Exhibit 10.20

 

COINSURANCE AND YEARLY RENEWABLE TERM REINSURANCE AGREEMENT

 

EFFECTIVE:  DECEMBER 31, 2008

 

BETWEEN

 

AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY

West Des Moines, Iowa

 

AND

 

HANNOVER LIFE REASSURANCE COMPANY OF AMERICA

Orlando, Florida

 

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COINSURANCE AND YEARLY RENEWABLE TERM REINSURANCE

 

ARTICLE

 

PAGE

 

 

 

I.

PREAMBLE AND REINSURANCE PROVIDED

 

 

 

 

II.

TERM, TERMINATION AND RECAPTURE

 

 

 

 

III.

REINSURANCE COVERAGE

 

 

 

 

IV.

REINSURANCE PREMIUMS AND EXPENSE ALLOWANCES

 

 

 

 

V.

COINSURANCE RESERVES

 

 

 

 

VI.

LOSS CARRY FORWARD BALANCE

 

 

 

 

VII.

NET CASH SETTLEMENT

 

 

 

 

VIII.

FINANCIAL COVENANTS

 

 

 

 

IX.

REPORTS AND REMITTANCES

 

 

 

 

X.

NET RETAINED LINES

 

 

 

 

XI.

EXCLUSIONS

 

 

 

 

XII.

INSOLVENCY

 

 

 

 

XIII.

ARBITRATION

 

 

 

 

XIV.

AGREEMENT, AMENDMENTS AND MERGER

 

 

 

 

XV.

MISCELLANEOUS

 

 

 

 

XVI.

DAC TAX

 

 

 

 

XVII.

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

 

 

 

 

SCHEDULE A — SUBJECT BUSINESS CONTRACTS (TYPES)

 

 

 

 

 

SCHEDULE B — RATES BY AGE (NEAREST BIRTHDAY)

 

 

 

 

 

SCHEDULE C1 — TARGET LCF BALANCES

 

 

 

 

 

SCHEDULE C2 — ALTERNATIVE TARGET LCF BALANCES

 

 

 

 

 

SCHEDULE D — NET CASH SETTLEMENT CALCULATION & REPORT FORMAT

 

 

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SCHEDULE E — ACTUAL RECAPTURE & CURRENT QUOTA SHARE CALCULATION

 

 

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ARTICLE I:  PREAMBLE AND REINSURANCE PROVIDED

 

1.01  -                                                                 This is
an Agreement of Coinsurance and Yearly Renewable Term Reinsurance between:

 

AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY

West Des Moines, Iowa

 

(hereinafter referred to as the “Company”)

 

and

 

HANNOVER LIFE REASSURANCE COMPANY OF AMERICA

Orlando, Florida

 

(hereinafter referred to as the “Reinsurer”)

 

Collectively referred to as the “parties”, whereby, the Reinsurer agrees to
indemnify the Company for Covered Losses paid by the Company subject to all of
the terms and conditions of this Agreement.

 

1.02                                                                        
Construction:  This Agreement will be construed in accordance with the laws of
the state of Iowa.

 

 

1.03                                                                        
Entire Agreement:  This Agreement, including any schedules, exhibits, and
addenda, and any amendments hereto, constitutes the entire agreement between the
parties with respect to the business reinsured hereunder. There are no
understandings between the parties other than as expressed in this Agreement.
Any change or modification to this Agreement will be null and void unless made
by amendment to this Agreement and signed by both parties.

 

1.04                                                                        
Severability:  If any provision of this Agreement is determined to be invalid or
unenforceable, such determination will not impair or affect the validity or the
enforceability of the remaining provisions of this Agreement, which shall remain
in full force and effect as though such invalid or unenforceable provisions or
clauses had not been herein included or made a part of the Agreement.

 

ARTICLE II:  TERM, TERMINATION AND RECAPTURE

 

2.01  -                                                               Effective
Date:  The Effective Date of this Agreement shall be 10:59 p.m., Central
Standard Time, December 31, 2008.

 

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2.02  -                                                               Term: 
This Agreement shall remain in force and the Term of this Agreement shall be
from the Effective Date until the earlier of (i) the date of decrement of the
last contract holder of a Subject Business contract, or (ii) the Recapture Date.

 

2.03  -                                                              
Termination and Recapture:  The Company may terminate this Agreement and
recapture all Subject Business reinsured hereunder at any time after January 1,
2010, provided that such recapture falls on the last day of a full Accounting
Period, by providing written notice to the Reinsurer by registered or certified
mail, return receipt requested, at least thirty (30) days in advance, such
notice to include the effective date of termination and recapture.

 

The Reinsurer may terminate this Agreement if the Company fails to pay any
reinsurance premium due to Reinsurer by Company hereunder when due, subject to
thirty (30) days’ notice and demand for such payment by the Reinsurer.

 

The date on which this Agreement is terminated by the Company or by the
Reinsurer as set forth in this Section 2.03 shall hereinafter be referred to as
the “Recapture Date”.  On the Recapture Date, the Company shall pay to the
Reinsurer the LCF as of the Recapture Date determined in accordance with
Section 6.01 below.

 

2.04                                                                        
Partial Recapture:  As of the end of each calendar quarter, if the Coinsurance
Reserves are greater than the LCF, the Company may recapture a portion of the
Section A Subject Business in an amount equal to the Coinsurance Reserves less
the LCF. Upon Partial Recapture, the Section A Current Quota Share will be
recalculated to equal the remaining Coinsurance Reserves divided by the
statutory reserves for the Section A Subject Business.  The actual amount
recaptured and the corresponding Section A Current Quota Share adjustment each
quarter will be reflected in Schedule E and updated as necessary.

 

ARTICLE III:  REINSURANCE COVERAGE

 

3.01  -                                                               Coverage:

 

(a)          Section A — Coinsurance:  The Reinsurer shall indemnify the Company
for Section A Covered Losses paid by the Company.

 

(b)         Section B — YRT:  The Reinsurer shall indemnify the Company for
Section B Covered Losses paid by the Company.

 

3.02  -                                                                 Subject
Business:  “Subject Business” shall mean all contracts issued by the Company and
listed on Schedule A attached hereto and incorporated herein.

 

It is understood and agreed that the Company shall continue to administer the
Subject Business during the Term of this Agreement.

 

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3.03  -                                                               Subject
Losses:

 

(a)                                  “Section A Subject Losses” shall mean all
benefits paid by the Company to contract holders of the Section A Subject
Business contracts, including surrender values paid, death benefits paid, and
interest and premium bonuses credited in accordance with the terms of such
Subject Business contracts.  Section A Subject Losses shall not include
annuitization benefits, rider benefits, extracontractual payments,
extracontractual damages, loss adjustment expenses and other benefits not
expressly specified under the terms of the Section A Subject Business contracts.

 

(b)                                 Section B Subject Losses shall mean all
surrender charges waived by the Company upon death of the contract holders of
the Section B Subject Business contracts, but only as respects that portion of
the Section B Subject Business that is not reinsured under Section A of this
Agreement.  Section B Subject Losses shall not include annuitization benefits,
rider benefits, extracontractual payments, extracontractual damages, loss
adjustment expenses and other benefits not expressly specified under the terms
of the Section B Subject Business contracts.

 

3.04  -                                                               Covered
Losses.

 

(a)                                  “Section A Covered Losses” shall equal, for
the Accounting Period commencing January 1, 2009,and each Accounting Period
thereafter, Section A Subject Losses on Fixed Annuity policies multiplied by the
Section A Current Quota Share, as defined in Schedule E.

 

(b)                                 “Section B Covered Losses” shall equal, for
the Accounting Period commencing January 1, 2009, and each Accounting Period
thereafter (i) Section B Subject Losses on Fixed Annuity policies multiplied by
the Section B Current Quota Share Fixed Annuities, as defined in Schedule E plus
(ii) Section B Subject Losses on Index Annuity policies multiplied by the
Section B Current Quota Share Indexed Annuities, as defined in Schedule E.

 

The Reinsurer’s aggregate liability under this Agreement for Section B Covered
Losses shall not exceed Fifty Million dollars ($50,000,000) over the lifetime of
this agreement.

 

(c)                                  The sum of Section A Covered Losses and
Section B Covered Losses shall hereinafter be referred to collectively as
“Covered Losses”.

 

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ARTICLE IV:  REINSURANCE PREMIUMS AND EXPENSE ALLOWANCES

 

4.01  -                                                              
Reinsurance Premium:

 

(a)                                  To effect reinsurance on the Subject
Business, the Company shall pay to the Reinsurer, on the Effective Date, an
initial premium equal to Thirty Million dollars ($30,000,000).  Section A
Reinsurance Premium shall equal, for the Accounting Period commencing January 1,
2009, and each Accounting Period thereafter, all renewal premiums received by
the Company for the Section A Subject Business multiplied by the Section A
Current Quota Share, as defined in Schedule E.

 

(b)                                 Section B Reinsurance Premium shall equal,
for the Accounting Period commencing January 1, 2009, and each Accounting Period
thereafter, the sum of the following:

 

(i)                                   for each Subject Business contract in
force, the applicable rate from Schedule B attached hereto and incorporated
herein, based on the contract holder’s age at the nearest birthday at the
beginning of that Accounting Period, multiplied by the Net Amount at Risk at the
beginning of that Accounting Period; and

 

(ii)                                a policy fee of eighteen and 75/100 dollars
($18.75) for each Subject Business contract in force at the beginning of that
Accounting Period.

 

“Net Amount at Risk” as used herein shall mean, with respect to each Subject
Business contract, the Reinsurer’s Section B Current Quota Share of the amount
by which the account value payable to the beneficiary upon death of the contract
holder exceeds the cash surrender value at such time,.

 

(c)                                  The sum of Section A Reinsurance Premium
and Section B Reinsurance Premium shall hereinafter be referred to collectively
as the “Reinsurance Premiums”.  The Reinsurance Premiums for each Accounting
Period shall be due and payable from the Company to the Reinsurer as part of the
settlement for that Accounting Period in accordance with Schedule D.

 

4.02  -                                                               Expense
Allowances:

 

(a)                                 Section A:  The Reinsurer shall pay to the
Company, on the Effective Date, an initial Ceding Allowance equal to Thirty
Million dollars ($30,000,000). Section A Expense Allowances for the Accounting
Period commencing January 1,2009 and each Accounting Period thereafter shall be
equal to (i) 86/100 dollars ($0.86) per Subject Business contract plus (ii) the
applicable premium taxes and agent commissions actually paid by the Company with
respect to each

 

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Subject Business contract in force multiplied by the Section A Current Quota
Share, as defined in Schedule E.

 

(b)                                 Section B:  Section B Expense Allowances for
each Accounting Period shall equal zero.

 

(c)                                  The Section A Expense Allowances and the
Section B Expense Allowances for each Accounting Period shall hereinafter be
referred to collectively as the “Expense Allowances”.  The Expense Allowances
for each Accounting Period shall be due and payable from the Reinsurer to the
Company as part of the settlement for that Accounting Period in accordance with
Schedule D.

 

(d)                                 All direct or allocable expenses or taxes
are included in the Expense Allowances.

 

4.03  -                                                              
Reinsurer’s Fee:  As an inducement to and in consideration for entering into
this Agreement, the Company agrees to pay the Reinsurer a transaction fee equal
to One Hundred Fifty Thousand dollars ($150,000) within three (3) days after the
date this Agreement is executed.  The Company acknowledges and agrees that
payment by the Company to the Reinsurer of the Reinsurer’s Fee is a condition
precedent to the liability of the Reinsurer hereunder.

 

ARTICLE V:  COINSURANCE RESERVES

 

5.01  -                                                              
Coinsurance Reserves:  The Coinsurance Reserves on December 31, 2008 shall equal
Thirty Million dollars ($30,000,000).  The Coinsurance Reserves at the end of
each Accounting Period thereafter shall equal the statutory reserves for the
Section A Subject Business calculated by the Company, multiplied by the
Section A Current Quota Share, as defined in Schedule E, prior to any current
period recapture.

 

ARTICLE VI:  LOSS CARRY FORWARD BALANCE

 

6.01  -                                                               Loss Carry
Forward Balance:  The Loss Carry Forward (“LCF”) on December 31, 2008 shall be
an amount equal to the Coinsurance Reserves as of that date.  The LCF for each
Accounting Period thereafter shall be equal to: (i) the LCF on the last day of
the immediately preceding Accounting Period, accumulated with interest, less
(ii) Reinsurer’s Net Profit as defined in Section 7.01, plus (iii) any
Experience Refund as defined in Section 7.04.

 

6.02  -                                                              
Reinsurance Risk Charge:  The initial Reinsurance Risk Charge is Three Hundred
Seventy-Five Thousand dollars ($375,000), and is due within three

 

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(3) days after the date this Agreement is executed.  The Reinsurance Risk Charge
due at the end of each Accounting Period shall equal the Reinsurance Risk Charge
Rate in effect for such Accounting Period in accordance with Section 6.03,
multiplied by the result of:

 

LCFt-1 * (1+i) — min( RSPt, LCFt-1 * (1+i) — min( CRt, TLCFt ) )

 

 

 

Where:

 

 

 

LCFt-1 =

LCF on the last day of the previous Accounting Period

 

 

i =

LCF interest rate of 6.4%

 

 

RSPt =

Reinsurer’s Statutory Profit (as defined in Section 7.02) for the
Accounting Period

 

 

CRt,=

Coinsurance Reserves balance on the last day of the Accounting Period,
before any Partial Recapture

 

 

TLCFt =

Target LCF, or Alternative Target LCF if the Alternative Target LCF is
being used to calculate the Experience Refund for the current Accounting Period,
on the last day of the Accounting Period

 

6.03  -                                                              
Reinsurance Risk Charge Rate:  If the Company is not, and was not, in violation
of one or more of the Financial Covenants at any time during the current
Accounting Period or any prior Accounting Period, then the Reinsurance Risk
Charge Rate shall equal one and 25/100 percent (1.25%).

 

If Company is or was in violation of one or more of the Financial Covenants at
any time during the current Accounting Period or any prior Accounting Period,
then the Reinsurance Risk Charge Rate for the current and following Accounting
Periods shall equal one and 50/100 percent (1.50%).

 

ARTICLE VII: NET CASH SETTLEMENT

 

7.01 -                                                                  Net Cash
Settlement:  The Net Cash Settlement for each Accounting Period shall be
calculated on or before the Settlement Date for such Accounting Period in
accordance with the illustration set forth in Schedule D attached hereto.  If
the result of this calculation is positive, such amount will be paid by the
Company to the Reinsurer.  If the result of this calculation is negative, such
amount will be paid by the Reinsurer to the Company.

 

7.02 -                                                                 
Reinsurer’s Statutory Profit:  Reinsurer’s Statutory Profit shall equal the sum
of (i) Section A Reinsurance Premium, plus (ii) Section B Reinsurance Premium,
plus (iii) interest on the Coinsurance Reserves at the LCF interest rate, minus
(iv) Section A Covered Losses, minus (v) Section B Covered Losses, minus
(vi) Expense Allowances, minus (vii) the change in Coinsurance Reserves between
the last day of the immediately preceding Accounting Period, after any Partial
Recapture, and the last day of current Accounting Period, before any Partial
Recapture.

 

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7.03 -                                                                 
Reinsurer’s Net Profit:  Reinsurer’s Net Profit shall equal the Reinsurer’s
Statutory Profit minus the Reinsurance Risk Charge.

 

7.04 -                                                                 
Experience Refund:  If the Reinsurer’s Net Profit for an Accounting Period is
greater than zero (0) and the Company is not, and was not, in violation of one
or more of the Financial Covenants at any time during that Accounting Period or
any prior Accounting Periods, an Experience Refund equal to: (i) the Reinsurer’s
Net Profit on the Subject Business for the Accounting Period; less (ii) the
difference between (a) the LCF on the last day of the immediately preceding
Accounting Period, accumulated with interest, and (b) the lesser of the
Coinsurance Reserves and the Target LCF listed on Schedule C1 attached hereto on
the last day of the current Accounting Period shall be paid by the Reinsurer to
the Company as part of the settlement for that Accounting Period in accordance
with Schedule D, if such amount is positive.

 

If the Reinsurer’s Net Profit for an Accounting Period is greater than zero (0)
and the Company is or was in violation of one or more of the Financial Covenants
at any time during that Accounting Period or any prior Accounting Periods, an
Experience Refund equal to (i) the Reinsurer’s Net Profit on the Subject
Business for the Accounting Period; less (ii) the difference between (a) the LCF
on the last day of the immediately preceding Accounting Period, accumulated with
interest and (b) the lesser of the Coinsurance Reserves and the Alternative
Target LCF listed on Schedule C2 attached hereto on the last day of the current
Accounting Period shall be paid by the Reinsurer to the Company as part of the
settlement for that Accounting Period in accordance with Schedule D, if such
amount is positive.

 

At the sole option of the Reinsurer, the Experience Refund may be recalculated
at the end of any Accounting Period to include Experience Refunds for all
Accounting Periods in the current calendar year.  For the avoidance of doubt,
this may require the Company to return (a portion of) previous Experience
Refunds to pay for current period losses.  Upon any such recalculation of the
Experience Refund, the Net Cash Settlement will be recalculated accordingly and
the parties agree to immediately pay each other amounts due based upon such
recalculation.

 

Upon repayment in full of LCF, the Experience Refund for each reporting period
thereafter shall be equal to 50% of the Reinsurer’s Net Profit.

 

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ARTICLE VIII:  FINANCIAL COVENANTS

 

8.01  -                                                              
Non-Compliance with Financial Covenants:  The Company shall notify the Reinsurer
within five (5) Business Days of any failure by the Company to comply with one
or more of the Financial Covenants.

 

8.02  -                                                               Financial
Covenants:  The Financial Covenants are:

 

(a)                                  the Company shall maintain Risk Based
Capital, as measured by the formula prescribed by the insurance department of
the Company’s state of domicile, of no less than one-hundred twenty-five percent
(125%) of the Company Action Level;

 

(b)                                 the Company shall maintain Total Surplus of
not less than one-hundred-twenty-five-million dollars ($125,000,000);

 

(c)                                  there shall be no Change of Control of the
Company, where “Change of Control” is signaled by the requirement that the
Company, or the parent of the Company, file such change with any insurance
department or with the Securities Exchange Commission;

 

(d)                                 there shall be no Material Change (as
defined in Section 8.04) in the overall credit quality of the Company’s
investment portfolio from the Effective Date;

 

(e)                                  the insurance financial strength rating of
the Company as assigned by A.M. Best Company shall not be less than “B++”; and

 

(f)                                    the Financial Leverage Ratio (as defined
in Section 8.03) of the Company and its corporate parent combined shall not be
greater than sixty percent (60%).

 

(g)                                 The Company will be responsible for
determining credited rates and non-guaranteed elements for the Subject Business
and will only vary such items in a manner consistent with its documented
procedures in effect on the Effective Date and historical practice.  The
weighted average yield on the Company’s invested assets shall not fall below the
weighted average crediting rate on the Subject Business plus one and 50/100
percent (1.50%), at the end of two consecutive Accounting Periods.

 

8.03  -                                                               Financial
Leverage Ratio:  The Financial Leverage Ratio at any time shall be determined as
follows, with the result expressed as a percentage:

 

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(a)                                  the sum of (i) the principal amount of
senior and subordinated indebtedness outstanding at American Equity Investment
Life Holding Company, and (ii) the principal amount of senior and subordinated
indebtedness outstanding at American Equity Investment Service Company,
excluding any such indebtedness that may be included in (a)(i) herein;

 

divided by

 

(b)                                 the sum of (i) the Company’s Total Capital
and Surplus, (ii) the Company’s Asset Valuation Reserve, and (iii) the Company’s
Interest Maintenance Reserve, where items (i), (ii) and (iii) are the respective
amounts as reported on the Company’s most recent certified statutory financial
statements.

 

8.04  -                                                               Material
Change:  A material change in the overall credit quality of the Company’s
investment portfolio shall have occurred if the credit rating from Standard &
Poor’s, Moody’s or Fitch for more than 20% of the securities in the Company’s
investment portfolio is below investment grade quality.

 

ARTICLE IX:  REPORTS AND REMITTANCES

 

9.01  -                                                               Company
Reports:  The Company shall provide to the Reinsurer, no less than three
(3) Business Days prior to each Settlement Date, all information and data
required by the Reinsurer to fulfill its obligations and rights under this
Agreement and to satisfy its legal reporting requirements.  A suggested format
for such reporting is attached hereto as Schedule D.  The Company shall also
furnish to the Reinsurer, on a quarterly basis, a copy of its certified
statutory financial statements at the time such statements are submitted by the
Company to the regulatory authority in its state of domicile, and shall furnish
the Reinsurer with a statement at the end of each Accounting Period that
demonstrates the Company’s compliance with the Financial Covenants.

 

9.02  -                                                               Accounting
Period:  “Accounting Period” shall mean each calendar quarter during the Term of
this Agreement.  In the event the Recapture Date occurs at any time other than
at the end of a calendar quarter, the last Accounting Period shall be the period
from the beginning of that calendar quarter to the Recapture Date, both dates
inclusive.

 

9.03  -                                                               Settlement
Dates:  The Settlement Date for each Accounting Period shall be the  fifteenth
(15th ) Business Day after the end of that Accounting Period.

 

9.04  -                                                               Business
Day:  “Business Day” shall mean any day other than a Saturday, a Sunday, or a
day on which commercial banks in, the State of Florida or the State of Iowa are
authorized by law or executive order to close.

 

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ARTICLE X:  NET RETAINED LINES

 

10.01 -                                                            Application
of Other Reinsurance Proceeds:  This Agreement applies only to that portion of
insurance or reinsurance which, after the application of all reinsurance other
than the reinsurance hereunder, the Company retains net for its own account.  In
calculating the amount of loss hereunder for which the Company shall be
reimbursed, only the loss with respect to such retained portion shall be
included.

 

10.02 -                                                            Collection of
Other Reinsurance Proceeds:  The amount of the Reinsurer’s liability hereunder
shall not be increased by reason of the Company’s inability to collect from any
other reinsurers, whether specific or general, any amounts which may have become
due from them, whether such inability arises from the insolvency of such other
reinsurers, or otherwise, or whether such other reinsurance remains in force
during the term of this Agreement.

 

10.03 -                                                            Other
Reinsurance:  In order to provide that the Reinsurer’s liability under this
Agreement shall not be increased in any calendar year by a change in reinsurance
ceded or recoverable by the Company, the reinsurance arrangements, including
treaties, facultative certificates and interpretations with respect to
obligations thereunder, which were in effect on the Effective Date are deemed to
continue in effect for purposes of all computations hereunder, whether or not
such other reinsurance actually remains in force during the term of this
Agreement.

 

ARTICLE XI:  EXCLUSIONS

 

11.01 -                                                           
Extracontractual Damages and Loss Adjustment Expenses:  This Agreement does not
cover extracontractual damages or extracontractual liability resulting from
fraud, oppression, bad faith, strict liability, or negligent, reckless or
intentional wrongs, or otherwise, on the part of the Company or its directors,
officers, employees and agents.  The following types of damages are examples of
damages excluded under this Agreement for the conduct described above:  actual
damages, damages for emotional distress, punitive or exemplary damages,
statutory penalties, and attorneys fees or legal expenses incurred in the
defense of such claims.  The excluded loss adjustment expenses include all
payments of fees and expenses associated with investigation, litigation
(including without limitation reasonable attorneys’ fees) and settlement of
claims, as distinguished from the amount of a claimant’s recovery from the
Company under such claimant’s contract.

 

The Company agrees to defend and hold harmless the Reinsurer from and against
any and all extra contractual obligations and/or loss adjustment

 

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expenses whatsoever incurred by the Reinsurer arising out of, relating to or in
connection with this Agreement.  This paragraph shall survive termination of
this Agreement.

 

11.02 -                                                            Insolvency
Funds:  The Reinsurer shall not be obligated to pay to the Company any share of
any liability of the Company arising, by contract, operation of law, or
otherwise, from its participation or membership, whether voluntary or
involuntary, in any insolvency fund or from reimbursement of any person for any
such liability.  “Insolvency Fund” includes any guaranty or insolvency fund,
plan, pool, association, or other arrangement howsoever denominated, established
or governed, which provides for any assessment of or payment or assumption by
any person or part of all of any claim, debt, charge, fee or other obligation of
any insurer, or its successors or assigns which has been declared to be
insolvent, or which is otherwise deemed unable to meet any claim, debt, charge,
fee or other obligation in whole or in part.

 

11.03 -                                                            Dividends: 
The Reinsurer shall not participate in the determination of, nor reimburse the
Company for, any policyholder or other dividends paid by the Company.

 

ARTICLE XII:  INSOLVENCY

 

12.01 -                                                            Reinsurer’s
Obligation:  In the event of the insolvency of the Company, the reinsurance
afforded by this Agreement shall be payable by the Reinsurer on the basis of the
liability of the Company under the Subject Business, without diminution because
of such insolvency, directly to the Company or its liquidator, receiver,
conservator, or statutory successor.

 

12.02 -                                                            Reinsurer’s
Notice and Defense of Claims:  The Reinsurer shall be given written notice of
the pendency of each claim or loss which may involve the reinsurance afforded by
this Agreement within a reasonable time after such claim or loss is filed in the
insolvency proceedings.  The Reinsurer shall have the right to investigate each
such claim or loss and interpose at its own expense, in the proceeding where the
claim or loss is to be adjudicated, any defense which it may deem available to
the Company or its liquidator, receiver, conservator, or statutory successor. 
If more than one reinsurer is involved, such reinsurers may designate one
reinsurer to act for all.

 

12.03 -                                                            Defense
Expense:  The expense thus incurred by the Reinsurer shall be chargeable,
subject to court approval, against the insolvent Company as part of the expense
of liquidation to the extent of a proportionate share of the benefit which may
accrue to the Company solely as a result of the defense undertaken by the
Reinsurer.

 

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12.04 -                                                            Offset:  Any
debts or credits, liquidated or unliquidated, in favor of or against either
party on the date of the receivership or liquidation order (except where the
obligation was purchased by or transferred to be used as an offset) are deemed
mutual debts or credits and shall be set off with the balance only to be allowed
or paid.  Although such claim on the part of either party may be unliquidated or
undetermined in amount on the date of the entry of the receivership or
liquidation order, such claim will be regarded as being in existence as of such
date and any credits or claims then in existence and held by the other party may
be offset against it.

 

12.05 -                                                            Rights of
Parties:  Nothing hereinabove set forth in this Article shall in any way change
the relationship or status of the parties hereto, nor enlarge the obligations of
any party to any other except as specifically hereinabove provided, to wit, to
pay the statutory successor on the basis of the amount of liability determined
in the liquidation or receivership proceeding, rather than on the basis of the
actual amount of loss (dividends) paid by the liquidator, receiver, conservator,
or statutory successor to allowed claimants.  Nor, except as hereinabove
specifically provided, shall anything in this Article in any manner create any
obligation or establish any right against the Reinsurer in favor of any third
parties or any other persons not parties to this Agreement.

 

ARTICLE XIII:  ARBITRATION

 

13.01 -                                                            Resolution of
Disputes:  As a condition precedent to any right arising under this Agreement,
any dispute between the Company and the Reinsurer arising out of the provisions
of this Agreement, or concerning its interpretation or validity, whether arising
before or after termination of this Agreement, shall be submitted to arbitration
in the manner set forth in this Article.  Either party may initiate arbitration
of any dispute arising out of the provisions of this Agreement by giving written
notice to the other party, by registered or certified mail, return receipt
requested, of its intention to arbitrate and of its appointment of an arbitrator
in accordance with Section 13.03.

 

13.02 -                                                            Composition
of Panel:  Unless the parties agree upon a single arbitrator within fifteen (15)
days after the receipt of a notice of intention to arbitrate, all disputes shall
be submitted to an arbitration panel composed of two arbitrators and an umpire,
chosen in accordance with Section 13.03 and Section 13.04.

 

13.03 -                                                            Appointment
of Arbitrators:  The members of the arbitration panel shall be chosen from
disinterested persons knowledgeable in the life insurance and life reinsurance
business.  The party requesting arbitration (hereinafter referred to as the
“claimant”) shall appoint an arbitrator and give written notice thereof, by
registered or certified mail, return receipt requested, to the other party
(hereinafter referred to as the “respondent”) together with its

 

15

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

 

notice of intention to arbitrate.  Unless a single arbitrator is agreed upon by
the parties within fifteen (15) days after the receipt of the notice of
intention to arbitrate, the respondent shall, within thirty (30) days after
receiving such notice, also appoint an arbitrator and notify the claimant
thereof in a like manner.  Before instituting a hearing, the two arbitrators so
appointed shall choose an umpire.  If, within twenty (20) days after they are
both appointed, the arbitrators fail to agree upon the appointment of an umpire,
the umpire shall be selected using the ARIAS-US Umpire Appointment Procedure.

 

13.04 -                                                            Failure of
Party to Appoint Arbitrator:   If either party fails to name its arbitrator as
described in this Article, the other party may appoint the second arbitrator.

 

13.05 -                                                            Choice of Law
and Forum:  Any arbitration instituted pursuant to this Article shall be held in
Orlando, Florida, or in a location to be mutually agreed upon by the Company and
the Reinsurer and the laws of the State of Iowa, without regard to its conflict
of laws rules, shall govern the interpretation and application of this
Agreement.  Notwithstanding the foregoing, the rights and procedures applicable
to any arbitration commenced under this Article shall be governed by the Federal
Arbitration Act rather than any state arbitration act.

 

13.06 -                                                            Submission of
Dispute to Panel:  Unless otherwise extended by the arbitration panel, or agreed
to by the parties, each party shall submit its case to the panel within thirty
(30) days after the selection of an umpire.

 

13.07 -                                                            Procedure
Governing Arbitration:  All proceedings before the panel shall be informal and
the panel shall not be bound by the formal rules of evidence.  The panel shall
have the power to fix all procedural rules relating to the arbitration
proceeding.  In reaching any decision, the panel shall give due consideration to
the customs and usage of the insurance and reinsurance business.  The panel of
arbitration will view this Agreement as an honorable engagement between the
parties.

 

13.08 -                                                            Arbitration
Award:  The arbitration panel shall render its decision within sixty (60) days
after termination of the proceeding, which decision shall be in writing, stating
the reasons therefor.  The decision of the majority of the panel shall be final
and binding on the parties to the proceeding.  Either party to the arbitration
may petition any court having competent jurisdiction to reduce the decision to
judgment.

 

13.09 -                                                            Cost of
Arbitration:  Unless otherwise allocated by the panel, each party shall bear the
expense of its own arbitrator and its own witnesses and shall jointly and
equally bear with the other parties the expense of the umpire and the
arbitration.

 

16

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13.10 -                                                            Limit of
Jurisdiction:  The arbitration panel does not have the jurisdiction to authorize
any punitive damage awards between the parties.

 

13.11 -                                                            Survival: 
This Article will survive termination of this Agreement.

 

ARTICLE XIV:  AGREEMENT, AMENDMENTS AND MERGER

 

14.01 -                                                            Agreement: 
This Agreement states the agreement made between the Company and the Reinsurer
effective 10:59 p.m., Central Standard Time, December 31, 2008.  This Agreement
supersedes all prior understandings and agreements of the parties.

 

14.02 -                                                            Amendments: 
This Agreement may be amended only by mutual consent of the parties expressed in
a written amendment executed by the parties with the same formalities as this
Agreement, and such written amendment shall be deemed to be an integral part of
this Agreement and binding on the parties hereto.

 

14.03 -                                                            Merger
Clause:  The parties hereto acknowledge that they have read this Agreement,
understand it, and agree to be bound by its terms and conditions.  Further, the
parties hereto agree that this Agreement is the complete and exclusive statement
of the Agreement between the parties, superseding all proposals or prior
agreements, oral or written, and all other communications between the parties
relating to the subject matter hereof.

 

ARTICLE XV:  MISCELLANEOUS

 

15.01 -                                                            Access to
Records:  The Reinsurer, or its duly authorized representatives, shall have the
right to examine, at any reasonable time, all papers, books, accounts, documents
and other records of the Company or any third parties providing services
relating to the Subject Business.  The Company will cooperate with, and
facilitate, or shall cause any relevant third parties to cooperate and
facilitate, any such inspection, and upon request of the Reinsurer shall make
available to the Reinsurer such officers and employees of the Company, or cause
any relevant third parties to make available to the Reinsurer such officers and
employees, as the Reinsurer may reasonably request to provide information
concerning the Subject Business.  Upon request, the Company shall supply the
Reinsurer, at the Reinsurer’s expense, with copies of the whole or any part of
such papers, books, accounts, documents and other records relating to the
Subject Business.  The Reinsurer’s right of inspection under this Section 15.01
shall continue to exist after termination of this Agreement as long as one of
the parties hereto has a claim against the other arising from this Agreement.

 

17

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15.02
-                                                                                                           
Counterparts:  This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

 

15.03 -                                                            Currency: 
All payments hereunder shall be made in United States dollars.  All monetary
amounts herein are in United States dollars.  All reports and accounts hereunder
shall be rendered in United States dollars.

 

15.04 -                                                            Disclosures
and Approvals:  The Company represents and warrants, with respect to this
Agreement and the transactions hereunder and with respect to any insurance or
reinsurance written or assumed by the Company which is covered by this Agreement
and all transactions thereunder, that all disclosures and approvals which are
necessary or appropriate under any law or regulation have been made or obtained,
or will be made or obtained in a timely manner.

 

15.05  -                                                         Errors and
Omissions:  Unintentional or inadvertent errors, omissions, oversights, delays
or misunderstandings (collectively “Error”) in the administration of this
Agreement of any nature made by either party shall neither increase nor reduce
the liability of either party from what that liability would have been had no
such Error taken place.  Upon discovery, the party committing an Error shall
correct such Error retroactively to the time such Error occurred, and advise the
other party thereof as soon as possible.  If it is not possible to restore each
party to the position it would have occupied but for the Error, the parties will
endeavor in good faith to promptly resolve the situation in a manner that most
closely approximates the intent of the parties as evidenced by this Agreement. 
Any resolution made to correct such an Error will not set a precedent for a
similar subsequent Error.  The provisions of this Article shall not relieve
either party of its obligation to perform within the time standards described in
this Agreement or as otherwise mutually agreed.  The provisions of this
Article do not apply to the administration of the insurance provided by the
Company or any other errors or omissions committed by the Company with regards
to a Subject Business.  The Reinsurer will not provide reinsurance for policies
that do not satisfy the parameters of this Agreement.

 

15.06 -                                                            Parties to
this Agreement:  This Agreement is a reinsurance agreement solely between the
Company and the Reinsurer, and performance of the obligations of each party
under this Agreement will be rendered solely to the other party.  In no instance
will any party other than the Company and the Reinsurer have any rights under
this Agreement, and the Company will be and shall remain the only party
hereunder that is liable to any contract holder or beneficiary of any Subject
Business contract.  Reinsurance under this Agreement shall not create any right
or legal relationship between the Reinsurer and any other person, for example,
any insured, policyholder, agent, beneficiary, or other reinsurer.  The Company
agrees that it shall not

 

18

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

 

make the Reinsurer a party to any litigation between any such third party and
the Company.

 

This Agreement shall be binding upon all successors, assignees and transferees
of the parties to this Agreement, provided, however, that neither this Agreement
nor any rights or obligations under this Agreement may be assigned or
transferred by either party without the prior written consent of the other
party.  The provisions of this section are not intended to preclude the
Reinsurer from retroceding any portion of its liability hereunder.

 

15.07 -                                                            Reliance on
Information Supplied by the Company:  The Company acknowledges that, at the
Reinsurer’s request, it has provided the Reinsurer, prior to execution of this
Agreement by the parties, with the information described in Schedule D attached
hereto and incorporated herein (hereinafter, the “Company Information”).  The
Company represents that any assumptions the Company made in preparing the
Company Information were based upon informed judgment and are consistent with
sound actuarial principles.  The Company represents that all factual information
contained in the Company Information was, as of the date provided, complete and
accurate in all material respects to the best of the Company’s knowledge and
belief.  The Reinsurer has relied on Company Information and the foregoing
representations in entering into this Agreement.

 

15.08 -                                                            Right of
Offset:  Both the Company and the Reinsurer shall have, and may exercise at any
time, the right to offset any balance or balances due the other.  Such offset
may include balances due under this Agreement, regardless of whether such
balances are in respect of premiums, or losses or otherwise, and regardless of
the capacity of any party, whether as reinsurer or reinsured or otherwise, under
the various agreements involved.  The right of offset will not be affected or
diminished because of the insolvency of either party.

 

15.09 -                                                            Taxes:  The
Company shall be liable for all taxes, except income and profit taxes of the
Reinsurer, on amounts paid to the Reinsurer under the terms of this Agreement,
and shall indemnify and hold the Reinsurer harmless for any taxes which the
Reinsurer may become obligated to pay on the Company’s behalf.

 

15.10 -                                                            Subrogation: 
The Reinsurer shall be credited with the Reinsurer’s share of subrogation (i.e.,
reimbursement obtained or recovery made by the Company, less the actual cost,
excluding salaries of officials and employees of the Company and sums paid to
attorneys as retainer, of obtaining such reimbursement or making such recovery)
on account of losses.  The Company hereby agrees to enforce its rights to
subrogation relating to any expenses if requested to do so by the Reinsurer (at
the expense of the Company) and to the extent such enforcement is consistent
with the Company’s past practices, and to prosecute all claims arising out of
such rights.

 

19

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15.11 -                                                            Nonwaiver: 
No forbearance on the part of either party to insist upon compliance by the
other party with the terms of this Agreement shall be construed as, or
constitute a waiver of, any of the terms of this Agreement.

 

15.12 -                                                            Survival: The
representations, warranties, covenants and agreements respectively required to
be made by the Company and the Reinsurer in this Agreement shall survive the
termination or expiration of this Agreement.

 

15.13 -                                                            Utmost Good
Faith:  The parties agree that this Agreement is entered into with the
understanding that the principles of utmost good faith traditional to
reinsurance shall be adhered to in the formation and performance of this
Agreement and shall govern the parties’ rights and obligations and all matters
with respect to this Agreement. This Agreement is entered into in reliance on
the utmost good faith of the parties including, but not limited to, their
representations, warranties and disclosures.

 

15.14 -                                                            Notices:  Any
notice or other communication which is required or permitted to be delivered to
any party hereunder shall be in writing and deemed delivered if sent by
government-sponsored mail; an internationally-recognized overnight carrier with
confirmation receipt of delivery; certified mail, return receipt requested; or
facsimile with confirmation receipt of successful and complete transmission
addressed as follows:

 

If to the Company:

 

American Equity Investment Life Insurance Company

5000 Westown Parkway

West Des Moines, Iowa 50266

Attn:     John Matovina, Chief Financial Officer

Fax:     (515) 221-9989

 

If to the Reinsurer:

 

Hannover Life Reassurance Company of America

800 North Magnolia Avenue, Suite 1400

Orlando, Florida 32803

Attn:     [President]

Fax:      (407) 398-1071

 

ARTICLE XVI:  DAC TAX

 

16.01 -                                                            DAC Tax:  The
parties to this Agreement agree to the following provisions pursuant to
Section 1.848-2(g)(8) of the Income Tax Regulations issued under Section 848 of
the Internal Revenue Code of 1986, as amended (the “Code”):

 

20

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

 

A.            The terms “Net Positive Consideration,” “Specified Policy
Acquisition Expenses” and “General Deductions Limitation” used in this
Article are defined by reference to Regulation Section 1.848-2 and Code
Section 848.

 

B.             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
Code Section 848(c)(1).

 

C.             Both parties agree to exchange information pertaining to the
amount of net consideration under this Agreement each year, or as otherwise
required by the Internal Revenue Service, to ensure consistency.  The method and
timing of the exchange of such information shall be as follows:

 

1.           The Company will submit a schedule to the Reinsurer by May 1st of
each year with its calculation of the Net Positive Consideration for the
preceding calendar year.  This schedule of calculations will be accompanied by a
statement signed by an officer of the Company stating that the Company will
report such Net Positive Consideration in its income tax return for the
preceding calendar year.  The Reinsurer may protest such calculation by
providing an alternative calculation to the Company in writing within thirty
(30) days of the Reinsurer’s receipt of the Company’s calculation.  If the
Reinsurer does not notify the Company within the required timeframe, the
Reinsurer will report the Net Positive Consideration as determined by the
Company in the Reinsurer’s income tax return for the preceding calendar year.

 

2.           If the Reinsurer contests the Company’s calculation of Net Positive
Consideration, the parties will act in good faith to reach an agreement as to
the correct amount within thirty (30) days of the date the Reinsurer submits its
alternative calculation.  If the parties reach an agreement on the amount of Net
Positive Consideration, each party will report the agreed upon amount in its
income tax return for the preceding calendar year.  If the parties are unable to
reach an agreement on the amount of Net Positive Consideration, then the dispute
shall be resolved pursuant to ARTICLE XIII of this Agreement.

 

D.            Both the Company and the Reinsurer represent and warrant that they
are subject to United States taxation under either Subchapter L of Chapter 1 of
the Code or Subpart F of Part III of Subchapter N of Chapter 1 of the Code.

 

21

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ARTICLE XVII:  REPRESENTATIONS, WARRANTIES AND COVENANTS

 

17.01 -                                                            The Company’s
Representations and Warranties:  The Company represents and warrants to the
Reinsurer, in addition to any other representations and warranties set forth
elsewhere in this Agreement, that:

 

A.                        The Company has (a) notified the Company’s auditors of
this Agreement and (b) notified the Company’s domiciliary state regulator of the
proposed transaction under this Agreement; and

 

B.                          Except for the notice to the Company’s domiciliary
state regulator, there are no governmental or regulatory consents, approvals or
other authorizations necessary or required by law, regulation, order, decree,
judgment or otherwise to be obtained to consummate the transactions contemplated
by this Agreement; and

 

C.                          All of the contracts for the Subject Business have
been filed with and approved by the applicable regulatory authorities as
required by applicable law, rule or regulation; and except as set forth in the
Company’s Annual Statement and SEC filings, none of the contracts for the
Subject Business are the subject of any pending or, to the knowledge of the
Company, threatened litigation, arbitration, action, proceeding, rule, order or
decree the basis of which includes, but is not limited to, discriminatory
practices in the sales and/or rates for the contracts for the Subject Business. 
The Company further represents and warrants that the Reinsurer shall not be held
liable for any damages, claims, costs, expenses, or any other types of losses
that arise or result from any pending or, to the knowledge of the Company,
threatened litigation, arbitration, action, proceeding, rule, order or decree
including but not limited to the actions set forth in the Company’s Annual
Statement and SEC filings.

 

D.                         There is no fact or condition known to the Company
that has not been disclosed to the Reinsurer in writing that has had a Material
Adverse Effect or, to the knowledge of the Company, could reasonably be expected
to have a Material Adverse Effect; where “Material Adverse Effect” shall mean a
material adverse effect on the condition (financial or otherwise), business,
statutory reserves, assets of the Company, results of operation of the Company
or the contracts for the Subject Business as a whole, considering each of them
individually or in the aggregate and

 

E.                           No representation or warranty of the Company
contained in this Agreement or in any other writing to be furnished by the
Company pursuant hereto or previously furnished by the Company to the Reinsurer
in the course of its due diligence investigation contains or will contain any
untrue statement of material fact or omits or will omit to state any material
fact required to make the statements herein or therein not misleading; and

 

22

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

 

F.                           The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of Iowa, and has all
licenses, permits or other authority necessary or required by applicable law,
rule or regulation to carry on all business activities presently conducted by
it, and the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company have been approved by all
necessary corporate action on the part of the Company and will not violate the
articles of incorporation or bylaws of the Company or conflict with or violate
any provision of or result in the acceleration of any indebtedness under or
result in a breach under any other contract, agreement or instrument to which
the Company is a party or is subject to any judgment, order, decree, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets; and

 

G.                          Reserves for the Subject Business are adequate in
the aggregate as of the Effective Date, using generally accepted actuarial
methods and assumptions consistently applied, and have been calculated in
accordance with statutory accounting practices; and

 

H.                         This Agreement and the agreements and covenants
herein of the Company constitute valid and binding obligations of the Company
enforceable against it in accordance with its terms, except as:

 

i.                              the enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors’ rights generally, and

 

ii.                           the availability of equitable remedies may be
limited by equitable principles of general applicability.

 

17.02 -                                                            The Company’s
Covenants:  The Company covenants to the Reinsurer and agrees as follows:

 

A.                                  The Company shall report to the Company’s
auditors and the Company’s domiciliary state regulator regarding this Agreement
each year for so long as this Agreement is in force.

 

B.                                    The Company shall request promptly any
consents, approvals or other authorizations, if necessary or required, with
respect to this Agreement and to pursue diligently such requests.

 

C.                                    The Company covenants that it shall not
make any material changes to the contracts for the Subject Business without the
prior written consent of the Reinsurer; provided, however, that prior written
notice to the Reinsurer but not consent of the Reinsurer will be required for
changes to the contracts that are required by the

 

23

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

 

Company’s regulator or other governmental authority under applicable laws or
regulations.  Any contracts that are changed without prior written consent of
the Reinsurer shall continue to be reinsured under this Agreement as if no
change has occurred unless and until the Reinsurer consents in writing to the
changes.

 

D.                                   The Company warrants that it will not
engage, employ or otherwise support any non-contractual internal replacement
programs with respect to the contracts for the Subject Business covering more
than 10% of the account values of the Subject Business on the last day of the
immediately preceding Accounting Period without prior written approval of the
Reinsurer.  In such case where the Reinsurer offers its approval, the Reinsurer
will be granted the option by the Company to continue coverage on any converted
contracts, issued by such replacement program, under the terms of this
Agreement.

 

E.                                     The Company shall promptly notify the
Reinsurer of any material change in the methods and assumptions used to
calculate statutory reserves.

 

17.03 -                                                           
Indemnification:  Each party (the “Indemnifying Party”) agrees to indemnify and
hold harmless the other party (the “Indemnified Party”) from and against any and
all losses, damages, costs, expenses or liabilities suffered or incurred by the
Indemnified Party arising out of a breach or threatened breach by the
Indemnifying Party of the representations, warranties and covenants herein of
the Indemnifying Party.  The provisions of this Article shall survive the
closing of the transactions contemplated hereby as well as survive beyond the
termination of this Agreement.

 

24

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives,

 

In West Des Moines, Iowa, this 6th day of March, 2009

 

 

AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY

 

 

By:

/s/ John M. Matovina

 

By:

/s/ Judith A. Naanep

 

 

 

 

 

Name:

John M. Matovina

 

Name:

Judith A. Naanep

 

 

 

 

 

Title:

EVP & Chief Financial Officer

 

Title:

VP, Corporate Actuary

 

 

 

 

 

 

 

 

 

And in Orlando, Florida this 6th day of March, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

HANNOVER LIFE REASSURANCE COMPANY OF AMERICA

 

 

 

 

 

 

 

 

 

By:

/s/ Gary L. Gray

 

By:

/s/ Jeffrey R. Burt

 

 

 

 

 

Name:

Gary L. Gray

 

Name:

  Jeffrey R. Burt

 

 

 

 

 

Title:

Vice President

 

Title:

  VP

 

25

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SCHEDULE A -

SUBJECT BUSINESS CONTRACTS (TYPES)

 

Section A Covered Forms

 

Fixed Annuities issued in Calendar Years 2003 and 2004

 

FPDA-0

 

FPDA-1

 

FPDA-2

FPDA2-2001

 

FPDA-2Plus

 

FPDA-3

FPDA-4

 

FPDA-5

 

FPDA-5Plus

FPDA-7

 

FPDA-7 2.25

 

FPDA-8

FPDA8 2.25

 

SPDA-1

 

SPDA-2

Super-7

 

 

 

 

 

Section B Covered Forms

 

Fixed Annuities issued in Calendar Years 2003 and 2004

 

FPDA-0

 

FPDA-1

 

FPDA-2

FPDA2-2001

 

FPDA-2Plus

 

FPDA-3

FPDA-4

 

FPDA-5

 

FPDA-5Plus

FPDA-7

 

FPDA-7 2.25

 

FPDA-8

FPDA8 2.25

 

SPDA-1

 

SPDA-2

Super-7

 

 

 

 

 

Indexed Annuities issued in Calendar Years 2003 and 2004

 

Bravo

 

I-2000

 

I-2001

I-2002

 

Index-1-05

 

Index-15

Index-17

 

Index-18

 

Index-19

Index-22

 

Index-23

 

Index-24

Index-25

 

Index-5

 

 

 

26

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SCHEDULE B

RATES BY AGE (NEAREST BIRTHDAY)

 

YRT Base Rates by Age Nearest Birthday

 

Table Rates are quarterly amounts payable (“QRT” = Quarterly Renewable Term)
per  net amount at risk

 

Age

 

Quarterly
Rate (ANB)

 

0

 

0.018713

 

1

 

0.001444

 

2

 

0.001031

 

3

 

0.000750

 

4

 

0.000619

 

5

 

0.000544

 

6

 

0.000506

 

7

 

0.000469

 

8

 

0.000413

 

9

 

0.000356

 

10

 

0.000281

 

11

 

0.000300

 

12

 

0.000450

 

13

 

0.000788

 

14

 

0.001219

 

15

 

0.001706

 

16

 

0.002175

 

17

 

0.002531

 

18

 

0.002756

 

19

 

0.002850

 

20

 

0.002925

 

21

 

0.003056

 

22

 

0.003131

 

23

 

0.003169

 

24

 

0.003244

 

25

 

0.003263

 

26

 

0.003300

 

27

 

0.003375

 

28

 

0.003488

 

29

 

0.003656

 

30

 

0.003844

 

31

 

0.004013

 

32

 

0.004181

 

33

 

0.004388

 

34

 

0.004594

 

35

 

0.004856

 

36

 

0.005100

 

37

 

0.005325

 

38

 

0.005531

 

39

 

0.005681

 

40

 

0.005850

 

41

 

0.006075

 

42

 

0.006394

 

43

 

0.006825

 

44

 

0.007350

 

45

 

0.007950

 

46

 

0.008606

 

47

 

0.009300

 

48

 

0.009975

 

49

 

0.010706

 

50

 

0.011494

 

51

 

0.012394

 

52

 

0.013519

 

53

 

0.014888

 

54

 

0.016463

 

55

 

0.018225

 

56

 

0.020081

 

57

 

0.022088

 

58

 

0.024244

 

59

 

0.026588

 

60

 

0.029081

 

61

 

0.035681

 

62

 

0.034594

 

63

 

0.037613

 

64

 

0.040856

 

65

 

0.044269

 

66

 

0.047944

 

67

 

0.051956

 

68

 

0.056381

 

69

 

0.061219

 

70

 

0.066431

 

71

 

0.071981

 

72

 

0.077981

 

73

 

0.084431

 

74

 

0.091425

 

75

 

0.099000

 

76

 

0.107288

 

77

 

0.116381

 

78

 

0.125794

 

79

 

0.137419

 

80

 

0.149775

 

81

 

0.163650

 

82

 

0.179363

 

83

 

0.217106

 

84

 

0.233681

 

85

 

0.251606

 

86

 

0.271481

 

87

 

0.291638

 

88

 

0.311588

 

89

 

0.331875

 

90

 

0.353400

 

91

 

0.377344

 

92

 

0.403913

 

93

 

0.432750

 

94

 

0.462019

 

95

 

0.490294

 

96

 

0.514463

 

97

 

0.537263

 

98

 

0.558694

 

99

 

0.578756

 

100

 

0.597469

 

101

 

0.614850

 

102

 

0.625000

 

 

27

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

 

Schedule C-1

Target LCF Balance

 

 

 

 

 

Interest rate:

 

6.40%

 

# periods:

 

20

 

LCF Adjustment:

 

$1,758,238.58

 

 

Quarter

 

Interest

 

Target LCF

 

12/31/2008

 

 

 

30,000,000.00

 

3/31/2009

 

468,892.02

 

28,710,653.44

 

6/30/2009

 

448,739.88

 

27,401,154.74

 

9/30/2009

 

428,272.76

 

26,071,188.92

 

12/31/2009

 

407,485.75

 

24,720,436.09

 

3/31/2010

 

386,373.84

 

23,348,571.35

 

6/30/2010

 

364,931.96

 

21,955,264.73

 

9/30/2010

 

343,154.95

 

20,540,181.10

 

12/31/2010

 

321,037.57

 

19,102,980.09

 

3/31/2011

 

298,574.50

 

17,643,316.01

 

6/30/2011

 

275,760.34

 

16,160,837.76

 

9/30/2011

 

252,589.60

 

14,655,188.78

 

12/31/2011

 

229,056.70

 

13,126,006.90

 

3/31/2012

 

205,156.00

 

11,572,924.32

 

6/30/2012

 

180,881.73

 

9,995,567.47

 

9/30/2012

 

156,228.06

 

8,393,556.95

 

12/31/2012

 

131,189.06

 

6,766,507.43

 

3/31/2013

 

105,758.71

 

5,114,027.57

 

6/30/2013

 

79,930.89

 

3,435,719.88

 

9/30/2013

 

53,699.39

 

1,731,180.69

 

12/31/2013

 

27,057.89

 

0.00

 

 

Schedule C-2

Alternative Target LCF Balance

 

Interest rate:

 

6.40%

 

# periods:

 

12

 

LCF Adjustment:

 

$2,761,200.46

 

 

Quarter

 

Interest

 

Target LCF

 

12/31/2008

 

 

 

30,000,000.00

 

3/31/2009

 

468,892.02

 

27,707,691.56

 

6/30/2009

 

433,063.85

 

25,379,554.95

 

9/30/2009

 

396,675.69

 

23,015,030.19

 

12/31/2009

 

359,718.80

 

20,613,548.53

 

3/31/2010

 

322,184.28

 

18,174,532.35

 

6/30/2010

 

284,063.11

 

15,697,395.00

 

9/30/2010

 

245,346.11

 

13,181,540.65

 

12/31/2010

 

206,023.97

 

10,626,364.16

 

3/31/2011

 

166,087.25

 

8,031,250.95

 

6/30/2011

 

125,526.32

 

5,395,576.81

 

9/30/2011

 

84,331.43

 

2,718,707.78

 

12/31/2011

 

42,492.68

 

0.00

 

 

28

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

 

SCHEDULE D –

EXAMPLE NET CASH SETTLEMENT CALCULATION AND REPORT FORMAT

 

 

 

Item

 

Calculation

 

12/31/2008*

 

3/31/2009

 

6/30/2009

 

Section A Cover: Coins.

 

 

 

 

 

 

 

 

 

1

 

Prems

 

 

 

30,000,000

 

0

 

0

 

2

 

Inv. Income

 

[24]t-1 x ((1 + 0.064)0.25 - 1)

 

0

 

468,892

 

448,740

 

3

 

Benefits

 

 

 

0

 

1,010,497

 

971,008

 

4

 

Allowances

 

 

 

30,000,000

 

12,906

 

12,585

 

5

 

Incr in Res.

 

[23]t - [24]t-1

 

30,000,000

 

(421,828

)

(646,555

)

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Section A Gain

 

[1] + [2] - [3] - [4] - [5]

 

(30,000,000

)

(132,683

)

111,702

 

 

 

 

 

 

 

 

 

 

 

 

 

Section B Cover: YRT

 

 

 

 

 

 

 

 

 

7

 

YRT Premium

 

 

 

0

 

8,837,370

 

8,440,700

 

8

 

Covered Losses

 

 

 

0

 

652,660

 

631,780

 

9

 

Section B Gain

 

[7] - [8]

 

 

 

8,184,710

 

7,808,921

 

 

 

 

 

 

 

 

 

 

 

 

 

Combined Covers

 

 

 

 

 

 

 

 

 

10

 

Reinsurer’s Statutory Profit

 

[6] + [9]

 

(30,000,000

)

8,052,027

 

7,920,623

 

11

 

RC - Reinsurance Risk Charge

 

0.0125 * ([13] + [14] - Min([13] + [14] - Min([17], [23]), [10]) )

 

0

 

358,883

 

342,514

 

12

 

Reinsurer’s Net Profit

 

[10] - [11]

 

(30,000,000

)

7,693,144

 

7,578,108

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

LCF BOP

 

[16]t-1

 

0

 

30,000,000

 

28,710,653

 

14

 

LCF Interest

 

[16]t-1 x ((1 + 0.064)0.25 - 1)

 

0

 

468,892

 

448,740

 

15

 

LCF Adjustment

 

Min([13] + [14] - [18], [10])

 

(30,000,000

)

1,758,239

 

1,758,239

 

16

 

Loss Carry Forward Balance (LCF)

 

[13] + [14] - [15]

 

30,000,000

 

28,710,653

 

27,401,155

 

17

 

Target LCF

 

 

 

30,000,000

 

28,710,653

 

27,401,155

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

Experience Refund

 

[12] - [15]

 

0

 

5,934,905

 

5,819,870

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlements

 

 

 

 

 

 

 

 

 

19

 

Prems

 

[1] + [7]

 

30,000,000

 

8,837,370

 

8,440,700

 

20

 

Benefits

 

[3] + [8]

 

0

 

1,663,157

 

1,602,787

 

 

 

Allowances

 

[4]

 

30,000,000

 

12,906

 

12,585

 

 

 

Experience Refund

 

[18]

 

0

 

5,934,905

 

5,819,870

 

21

 

Recapture Premium

 

[23] - [24]

 

0

 

867,518

 

662,944

 

22

 

Net Cash Settlement

 

[19] - [20] - [4] - [18] - [21]

 

0

 

358,883

 

342,514

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserves

 

 

 

 

 

 

 

 

 

23

 

Coinsurance Reserve

 

 

 

30,000,000

 

29,578,172

 

28,064,098

 

24

 

Coins Reserve Post Recapture

 

 

 

30,000,000

 

28,710,653

 

27,401,155

 

25

 

Fixed Annuity Stat Reserve

 

 

 

425,643,283

 

419,658,338

 

410,207,762

 

26

 

Avg Yield on Company Assets

 

 

 

6.25

%

6.25

%

6.25

%

27

 

Avg Crediting Rate

 

 

 

3.50

%

3.50

%

3.50

%

28

 

Spread

 

[28] - [29]

 

2.75

%

2.75

%

2.75

%

 

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

*          $150,000 fee referenced in Section 4.03(b), and $375,000 fee
referenced in Section 6.02 not reflected.

 

29

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

 

SCHEDULE E –

ACTUAL RECAPTURE & CURRENT QUOTA SHARE CALCULATION

 

 

 

EOP

 

EOP Loss

 

 

 

 

 

Section A

 

Section B Current Quota
Share

 

Period

 

Coinsurance
Reserve

 

Carryforward
Balance

 

Recapture
Amount

 

Period

 

Current
Quota Share

 

Fixed
Annuities

 

Indexed Annuities

 

(t-1)

 

(CR)

 

(LCF)

 

(RA)

 

(t)

 

(ACQS)*

 

(BCQSFA)*

 

(BCQSIA)*

 

12/31/08-
12/31/08

 

30,000,000

 

30,000,000

 

—

 

1/1/09-3/31/09

 

7.04815539

%

88.25184461

%

95.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Section A Current Quota Share calculation:

 

 

ACQS(t) = ACQS(t-1) * [ 1 – [RA(t) / CR(t-1)] ]

 

 

 

Section B Current Quota Share Fixed Annuity calculation:

 

 

BCQSFA(t) = 95.3% - ACQS(t)

 

 

 

Section B Current Quota Share Indexed Annuity calculation:

 

 

BCQSIA(t) = 95.3%

 

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

* Quota Share will remain constant at the most recent Quota Share for each
following Accounting Period unless updated following a later Partial Recapture.

 

30

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