Exhibit 10.1

 

EXPLANATORY NOTE: [**] INDICATES THE PORTION OF THIS EXHIBIT THAT HAS BEEN
OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD BE COMPETITIVELY
HARMFUL IN PUBLICLY DISCLOSED.

 

 

FUNDS WITHHELD AND FUNDS PAID

COINSURANCE AGREEMENT

(MYGA and FIA BUSINESS)

 

between

 

US ALLIANCE LIFE AND SECURITY COMPANY

 

and

 

AMERICAN LIFE & SECURITY CORP.

 

effective as of January 1, 2020

 

Treaty Number 002

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

Page

ARTICLE I

GENERAL PROVISIONS

1

Section 1.01

Defined Terms. 

1

Section 1.02

Other Definitional Provisions.

6

 

 

 

ARTICLE II

COVERAGE

7

Section 2.01

Scope and Basis of Reinsurance.

7

Section 2.02

Policy Changes.

7

Section 2.03

Reinstatement of Surrendered Policies.

7

Section 2.04

Misstatement of Fact.

8

Section 2.05

Non-Guaranteed Elements.

8

Section 2.06

Crediting Rates. 

8

Section 2.07

Programs of Internal Replacement. 

8

Section 2.08

RESERVED

8

Section 2.09

RESERVED

8

Section 2.10

RESERVED

8

Section 2.11

Valuation of Liabilities. 

8

Section 2.12

Credit For Reinsurance.

9

Section 2.13

Reserved.

9

Section 2.14

Options Budget and Payoff for FIA.

9

 

 

 

ARTICLE III

REINSURANCE PREMIUMS

10

Section 3.01

Reinsurance Premiums. 

10

Section 3.02

Initial Settlement Amount.

10

Section 3.03

Funds Paid Conversion.

10

 

 

 

ARTICLE IV

CEDING COMMISSION

10

Section 4.01

Ceding Commission. 

10

 

 

 

ARTICLE V

ADMINISTRATION FEE

 

Section 5.01

Policy Expenses. 

10

 

 

 

ARTICLE VI

REINSURED LIABILITIES

11

Section 6.01

Reinsured Liabilities. 

11

Section 6.02

Claims Settlement.

11

Section 6.03

Recoveries. 

11

 

 

 

ARTICLE VII

REPORTING AND SETTLEMENTS

11

Section 7.01

Ceding Company Reporting.

11

Section 7.02

Reinsurer Reporting.

12

Section 7.03

Settlements & Adjustments.

13

 

 

 

 

TABLE OF CONTENTS
(continued)

 

 

 

Page

ARTICLE VIII

 

14

THE TRUST DEPOSIT, THE FUNDS WITHHELD ACCOUNT, AND INVESTMENT MANAGEMENT
AGREEMENT

14

Section 8.01

Trust Deposit.

14

Section 8.02

Funds Withheld Account.

15

Section 8.03

Reserved.

15

Section 8.04

Investment Management Agreement.

15

 

 

 

ARTICLE IX

[RESERVED]

16

 

 

16

ARTICLE X

ADMINISTRATION

16

Section 10.01

Policy Administration. 

16

Section 10.02

Record-Keeping.

17

 

 

 

ARTICLE XI

TERM AND TERMINATION

17

Section 11.01

Duration of Agreement.

17

Section 11.02

Recapture.

17

Section 11.03

Recapture Payment.

18

Section 11.04

Survival. 

19

 

 

 

ARTICLE XII

ERRORS AND OMISSIONS

19

Section 12.01

Errors and Omissions. 

19

 

 

 

ARTICLE XIII

DISPUTE RESOLUTION

20

Section 13.01

Negotiation.

20

Section 13.02

Arbitration; Waiver of Trial by Jury.

20

 

 

 

ARTICLE XIV

INSOLVENCY

21

Section 14.01

Insolvency.

21

 

 

 

ARTICLE XV

TAXES

22

Section 15.01

Taxes. 

22

Section 15.02

DAC Tax Election.

22

Section 15.03

US Taxpayer.    

23

 

 

 

ARTICLE XVI

REPRESENTATIONS, WARRANTIES AND COVENANTS

23

Section 16.01

Representations and Warranties of the Ceding Company. 

23

Section 16.02

Covenants of the Ceding Company.

25

Section 16.03

Representations and Warranties of the Reinsurer. 

26

Section 16.04

Covenants of the Reinsurer.

27

 

 

 

ARTICLE XVII

MISCELLANEOUS

28

ii

TABLE OF CONTENTS
(continued)

 

 

 

Page

Section 17.01

Currency. 

28

Section 17.02

Interest. 

28

Section 17.03

Right of Setoff and Recoupment.

28

Section 17.04

No Third-Party Beneficiaries. 

28

Section 17.05

Amendment. 

29

Section 17.06

Notices.

29

Section 17.07

Consent to Jurisdiction. 

30

Section 17.08

Service of Process. 

30

Section 17.09

Inspection of Records.

30

Section 17.10

Confidentiality.

31

Section 17.11

Successors. 

32

Section 17.12

Entire Agreement.

32

Section 17.13

Severability. 

32

Section 17.14

Construction. 

32

Section 17.15

Non-Waiver. 

32

Section 17.16

Further Assurances. 

33

Section 17.17

Governing Law. 

33

Section 17.18

Counterparts. 

33

 

 

Schedules

I.

Policy Forms and Riders

II.

Policy Expenses

III.

Initial Trust Deposit Assets and Funds Withheld Assets

IV.

Permitted Ex-Gratia Payments

V.

Determination of Crediting Rate and Quota Share

VI.

§1.848-2(g)(8) Election

VII.

Determination of Cede Commission

VIII.

Allocation Percentage

IX.

Reinsured Policies issued prior to the Effective Date

X.

Leverage Measure

XI.

Asset Reserves

XII.

Hedging Returns

XIII.

Trust Deposit Initial Deposit

XIV.

Investment Manager

XV.

Non-Guaranteed Elements

 

Exhibits

A.

Form of Monthly Accounting Report

B.

Trust Agreement

 

 

 

iii

 

 

 

FUNDS WITHHELD AND FUNDS PAID COINSURANCE AGREEMENT

 

 (MYGA and FIA BUSINESS)

This FUNDS WITHHELD AND FUNDS PAID COINSURANCE AGREEMENT (this “Agreement”),
effective as of January 1, 2020 (the “Effective Date”), is made by and between
American Life & Security Corp., an insurance company organized under the laws of
the State of Nebraska (the “Ceding Company”), and US Alliance Life and Security
Company, a reinsurance company organized under the laws of the State of Kansas
(the “Reinsurer”).

W I T N E S S E T H:

WHEREAS, subject to the terms, conditions and limitations contained herein, the
Ceding Company desires to cede, on a Funds Withheld and Funds Paid Coinsurance
basis, and the Reinsurer desires to accept, a Quota Share of certain liabilities
with respect to certain MYGA and FIA business of the Ceding Company (the
“Reinsurance Treaty”); and

WHEREAS, the Parties have agreed that upon a representation and warranty by the
Reinsurer that it is a “Qualified Institutional Buyer” as such term is defined
in 17 CFR § 230.144A (“SEC Rule 144A”), the Reinsurance Treaty will cease to
both a Funds Withheld and Funds Paid agreement and will become solely a Funds
Paid Coinsurance Agreement;

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 1.01Defined Terms.  As used in this Agreement, the following terms shall
have the following meanings:

“Accounts” shall mean collectively the Trust Deposit and the Funds Withheld
Account, each one an “Account.”.

“Account Adjustment” shall mean a payment made pursuant to Section 7.03(b).

“Accounts Balance” shall mean the aggregate of book value of the Trust Deposit
Balance and Funds Withheld Account Balance, as of any date of determination, as
such book value is determined in accordance with Nebraska SAP.

“Accounts Required Reserves” shall mean Accounts Required Reserves-Funds
Withheld plus Accounts Required Reserves-Trust, as of any date of determination.

“Accounts Required Reserves-Funds Withheld”  shall mean an amount equal to the
Quota Share of the Net Statutory Reserves times the Funds Withheld Allocation
Percentage plus the Asset Reserves for assets included in the Funds Withheld
Account, as of any date of determination.

 

 

 

“Accounts Required Reserves-Trust” shall mean an amount equal to the Quota Share
of the Net Statutory Reserves times the Trust Allocation Percentage plus the
Asset Reserves for assets included in the Trust Deposit, as of any date of
determination.

“Action” shall mean (a) any civil, criminal or administrative action, suit,
claim, litigation, arbitration or similar proceeding, in each case, before a
Governmental Entity, or (b) any investigation or written inquiry by a
Governmental Entity other than a tax audit or any examination by a taxing
authority.

“Affiliate” shall mean, with respect to any Person, another Person that directly
or indirectly, through one or more intermediaries, controls, is controlled by or
is under common control with, such first Person, and the term “Affiliated” shall
have a correlative meaning.  For the purposes of this definition, “control”,
when used with respect to any Person, means the power to direct the management
and policies of such Person, directly or indirectly through the ownership of
voting securities, and the terms “controlling” and “controlled” have the
meanings correlative to the foregoing.  For the avoidance of doubt, the Ceding
Company and the Reinsurer shall not be deemed “Affiliates” for purposes of this
Agreement.

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

“Allocation Percentage” shall mean the percentages set forth in Schedule VIII
for the Trust Deposit and the Funds Withheld Account.

“Asset Reserves” shall have the meaning specified in Schedule XI.

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

“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 to close in New
York, New York.

“Ceding Commission” shall mean the percentage initially as set forth on Schedule
VII, as may be amended by mutual agreement of the parties from time to time.

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

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

“Covered Business” shall have the meaning specified in Section 2.01(b)(i).

“Crediting Rate” shall be the percentage determined based on the procedures set
forth on Schedule V.

“Custodian” shall have the meaning specified in Section 8.02.

“Effective Date” shall have the meaning specified in the Preamble hereto.

“Excluded Liabilities” shall mean without duplication (a) all Extra-Contractual
Obligations other than Reinsurer Extra-Contractual Obligations, (b) any
liabilities resulting from any change

2

 

 

to the terms of any Reinsured Policy after the Effective Date, unless such
change is required by applicable Law or by the express terms of the Reinsured
Policies, or has been approved in writing in advance by the Reinsurer, (c) 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) unless such
payment has been approved in writing in advance by the Reinsurer, or is set
forth in Schedule IV.

“Extra-Contractual Obligations”  shall mean any and all costs, expenses,
damages, liabilities or obligations of any kind or nature which are not
contractually covered by the terms and conditions of the Reinsured Policy,
except those which are required, imposed or mandated by a Governmental Entity.

“Factual Information” shall have the meaning specified in Section 16.01(d).

“Fair Market Value”  means with respect to any asset, and as of any date of
determination, the price that would be received in a sale of such asset in
accordance with GAAP accounting at the determination date (the “Price”),
determined as: (i) for liquid assets, the Price for such asset as published by a
nationally recognized pricing service where such prices are available and (ii)
otherwise, the Price for such asset as determined by a qualified independent
securities valuation firm, each pricing service or valuation firm to be selected
by the Investment Manager with the consent of the Ceding Company, such consent
not to be unreasonably withheld, conditioned or delayed. In the event that the
Ceding Company and the Investment Manager cannot agree on a valuation firm, such
valuation firm shall be Houlihan Lokey.  The “fair market value” of any asset
shall include any accrued but unpaid interest or dividend on such asset.

“Funds Paid Coinsurance” means Coinsurance as defined in Nebraska SAP 61R in
which the reinsurance premium is paid to the Reinsurer rather than withheld in a
funds withheld account or Modco deposit.

“Funds Paid Conversion Date” shall have the meaning specified in Section 3.03.

“Funds Withheld Account” shall have the meaning specified in Section 8.02(a).

“Funds Withheld Account Balance” shall mean the Statutory Carrying Value of
assets in the Funds Withheld Account, as of any date of determination.

“GAAP” means generally accepted accounting principles in effect in the United
States, consistently applied.

“Governmental Entity” shall mean any foreign, federal, state, local or other
governmental, legislative, judicial, administrative or regulatory authority,
agency, commission, board, body, court or entity or any instrumentality thereof.

“Initial Settlement Amount” shall have the meaning set forth in Section 3.02.

“Initial Settlement Date” shall mean April 10, 2020.

3

 

 

“Investment Guidelines” shall be as set forth in the Investment Management
Agreement, as may be amended from time to time.

“Investment Manager” shall have the meaning specified in Schedule XIV.

“Investment Management Agreement”  shall have the meaning specified in Schedule
XIV (as may be amended or supplemented from time to time).

“Investment Management Agreement FW” shall have the meaning specified in
Schedule XIV (as may be amended or supplemented from time to time).

“Kansas SAP” shall mean the statutory accounting principles and practices
prescribed or permitted for Kansas domiciled life insurance companies by the
Kansas Department of Insurance, or, if different, of the state of domicile of
the Reinsurer, consistently applied.

“Law” shall mean any law, statute, ordinance, written rule or regulation, order,
injunction, judgment, decree, principle of common law, constitution or treaty
enacted, promulgated, issued, enforced or entered by any Governmental Entity.

“Leverage Measure” shall have the meaning set forth in Schedule X.

“Leverage Measure Limit” shall have the meaning set forth in Schedule X.

“Loss”  or “Losses”  shall mean claim payments (including returns and waivers of
premium and other adjustments), Loss Adjustment Expenses, and reasonable legal
fees and settlements, assessments, fines, penalties and filing fees, in each
case, actually incurred by, and as determined by, the Ceding Company in good
faith but in any event excluding Extra Contractual Obligations other than
Reinsurer Extra Contractual Obligations.

“Loss Adjustment Expenses”  shall mean loss adjustment expenses incurred in
investigating, processing and settling losses that can be attributed to specific
claims, including payments to outside vendors, such as lawyers and independent
claim adjusters.

“Monthly Accounting Period” shall have the meaning specified in Section 7.01(a).

“Monthly Settlement” shall mean the making of all payments and adjustments
specified in Section 7.03, including, without limitation, Account Adjustments.

“Nebraska SAP” shall mean the statutory accounting principles and practices
prescribed or permitted for Nebraska domiciled life insurance companies by the
Nebraska Department of Insurance, or, if different, of the state of domicile of
the Ceding Company, consistently applied.

“Net Statutory Reserves”  shall mean the statutory reserves of the Ceding
Company in respect of the Reinsured Policies, which shall be calculated in good
faith in accordance with Nebraska SAP and determined in a manner consistent with
the Ceding Company’s historical practices; provided,  however, that Net
Statutory Reserves shall not include  (a) any asset valuation reserves (as used
in connection with Nebraska SAP) established by the Ceding Company, (b) any
interest maintenance reserves (as used in connection with Nebraska SAP)
established by the

4

 

 

Ceding Company, (c) any additional actuarial reserves (as used in connection
with Nebraska SAP), if any, established by the Ceding Company as a result of its
annual cash flow testing or (d) any other reserve not directly attributable to
specific Reinsured Policies.

“Non-Guaranteed Elements”  shall have the meaning specified in Schedule XV.

“Non-Public Personal Information” shall have the meaning specified in Section
17.10.

“Permits” shall mean any licenses, certificates of authority or other similar
certificates, registrations, franchises, permits, approvals or other similar
authorizations issued to a Person by a Governmental Entity.

“Permitted Assets” shall mean any asset which: (i) is a permitted asset under
applicable Law, (ii) is an admitted asset of the Ceding Company under the
applicable Laws of the State of Nebraska, (iii) is an admitted asset of the
Reinsurer under the applicable Laws of the State of Kansas, and (iii) is
permitted under the Investment Guidelines set forth in the Investment Management
Agreement, and (iv) solely with respect to the Accounts, is a permissible asset
to provide credit for reinsurance with respect to the Trust Deposit or Funds
Withheld Account (as the case may be) under Nebraska SAP.

“Person” shall mean an individual, corporation, partnership, joint venture,
limited liability company, association, trust, unincorporated organization,
Governmental Entity or other entity.

“Policy Expenses” shall have the meaning specified in Section 5.01.

“Proprietary Information” shall have the meaning specified in Section 17.10(a).

“Quota Share” shall have the meaning specified in Schedule V.

“Recapture Effective Date” shall mean the date on which the liability of the
Reinsurer with respect to all of the Reinsured Liabilities is terminated
pursuant to Section 11.02 or the effective date of the rejection of this
Agreement by any Receiver or of a recapture in full.

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

“Reinsurance Premiums” shall mean the Quota Share of the premiums, policy loan
principal and interest payments, and other fees, amounts, payments, and
collections received by the Ceding Company with respect to the Reinsured
Policies.

 “Reinsured Liabilities” shall mean the Quota Share of (a) Losses and
liabilities of the Ceding Company with respect to the Reinsured Policies, (b)
the Reinsurer Extra-Contractual Obligations divided by the applicable Quota
Share, (c) liabilities with respect to premium taxes payable by the Ceding
Company to the extent relating to premiums with respect to the Reinsured
Policies and (d) trail commissions payable to producers with respect to the
Reinsured Policies and other commissions payable with respect to premiums
received by the Ceding Company after the Effective Date and paid to the
Reinsurer; provided, that in no event shall “Reinsured Liabilities” include any
Excluded Liabilities.

5

 

 

“Reinsured Policies” shall mean  insurance policies of the Ceding Company that
are issued on or after the Effective Date and ceded in accordance with the
provisions of this Agreement (including without limitation Schedule V) and
including any riders that are listed on Schedule I and any amendments or
endorsements attached thereto as of the Effective Date.  For avoidance of doubt,
Reinsured Policies includes riders and endorsements.

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

“Reinsurer Extra-Contractual Obligations” shall mean Extra-Contractual
Obligations relating to the Reinsured Policies to the extent caused by, arising
from or related to any act of, or failure to act by, the Reinsurer or any of its
Affiliates following the Effective Date.

 “Statutory Carrying Value” shall mean, with respect to any asset, as of the
relevant date of determination, the carrying value amount permitted to be
carried by the Ceding Company as an admitted asset consistent with Nebraska SAP
in its statutory financial statements.

“Terminal Accounting Report” shall have the meaning specified in Section
11.03(a).

“Treasury Regulations” shall mean all proposed, temporary and final regulations
promulgated under the Code, as such regulations may be amended from time to
time.

“Trust Agreement” shall mean the agreement among the Ceding Company, the
Reinsurer and the Trust Deposit Trustee which is attached hereto as Exhibit B.

“Trust Deposit” shall have the meaning specified in Section 8.01(a).

“Trust Deposit Balance” shall mean the Statutory Carrying Value of assets in the
Trust Deposit, as of any date of determination.

“Trust Deposit Trustee” shall have the meaning specified in Section 8.01(a).

Section 1.02Other 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)The Schedules and Exhibits hereto are hereby incorporated by reference into
the body of this Agreement.

(e)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.

6

 

 

(f)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.

(g)Any reference to an agreement, statute, regulation or rule is to the same as
amended from time to time, and at any time.

ARTICLE II

COVERAGE

Section 2.01Scope and Basis of Reinsurance.

(a)This Agreement shall be effective as of 12:00:01 a.m. Eastern Time on the
Effective Date.

(b) Cession:

(i)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, on a funds
paid coinsurance basis the Reinsured Liabilities (the “Covered Business”).

(ii)Reserved

(c)Subject to the terms, conditions and limits of this Agreement (including the
exclusion from coverage of Excluded Liabilities), 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 to which the Ceding Company is
subject with respect to the Reinsured Policies, subject in each case to the
Ceding Company’s duty to adhere to its obligations pursuant to Article X.

(d)Notwithstanding anything to the contrary herein, the Reinsurer shall not be
liable for any Excluded Liabilities.

Section 2.02Policy Changes.

(a)The Ceding Company shall not, without the prior written consent of the
Reinsurer, terminate, amend, modify or waive any provision or provisions of the
Reinsured Policies, except to the extent required by a Governmental Entity.

(b)Any such terminations, amendments, modifications or waivers made without the
prior written consent of the Reinsurer shall be disregarded for purposes of this
Agreement, and the reinsurance with respect to the affected Reinsured Policy
will continue as if such termination, amendment, modification or waiver had not
been made.

Section 2.03Reinstatement of Surrendered Policies.  If a Reinsured Policy that
has been surrendered (other than in connection with a surrender upon maturity)
is reinstated according to its

7

 

 

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 Reinsurer shall pay all reimbursements of Reinsured
Liabilities paid on such Reinsured Policy.

Section 2.04Misstatement of Fact.  In the event of a change in the amount
payable under a Reinsured Policy due to a misstatement of fact by a
policyholder, the Reinsurer’s liability with respect to such Reinsured Policy
will change proportionately.  Such 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 2.05Non-Guaranteed Elements.  The Ceding Company will be responsible for
determining the Non-Guaranteed Elements of the Reinsured Policies in good faith
and consistent with its standard business practices;  provided, that the
Reinsurer shall be permitted to provide recommendations regarding the
Non-Guaranteed Elements and, to the extent such recommendations comply with
applicable Law, generally accepted actuarial standards of practice, the terms of
the Reinsured Policies and the Ceding Company’s internal policies the Ceding
Company shall not unreasonably take any actions that contravene such
recommendations and shall promptly incorporate such recommendations.  If the
Ceding Company fails to adhere to such recommendations in any material respect,
then the Ceding Company shall promptly notify the Reinsurer in writing of such
failure. Crediting Rates shall be subject to Section 2.06 exclusively and not to
this Section 2.05.

Section 2.06Crediting Rates.  The Ceding Company and the Reinsurer shall
establish the Crediting Rate on any date of determination as set forth based on
the procedures in Schedule V.

Section 2.07Programs of Internal Replacement.  The Ceding Company shall not
solicit, or allow any of its Affiliates to solicit, directly or indirectly,
policy holders of the Reinsured Policies in connection with any program of
internal replacement without the prior written consent of the Reinsurer.  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.

Section 2.08RESERVED

Section 2.09RESERVED

Section 2.10RESERVED

Section 2.11Valuation of Liabilities.  The Ceding Company shall calculate the
Net Statutory Reserves with respect to the Reinsured Policies in good faith in
accordance with Nebraska SAP and determined in a manner consistent with the
Ceding Company’s historical practices; provided, that, the Ceding Company shall
provide the Reinsurer supporting information promptly upon request and

8

 

 

in the event there is a disagreement with respect to the calculation, the
Dispute Resolution procedures herein shall be applied.

Section 2.12Credit For Reinsurance.  In the event the Ceding Company does not
receive credit for reinsurance in its statutory financial statements for the
Reinsured Liabilities, the parties shall amend this Agreement and take such
commercially reasonable actions as are required to provide the Ceding Company
with full credit for the reinsurance ceded hereunder.

Section 2.13Reserved.

Section 2.14Options Budget and Payoff for FIA.

(a)     With respect to FIA Reinsured Policies, the Ceding Company shall
purchase derivatives in respect of the Reinsured Policies (each, a “Hedge” and
collectively, the “Hedges”), in the form of futures contracts and equity index
options, to hedge index risk associated with the Reinsured Policies.

(b)      The Reinsurer shall pay to the Ceding Company for each accounting
period, in accordance with Section 7.3, the Quota Share of all amounts becoming
due in connection with the purchase of derivatives by the Ceding Company (the
“Option Budget”), as defined in Schedule XII.

(c)The Ceding Company shall pay to the Reinsurer for each accounting period, in
accordance with Section 7.3, the Quota Share of all amounts becoming due and
payable to the Ceding Company during the applicable period in connection with
the exercise by the Ceding Company or maturity of any Hedges, whether or not
collected (the “Option Payoff”), as defined in Schedule XII.

(d)The Option Budget payable by the Reinsurer to the Ceding Company pursuant to
subsection (b) above shall be paid without regard to the actual costs paid by
the Ceding Company for the Hedges purchased. The Option Payoff payable by the
Ceding Company to the Reinsurer pursuant to subsection (c) above shall be paid
without regard to the actual proceeds received by the Ceding Company with
respect to the Hedges collected.  The Ceding Company shall have no obligation to
pay to the Reinsurer any portion of the actual proceeds received by the Ceding
Company with respect to the Hedges, or any other amounts in respect of the
Hedges, other than the Option Payoff amounts.  For the avoidance of doubt, the
Reinsurer has no liability for any hedge effectiveness and hedging is assumed to
be 100% effective for purposes of Settlement.

(e)The Ceding Company shall use reasonable care in its hedging activities with
respect to the Reinsured Policies, and such activities shall (a) be conducted in
good faith and (b) conform with Applicable Law.

(f)With respect to a FIA Fixed Interest Account, the Reinsurer shall pay the
Option Budget to the Ceding Company and the Ceding Company shall pay an Option
Payoff to the Reinsurer equal to the actual fixed interest rate established by
the Ceding Company at each Reinsured Policy anniversary or upon death,
surrender, or partial surrender as would be due to the policyholder under the
terms of such policy.

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ARTICLE III

REINSURANCE PREMIUMS

Section 3.01Reinsurance Premiums.  The payment of Reinsurance Premiums is a
condition precedent to the liability of the Reinsurer under this
Agreement.   All Reinsurance Premiums shall be payable in accordance with this
Section on the Initial Settlement Date and in accordance with Section 7.03.

Section 3.02Initial Settlement Amount.

(a)On the Initial Settlement Date, the Ceding Company shall (i) retain in the
Funds Withheld Account and (ii) transfer to the Trust Deposit (in accordance
with the Allocation Percentage) an amount equal to $ $13,542,324.63  (the
“Initial Settlement Amount”) calculated based on the line items set forth in
Schedule III-A,  as agreed upon the parties in good faith on the Covered
Business.

(b)A list of the assets to be deposited in the Trust Deposit and the Funds
Withheld Account in payment of the Initial Settlement Amount is set forth on
Schedule III-B attached hereto.

(c)The Reinsurer shall deposit into the Trust Deposit amounts set forth on
Schedule XIII on the Initial Settlement Date.

Section 3.03Funds Paid Conversion.

(a)Upon a representation and warranty by the Reinsurer that it is a “Qualified
Institutional Buyer” as defined in SEC Rule 144A, the coinsurance provided under
this Reinsurance Treaty shall be entirely on a Funds Paid Coinsurance
basis.  Accordingly, the Ceding Company shall promptly thereafter transfer to
the Trust Deposit the cash or assets held in the Funds Withheld Account (the
completion of which shall be the “Funds Paid Conversion Date”).  The assets
shall be transferred at Fair Market Value. Any difference between the Fair
Market Value and the Statutory Carrying Value of the assets transferred shall be
accounted for in the Ceding Company’s IMR.  The assets so transferred to the
Trust Deposit shall be carried at a new Statutory Carrying Value equal to the
Fair Market Value at the time of transfer to the Trust Deposit.

ARTICLE IV

CEDING COMMISSION

Section 4.01Ceding Commission.  The Reinsurer shall pay to the Ceding Company
the Ceding Commission on all Reinsurance Premiums paid to the Reinsurer
(including on the Initial Settlement Date).   For avoidance of doubt, the Ceding
Company may withhold the Ceding Commission amount from the Reinsurance Premiums
owed to the Reinsurer, and the Reinsurer’s payment obligation shall thereupon be
deemed satisfied.

ARTICLE V

ADMINISTRATION FEE

Section 5.01Policy Expenses.  The Reinsurer shall pay the ceding company an
administrative expense fee (“Policy Expenses”) to cover the cost of providing
all administrative and other services

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necessary or appropriate in connection with the administration and distribution
(including the product development fee) of the Reinsured Policies and the
Reinsured Liabilities, determined in accordance with Schedule II attached
hereto.

(a)Reserved.

(b)With respect to Covered Business, the Reinsurer shall pay the Policy Expenses
on a monthly basis.

(c)Policy Expenses shall be payable by the Reinsurer to the Ceding Company in
accordance with Section 7.03.

ARTICLE VI

REINSURED LIABILITIES

Section 6.01Reinsured Liabilities.  Subject to Sections 6.02 and 6.03, the
Reinsurer shall pay to the Ceding Company all Losses on Reinsured Liabilities.

Section 6.02Claims Settlement.

(a)Subject to Section 6.02(b) and 6.03, the Ceding Company shall be responsible
for the settlement of claims with respect to the Reinsured Liabilities in
accordance with Article X, applicable Law and the terms and conditions of the
Reinsured Policies.

(b)The Ceding Company shall notify the Reinsurer in writing if the Ceding
Company determines that a claim for payment under a Reinsured Policy either
requires investigation or should be contested or denied.  The Reinsurer and the
Ceding Company shall consult in good faith regarding the disposition of any such
claim.  The Reinsurer may, but shall not be required to, recommend to the Ceding
Company how to handle such claim.  In the event of any disagreement between the
Ceding Company and the Reinsurer as to the validity or amount of such a claim,
the Ceding Company shall have final authority over the disposition of such
claim.

Section 6.03Recoveries.  Subject to Section 6.02(b), if the Ceding Company
obtains any recoveries in respect of a claim with respect to the Reinsured
Liabilities paid by it in accordance with the terms of any Reinsured Policy, the
Ceding Company shall promptly pay to the Reinsurer such recoveries
(“Recoveries”).

ARTICLE VII

REPORTING AND SETTLEMENTS

Section 7.01Ceding Company Reporting.

(a)Within ten (10) Business Days of the Initial Settlement Date and within five
(5) Business Days following the end of each calendar month following the Initial
Settlement Date, the Ceding Company shall deliver to the Reinsurer a monthly
accounting report (a “Monthly Accounting Report”) substantially in the form set
forth in Exhibit A for such calendar month (a “Monthly Accounting Period”).  The
parties shall from time to time amend Exhibit A as necessary to appropriately
effectuate the terms and conditions of this Agreement and to ensure the
accounting and

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settlements made hereunder are correctly computed.  The net amount due as set
forth in such Monthly Accounting Report shall be due within three (3) Business
Days following the date of delivery of such Monthly Accounting Report.

(b)Reserved

(c)Within ten (10) Business Days following the end of each Monthly Accounting
Period or Recapture Effective Date, the Ceding Company shall deliver to the
Reinsurer, as of the end of such Monthly Accounting Period or the Recapture
Effective Date, as applicable, a report of the Reinsured Policies in the form as
mutually agreed by the parties.

(d)The Reinsurer shall deliver to the Ceding Company, as of the end of such
Monthly Accounting Period or the Recapture Effective Date, as applicable, within
six (6) Business Days following the end of each Monthly Accounting Period or the
Recapture Effective Date, an investment accounting report of the assets held in
the Trust Deposit (or Funds Withheld Account, if prior to the Funds Paid
Conversion Date)  which shall include the holdings, Statutory Carrying Value,
and such other information agreed to by the parties in each case, on a CUSIP
level.

(e)The Ceding Company shall deliver to the Reinsurer: (i) within five (5)
Business Days following the filing of the Ceding Company’s unaudited annual
statement with the Nebraska Department of Insurance but no later than March 20
of each year, a copy of such unaudited annual statement; (ii) within five (5)
Business Days of the filing of the Ceding Company’s audited annual statutory
financial statements with the Nebraska Department of Insurance but no later than
June 20 of each year, a copy of such annual statutory financial statements; and
(iii) within five (5) Business Days following the filing of the Ceding Company’s
unaudited quarterly statutory financial statements with the Nebraska Department
of Insurance but no later than sixty (60) calendar days following the end of
each calendar quarter, a copy of such unaudited quarterly statutory financial
statements.

(f)Upon request, the Ceding Company will, within a reasonable timeframe,
promptly provide the Reinsurer with any additional information related to the
Reinsured Policies reasonably available to the Ceding Company and not reasonably
available to the Reinsurer which the Reinsurer requires in order to complete its
financial statements or is otherwise required to comply with regulatory
requirements.  The Reinsurer will identify and communicate any such requests to
the Ceding Company sufficiently in advance of any required deadlines such that
the applicable information and timing for the provision thereof can be mutually
agreed by the parties.

Section 7.02Reinsurer Reporting.

(a)The Reinsurer shall deliver to the Ceding Company: (i) within five (5)
Business Days of the filing of the Reinsurer’s audited annual financial
statements with the State of Kansas or such other state regulator with authority
over the Reinsurer (the “Reinsurer Regulator”) but no later than June 20 of each
year, a copy of such annual financial statements; (ii) within fifteen (15)
Business Days following the end of each calendar quarter a calculation of its
Leverage Measure,  and (iii) within five (5) Business Days following the filing
of the Reinsurer’s unaudited quarterly financial statements with the Reinsurer
Regulator but no later than sixty (60) calendar days following the end of each
calendar quarter, a copy of such unaudited quarterly financial statements.

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Section 7.03Settlements & Adjustments.

(a) Following the Initial Settlement Date, there shall be payments between the
Ceding Company and the Accounts based on the following:

(i)Additional Premiums and Other Recoveries.  On a weekly basis, the Ceding
Company shall deliver into the Accounts based on the Allocation Percentage the
Reinsurance Premiums and Recoveries received in connection with the  Covered
Business.

(ii)Payments due from Accounts.  On any day the Ceding Company may withdraw
funds from the Accounts to pay amounts due from the Reinsurer and as such the
Accounts  Balance will be decreased by an amount equal to any payments due from
the Reinsurer to the Ceding Company hereunder.  All such payments will be
effectuated in cash or by the liquidation of assets (at the direction of the
Investment Manager) in the applicable Account(s) into cash (in the event there
is insufficient cash in the account) in an amount sufficient to pay all amounts
owed by the Reinsurer to the Ceding Company and the transfer of such cash to the
Ceding Company in settlement of the payments due from the Reinsurer to the
Ceding Company.

(b)As of the end of each Monthly Accounting Period, there shall be payments
between the Reinsurer and the Accounts based on the following, fifteen  (15)
Business Days following the delivery of each Monthly Accounting Report:

(i) Payments to the Trust Deposit.

(A)In the event the Leverage Measure is less than the Leverage Limit,  such
amount necessary to cure such limit breach shall be paid by the Reinsurer
promptly and in any event, within 15 Business Days and such payment deposited
into the Trust Deposit.  Any assets other than cash that are deposited into the
Trust Deposit must satisfy clause (iv) of the definition of Permitted Asset and
shall be valued according to Fair Market Value.

(ii)Payments to the Reinsurer.

(A)After the first anniversary of this Agreement, if the Leverage Measure is
greater than the Leverage Limit, such overage may be requested by the Reinsurer
to be withdrawn from the Trust Deposit; provided any payment made hereunder in
assets other than cash shall be at the Fair Market Value of such asset.

(c)As of the end of each Monthly Accounting Period prior to the Funds Paid
Conversion Date, there shall be payments between the Trust Deposit and the Funds
Withheld Account based on the following, fifteen (15) Business Days following
the delivery of each Monthly Accounting Report:

(i)Payments to the Funds Withheld Account.  In the event the Accounts Required
Reserves-Funds Withheld is greater than the Funds Withheld Account Balance, such
positive difference shall be paid from the Trust Deposit to the Funds Withheld
Account.

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(ii)Payments to the Trust Deposit.  In the event the Funds Withheld Account
Balance is greater than the Accounts Required Reserves-Funds Withheld, such
positive difference shall be paid from the Funds Withheld Account to the Trust
Deposit.

(d)Other.

(i)Except as otherwise set forth herein, 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 thereof.

ARTICLE VIII

THE TRUST DEPOSIT, THE FUNDS WITHHELD ACCOUNT, AND INVESTMENT MANAGEMENT
AGREEMENT

Section 8.01Trust Deposit.

(a) Prior to the Initial Settlement Date, the Ceding Company and the Reinsurer
shall establish a funds paid coinsurance account (the “Trust Deposit”) to hold
the funds paid coinsurance deposit on the books and records of the Reinsurer
with the Reinsurer as grantor thereof, and the Ceding Company as
beneficiary.  The Trust Deposit shall be established with Capitol Federal
Savings Bank (as trustee of such trust account, the “Trust Deposit Trustee”)
under the terms of the Trust Agreement.

(b)The Trust Deposit and the assets maintained therein will be owned and
maintained by the Reinsurer and will be subject to the terms of the Trust
Agreement and used exclusively for the purposes set forth in this Agreement. 
The assets maintained in the Trust Deposit shall be invested by the Investment
Manager and consist only of Permitted Assets, and the Permitted Assets shall be
valued, for the purposes of this Agreement, according to their Statutory
Carrying Value.

(c)Notwithstanding any other provision hereof, assets held in the Trust Deposit
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 in accordance with Section 7.03.

(d)Determinations of statutory impairments of assets maintained in the Trust
Deposit shall be made by the Ceding Company and shall be (i) based upon the
statutory rules and guidelines and the impairment policy used by the Ceding
Company and its auditors for purposes of calculating statutory impairments
reflected in the Ceding Company’s statutory financial statements and (ii)
subject to consultation between the Investment Manager, the Reinsurer and the
Ceding Company.  The Ceding Company shall promptly notify the Reinsurer in
writing if the Ceding Company determines that any assets maintained in the Trust
Deposit 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.

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(e)The Reinsurer shall bear the administrative costs and expenses related to the
establishment and maintenance of the Trust Deposit, including the fees of the
Trust Deposit Trustee to the extent relating to the Trust Deposit.

(f)The performance of the assets maintained in the Trust Deposit, including of
all investment income paid or accrued, investment gains or losses, defaults
and/or statutory impairments, will inure to the sole benefit or cost of the
Reinsurer.

Section 8.02Funds Withheld Account.

(a) Prior to the Initial Settlement Date, the Ceding Company shall establish a
sub-account with a unique account number on its balance sheet (the “Funds
Withheld Account”) with assets to be settled as set forth in Section 8.02(b).

(b)The Funds Withheld Account and the assets maintained therein will be owned
and maintained by the Ceding Company until settled in accordance with this
section and will be used exclusively for the purposes set forth in this
Agreement.  The assets maintained in the Funds Withheld Account shall be
invested by the Investment Manager pursuant to the Investment Management
Agreement and consist only of Permitted Assets, and the Permitted Assets shall
be valued, for the purposes of this Agreement, according to their Statutory
Carrying Value.

(c)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 in accordance with Section
7.03.

(d)Determinations of statutory impairments of assets maintained in the Funds
Withheld Account shall be made by the Ceding Company and shall be (i) based upon
the statutory rules and guidelines and the impairment policy used by the Ceding
Company and its auditors for purposes of calculating statutory impairments
reflected in the Ceding Company’s statutory financial statements and (ii)
subject to consultation between the Investment Manager, the Reinsurer and the
Ceding Company.  The Ceding Company shall promptly notify the Reinsurer in
writing if the Ceding Company determines that any assets maintained 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.

(e)The Ceding Company shall bear the administrative costs and expenses related
to the establishment and maintenance of the Funds Withheld Account, including
the fees of the Custodian to the extent relating to the Funds Withheld Account.

(f)The performance of the assets maintained in the Funds Withheld Account,
including of all investment income paid or accrued, investment gains or losses,
defaults and/or statutory impairments, will inure to the sole benefit or cost of
the Reinsurer.

Section 8.03Reserved.

Section 8.04Investment Management Agreement.

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(a)Pursuant to the Investment Management Agreement, the Reinsurer has appointed
the Investment Manager to provide investment management services with respect to
the assets maintained in the Trust Deposit account.  The Reinsurer shall not
amend, modify or change the terms of the Investment Management Agreement,
including the investment guidelines attached as an exhibit thereto, or remove or
replace the Investment Manager without the prior written consent of the Ceding
Company.  If the Ceding Company and the Reinsurer agree to any amendments,
modifications or changes to the investment management agreement, then the
Reinsurer shall propose such changes in writing to the Investment Manager in
accordance with the terms of the Investment Management Agreement.  The Reinsurer
shall not propose any additional limitations (including with respect to asset
allocations) on the assets maintained in the Trust Deposit account without the
prior written consent of the Ceding Company.  In the event that the Investment
Manager is removed or resigns, the Ceding Company and the Reinsurer shall
mutually agree (in good faith) on a replacement investment manager.  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.

(b)Pursuant to the Investment Management Agreement FW, the Ceding Company has
appointed the Investment Manager as investment manager to provide investment
management services with respect to the assets maintained in the Funds Withheld
Account.  The Ceding Company shall not amend, modify or change the terms of the
Investment Management Agreement, including the Investment Guidelines attached as
an exhibit thereto, or remove or replace the Investment Manager without the
prior written consent of the Reinsurer, such consent not to be unreasonably
withheld.  If the Ceding Company and the Reinsurer agree to any amendments,
modifications or changes to the investment management agreement, then the Ceding
Company shall propose such changes in writing to the Investment Manager in
accordance with the terms of the Investment Management Agreement.  The Ceding
Company shall not propose any additional limitations (including with respect to
asset allocations) on the assets maintained in the Funds Withheld Account
without the prior written consent of the Reinsurer.  In the event that the
Investment Manager is removed or resigns, the Ceding Company and the Reinsurer
shall mutually agree (in good faith) on a replacement investment manager.  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.

ARTICLE IX

 [RESERVED]

ARTICLE X

ADMINISTRATION

Section 10.01Policy Administration.  The Ceding Company shall provide all
required, necessary and appropriate claims, administrative and other services,
including reporting under Article VII, with respect to the Reinsured Policies
and the Accounts.  The Ceding Company shall conduct its administration and
claims practices with respect to the Reinsured Policies (a) with a level of
skill, diligence and expertise that would reasonably be expected from
experienced and qualified personnel performing such duties in similar
circumstances, (b) in accordance with applicable Law and the terms of the
Reinsured Policies, and (c) in a manner no less favorable to the Reinsurer and
the Reinsured Policies than those used by the Ceding Company with respect to
other policies of the Ceding Company not reinsured by the Reinsurer hereunder or
other hedges of the Ceding Company.  The

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Ceding Company shall not outsource any administrative functions or claims
administration to a non-affiliate with respect to the Reinsured Policies or this
Agreement without the prior written consent of the Reinsurer, such consent not
to be unreasonably withheld.  If the Reinsurer consents to any outsourcing of
any administrative functions or claims administration with respect to the
Reinsured Policies or this Agreement, the Ceding Company shall secure the
Reinsurer’s right to audit and inspect the party performing such outsourced
services.

Section 10.02Record-Keeping.

(a)Each of the Ceding Company and Reinsurer shall maintain all records and
correspondence for services performed by such party 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 other party, or the department of insurance of any
jurisdiction within which either 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 solely 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 and the Accounts, 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 VII
shall be prepared in accordance with such system and procedures and shall be
consistent with the Ceding Company’s books and records.

ARTICLE XI

TERM AND TERMINATION

Section 11.01Duration of Agreement.

(a)This Agreement shall continue in force until such time as (i) the Ceding
Company has no further liabilities or obligations with respect to the Reinsured
Liabilities  or (ii) the Agreement is terminated by mutual agreement of the
parties.

(b)Subject to any limitations in Schedule V, the Ceding Company is obligated to
cede and the Reinsurer is obligated to accept new business under this Agreement
until (i) the Agreement is terminated as to new business on 30 days prior
written notice by either the Ceding Company or the Reinsurer or (ii) the
Agreement is terminated as to new business on 30 days prior written notice by
the Ceding Company following the Reinsurer failing to maintain its Leverage
Measure at or above the Leverage Measure Limit.

Section 11.02Recapture.

(a)Neither party shall be permitted to cause a recapture of the Reinsured
Policies except in accordance with this Section 11.02.  For the avoidance of
doubt, neither party shall be permitted to cause a partial recapture of the
Reinsured Policies pursuant to this Section 11.02 other than as set out in
11.02(c) or 11.02(f).

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(b)Recapture for Non-Payment.  Either party may cause the Reinsured Policies to
be recaptured in full and this Agreement to be terminated 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.  The Ceding Company may cause the Reinsured Policies
to be recaptured in full and this Agreement to be terminated as to all Reinsured
Policies if the Reinsurer breaches in any material respect any representation,
warranty or covenant under this Agreement and fails to cure such breach within
thirty (30) days of receipt of written notice thereof.

(c)Recapture of Renewals.  In the event that this Agreement has been terminated
with respect to new business under 11.01(c), the Ceding Company may recapture
any Reinsured Policy under this Agreement that is either subject to a renewal
under its terms for MYGAs or out of its surrender charge period for FIAs;
provided the Ceding Company must provide notice to the Reinsurer no later than
10 Business Days prior to the maturity date of each such Reinsured Policy.

(d)Recapture by Ceding Company for Other Material Breach.  The Ceding Company
may terminate this Agreement and recapture all of the Reinsured Policies in the
event the Reinsurer materially breaches this Agreement and fails to
substantially cure such material breach within thirty (30) calendar days
following written notice thereof from the Ceding Company.

(e)Recapture for Insolvency of Reinsurer.  The Ceding Company may terminate this
Agreement and recapture all of the Reinsured Policies in the event that the
Reinsurer becomes insolvent (as set forth in Article XIV) by providing the
Reinsurer or its Authorized Representative with written notice of recapture
within thirty days of the date on which the Reinsurer’s insolvency is
established by the authority responsible for such determination.  The recapture
will be effective as of the date on which the Reinsurer’s insolvency is
established by the authority responsible for such determination.  Any
requirement for a notification period prior to the termination of this Agreement
shall not apply under such circumstances.

(f)Hedging Recapture Event.  The Ceding Company may recapture any FIA Reinsured
Policy under this Agreement that has a Guaranteed Minimum Cash Surrender Value
that is greater than its Contract Value as such terms are defined in the
Reinsured Policy form; and provided the Ceding Company complies with such
required timing of notice set out in Schedule XII.

Section 11.03Recapture Payment.

(a)In the event the Reinsured Policies are recaptured in full (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 shall be
undertaken by the Ceding Company in accordance with Article VII, which
calculations shall be as of the Recapture Effective Date.  Within ten (10)
Business Days following the later of the Recapture Effective Date or becoming
aware that a recapture event has occurred, the Ceding Company shall deliver to
the Reinsurer a final Monthly Accounting Report starting as of the prior Monthly
Accounting Report and ending on the Recapture Effective Date (the “Terminal
Accounting Report”), and all amounts required to be paid in connection with the
final settlement (including all Account Adjustments) set forth in such Terminal
Accounting Report shall be paid in accordance with Section 7.03 as if the
Recapture Effective Date were the end of the month.

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In addition to all amounts required to be paid in connection with the final
settlement, the Reinsurer shall pay an amount equal to the Accounts Required
Reserves to the Ceding Company, such payment to be effectuated by the Ceding
Company retaining assets in the Accounts with an aggregate fair value equal to
the Accounts Required Reserves.  Following the making of all payments required
to be made by the Reinsurer hereunder (including any Account Adjustments  and
the payment of the Accounts Required Reserves to the Ceding Company) any
remaining assets in the Accounts shall be delivered to one or more accounts as
directed by the Reinsurer.

(b)Either party’s right to terminate the reinsurance provided hereunder will not
prejudice its right to collect amounts owed to it hereunder, including
applicable interest as specified in Section 17.02, for the period during which
such reinsurance was in force, through and including any notice period.

(c)In the event of a renewal recapture under Section 11.02(c) or a hedging
recapture under 11.02(f), the Reinsured Liability to such Reinsured Policy shall
be extinguished upon the Reinsurer’s settlement of those items in Section 7.03
and the payment of the Quota Share of the Net Statutory Reserves with respect to
the recaptured policy (such payment to be effectuated by the Ceding Company
retaining assets in the Accounts with an aggregate book value equal to the Net
Statutory Reserves), and in each case, solely related to such Reinsured Policy.

(d)For the avoidance of doubt, in the event this Agreement terminates  for new
business pursuant to Section 11.01 Reinsurer shall remain liable for the
Reinsured Policies ceded hereunder in accordance with the terms of this
Agreement.  Reinsurer shall have no further liabilities or obligations arising
after the recapture date of any recaptured Reinsured Policies as provided for in
Section 11.02.

Section 11.04Survival.  All provisions of this Agreement will survive any
termination of this Agreement and recapture of the Reinsured Policies to the
extent necessary to carry out the purpose of this Agreement.

ARTICLE XII

ERRORS AND OMISSIONS

Section 12.01Errors and Omissions.  Any unintentional or accidental failure to
comply with the terms of this Agreement which is 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; provided, that, upon discovery,
the error shall 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 17.02.  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.

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ARTICLE XIII

DISPUTE RESOLUTION

Section 13.01Negotiation.

(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 time and location as soon as reasonably possible but no later
than thirty  (30) calendar days after such written notification and as often as
reasonably necessary in order to gather and furnish the other with all
appropriate and relevant information concerning the dispute.  Any such meetings
may be held by telephone or video conference.  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 13.02, unless the parties agree in writing to extend the
negotiation period for an additional thirty (30) calendar days.

Section 13.02Arbitration; Waiver of Trial by Jury.

(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.  If the Reinsurer
and the Ceding Company cannot mutually resolve a dispute that arises out of or
relates to this Agreement, including the validity of this Agreement, and the
dispute cannot be resolved through the negotiation process, then the dispute
will be finally settled by arbitration in accordance with the provisions of this
Section 13.02.

(b)To initiate arbitration, either the Ceding Company or the Reinsurer will
notify the other party pursuant to Section 17.06 of its desire to arbitrate,
stating the nature of the dispute and the remedy sought.

(c)Any arbitration pursuant to this Section 13.02 will be conducted before a
panel of three arbitrators.  Each of the parties will appoint one arbitrator and
the two so appointed will select the third arbitrator.  If either party refuses
or fails to appoint an arbitrator within thirty  (30) 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-U.S.  Umpire Selection Procedure in
effect as of the date of this agreement (available at www.ARIAS-US.org), subject
to the arbitrator qualification requirements of this paragraph.

(d)The arbitrators and umpire shall be active or retired, disinterested officers
or directors of life insurance or reinsurance companies.  Officers or directors
of the parties to this Agreement, their Affiliates or subsidiaries are not
eligible to serve on the arbitration panel.

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(e)Each arbitration hearing under this Agreement will be held on the date set by
the arbitrators at a location mutually agreed upon by the parties or ordered by
the arbitration panel.  In no event will the date of the organizational meeting
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 17.17, t Title 9 (Arbitration) of the United States Code applies to this
Section 13.02.

(f)The arbitrators will base their decision on the terms and conditions of this
Agreement and the customs and practices of the applicable insurance and
reinsurance business rather than on strict interpretation of the law.    The
arbitration panel is released from judicial formalities and shall not be bound
by strict rules of procedure and evidence.  The arbitrators shall enter an award
which shall do justice between the parties and the award shall be supported by a
 written opinion.  The decision of the arbitrators, or a majority of them, shall
be final and binding on both parties.  Judgment may be entered upon the final
decision of the arbitration panel.  The parties agree  that the venue for any
matter relating to compelling arbitration or enforcing or vacating the judgment
of an arbitration panel shall be the federal courts in the State of Nebraska, or
the State courts of such State, and the parties hereby consent to such venue. 
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.  For the avoidance of
doubt, the parties retain the right to remove such matters from State court to
the federal courts in the State of Nebraska.  In addition, the Ceding Company
and the Reinsurer hereby consent to service of process out of such courts at the
addresses set forth in Section 17.06.

(g)In the absence of a decision to the contrary by the arbitration panel, or a
majority thereof, each party shall bear the expense of its own arbitration
activities, including its appointed arbitrator and any outside attorney and
witness fees, and shall jointly and equally bear with the other party the
expense of the third arbitrator.

(h)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 XIV

INSOLVENCY

Section 14.01Insolvency.

(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;

(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;

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(iv)fails to maintain its Leverage Measure at or above the Leverage Measure
Limit,  or

(v)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.

(vi)In the event of the insolvency of either party, the rights or remedies of
this Agreement will remain in full force and effect.

(b)Insolvency of the Ceding Company.  In the event of the insolvency,
liquidation or rehabilitation of the Ceding Company or the appointment of a
liquidator, receiver or statutory successor of the Ceding Company, the
reinsurance coverage provided hereunder shall be payable by the Reinsurer
directly to the Ceding Company or to its liquidator, receiver or statutory
successor except (1) when the contract or other written agreement specifically
provides another payee of such reinsurance in the event of the insolvency of the
ceding insurer or (2) when the assuming insurer, with the consent of the direct
insured, has assumed such policy obligations of the ceding insurer as direct
obligations of the assuming insurer to the payees under such policies and in
substitution for the obligations of the ceding insurer to such payees, on the
basis of the liability of the Ceding Company for the Reinsured Liabilities
without diminution because of such insolvency, liquidation, rehabilitation or
appointment or because such liquidator, receiver or statutory successor has
failed to pay any claims or any portion thereof.  In any such event, the
reinsurance being provided hereunder shall be payable immediately upon demand,
with reasonable provision for verification, on the basis of claims allowed
against the Ceding Company by any court of competent jurisdiction or by any
liquidator, receiver or statutory successor.  In any such event, the liquidator,
receiver or statutory successor of the Ceding Company shall give written notice
to the Reinsurer of the pendency of each claim against the Ceding Company with
respect to such Reinsured Liabilities within a reasonable time after each such
claim is filed in the insolvency, liquidation or rehabilitation proceeding. 
During the pendency of any such claims, the Reinsurer may, at its own expense,
investigate such claim and interpose in the proceeding in which such claim is to
be adjudicated any defense or defenses that the Reinsurer may reasonably deem
available to the Ceding Company or its liquidator, receiver or statutory
successor.  For the avoidance of doubt, 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, in each case, that are not otherwise expressly covered by this
Agreement.

ARTICLE XV

TAXES

Section 15.01Taxes.   No taxes, allowances, or other expenses will be paid by
the Reinsurer to the Ceding Company for any Reinsured Policy, except as
specifically referred to in this Agreement.

Section 15.02DAC Tax Election.

(a)The Ceding Company and the Reinsurer agree to elect, pursuant to U.S.
Treasury Regulations Section 1.848-2(g)(8), to determine specified policy
acquisition expenses with

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respect to this Agreement without regard to the general deductions limitation of
Section 848(c)(1) of the Internal Revenue Code of 1986, as amended (the "Code"),
(the "DAC Tax Election").

(b)This DAC Tax Election will be effective for the first taxable year in which
this Agreement is effective and for all years for which this Agreement remains
in effect, and each party agrees that is will take no action to revoke such DAC
Tax Election.

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

(d)The parties agree to sign the DAC Tax Election in the format provided in
Schedule VI upon the execution of this Agreement.

(e)The parties agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency. If
requested, the Ceding Company will provide supporting information reasonably
requested by the Reinsurer. (The term "net consideration" means "net
consideration" as defined in Regulation Section 1.848-2(f)).

(f)The Ceding Company and the Reinsurer will each attach a schedule to their
respective federal income tax returns filed for the first taxable year for which
this DAC Tax Election is effective, and each year thereafter. Such schedules
will identity the Agreement as a reinsurance agreement for which the DAC Tax
Election under Regulation Section 1.8482(g)(8) has been made.

(g)The Ceding Company and the Reinsurer represent and warrant that each is
respectively subject to U.S. taxation under with the provision of subchapter L
of Chapter 1 or the provisions of subpart F of subchapter N of Chapter 1 of the
Code.

Section 15.03US Taxpayer.  Both the Ceding Company and the Reinsurer are U.S.
taxpayers that are corporations for United States federal income tax purposes
and are “United States persons” within the meaning of Section 7701(a)(30) of the
Internal Revenue Code of 1986, as amended.

ARTICLE XVI

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 16.01Representations and Warranties of the Ceding Company.  The Ceding
Company hereby represents and warrants to the Reinsurer, as of the Effective
Date, 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 Nebraska 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.

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(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 Law or Permit of any Governmental Entity 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.  To the knowledge of
the Ceding Company, the information relating to the business reinsured under
this Agreement and the Reinsured Policies 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), was complete and accurate in
all material respects taken as a whole, as of the date of such information,
provided that the Ceding Company makes no representation or warranty with
respect to any projection, model, methodology, forecasting, analysis, assumption
or estimate other than that the projections, models, methodologies, forecasts,
analyses, assumptions or estimates on the basis of which such projection, model,
methodology, forecasting, analysis, assumption or estimate were prepared (i) are
reasonable and (ii) were prepared in good faith and in accordance with sound
actuarial principles.  The Ceding Company makes no representation or warranty as
to the sufficiency or adequacy of any reserves or the future profitability of
the Reinsured Policies.  Any actuarial data included in the Factual Information
was compiled in accordance with generally accepted actuarial principles in all
material respects given the intended purpose at the time compiled.  The Factual
Information was compiled in a commercially reasonable manner given its intended
purpose.

(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 16.01(e),

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“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 Nebraska 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)Governmental Licenses.  The Ceding Company has all Permits necessary to
conduct its business as currently conducted and execute and deliver, and perform
its obligations under, this Agreement, 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 on the Ceding Company’s ability to perform its
obligations under this Agreement.  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 on the Ceding Company’s ability to perform its obligations under
this Agreement.

(g)Accounts.  Each Account has been maintained in accordance with applicable
Law.  No plan of operations with respect to the Accounts was required to be
filed and approved by any Governmental Entity.

Section 16.02Covenants of the Ceding Company.

(a)Investigations.  To the extent permitted by applicable Law, the Ceding
Company shall promptly notify the Reinsurer, in writing, of any and all
investigations of the Ceding Company conducted by any Governmental Entity
commencing after the date hereof, other than routine State insurance department
examinations that do not relate to the business reinsured pursuant to this
Agreement or would not otherwise reasonably be expected to adversely affect the
performance by the Ceding Company of its obligations under this Agreement.

(b)Statutory Accounting Principles.  The Ceding Company shall prepare its
financial statements as required by, and in accordance with, Nebraska SAP in all
material respects.

(c)Existence; Conduct of Business.  The Ceding Company shall 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, Permits and privileges material
to the conduct of its business.

(d)Compliance with Law.  The Ceding Company shall comply with all Laws
applicable to, and all Permits issued by any Governmental Entity 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, or on the Reinsurer’s rights or obligations,
under this Agreement.

(e)Governmental Notices.  The Ceding Company shall provide the Reinsurer, within
five (5) Business Days after receipt thereof, copies of any material written
notice or report

25

 

 

from any Governmental Entity with respect to the business reinsured under this
Agreement and a written summary of any material oral communication with any
Governmental Entity with respect to the business reinsured under this Agreement.

(f)Restrictions on Liens.  The Reinsurer shall not create, incur, assume or
suffer to exist any material liens on the assets in the Trust Deposit or on any
interest therein or the proceeds thereof.  The Ceding Company shall not create,
incur, assume or suffer to exist any material liens on the assets in the Funds
Withheld Account or on any interest therein or the proceeds thereof.

(g)Reliance.  The Ceding Company hereby represents, warrants and covenants that
it has not relied, and shall not rely, on any representation, warranty or
statement or duty of the Reinsurer other than the representations and warranties
contained in Section 16.03 and the covenants contained in Section 16.04.  The
Reinsurer makes no representations or warranties in connection herewith other
than those contained in Section 16.03 and makes no covenants other than those
contained in Section 16.04.

Section 16.03Representations and Warranties of the Reinsurer.  The Reinsurer
hereby represents and warrants to the Ceding Company, as of the Effective Date,
as follows:

(a)Organization and Qualification.  The Reinsurer is a corporation duly
incorporated, validly existing and in good standing under the Laws of Kansas and
has all requisite corporate power and authority to operate its business as now
conducted, and is duly qualified as a 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 Law or Permit of
any Governmental Entity 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

26

 

 

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 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)Governmental Licenses.  The Reinsurer has all Permits necessary to conduct
its business as currently conducted and execute and deliver, and perform its
obligations under, this Agreement, 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 on the Reinsurer’s ability to perform its obligations
under this Agreement.  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 on the Reinsurer’s ability to perform its obligations under this
Agreement.  The Reinsurer is duly licensed as an authorized insurer in the
Ceding Company’s state of domicile.

(e)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 16.03(e), “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 statutory accounting principles and practices
prescribed or permitted for life insurance companies in its state of domicile by
the insurance regulator in that state, consistently applied by the Reinsurer;
(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.

Section 16.04Covenants of the Reinsurer.

(a)Investigations.  To the extent permitted by applicable Law, the Reinsurer
shall promptly notify the Ceding Company, in writing, of any and all
investigations of the Reinsurer conducted by any Governmental Entity commencing
after the date hereof, other than routine State insurance department
examinations that do not relate to the business reinsured pursuant to this
Agreement or would not otherwise reasonably be expected to adversely affect the
performance by the Reinsurer of its obligations under this Agreement.

(b)Statutory Accounting Principles.  The Reinsurer shall prepare its financial
statements as required by, and in accordance with Kansas SAP.

(c)Existence; Conduct of Business.  The Reinsurer shall 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, Permits and privileges material to
the conduct of its business.

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(d)Compliance with Law.  The Reinsurer shall comply with all Laws applicable to,
and all Permits issued by any Governmental Entity 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, would not reasonably be expected to
have a material adverse effect on the Reinsurer’s ability to perform its
obligations, or on the Ceding Company’s rights or obligations, under this
Agreement.

(e)Governmental Notices.  The Reinsurer shall provide the Ceding Company, within
five (5) Business Days after receipt thereof, copies of any written notice or
report from any Governmental Entity with respect to the business reinsured under
this Agreement and a written summary of any material oral communication with any
Governmental Entity with respect to the business reinsured under this Agreement.

(f)Reliance.  The Reinsurer hereby represents, warrants and covenants that it
has not relied, and shall not rely, on any representation, warranty or statement
or duty of the Ceding Company other than the representations and warranties
contained in Section 16.01 and the covenants contained in Section 16.02.  The
Ceding Company makes no representations or warranties in connection herewith
other than those contained in Section 16.01 and makes no covenants other than
those contained in Section 16.02.

ARTICLE XVII

MISCELLANEOUS

Section 17.01Currency.  All payments due under this Agreement shall be made in
U.S. Dollars.

Section 17.02Interest.  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 twelve percent (12%) per annum, calculated on a 30/360
basis.

Section 17.03Right 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 balance or
balances, whether on account of Reinsurance Premiums, allowances, credits,
Reinsured Liabilities 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 parties’ setoff rights may be enforced notwithstanding any other
provision of this Agreement including the provisions of Article XIV.

Section 17.04No 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
expressed or implied in this Agreement is intended to or shall confer remedies,
obligations or liabilities upon any Person other than the parties hereto and
their respective administrators, successors,

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legal representatives and permitted assigns or relieve or discharge the
obligation or liability of any third party to any party to this Agreement.

Section 17.05Amendment.  This Agreement may not be changed or modified or in any
way amended except by a written instrument executed by duly-authorized 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  executed by duly-authorized officers of both parties to this Agreement.

Section 17.06Notices.

(a)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 (3) methods identified in 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 Life & Security Corp.

2900 S. 70th Street

Suite 400

Lincoln, NE  68506

Attn:  Michael Salem and Mike Minnich

Tel:  (917) 678-8553 and (917) 257-6314

Email:  ams@american-life.com and mminnich@american-life.com

 

if to the Reinsurer:

 

US Alliance Life and Security Company

4123 SW Gage Center Dr., Suite 240

PO Box 4026

Topeka, KS 66604

Attn: Jeff Brown

Email: jeff.brown@usalliancelife.com

Tel: 785-228-0200

 

 

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With a copy to the Investment Manager:

 

1505 Capital LLC

100 Wall Street, 28th Floor

New York, NY  10005

Attn:  Richard Vecchiolla

Tel:  (917) 993-0895

Email:  rich@1505cap.com

 

 

 

(b)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 17.06.

(c)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 17.07Consent to Jurisdiction.  Subject to the terms and conditions of
Article XIII, each party hereto hereby irrevocably and unconditionally submits
to the non-exclusive jurisdiction of any United States court sitting in Nebraska
and of any Nebraska state court for purposes of all legal proceedings arising
out of or relating to this Agreement or for recognition and enforcement of any
judgment in respect thereof.  In any action, suit or other proceeding, each
party hereby irrevocably waives, to the fullest extent permitted by applicable
Law, any objection that it may now or hereafter have to the laying of the venue
of any such proceedings brought in such court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum. 
For the avoidance of doubt, the parties retain the right to remove such
proceedings from Nebraska state court to the federal courts in the State of
Nebraska.  Each party hereto also agrees that any final and nonappealable
judgment against a party in connection with any action, suit or other proceeding
shall be conclusive and binding on such party and that such award or judgment
may be enforced in any court of competent jurisdiction, either within or outside
of the United States.  A certified or exemplified copy of such award or judgment
shall be conclusive evidence of the fact and amount of such award or judgment. 
Each party hereto agrees that any process or other paper to be served in
connection with any action or proceeding under this Agreement shall, if
delivered, sent or mailed in accordance with Section 17.06, constitute good,
proper and sufficient service thereof.  This Section 17.07 is not intended to
conflict with or override Article XIII.

Section 17.08Service of Process.  The Reinsurer hereby designates the US
Alliance Corporation 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 17.06.  This Section is not intended to
conflict with or override Article XIII.

Section 17.09Inspection 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, electronically or during regular business hours, at the home
office of the Ceding Company, any and

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all books, records, statements, correspondence, reports, and other documents
that relate to the Reinsured Policies, the assets maintained in the Funds
Withheld Account, or this Agreement, subject to the confidentiality provisions
contained in this Agreement and preservation of attorney-client privilege .  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 (2) 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 17.10Confidentiality.

(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; or

(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, policy 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.

(b)Except as embedded in records during an audit as set forth in 17.09, the
Ceding Company shall not provide to the Reinsurer, and the Reinsurer shall have
no right to access, any Non-Public Personal Information except to the extent (i)
necessary for purposes of administration of this Agreement and (ii) requested in
writing by a duly authorized representative of the Reinsurer.  The Reinsurer and
its representatives and service providers will protect the confidentiality and
security of Non-Public Personal Information (as defined below) provided to it
hereunder 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; and

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(iii)disclosing and using Non-Public Personal Information received under this
Agreement solely for purposes of carrying out the Reinsurer’s obligations under
this Agreement, for purposes of retrocession (provided that the retrocessionaire
has agreed to maintain the confidentiality of such Non-Public Personal
Information to the same extent as the Reinsurer  hereunder), or as may be
required or permitted by Law, in each case solely to the extent 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 17.11Successors.  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 or
assignment of this Agreement without the prior written consent of the other
party and the Nebraska Department of Insurance.

Section 17.12Entire Agreement.  This Agreement and the Schedules and 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 Schedules and Exhibits
hereto.  In the event of any express conflict between this Agreement and the
Schedules and Exhibits hereto, the Schedules and Exhibits hereto will control.

Section 17.13Severability.  The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.  If any
provision of this Agreement, or the application thereof to any Person or entity
or any circumstance, is found by a court or other Governmental Entity of
competent jurisdiction to be invalid or unenforceable, (a) a suitable and
equitable provision shall be substituted therefor in order to carry out, so far
as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.

Section 17.14Construction.  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 17.15Non-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

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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, power or privilege with respect to any other occurrence.  No
prior transaction or dealing between the parties will establish any custom,
usage 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 17.16Further 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 17.17Governing Law.  This Agreement will be governed by and construed in
accordance with the Laws of the State of Nebraska 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 17.18Counterparts.  This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party hereto and delivered
to the other party.  Each party hereto may deliver its signed counterpart of
this Agreement to the other party by means of electronic mail or any other
electronic medium utilizing image scan technology, and such delivery will have
the same legal effect as hand delivery of an originally executed counterpart. 
When this Agreement has been fully executed by the Ceding Company and the
Reinsurer, it will become effective as of the Effective Date.

[Remainder of Page Intentionally Blank]

 

 

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

 

 

 

 

 

AMERICAN LIFE & SECURITY CORP.

 

 

 

 

By: 

/s/ Michael Minnich

 

 

Name: Michael Minnich

 

Title:  President

 

 

 

 

US ALLIANCE LIFE AND SECURITY COMPANY

 

 

 

 

By: 

/s/ Jeff Brown

 

 

Name: Jeff Brown

 

Title: EVP & COO