAS-

 

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U.S. UMPIRE SELECTION PROCEDURE (AVAILABLE AT WWW.ARIAS-US.ORG), SUBJECT TO THE
ARBITRATOR QUALIFICATION REQUIREMENTS OF THIS PARAGRAPH.

 

(D)                                 EACH ARBITRATION HEARING UNDER THIS
AGREEMENT WILL BE HELD ON THE DATE SET BY THE ARBITRATORS AT A MUTUALLY AGREED
UPON LOCATION.  IN NO EVENT WILL THIS DATE BE LATER THAN SIX (6) MONTHS AFTER
THE APPOINTMENT OF THE THIRD ARBITRATOR.  AS SOON AS POSSIBLE, THE ARBITRATORS
WILL ESTABLISH ARBITRATION PROCEDURES AS WARRANTED BY THE FACTS AND ISSUES OF
THE PARTICULAR CASE.  NOTWITHSTANDING SECTION 18.17, THE ARBITRATION AND THIS
SECTION 14.02 SHALL BE GOVERNED BY TITLE 9 (ARBITRATION) OF THE UNITED STATES
CODE.

 

(E)                                  THE ARBITRATORS WILL BASE THEIR DECISION ON
THE TERMS AND CONDITIONS OF THIS AGREEMENT AND THE CUSTOMS AND PRACTICES OF THE
INSURANCE AND REINSURANCE INDUSTRIES RATHER THAN ON STRICT INTERPRETATION OF THE
LAW.  THE DECISION OF THE ARBITRATORS WILL BE MADE BY MAJORITY RULE AND WILL BE
FINAL AND BINDING ON BOTH PARTIES, UNLESS (I) THE DECISION WAS PROCURED BY
CORRUPTION, FRAUD OR OTHER UNDUE MEANS; (II) THERE WAS EVIDENT PARTIALITY BY AN
ARBITRATOR OR CORRUPTION IN ANY OF THE ARBITRATORS OR MISCONDUCT PREJUDICING THE
RIGHTS OF ANY PARTY; OR (III) THE ARBITRATORS EXCEEDED THEIR POWERS.  SUBJECT TO
THE PRECEDING SENTENCE, NEITHER PARTY MAY SEEK JUDICIAL REVIEW OF THE DECISION
OF THE ARBITRATORS.  THE ARBITRATORS SHALL ENTER AN AWARD WHICH SHALL DO JUSTICE
BETWEEN THE PARTIES AND THE AWARD SHALL BE SUPPORTED BY WRITTEN OPINION.  THE
PARTIES AGREE THAT THE FEDERAL COURTS IN THE STATE OF IOWA, OR THE STATE COURTS
OF SUCH STATE, HAVE JURISDICTION TO HEAR ANY MATTER RELATING TO COMPELLING
ARBITRATION OR ENFORCING THE JUDGMENT OF AN ARBITRAL PANEL, AND THE PARTIES
HEREBY CONSENT TO SUCH JURISDICTION.  EACH PARTY HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF SUCH VENUE, OR ANY CLAIM THAT A PROCEEDING HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.  IN ADDITION, THE CEDING COMPANY AND REINSURER HEREBY
CONSENT TO SERVICE OF PROCESS OUT OF SUCH COURTS AT THE ADDRESSES SET FORTH IN
SECTION 18.06.

 

(F)                                    UNLESS THE ARBITRATORS DECIDE OTHERWISE,
EACH PARTY WILL BEAR THE EXPENSE OF ITS OWN ARBITRATION ACTIVITIES, INCLUDING
ITS APPOINTED ARBITRATOR AND ANY OUTSIDE ATTORNEY AND WITNESS FEES.  THE PARTIES
WILL JOINTLY BEAR THE EXPENSE OF THE THIRD ARBITRATOR.

 

(G)                                 WAIVER OF TRIAL BY JURY.  THE REINSURER AND
THE CEDING COMPANY HEREBY WAIVE ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT.

 

ARTICLE XV

 

INSOLVENCY

 

SECTION 15.01       INSOLVENCY.

 

(A)                                  A PARTY TO THIS AGREEMENT WILL BE DEEMED
“INSOLVENT” WHEN IT:

 

(I)                                     APPLIES FOR OR CONSENTS TO THE
APPOINTMENT OF A RECEIVER, REHABILITATOR, CONSERVATOR, LIQUIDATOR OR STATUTORY
SUCCESSOR (THE “AUTHORIZED REPRESENTATIVE”) OF ITS PROPERTIES OR ASSETS;

 

(II)                                  IS ADJUDICATED AS BANKRUPT OR INSOLVENT;

 

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(III)                               FILES OR CONSENTS TO THE FILING OF A
PETITION IN BANKRUPTCY, SEEKS REORGANIZATION OR AN ARRANGEMENT WITH CREDITORS OR
TAKES ADVANTAGE OF ANY BANKRUPTCY, DISSOLUTION, LIQUIDATION, REHABILITATION,
CONSERVATION OR SIMILAR LAW OR STATUTE; OR

 

(IV)                              BECOMES THE SUBJECT OF AN ORDER TO
REHABILITATE OR AN ORDER TO LIQUIDATE AS DEFINED BY THE INSURANCE CODE OF THE
JURISDICTION OF THE PARTY’S DOMICILE.

 

(B)                                 IN THE EVENT OF THE INSOLVENCY OF EITHER
PARTY, THE RIGHTS OR REMEDIES OF THIS AGREEMENT WILL REMAIN IN FULL FORCE AND
EFFECT.

 

(C)                                  INSOLVENCY OF THE CEDING COMPANY.  IN THE
EVENT OF THE INSOLVENCY OF THE CEDING COMPANY:

 

(I)                                     THE REINSURANCE PROVIDED UNDER THIS
AGREEMENT WILL BE PAYABLE BY THE REINSURER DIRECTLY TO THE CEDING COMPANY OR ITS
AUTHORIZED REPRESENTATIVE, WITHOUT DIMINUTION BECAUSE OF SUCH INSOLVENCY, ON THE
BASIS OF THE REPORTED CLAIMS ALLOWED AGAINST THE CEDING COMPANY BY ANY COURT OF
COMPETENT JURISDICTION OR BY THE AUTHORIZED REPRESENTATIVE HAVING AUTHORITY TO
ALLOW SUCH CLAIMS.

 

(II)                                  THE REINSURER WILL BE LIABLE ONLY FOR
BENEFITS REINSURED AS BENEFITS BECOME DUE UNDER THE TERMS OF THE REINSURED
POLICIES AND WILL NOT BE OR BECOME LIABLE FOR ANY AMOUNTS OR RESERVES TO BE HELD
BY THE CEDING COMPANY AS TO THE REINSURED POLICIES OR FOR ANY DAMAGES OR
PAYMENTS RESULTING FROM THE TERMINATION OR RESTRUCTURING OF THE REINSURED
POLICIES THAT ARE NOT OTHERWISE EXPRESSLY COVERED BY THIS AGREEMENT.  THE CEDING
COMPANY OR ITS AUTHORIZED REPRESENTATIVE WILL GIVE WRITTEN NOTICE TO THE
REINSURER OF ALL PENDING CLAIMS AGAINST THE CEDING COMPANY ON ANY REINSURED
POLICIES WITHIN A REASONABLE TIME AFTER FILING IN THE INSOLVENCY PROCEEDINGS.
WHILE A CLAIM IS PENDING, THE REINSURER MAY INVESTIGATE SUCH CLAIM AND
INTERPOSE, AT ITS OWN EXPENSE, IN THE PROCEEDINGS WHERE THE CLAIM IS TO BE
ADJUDICATED, ANY DEFENSE OR DEFENSES WHICH IT MAY DEEM AVAILABLE TO THE CEDING
COMPANY OR ITS AUTHORIZED REPRESENTATIVE.

 

(III)                               THE EXPENSE INCURRED BY THE REINSURER WILL
BE CHARGEABLE, SUBJECT TO COURT APPROVAL, AGAINST THE CEDING COMPANY AS PART OF
THE EXPENSE OF ITS INSOLVENCY PROCEEDINGS TO THE EXTENT OF A PROPORTIONATE SHARE
OF THE BENEFIT WHICH MAY ACCRUE TO THE CEDING COMPANY SOLELY AS A RESULT OF THE
DEFENSE UNDERTAKEN BY THE REINSURER.  WHERE TWO OR MORE REINSURERS ARE INVOLVED
IN THE SAME CLAIM AND A MAJORITY IN INTEREST ELECT TO INTERPOSE A DEFENSE TO
SUCH CLAIM, THE EXPENSE WILL BE APPORTIONED IN ACCORDANCE WITH THE TERMS OF THIS
AGREEMENT AS THOUGH SUCH EXPENSE HAD BEEN INCURRED BY THE CEDING COMPANY.

 

ARTICLE XVI

 

TAXES

 

SECTION 16.01       TAXES.  NO TAXES, ALLOWANCES, OR EXPENSE WILL BE PAID BY THE
REINSURER TO THE CEDING COMPANY FOR ANY REINSURED POLICY, EXCEPT AS SPECIFICALLY
REFERRED TO IN THIS AGREEMENT.

 

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SECTION 16.02       PREMIUM TAX.  THE REINSURER SHALL REIMBURSE THE CEDING
COMPANY FOR THE QUOTA SHARE OF ANY PREMIUM TAX (“PREMIUM TAX”) PAID BY THE
CEDING COMPANY WITH RESPECT TO A REINSURED POLICY IN RESPECT OF THE
ANNUITIZATION OF SUCH REINSURED POLICY, WHICH REIMBURSEMENT WILL REFLECT ANY
CREDIT RECEIVED BY THE CEDING COMPANY RESULTING FROM ANY GUARANTY FUND
ASSESSMENTS PAID BY THE REINSURER.  SUCH PREMIUM TAXES SHALL BE PAYABLE IN
ACCORDANCE WITH SECTION 8.03.

 

SECTION 16.03       EXCISE TAX.  IN THE EVENT THAT ANY EXCISE TAX IS DUE WITH
RESPECT TO ANY REINSURANCE PREMIUM DUE FROM THE CEDING COMPANY TO THE REINSURER
UNDER THIS AGREEMENT, THE CEDING COMPANY SHALL PAY THE ENTIRE AMOUNT OF SUCH
EXCISE TAX.  THE REINSURER SHALL REIMBURSE THE CEDING COMPANY FOR ANY SUCH
EXCISE TAX PAID BY THE CEDING COMPANY IN ACCORDANCE WITH SECTION 8.03.

 

ARTICLE XVII

 

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

SECTION 17.01       REPRESENTATIONS AND WARRANTIES OF THE CEDING COMPANY.  THE
CEDING COMPANY HEREBY REPRESENTS AND WARRANTS TO THE REINSURER AS FOLLOWS:

 

(A)                                  ORGANIZATION AND QUALIFICATION.  THE CEDING
COMPANY IS A CORPORATION DULY INCORPORATED, VALIDLY EXISTING AND IN GOOD
STANDING UNDER THE LAWS OF THE STATE OF IOWA AND HAS ALL REQUISITE CORPORATE
POWER AND AUTHORITY TO OPERATE ITS BUSINESS AS NOW CONDUCTED, AND IS DULY
QUALIFIED AS A FOREIGN CORPORATION TO DO BUSINESS, AND, TO THE EXTENT LEGALLY
APPLICABLE, IS IN GOOD STANDING, IN EACH JURISDICTION WHERE THE CHARACTER OF ITS
OWNED, OPERATED OR LEASED PROPERTIES OR THE NATURE OF ITS ACTIVITIES MAKES SUCH
QUALIFICATION NECESSARY, EXCEPT FOR FAILURES TO BE SO QUALIFIED OR BE IN GOOD
STANDING THAT, INDIVIDUALLY OR IN THE AGGREGATE, DO NOT HAVE, AND WOULD NOT
REASONABLY BE EXPECTED TO HAVE, A MATERIAL ADVERSE EFFECT ON THE CEDING
COMPANY’S ABILITY TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT.

 

(B)                                 AUTHORIZATION.  THE CEDING COMPANY HAS ALL
REQUISITE CORPORATE POWER TO ENTER INTO, CONSUMMATE THE TRANSACTIONS
CONTEMPLATED BY AND CARRY OUT ITS OBLIGATIONS UNDER, THIS AGREEMENT.  THE
EXECUTION AND DELIVERY BY THE CEDING COMPANY OF THIS AGREEMENT, AND THE
CONSUMMATION BY THE CEDING COMPANY OF THE TRANSACTIONS CONTEMPLATED BY, AND THE
PERFORMANCE BY THE CEDING COMPANY OF ITS OBLIGATIONS UNDER, THIS AGREEMENT HAVE
BEEN DULY AUTHORIZED BY ALL REQUISITE CORPORATE ACTION ON THE PART OF THE CEDING
COMPANY.  THIS AGREEMENT HAS BEEN DULY EXECUTED AND DELIVERED BY THE CEDING
COMPANY, AND (ASSUMING DUE AUTHORIZATION, EXECUTION AND DELIVERY BY THE
REINSURER) THIS AGREEMENT CONSTITUTES THE LEGAL, VALID AND BINDING OBLIGATION OF
THE CEDING COMPANY, ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS TERMS, SUBJECT
TO THE EFFECT OF ANY APPLICABLE BANKRUPTCY, REORGANIZATION, INSOLVENCY,
MORATORIUM, OR SIMILAR LAWS RELATING TO OR AFFECTING CREDITORS’ RIGHTS
GENERALLY.

 

(C)                                  NO CONFLICT.  THE EXECUTION, DELIVERY AND
PERFORMANCE BY THE CEDING COMPANY OF, AND THE CONSUMMATION BY THE CEDING COMPANY
OF THE TRANSACTIONS CONTEMPLATED BY, THIS AGREEMENT DO NOT AND WILL NOT
(I) VIOLATE OR CONFLICT WITH THE ORGANIZATIONAL DOCUMENTS OF THE CEDING COMPANY,
(II) CONFLICT WITH OR VIOLATE ANY STATUTE, LAW, ORDINANCE, RULE, REGULATION,
JUDGMENT, DECREE, ORDER, INJUNCTION, WRIT, PERMIT OR LICENSE OF ANY GOVERNMENTAL
AUTHORITY

 

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APPLICABLE TO THE CEDING COMPANY OR BY WHICH IT OR ITS PROPERTIES OR ASSETS IS
BOUND OR SUBJECT, OR (III) RESULT IN ANY BREACH OF, OR CONSTITUTE A DEFAULT (OR
EVENT WHICH, WITH THE GIVING OF NOTICE OR LAPSE OF TIME, OR BOTH, WOULD BECOME A
DEFAULT) UNDER, OR GIVE TO ANY PERSON ANY RIGHTS OF TERMINATION, ACCELERATION OR
CANCELLATION OF, ANY AGREEMENT, LEASE, NOTE, BOND, LOAN OR CREDIT AGREEMENT,
MORTGAGE, INDENTURE OR OTHER INSTRUMENT, OBLIGATION OR CONTRACT OF ANY KIND TO
WHICH THE CEDING COMPANY OR ANY OF ITS SUBSIDIARIES IS A PARTY OR BY WHICH THE
CEDING COMPANY OR ANY OF ITS SUBSIDIARIES OR ANY OF THEIR RESPECTIVE PROPERTIES
OR ASSETS IS BOUND OR AFFECTED, EXCEPT, IN THE CASE OF CLAUSE (III), ANY SUCH
CONFLICTS, VIOLATIONS, BREACHES, LOSS OF CONTRACTUAL BENEFITS, DEFAULTS OR
RIGHTS THAT, INDIVIDUALLY OR IN THE AGGREGATE, DO NOT HAVE, AND WOULD NOT
REASONABLY BE EXPECTED TO HAVE, A MATERIAL ADVERSE EFFECT ON THE CEDING
COMPANY’S ABILITY TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT.

 

(D)           FACTUAL INFORMATION RELATING TO THE REINSURED POLICIES.  THE
INFORMATION RELATING TO THE BUSINESS REINSURED UNDER THIS AGREEMENT THAT WAS
SUPPLIED BY OR ON BEHALF OF THE CEDING COMPANY TO THE REINSURER OR ANY OF THE
REINSURER’S REPRESENTATIVES IN CONNECTION WITH THIS AGREEMENT (SUCH INFORMATION,
THE “FACTUAL INFORMATION”), AS OF THE DATE SUPPLIED (OR IF LATER CORRECTED OR
SUPPLEMENTED PRIOR TO THE DATE HEREOF, AS OF THE DATE CORRECTED OR
SUPPLEMENTED), DID NOT CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT
TO STATE ANY MATERIAL FACT NECESSARY TO MAKE SUCH FACTUAL INFORMATION, TAKEN AS
A WHOLE, NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THE STATEMENTS
CONTAINED THEREIN WERE MADE, AND WAS OTHERWISE COMPLETE AND ACCURATE IN ALL
MATERIAL RESPECTS.  THE FACTUAL INFORMATION WAS COMPILED IN A COMMERCIALLY
REASONABLE MANNER GIVEN ITS INTENDED PURPOSE.  THE UNDERWRITING GUIDELINES
PROVIDED TO THE REINSURER BY THE CEDING COMPANY WERE COMPLETE AND ACCURATE WHEN
DISCLOSED AND THERE HAS BEEN NO MATERIAL CHANGE IN THE UNDERWRITING GUIDELINES
SINCE THE DATE DISCLOSED.

 

(E)           SOLVENCY.  THE CEDING COMPANY IS AND WILL BE SOLVENT ON A
STATUTORY BASIS IMMEDIATELY AFTER GIVING EFFECT TO THIS AGREEMENT.  FOR THE
PURPOSES OF THIS SECTION 17.01(E), “SOLVENT” MEANS THAT: (I) THE AGGREGATE
ASSETS OF THE CEDING COMPANY ARE GREATER THAN THE AGGREGATE LIABILITIES OF THE
CEDING COMPANY, IN EACH CASE DETERMINED IN ACCORDANCE WITH SAP; (II) THE CEDING
COMPANY DOES NOT INTEND TO, AND DOES NOT BELIEVE THAT IT WILL, INCUR DEBTS OR
OTHER LIABILITIES BEYOND ITS ABILITY TO PAY SUCH DEBTS AND OTHER LIABILITIES AS
THEY COME DUE AND (III) THE CEDING COMPANY IS NOT ENGAGED IN A BUSINESS OR
TRANSACTION, AND DOES NOT CONTEMPLATE ENGAGING IN A BUSINESS OR TRANSACTION, FOR
WHICH THE CEDING COMPANY’S ASSETS WOULD CONSTITUTE UNREASONABLY INSUFFICIENT
CAPITAL.

 

(F)            ACCURACY OF BOOKS AND RECORDS.  THE CEDING COMPANY MAINTAINS
RECORDS RELATING TO THE REINSURED POLICIES, AND IMPLEMENTS ADMINISTRATIVE AND
OPERATING PROCEDURES WITH RESPECT TO SUCH RECORDS, AND KEEPS AND MAINTAINS ALL
MATERIAL DOCUMENTS, BOOKS AND RECORDS REASONABLY NECESSARY FOR THE MAINTENANCE
OF THE REINSURED POLICIES, WHICH DOCUMENTS, BOOKS AND RECORDS ARE COMPLETE AND
ACCURATE IN ALL MATERIAL RESPECTS, WITH THE UTMOST GOOD FAITH AND WITH THE
SKILL, DILIGENCE AND EXPERTISE THAT WOULD REASONABLY BE EXPECTED FROM QUALIFIED
PERSONNEL PERFORMING SUCH DUTIES IN LIKE CIRCUMSTANCES.

 

(G)           GOVERNMENTAL LICENSES.  THE CEDING COMPANY HAS ALL LICENSES,
CERTIFICATES OF AUTHORITY OR OTHER SIMILAR CERTIFICATES, REGISTRATIONS,
FRANCHISES, PERMITS, APPROVALS OR OTHER SIMILAR AUTHORIZATIONS ISSUED BY
GOVERNMENTAL AUTHORITIES (COLLECTIVELY, “PERMITS”) NECESSARY TO CONDUCT ITS
BUSINESS AS CURRENTLY CONDUCTED, EXCEPT IN SUCH CASES WHERE THE FAILURE

 

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TO HAVE A PERMIT HAS NOT HAD AND WOULD NOT REASONABLY BE EXPECTED TO HAVE A
MATERIAL ADVERSE EFFECT WITH RESPECT TO THE CEDING COMPANY.  ALL PERMITS THAT
ARE MATERIAL TO THE CONDUCT OF THE CEDING COMPANY’S BUSINESS ARE VALID AND IN
FULL FORCE AND EFFECT.  THE CEDING COMPANY IS NOT SUBJECT TO ANY PENDING ACTION
OR, TO THE KNOWLEDGE OF THE CEDING COMPANY, ANY THREATENED ACTION THAT SEEKS THE
REVOCATION, SUSPENSION, TERMINATION, MODIFICATION OR IMPAIRMENT OF ANY PERMIT
THAT, IF SUCCESSFUL, WOULD REASONABLY BE EXPECTED TO HAVE, OR WITH THE PASSAGE
OF TIME BECOME, A MATERIAL ADVERSE EFFECT WITH RESPECT TO THE CEDING COMPANY.

 

(H)           FINANCIAL STATEMENTS.  THE CEDING COMPANY HAS PROVIDED TO THE
REINSURER A COPY OF ITS AUDITED STATUTORY FINANCIAL STATEMENTS AS OF THE END OF
THE MOST RECENT CALENDAR YEAR AND ITS UNAUDITED STATUTORY FINANCIAL STATEMENTS
AS OF THE END OF THE MOST RECENT CALENDAR QUARTER FOR WHICH THE CEDING COMPANY’S
STATUTORY FINANCIAL STATEMENTS HAVE BEEN PREPARED AND AS WERE PROVIDED BY THE
CEDING COMPANY TO THE IOWA INSURANCE DIVISION.  EXCEPT AS DISCLOSED IN SUCH
FINANCIAL STATEMENTS (INCLUDING IN THE NOTES THERETO), SUCH FINANCIAL STATEMENTS
HAVE BEEN PREPARED IN ALL MATERIAL RESPECTS IN ACCORDANCE WITH SAP APPLIED ON A
CONSISTENT BASIS DURING THE PERIOD INVOLVED AND PRESENT FAIRLY, IN ALL MATERIAL
RESPECTS, THE STATUTORY FINANCIAL POSITION AND RESULTS OF OPERATIONS OF THE
CEDING COMPANY AS OF THEIR RESPECTIVE DATES OR FOR THE RESPECTIVE PERIODS
COVERED THEREBY.

 

(I)            NO MATERIAL ADVERSE EFFECT.  SINCE THE LAST STATUTORY FINANCIAL
STATEMENTS OF THE CEDING COMPANY AND ANY SECURITIES EXCHANGE COMMISSION FILINGS
MADE BY THE PARENT ENTITY OF THE CEDING COMPANY, THERE HAS NOT OCCURRED ANY
EVENT OR EVENTS THAT, INDIVIDUALLY OR IN THE AGGREGATE, HAS OR HAVE HAD OR WOULD
BE REASONABLY EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT WITH RESPECT TO THE
CEDING COMPANY.

 

SECTION 17.02         COVENANTS OF THE CEDING COMPANY.

 

(A)           INVESTIGATIONS.  TO THE EXTENT PERMITTED BY APPLICABLE LAW OR
REGULATION, THE CEDING COMPANY WILL NOTIFY THE REINSURER IMMEDIATELY, IN
WRITING, OF ANY AND ALL INVESTIGATIONS OF THE CEDING COMPANY CONDUCTED BY ANY
FEDERAL OR STATE GOVERNMENTAL AUTHORITY COMMENCING AFTER THE DATE HEREOF, OTHER
THAN ROUTINE STATE INSURANCE DEPARTMENT EXAMINATIONS.

 

(B)           STATUTORY ACCOUNTING PRINCIPLES.  THE CEDING COMPANY WILL PREPARE
ITS FINANCIAL STATEMENTS AS REQUIRED BY, AND IN ACCORDANCE WITH, SAP.

 

(C)           EXISTENCE; CONDUCT OF BUSINESS.  THE CEDING COMPANY WILL DO OR
CAUSE TO BE DONE ALL THINGS REASONABLY NECESSARY TO PRESERVE, RENEW AND KEEP IN
FULL FORCE AND EFFECT ITS LEGAL EXISTENCE AND THE RIGHTS, LICENSES, PERMITS,
PRIVILEGES AND FRANCHISES MATERIAL TO THE CONDUCT OF ITS BUSINESS.

 

(D)           COMPLIANCE WITH LAW.  THE CEDING COMPANY WILL COMPLY WITH ALL
STATUTES, LAWS, ORDINANCES, RULES, REGULATIONS, JUDGMENTS, DECREES, ORDERS,
INJUNCTIONS, WRITS, PERMITS, OR LICENSES OF ANY GOVERNMENTAL AUTHORITY
APPLICABLE TO THE CEDING COMPANY OR BY WHICH IT OR ITS PROPERTIES OR ASSETS IS
BOUND OR SUBJECT, EXCEPT WHERE THE FAILURE TO DO SO, INDIVIDUALLY OR IN THE
AGGREGATE, WOULD NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON
THE CEDING COMPANY’S ABILITY TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT.

 

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(E)           RESTRICTION ON LIENS.  THE CEDING COMPANY SHALL NOT CREATE, INCUR,
ASSUME OR SUFFER TO EXIST ANY LIENS ON THE ASSETS IN THE FUNDS WITHHELD ACCOUNT
OWNED ON THE DATE OF THIS AGREEMENT OR HEREAFTER ACQUIRED, OR ON ANY INTEREST
THEREIN OR THE PROCEEDS THEREOF.

 

(F)            GOVERNMENTAL NOTICES.  THE CEDING COMPANY SHALL PROVIDE THE
REINSURER, WITHIN FIVE (5) BUSINESS DAYS AFTER RECEIPT THEREOF, COPIES OF ANY
WRITTEN NOTICE OR REPORT FROM ANY GOVERNMENTAL AUTHORITY WITH RESPECT TO THE
BUSINESS REINSURED UNDER THIS AGREEMENT AND A WRITTEN SUMMARY OF ANY MATERIAL
ORAL COMMUNICATION WITH ANY GOVERNMENTAL AUTHORITY WITH RESPECT TO THE BUSINESS
REINSURED UNDER THIS AGREEMENT.

 

SECTION 17.03         REPRESENTATIONS AND WARRANTIES OF THE REINSURER.  THE
REINSURER HEREBY REPRESENTS AND WARRANTS TO THE CEDING COMPANY AS FOLLOWS:

 

(A)           ORGANIZATION AND QUALIFICATION.  THE REINSURER IS A CORPORATION
DULY INCORPORATED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF
BERMUDA AND HAS ALL REQUISITE CORPORATE POWER AND AUTHORITY TO OPERATE ITS
BUSINESS AS NOW CONDUCTED, AND IS DULY QUALIFIED AS A FOREIGN CORPORATION TO DO
BUSINESS, AND, TO THE EXTENT LEGALLY APPLICABLE, IS IN GOOD STANDING, IN EACH
JURISDICTION WHERE THE CHARACTER OF ITS OWNED, OPERATED OR LEASED PROPERTIES OR
THE NATURE OF ITS ACTIVITIES MAKES SUCH QUALIFICATION NECESSARY, EXCEPT FOR
FAILURES TO BE SO QUALIFIED OR BE IN GOOD STANDING THAT, INDIVIDUALLY OR IN THE
AGGREGATE, DO NOT HAVE, AND WOULD NOT REASONABLY BE EXPECTED TO HAVE, A MATERIAL
ADVERSE EFFECT ON THE REINSURER’S ABILITY TO PERFORM ITS OBLIGATIONS UNDER THIS
AGREEMENT.

 

(B)           AUTHORIZATION.  THE REINSURER HAS ALL REQUISITE CORPORATE POWER TO
ENTER INTO, CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY AND CARRY OUT ITS
OBLIGATIONS UNDER, THIS AGREEMENT.  THE EXECUTION AND DELIVERY BY THE REINSURER
OF THIS AGREEMENT, AND THE CONSUMMATION BY THE REINSURER OF THE TRANSACTIONS
CONTEMPLATED BY, AND THE PERFORMANCE BY THE REINSURER OF ITS OBLIGATIONS UNDER,
THIS AGREEMENT HAVE BEEN DULY AUTHORIZED BY ALL REQUISITE CORPORATE ACTION ON
THE PART OF THE REINSURER.  THIS AGREEMENT HAS BEEN DULY EXECUTED AND DELIVERED
BY THE REINSURER, AND (ASSUMING DUE AUTHORIZATION, EXECUTION AND DELIVERY BY THE
CEDING COMPANY) THIS AGREEMENT CONSTITUTES THE LEGAL, VALID AND BINDING
OBLIGATION OF THE REINSURER, ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS
TERMS, SUBJECT TO THE EFFECT OF ANY APPLICABLE BANKRUPTCY, REORGANIZATION,
INSOLVENCY, MORATORIUM, OR SIMILAR LAWS RELATING TO OR AFFECTING CREDITORS’
RIGHTS GENERALLY.

 

(C)           NO CONFLICT.  THE EXECUTION, DELIVERY AND PERFORMANCE BY THE
REINSURER OF, AND THE CONSUMMATION BY THE REINSURER OF THE TRANSACTIONS
CONTEMPLATED BY, THIS AGREEMENT DO NOT AND WILL NOT (I) VIOLATE OR CONFLICT WITH
THE ORGANIZATIONAL DOCUMENTS OF THE REINSURER, (II) CONFLICT WITH OR VIOLATE ANY
STATUTE, LAW, ORDINANCE, RULE, REGULATION, JUDGMENT, DECREE, ORDER, INJUNCTION,
WRIT, PERMIT OR LICENSE OF ANY GOVERNMENTAL AUTHORITY APPLICABLE TO THE
REINSURER OR BY WHICH IT OR ITS PROPERTIES OR ASSETS IS BOUND OR SUBJECT, OR
(III) RESULT IN ANY BREACH OF, OR CONSTITUTE A DEFAULT (OR EVENT WHICH, WITH THE
GIVING OF NOTICE OR LAPSE OF TIME, OR BOTH, WOULD BECOME A DEFAULT) UNDER, OR
GIVE TO ANY PERSON ANY RIGHTS OF TERMINATION, ACCELERATION OR CANCELLATION OF,
ANY AGREEMENT, LEASE, NOTE, BOND, LOAN OR CREDIT AGREEMENT, MORTGAGE, INDENTURE
OR OTHER INSTRUMENT, OBLIGATION OR CONTRACT OF ANY KIND TO WHICH THE REINSURER
OR ANY OF ITS SUBSIDIARIES IS A PARTY OR BY WHICH THE REINSURER OR ANY OF ITS
SUBSIDIARIES OR ANY OF THEIR RESPECTIVE PROPERTIES OR ASSETS IS BOUND OR
AFFECTED, EXCEPT, IN THE CASE OF CLAUSE (III), ANY SUCH

 

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CONFLICTS, VIOLATIONS, BREACHES, LOSS OF CONTRACTUAL BENEFITS, DEFAULTS OR
RIGHTS THAT, INDIVIDUALLY OR IN THE AGGREGATE, DO NOT HAVE, AND WOULD NOT
REASONABLY BE EXPECTED TO HAVE, A MATERIAL ADVERSE EFFECT ON THE REINSURER’S
ABILITY TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT.

 

(D)           SOLVENCY.  THE REINSURER IS AND WILL BE SOLVENT ON A STATUTORY
BASIS IMMEDIATELY AFTER GIVING EFFECT TO THIS AGREEMENT.  FOR THE PURPOSES OF
THIS SECTION 17.03(D), “SOLVENT” MEANS THAT: (I) THE AGGREGATE ASSETS OF THE
REINSURER ARE GREATER THAN THE AGGREGATE LIABILITIES OF THE REINSURER, IN EACH
CASE DETERMINED IN ACCORDANCE WITH THE REGULATIONS PROMULGATED BY THE BERMUDA
MONETARY AUTHORITY; (II) THE REINSURER DOES NOT INTEND TO, AND DOES NOT BELIEVE
THAT IT WILL, INCUR DEBTS OR OTHER LIABILITIES BEYOND ITS ABILITY TO PAY SUCH
DEBTS AND OTHER LIABILITIES AS THEY COME DUE AND (III) THE REINSURER IS NOT
ENGAGED IN A BUSINESS OR TRANSACTION, AND DOES NOT CONTEMPLATE ENGAGING IN A
BUSINESS OR TRANSACTION, FOR WHICH THE REINSURER’S ASSETS WOULD CONSTITUTE
UNREASONABLY INSUFFICIENT CAPITAL.

 

(E)           ACCURACY OF BOOKS AND RECORDS.  THE REINSURER MAINTAINS RECORDS
AND IMPLEMENTS ADMINISTRATIVE AND OPERATING PROCEDURES WITH RESPECT TO SUCH
RECORDS, AND KEEPS AND MAINTAINS ALL MATERIAL DOCUMENTS, BOOKS AND RECORDS
REASONABLY NECESSARY IN THE ORDINARY COURSE OF BUSINESS, WHICH DOCUMENTS, BOOKS
AND RECORDS ARE COMPLETE AND ACCURATE IN ALL MATERIAL RESPECTS, WITH THE UTMOST
GOOD FAITH AND WITH THE SKILL, DILIGENCE AND EXPERTISE THAT WOULD REASONABLY BE
EXPECTED FROM QUALIFIED PERSONNEL PERFORMING SUCH DUTIES IN LIKE CIRCUMSTANCES.

 

(F)            GOVERNMENTAL LICENSES.  THE REINSURER HAS ALL PERMITS NECESSARY
TO CONDUCT ITS BUSINESS AS CURRENTLY CONDUCTED, EXCEPT IN SUCH CASES WHERE THE
FAILURE TO HAVE A PERMIT HAS NOT HAD AND WOULD NOT REASONABLY BE EXPECTED TO
HAVE A MATERIAL ADVERSE EFFECT WITH RESPECT TO THE REINSURER.  ALL PERMITS THAT
ARE MATERIAL TO THE CONDUCT OF THE REINSURER’S BUSINESS ARE VALID AND IN FULL
FORCE AND EFFECT.  THE REINSURER IS NOT SUBJECT TO ANY PENDING ACTION OR, TO THE
KNOWLEDGE OF THE REINSURER, ANY THREATENED ACTION THAT SEEKS THE REVOCATION,
SUSPENSION, TERMINATION, MODIFICATION OR IMPAIRMENT OF ANY PERMIT THAT, IF
SUCCESSFUL, WOULD REASONABLY BE EXPECTED TO HAVE, OR WITH THE PASSAGE OF TIME
BECOME, A MATERIAL ADVERSE EFFECT WITH RESPECT TO THE REINSURER.

 

(G)           NO MATERIAL ADVERSE EFFECT.  SINCE JULY 15, 2009, THERE HAS NOT
OCCURRED ANY EVENT OR EVENTS THAT, INDIVIDUALLY OR IN THE AGGREGATE, HAS OR HAVE
HAD OR WOULD BE REASONABLY EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT WITH
RESPECT TO THE REINSURER.

 

SECTION 17.04         COVENANTS OF THE REINSURER.

 

(A)           EXISTENCE; CONDUCT OF BUSINESS.  THE REINSURER WILL DO OR CAUSE TO
BE DONE ALL THINGS REASONABLY NECESSARY TO PRESERVE, RENEW AND KEEP IN FULL
FORCE AND EFFECT ITS LEGAL EXISTENCE AND THE RIGHTS, LICENSES, PERMITS,
PRIVILEGES AND FRANCHISES MATERIAL TO THE CONDUCT OF ITS BUSINESS.

 

(B)           COMPLIANCE WITH LAW.  THE REINSURER WILL COMPLY WITH ALL STATUTES,
LAWS, ORDINANCES, RULES, REGULATIONS, JUDGMENTS, DECREES, ORDERS, INJUNCTIONS,
WRITS, PERMITS, OR LICENSES OF ANY GOVERNMENTAL AUTHORITY APPLICABLE TO THE
REINSURER OR BY WHICH IT OR ITS PROPERTIES OR ASSETS IS BOUND OR SUBJECT, EXCEPT
WHERE THE FAILURE TO DO SO, INDIVIDUALLY OR IN THE AGGREGATE,

 

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WOULD NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON THE
REINSURER’S ABILITY TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT.

 

ARTICLE XVIII

MISCELLANEOUS

 

SECTION 18.01         CURRENCY.  ALL PAYMENTS DUE UNDER THIS AGREEMENT WILL BE
MADE IN U.S. DOLLARS.

 

SECTION 18.02         INTEREST.  ALL AMOUNTS DUE AND PAYABLE BY THE CEDING
COMPANY OR THE REINSURER UNDER THIS AGREEMENT THAT REMAIN UNPAID FOR MORE THAN
FIFTEEN (15) CALENDAR DAYS FROM THE DATE DUE HEREUNDER WILL INCUR INTEREST FROM
THE DATE DUE HEREUNDER.  EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT, SUCH
INTEREST SHALL ACCRUE AT A RATE EQUAL TO SIX PERCENT (6%), CALCULATED ON A
30/360 BASIS.

 

SECTION 18.03         RIGHT OF SETOFF AND RECOUPMENT.

 

(A)           EACH OF THE CEDING COMPANY AND THE REINSURER SHALL HAVE, AND MAY
EXERCISE AT ANY TIME AND FROM TIME TO TIME, THE RIGHT TO SETOFF OR RECOUP ANY
UNDISPUTED BALANCE OR BALANCES, WHETHER ON ACCOUNT OF REINSURANCE PREMIUMS,
ALLOWANCES, CREDITS, CLAIMS OR OTHERWISE, DUE FROM ONE PARTY TO THE OTHER UNDER
THIS AGREEMENT AND MAY SETOFF OR RECOUP SUCH BALANCE OR BALANCES AGAINST ANY
BALANCE OR BALANCES DUE TO THE FORMER FROM THE LATTER UNDER THIS AGREEMENT.

 

(B)           THE RIGHTS PROVIDED UNDER THIS SECTION 18.03 ARE IN ADDITION TO
ANY RIGHTS OF SETOFF THAT MAY EXIST AT COMMON LAW.  THE PARTIES’ SETOFF RIGHTS
MAY BE ENFORCED NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT INCLUDING,
WITHOUT LIMITATION, THE PROVISIONS OF ARTICLE XV.

 

SECTION 18.04         NO THIRD PARTY BENEFICIARIES.  THIS AGREEMENT IS AN
INDEMNITY REINSURANCE AGREEMENT SOLELY BETWEEN THE CEDING COMPANY AND THE
REINSURER.  THE ACCEPTANCE OF RISKS UNDER THIS AGREEMENT BY THE REINSURER WILL
CREATE NO RIGHT OR LEGAL RELATION BETWEEN THE REINSURER AND THE INSURED, OWNER,
BENEFICIARY, OR ASSIGNEE OF ANY INSURANCE POLICY OF THE CEDING COMPANY.  IN
ADDITION, NOTHING IN THIS AGREEMENT IS INTENDED TO RELIEVE OR DISCHARGE THE
OBLIGATION OR LIABILITY OF ANY THIRD PARTY TO ANY PARTY TO THIS AGREEMENT.

 

SECTION 18.05         AMENDMENT.  THIS AGREEMENT MAY NOT BE CHANGED OR MODIFIED
OR IN ANY WAY AMENDED EXCEPT BY A WRITTEN INSTRUMENT DULY EXECUTED BY THE PROPER
OFFICERS OF BOTH PARTIES TO THIS AGREEMENT AND ANY CHANGE OR MODIFICATION TO
THIS AGREEMENT WILL BE NULL AND VOID UNLESS MADE BY AMENDMENT TO THIS AGREEMENT
AND DULY EXECUTED BY THE PROPER OFFICERS OF BOTH PARTIES TO THIS AGREEMENT.

 

SECTION 18.06         NOTICES.  ALL DEMANDS, NOTICES, REPORTS AND OTHER
COMMUNICATIONS PROVIDED FOR HEREIN SHALL BE DELIVERED BY THE FOLLOWING MEANS: 
(I) HAND DELIVERY, (II) OVERNIGHT COURIER SERVICE (E.G., FEDEX, AIRBORNE
EXPRESS, OR DHL); (III) REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID AND
RETURN RECEIPT REQUESTED; OR (IV) FACSIMILE TRANSMISSION OR E-MAIL PROVIDED THAT
THE FAX OR E-MAIL IS CONFIRMED BY DELIVERY USING ONE OF THE THREE METHODS
IDENTIFIED IN

 

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CLAUSES (I) THROUGH (III).  ALL SUCH DEMANDS, NOTICES, REPORTS AND OTHER
COMMUNICATIONS SHALL BE DELIVERED TO THE PARTIES AS FOLLOWS:

 

if to the Ceding Company:

 

American Equity Investment Life Insurance Company

5000 Westown Parkway, Suite 440

West Des Moines, Iowa 50266

Attention: Wendy Carlson

Telephone: (515) 457-1824

Facsimile: (515) 221-0744

Email: wcarlson@american-equity.com

 

if to the Reinsurer:

 

Athene Life Re Ltd.

44 Church Street

Hamilton HM 12, Bermuda

Attention: President and General Counsel

Telephone: (441) 279-8412

Facsimile: (441) 279-8401

Email: cgillis@athenelifere.bm; tshanafelt@athenelifere.bm

 

with a copy to

 

Sidley Austin LLP

One South Dearborn Street

Chicago, Illinois 60603

Attention: Perry Shwachman

Telephone: (312) 853-7061

Facsimile: (312) 853-7036

Email: pshwachman@sidley.com

 

Either party hereto 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 18.06.

 

If either party hereto becomes aware of any change in applicable law restricting
the transmission of notices or other information in accordance with the
foregoing, such party shall notify the other party hereto of such change in law
and such resulting restriction.

 

SECTION 18.07         CONSENT TO JURISDICTION.  SUBJECT TO THE TERMS AND
CONDITIONS OF ARTICLE XIV, THE REINSURER AGREES THAT IN THE EVENT OF THE FAILURE
OF THE REINSURER TO PERFORM ITS OBLIGATIONS UNDER THE TERMS OF THIS AGREEMENT,
THE REINSURER, AT THE REQUEST OF THE CEDING COMPANY, SHALL (A) SUBMIT TO THE
JURISDICTION OF ANY COURT OF COMPETENT JURISDICTION IN ANY STATE OF THE UNITED
STATES, (B) COMPLY WITH ALL REQUIREMENTS NECESSARY TO GIVE SUCH COURT
JURISDICTION, AND (C) ABIDE BY THE FINAL DECISION OF SUCH COURT OR OF ANY
APPELLATE COURT IN THE EVENT OF AN APPEAL.  THIS SECTION 18.07 IS NOT INTENDED
TO CONFLICT WITH OR OVERRIDE ARTICLE XIV.

 

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SECTION 18.08         SERVICE OF PROCESS.  THE REINSURER HEREBY DESIGNATES THE
IOWA INSURANCE COMMISSIONER AS ITS TRUE AND LAWFUL ATTORNEY UPON WHOM MAY BE
SERVED ANY LAWFUL PROCESS IN ANY ACTION, SUIT OR PROCEEDING INSTITUTED BY OR ON
BEHALF OF THE CEDING COMPANY.  A COPY OF ANY SUCH PROCESS SHALL BE DELIVERED TO
THE REINSURER IN ACCORDANCE WITH SECTION 18.06.   THIS SECTION 18.08 IS NOT
INTENDED TO CONFLICT WITH OR OVERRIDE ARTICLE XIV.

 

SECTION 18.09         INSPECTION OF RECORDS.

 

(A)           UPON GIVING AT LEAST FIVE (5) BUSINESS DAYS’ PRIOR WRITTEN NOTICE,
THE REINSURER, OR ITS DULY AUTHORIZED REPRESENTATIVES, WILL HAVE THE RIGHT TO
AUDIT, EXAMINE AND COPY, DURING REGULAR BUSINESS HOURS, AT THE HOME OFFICE OF
THE CEDING COMPANY, ANY AND ALL BOOKS, RECORDS, STATEMENTS, CORRESPONDENCE,
REPORTS, AND OTHER DOCUMENTS THAT RELATE TO THE REINSURED POLICIES OR THIS
AGREEMENT, SUBJECT TO THE CONFIDENTIALITY PROVISIONS CONTAINED IN THIS
AGREEMENT.  IN THE EVENT THE REINSURER EXERCISES ITS INSPECTION RIGHTS, THE
CEDING COMPANY MUST PROVIDE A REASONABLE WORK SPACE FOR SUCH AUDIT, EXAMINATION
OR COPYING, COOPERATE FULLY AND FAITHFULLY, AND PRODUCE ANY AND ALL MATERIALS
REASONABLY REQUESTED TO BE PRODUCED, SUBJECT TO CONFIDENTIALITY PROVISIONS
CONTAINED IN THIS AGREEMENT.  THE EXPENSES RELATED TO ANY TWO SUCH INSPECTIONS
IN ANY CALENDAR YEAR SHALL BE BORNE BY THE CEDING COMPANY; PROVIDED THAT IF ANY
BREACH OF THIS AGREEMENT BY THE CEDING COMPANY HAS OCCURRED, THE EXPENSES
RELATING TO ALL SUCH INSPECTIONS SHALL BE BORNE BY THE CEDING COMPANY.

 

(B)           THE REINSURER’S RIGHT OF ACCESS AS SPECIFIED ABOVE WILL SURVIVE
UNTIL ALL OF THE REINSURER’S OBLIGATIONS UNDER THIS AGREEMENT HAVE TERMINATED OR
BEEN FULLY DISCHARGED.

 

SECTION 18.10         CONFIDENTIALITY.

 

(A)           THE PARTIES WILL KEEP CONFIDENTIAL AND NOT DISCLOSE OR MAKE
COMPETITIVE USE OF ANY SHARED PROPRIETARY INFORMATION, AS DEFINED BELOW, UNLESS:

 

(I)            THE INFORMATION BECOMES PUBLICLY AVAILABLE OR IS OBTAINED OTHER
THAN THROUGH UNAUTHORIZED DISCLOSURE BY THE PARTY SEEKING TO DISCLOSE OR USE
SUCH INFORMATION;

 

(II)           THE INFORMATION IS INDEPENDENTLY DEVELOPED BY THE RECIPIENT;

 

(III)          THE DISCLOSURE IS REQUIRED BY LAW, PROVIDED THAT, IF APPLICABLE,
THE PARTY REQUIRED TO MAKE SUCH DISCLOSURE WILL ALLOW THE OTHER PARTY TO SEEK AN
APPROPRIATE PROTECTIVE ORDER.

 

“PROPRIETARY INFORMATION” INCLUDES, BUT IS NOT LIMITED TO, UNDERWRITING MANUALS
AND GUIDELINES, APPLICATIONS, CONTRACT FORMS, AGENT LISTS AND PREMIUM RATES AND
ALLOWANCES OF THE REINSURER AND THE CEDING COMPANY, BUT SHALL NOT INCLUDE THE
EXISTENCE OF THIS AGREEMENT AND THE IDENTITY OF THE PARTIES.    ADDITIONALLY,
PROPRIETARY INFORMATION MAY BE SHARED BY EITHER PARTY ON A NEED-TO-KNOW BASIS
WITH ITS OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES, THIRD PARTY SERVICE
PROVIDERS, AUDITORS, CONSULTANTS OR RETROCESSIONAIRES, OR IN CONNECTION WITH THE
DISPUTE PROCESS SPECIFIED IN THIS AGREEMENT.

 

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(B)           IN ADDITION, THE REINSURER AND ITS REPRESENTATIVES AND SERVICE
PROVIDERS WILL PROTECT THE CONFIDENTIALITY AND SECURITY OF NON-PUBLIC PERSONAL
INFORMATION, AS DEFINED BELOW, BY:

 

(I)            HOLDING ALL NON-PUBLIC PERSONAL INFORMATION IN STRICT CONFIDENCE;

 

(II)           MAINTAINING APPROPRIATE MEASURES THAT ARE DESIGNED TO PROTECT THE
SECURITY, INTEGRITY AND CONFIDENTIALITY OF NON-PUBLIC PERSONAL INFORMATION;

 

(III)          DISCLOSING AND USING NON-PUBLIC PERSONAL INFORMATION RECEIVED
UNDER THIS AGREEMENT FOR PURPOSES OF CARRYING OUT THE REINSURER’S OBLIGATIONS
UNDER THIS AGREEMENT, FOR PURPOSES OF RETROCESSION, OR AS MAY BE REQUIRED OR
PERMITTED BY LAW.

 

“NON-PUBLIC PERSONAL INFORMATION” IS PERSONALLY IDENTIFIABLE MEDICAL, FINANCIAL,
AND OTHER PERSONAL INFORMATION ABOUT PROPOSED, CURRENT AND FORMER APPLICANTS,
POLICY OWNERS, CONTRACT HOLDERS, INSUREDS, ANNUITANTS, CLAIMANTS, AND
BENEFICIARIES OF REINSURED POLICIES OR CONTRACTS ISSUED BY THE CEDING COMPANY,
AND THEIR REPRESENTATIVES, THAT IS NOT PUBLICLY AVAILABLE.  NON-PUBLIC PERSONAL
INFORMATION DOES NOT INCLUDE DE-IDENTIFIED PERSONAL DATA, I.E., INFORMATION THAT
DOES NOT IDENTIFY, OR COULD NOT REASONABLY BE ASSOCIATED WITH, AN INDIVIDUAL.

 

SECTION 18.11         SUCCESSORS.  THIS AGREEMENT WILL BE BINDING UPON THE
PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS INCLUDING ANY
AUTHORIZED REPRESENTATIVE OF EITHER PARTY.  NEITHER PARTY MAY EFFECT ANY
NOVATION OF THIS AGREEMENT WITHOUT THE OTHER PARTY’S PRIOR WRITTEN CONSENT.

 

SECTION 18.12         ENTIRE AGREEMENT.  THIS AGREEMENT AND THE EXHIBITS HERETO
CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE BUSINESS
REINSURED HEREUNDER AND SUPERSEDE ANY AND ALL PRIOR REPRESENTATIONS, WARRANTIES,
PRIOR AGREEMENTS OR UNDERSTANDINGS BETWEEN THE PARTIES PERTAINING TO THE SUBJECT
MATTER OF THIS AGREEMENT.  THERE ARE NO UNDERSTANDINGS BETWEEN THE PARTIES OTHER
THAN AS EXPRESSED IN THIS AGREEMENT AND THE EXHIBITS HERETO.  IN THE EVENT OF
ANY EXPRESS CONFLICT BETWEEN THIS AGREEMENT AND THE EXHIBITS HERETO, THE
EXHIBITS HERETO WILL CONTROL.

 

SECTION 18.13         SEVERABILITY.  DETERMINATION THAT ANY PROVISION OF THIS
AGREEMENT IS INVALID OR UNENFORCEABLE WILL NOT AFFECT OR IMPAIR THE VALIDITY OR
THE ENFORCEABILITY OF THE REMAINING PROVISIONS OF THIS AGREEMENT.

 

SECTION 18.14         CONSTRUCTION.  THIS AGREEMENT WILL BE CONSTRUED AND
ADMINISTERED WITHOUT REGARD TO AUTHORSHIP AND WITHOUT ANY PRESUMPTION OR RULE OF
CONSTRUCTION IN FAVOR OF EITHER PARTY.  THIS AGREEMENT IS BETWEEN SOPHISTICATED
PARTIES, EACH OF WHICH HAS REVIEWED THIS AGREEMENT AND IS FULLY KNOWLEDGEABLE
ABOUT ITS TERMS AND CONDITIONS.

 

SECTION 18.15         NON-WAIVER.  NEITHER THE FAILURE NOR ANY DELAY ON THE PART
OF THE CEDING COMPANY OR THE REINSURER TO EXERCISE ANY RIGHT, REMEDY, POWER, OR
PRIVILEGE UNDER THIS AGREEMENT SHALL OPERATE AS A WAIVER THEREOF.  NO SINGLE OR
PARTIAL EXERCISE OF ANY RIGHT, REMEDY, POWER OR PRIVILEGE SHALL PRECLUDE THE
FURTHER EXERCISE OF THAT RIGHT, REMEDY, POWER OR PRIVILEGE OR THE EXERCISE OF
ANY OTHER RIGHT, REMEDY, POWER OR PRIVILEGE.  NO WAIVER OF ANY RIGHT, REMEDY,
POWER OR PRIVILEGE WITH RESPECT TO ANY OCCURRENCE SHALL BE CONSTRUED AS A WAIVER
OF THAT RIGHT, REMEDY,

 

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POWER OR PRIVILEGE WITH RESPECT TO ANY OTHER OCCURRENCE.  NO PRIOR TRANSACTION
OR DEALING BETWEEN THE PARTIES WILL ESTABLISH ANY CUSTOM, SAGE OR PRECEDENT
WAIVING OR MODIFYING ANY PROVISION OF THIS AGREEMENT. NO WAIVER SHALL BE
EFFECTIVE UNLESS IT IS IN WRITING AND SIGNED BY THE PARTY GRANTING THE WAIVER.

 

SECTION 18.16         FURTHER ASSURANCES.  FROM TIME TO TIME, AS AND WHEN
REQUESTED BY A PARTY HERETO, THE OTHER PARTY HERETO SHALL EXECUTE AND DELIVER
ALL SUCH DOCUMENTS AND INSTRUMENTS AND SHALL TAKE ALL ACTIONS AS MAY BE
REASONABLY NECESSARY TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.

 

SECTION 18.17         GOVERNING LAW.  THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IOWA WITHOUT GIVING EFFECT
TO ANY PRINCIPLES OF CONFLICTS OF LAW THEREOF THAT ARE NOT MANDATORILY
APPLICABLE BY LAW AND WOULD PERMIT OR REQUIRE THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION.

 

SECTION 18.18         COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN ANY
NUMBER OF COUNTERPARTS, ALL OF WHICH TAKEN TOGETHER SHALL CONSTITUTE ONE
AGREEMENT, AND ANY OF THE PARTIES HERETO MAY EXECUTE THIS AGREEMENT BY SIGNING
ANY SUCH COUNTERPART.  WHEN THIS AGREEMENT HAS BEEN FULLY EXECUTED BY THE CEDING
COMPANY AND THE REINSURER, IT WILL BECOME EFFECTIVE AS OF THE EFFECTIVE DATE.

 

37

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
effective as of the Effective Date.

 

TREATY NUMBER 070109

 

AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY

 

By:

/s/ Wendy L. Carlson

 

 

 

 

Title:

EVP

 

 

 

 

Date:

October 14, 2009

 

 

 

 

 

 

ATHENE LIFE RE LTD.

 

By:

/s/ Frank L. Gillis

 

 

 

 

Title:

CEO

 

 

 

 

Date:

October 14, 2009

 

 

 

 

 

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

 

SCHEDULE I

 

REINSURED POLICY FORMS

 

SPDA-MYGA

 

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

 

SCHEDULE II

 

UNDERWRITING GUIDELINES

 

To be promptly provided by the Ceding Company following the execution of this
Agreement.

 

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

EXHIBIT A

 

MONTHLY ACCOUNTING REPORT

 

For the Monthly Accounting Period ending on

 

 

 

 

 

Section 1:  Policy cash flows to/(from) Ceding Company (gross)

 

 

 

Premium

 

 

 

Less: Returned Premium

(

                                             

)

 

(A)

TOTAL Premium

 

 

 

 

 

 

 

Penalty Free Withdrawals

 

 

 

Full and Partial Surrenders

 

 

 

Death Claims

 

 

 

Annuity Payments on Supplementary Contracts

 

 

 

Other

 

 

(B)

TOTAL Claims

 

 

 

 

 

 

 

Initial Commissions Paid

 

 

 

Less: Commissions Recovered on Returned Premium

(

                                             

)

 

 

Renewal Commissions Paid

 

 

 

Policy Issuance Fees (      policies issued x $145)

 

 

(C)

TOTAL Commissions and Policy Issuance Fees

 

 

 

 

 

 

Section 2: Policy cash flows due to/(owed from) Reinsurer

 

 

 

Net Policy Cash Flows (A - B - C)

 

 

 

x Quota Share

 

x

80.0%

(D)

Reinsurer’s share of Net Policy Cash Flows

 

 

 

 

 

 

 

Premiums transferred to FW Account in period

 

 

 

Claims withdrawn from FW Account in period

 

 

 

Commissions and Policy Issuance Fees

 

 

 

withdrawn from FW Account in period

 

 

(E)

Net Policy Cash Flows transferred to/(from) Reinsurer

 

 

 

 

 

 

(F)

Policy Cash Flows due to/(owed from) Reinsurer (D-E)

 

 

 

 

 

 

Section 3: Monthly Expenses owed from Reinsurer

 

 

 

Administration Fees (           average policies in force x $3)

 

 

 

Premium Taxes (           gross taxes paid x 80.0%)

 

 

 

Guaranty Fund Assessments (           gross assessments x 80.0%)

 

 

 

Excise Taxes Paid

 

 

(G)

Monthly Expenses owed from Reinsurer

 

 

 

 

 

 

(H)

Monthly Net Settlement Amount (F-G)

 

 

 

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

EXHIBIT B

 

QUARTERLY ACCOUNTING REPORT

 

For the Quarterly Accounting Period ending on

 

 

 

 

Section 1: Ceded Reserves

 

 

(A)

Ceded Reserves for Deferred Annuities at Beginning of Quarter

 

 

 

Increase due to Policies Issued in Quarter

 

 

 

Increase due to Tabular Interest

 

 

 

Decrease from Penalty Free Withdrawals

(

                                             

)

 

 

Decrease from Full and Partial Surrenders

(

                                             

)

 

 

Decrease from Death Claims

(

                                            

)

 

 

Decrease from Annuitizations

(

                                            

)

 

 

Other Increases / (Decreases)

 

 

(B)

Change in Ceded Reserves for Deferred Annuities

 

 

(C)

Ceded Reserves for Deferred Annuities at End of Quarter (A + B)

 

 

 

 

 

 

(D)

Ceded Reserves for Immediate Annuities at Beginning of Quarter

 

 

 

Increase due to Supplementary Contracts Issued

 

 

 

Increase due to Tabular Interest

 

 

 

Decrease from Annuity Payments on SCs

(

                                            

)

 

 

Other Increases / (Decreases)

 

 

(E)

Change in Ceded Reserves for Immediate Annuities

 

 

(F)

Ceded Reserves for Immediate Annuities at End of Quarter (D + E)

 

 

 

 

 

 

(G)

TOTAL Ceded Reserves at End of Quarter (C + F)

 

 

 

 

 

 

Section 2: Quarterly Net Settlement Amount

 

 

(H)

C4 Risk Charge ((A + D + G) x 0.5 x (.0023 /4))

 

 

 

 

 

 

(I)

Quarterly Net Settlement Amount (H)

 

 

 

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

 

Section 3: Funds Withheld Account

 

 

(J)

Book Value of Assets at Beginning of Quarter

 

 

 

 

 

 

 

Premiums transferred into FW Account

 

 

 

Claims withdrawn from FW Account

(

                                               

)

 

 

Commissions withdrawn from FW Account

(

                                               

)

 

 

Policy Issuance Fees withdrawn from FW Account

(

                                               

)

 

 

Renewal Commissions withdrawn from FW Account

(

                                              

)

 

(K)

TOTAL Increases / (Decreases) from Policy Cash Flows

 

 

 

 

 

 

 

Administration Fees withdrawn from FW Account

 

 

 

Premium Taxes withdrawn from FW Account

 

 

 

Guaranty Fund Assessments withdrawn from

 

 

 

FW Account

 

 

 

Excise Taxes withdrawn from FW Account

 

 

(L)

TOTAL Decreases from Monthly Expenses

 

 

 

 

 

 

 

Interest Income Received (Coupons)

 

 

 

Change in Accrued Interest

 

 

 

Accretion of Discount / (Amortization of Premium)

 

 

(M)

TOTAL Net Investment Income

 

 

 

 

 

 

(N)

Realized Gains / (Losses)

 

 

 

 

 

 

(O)

Statutory Impairments Realized

 

 

 

 

 

 

(P)

Default Losses Realized

 

 

 

 

 

 

(Q)

Cash or other assets transferred (to) / from Reinsurer

 

 

 

 

 

 

(R)

Expenses relating to FW Account and Reinsurance Trust

 

 

 

 

 

 

(S)

Book Value of Assets at End of Quarter

 

 

 

(J + K - L + M +/- N - O - P +/- Q - R)

 

 

 

 

 

 

Section 4: Calculation of Funds Withheld Adjustment

 

 

(T)

TOTAL Ceded Reserves (G)

 

 

 

 

 

 

(U)

Statutory Carrying Value of Assets in the Funds Withheld Account (S)

 

 

 

 

 

 

(V)

Market Value of Assets in any Reinsurance Trust

 

 

 

 

 

 

(W)

Amount Available under Outstanding Letters of Credit

 

 

 

 

 

 

(X)

Amounts due but unpaid by Ceding Company

 

 

 

under Section 8.03(a), (b) or (c)

 

 

 

 

 

 

(Y)

Funds Withheld Adjustment due from/(to) Reinsurer (T - (U + V + W + X))

 

 

 

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

EXHIBIT C

 

REINSURED POLICIES REPORT

 

To be promptly provided by the Ceding Company following the execution of this
Agreement.

 

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

EXHIBIT D

 

TRUST AGREEMENT

 

See attached.

 

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

EXHIBIT E

 

INVESTMENT MANAGEMENT AGREEMENT

 

See attached.

 

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