EXHIBIT 10.1

 

CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO RULE 601(B)(10)
OF REGULATION S-K. THE OMITTED INFORMATION IS (I) NOT MATERIAL AND (II) WOULD
LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED. INFORMATION
THAT HAS BEEN OMITTED HAS BEEN NOTED IN THIS DOCUMENT WITH A PLACEHOLDER
IDENTIFIED BY THE MARK “[***]”.

 

CONFIDENTIAL                                                                                          
EXECUTION VERSION 

 

 

 

 

 

AMENDED AND RESTATED

 

COMBINATION COINSURANCE AND MODIFIED COINSURANCE AGREEMENT

 

by and between

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

 

and

 

FORTITUDE REINSURANCE COMPANY, LTD.

 

Originally Effective January 1, 2017

 

 

 

 

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TABLE OF CONTENTS

 

Page

 

ARTICLE I

DEFINITIONS

Section 1.1 

Definitions...............................................................................................................

1

ARTICLE II

BASIS OF REINSURANCE AND BUSINESS REINSURED

Section 2.1 

Reinsurance.............................................................................................................

13

Section 2.2 

Existing
Reinsurance.............................................................................................. 

15

Section 2.3 

Insurance Contract 
Changes................................................................................... 

16

Section 2.4 

Follow the Fortunes; Follow the Settlements; Contested 
Claims........................... 

17

Section 2.5 

Non-Guaranteed
Elements...................................................................................... 

20

Section 2.6 

Misstatement of Age, Sex or Any Other Material
Fact..........................................

21

Section 2.7 

Programs of Internal 
Replacement.......................................................................... 

22

Section 2.8 

Actuarial
Review....................................................................................................

22

Section 2.9 

Other
Restrictions...................................................................................................

23

Section 2.10 

Reinsurer Net
Retention..........................................................................................

23

ARTICLE III

INITIAL PAYMENTS; SETTLEMENTS;

ADMINISTRATION; REPORTING; BOOKS AND RECORDS 

Section 3.1 

Initial
Payments......................................................................................................

23

Section 3.2 

Settlements..............................................................................................................

24

Section 3.3 

Aggregate Expense Allowance, Investment Expenses and Surplus Participation
Payments................................................................................................................. 

26

Section 3.4 

Delayed
Payments................................................................................................... 

26

Section 3.5 

Offset.......................................................................................................................

27

Section 3.6 

Administration........................................................................................................

27

Section 3.7 

Certain
Reports....................................................................................................... 

30

Section 3.8 

Books and
Records.................................................................................................

31

ARTICLE IV

MODCO ACCOUNT; COLLATERAL TRUST

Section 4.1 

ModCo Account; Investment 
Guidelines................................................................ 

32

Section 4.2 

Interest on Policy
Loans.......................................................................................... 

39

Section 4.3 

Credit for Reinsurance for Modified Coinsurance 
Cession.................................... 

39

Section 4.4 

Collateral
Trust....................................................................................................... 

39

ARTICLE V

COINSURANCE CESSION

Section 5.1 

Coinsurance Cessions 
Generally............................................................................. 

40

Section 5.2 

Security
Required.................................................................................................... 

41

Section 5.3 

Reinsurance Trust 
Account..................................................................................... 

41

 

 

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Section 5.4 

Additional
Withdrawals.......................................................................................... 

42

Section 5.5 

General....................................................................................................................

42

ARTICLE VI

OVERSIGHTS; COOPERATION

Section 6.1 

Oversights...............................................................................................................

43

Section 6.2 

Cooperation.............................................................................................................

43

ARTICLE VII

TAX; GUARANTY FUND ASSESSMENTS

Section 7.1 

DAC Tax
Election...................................................................................................

43

Section 7.2 

Federal Excise 
Tax.................................................................................................. 

44

Section 7.3 

FATCA...................................................................................................................

44

Section 7.4 

Premium
Tax........................................................................................................... 

44

Section 7.5 

Guaranty Fund
Assessments...................................................................................

44

Section 7.6 

BEAT
Tax............................................................................................................... 

45

Section 7.7 

Indemnification.......................................................................................................

45

Section 7.8 

Return of 
Premium.................................................................................................. 

45

ARTICLE VIII

INSOLVENCY

Section 8.1 

Insolvency of the Ceding 
Company........................................................................ 

45

ARTICLE IX

DURATION; SURVIVAL; RECAPTURE; TERMINAL SETTLEMENT

Section 9.1 

Certain
Definitions..................................................................................................

46

Section 9.2 

Duration..................................................................................................................

48

Section 9.3 

Survival...................................................................................................................

48

Section 9.4 

Recapture................................................................................................................

48

Section 9.5 

Terminal
Settlement................................................................................................ 

49

ARTICLE X

MISCELLANEOUS

Section 10.1 

Notices....................................................................................................................

51

Section 10.2 

Entire Agreement,
Interpretation............................................................................

52

Section 10.3 

Arbitration...............................................................................................................

53

Section 10.4 

Governing
Law....................................................................................................... 

54

Section 10.5 

No Third Party
Beneficiaries.................................................................................. 

54

Section 10.6 

Expenses.................................................................................................................

54

Section 10.7 

Mode of Execution; 
Counterparts........................................................................... 

54

Section 10.8 

Severability.............................................................................................................

54

Section 10.9 

Waiver of Jury 
Trial................................................................................................ 

54

Section 10.10 

Treatment of Confidential 
Information................................................................... 

55

Section 10.11 

Treatment of Personal 
Information......................................................................... 

56

Section 10.12 

Assignment.............................................................................................................

57

Section 10.13 

Waivers and
Amendments......................................................................................

57

 

 

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Section 10.14 

Service of
Suit......................................................................................................... 

57

Section 10.15 

OFAC
Compliance.................................................................................................. 

58

Section 10.16 

Incontestability........................................................................................................

59

SCHEDULES

 

Schedule 1.1 – Expense Allowance

Schedule 1.2 – Reinsured Portfolios

Schedule 1.3 – Non-Transitioned TPAs

Schedule 2.2 – Rate Increase Disputes

Schedule 2.4 – Contests and Disputes

EXHIBITS

 

Exhibit A – Data and other Reporting Requirements

Exhibit A-1 – Reserve Calculation Dataset

Exhibit A-2 – Covered Insurance Policies Data

Exhibit A-3 – Cash Flow Testing Service Specifications

Exhibit A-4 – Loss Recognition Testing Service Specifications

Exhibit B – Settlement Statement

Exhibit C – Investment Guidelines

Exhibit D – Form of Collateral Trust Agreement

Exhibit E – Valuation Methodology Memorandum

Exhibit F – Par Dividend Surplus Tally Spreadsheet Memorandum

APPENDICES

Appendix A – Administrative Appendix

 

iii

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AMENDED AND RESTATED

 

COMBINATION COINSURANCE AND MODIFIED COINSURANCE AGREEMENT

 

THIS AMENDED AND RESTATED COMBINATION COINSURANCE AND MODIFIED COINSURANCE
AGREEMENT (this “Agreement”) is effective as of 12:00:01 a.m. Eastern Time on
June 1, 2020 (the “Amendment Date”) by and between AMERICAN GENERAL LIFE
INSURANCE COMPANY, a Texas-domiciled life insurance company (the “Ceding
Company”), and FORTITUDE REINSURANCE COMPANY, LTD., a Bermuda-domiciled
reinsurance company (the “Reinsurer”), which has been executed and delivered by
the Parties hereto on this 2nd day of June 2020. For purposes of this Agreement,
the Ceding Company and the Reinsurer shall each be deemed a “Party” and
together, the “Parties”. 

 

WHEREAS, on February 12, 2018 (the “Closing Date”), the Parties entered into a
COMBINATION COINSURANCE AND MODIFIED COINSURANCE AGREEMENT, effective as of the
Effective Time (as hereinafter defined) (the “Original Coinsurance Agreement”),
pursuant to which the Ceding Company cedes to the Reinsurer, and the Reinsurer
reinsures, on a modified coinsurance basis, on the terms and conditions set
forth therein, certain risks arising in respect of the Covered Insurance
Policies (as hereinafter defined); 

 

WHEREAS, pursuant to this Agreement, the Parties wish to amend and restate the
Original Coinsurance Agreement in its entirety; and 

 

WHEREAS, the Ceding Company and the Reinsurer intend that the Ceding Company
will continue to provide, or cause to be provided, administrative services for
the Covered Insurance Policies in accordance with the terms of this Agreement.

 

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

 

ARTICLE I

DEFINITIONS

 

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

 

“2019 Purchase Agreement” means the Membership Interest Purchase Agreement,
dated as of November 25, 2019, by and among American International Group, Inc.,
Fortitude Group Holdings, LLC, Carlyle FRL, L.P., T&D United Capital Co., Ltd.,
The Carlyle Group L.P., solely with respect to Sections 4.05, 5.20 and 7.02 and
Article X therein, and T&D Holdings, Inc., solely with respect to Article IX and
Article X therein.

 

“953(d) Election” means the election made by the Reinsurer on or around July 15,
2019 with respect to its taxable year beginning January 1, 2018 to be treated as
a domestic corporation pursuant to Section 953(d) of the Code.

 

“Acceptable Rating” has the meaning set forth in Section 2.9(a). 

 

“Accounting Period” means each calendar quarter during the term of this
Agreement or any fraction thereof ending on the earlier of the Recapture
Effective Date or the date this Agreement is

 

1 

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otherwise terminated in accordance with Section 9.2, as applicable. However, the
initial Accounting Period shall commence on the Effective Time and end on the
last day of the calendar quarter in which the Closing Date falls.

 

“Action” has the meaning set forth in Appendix A. 

 

“Administered Policies” has the meaning set forth in the FLAS Administrative
Services Agreement or any replacement thereof.

 

“Administrative Appendix” has the meaning set forth in Section 3.6(c). 

 

“Administrative Services” has the meaning set forth in Section 3.6(c). 

 

“Administrative Services Agreement” has the meaning set forth in Section
3.6(e). 

 

“Affiliate” means, with respect to any Person, at the time in question, any
other Person Controlling, Controlled by or under common Control with such
Person; provided, however, for purposes of this Agreement, “Affiliate” shall not
include (i) the Ceding Company or any of the Ceding Company’s Affiliates
(excluding Fortitude Group Holdings LLC or any of its direct or indirect
Subsidiaries, including the Reinsurer) when applied to the Reinsurer or
Fortitude Group Holdings LLC or any of its direct or indirect Subsidiaries or
(ii) Fortitude Group Holdings LLC or any of its direct or indirect Subsidiaries,
including the Reinsurer, when applied to the Ceding Company or any of the Ceding
Company’s Affiliates.

 

“Aggregate Expense Allowance” has the meaning set forth in Section 3.2(a)(v). 

 

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

 

“Alternative Rate” has the meaning set forth in Section 3.4. 

 

“Amendment Date” has the meaning set forth in the preamble.

 

“Annual Cession Interest Rate” means the annual yield rate, on the date of
determination, of actively traded U.S. Treasury securities having a remaining
time to maturity of three (3) months, as such rate is published under “Treasury
Constant Maturities” in Federal Reserve Statistical Release H.15(519).

 

“Applicable Law” means any U.S. domestic or foreign, federal, provincial, state
or local statute, law, ordinance or code, or any written rules, regulations or
administrative or judicial interpretations or policies issued or imposed by any
Governmental Authority pursuant to any of the foregoing, any binding settlement
with one or more Governmental Authorities applicable to some or all of the
Covered Insurance Policies and any order, writ, injunction, directive, judgment
or decree of a court of competent jurisdiction, or arbitral award, in each case,
applicable to the Parties or the subject matter hereof.

 

“Applicable Insurance Regulations” has the meaning set forth in the Investment
Guidelines.

 

“Applicable Privacy and Security Laws” means all Applicable Laws pertaining to
the security, confidentiality, protection or privacy of the Confidential
Information (including personal and health data) and Information Systems.

 

“ARIAS • U.S. Rules” has the meaning set forth in Section 10.3(a). 

 

“ARIAS • U.S. Streamlined Rules” has the meaning set forth in Section 10.3(b). 

 

2 

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“Authorized Investments” has the meaning set forth in Section 5.2(a). 

 

“Available Statutory Economic Capital and Surplus” has the meaning ascribed
thereto by or under the Insurance Act. 

 

“Books and Records” means originals or copies of all records and all other data
and information, whether created before or after the Effective Time, and in
whatever form maintained, in the possession or control of the Ceding Company or
its Affiliates or Subcontractors and relating to the Reinsured Liabilities, 
including  (i) administrative  records,  (ii) claim  records,  (iii) policy 
files,  (iv) sales records, (v) files  and  records  relating  to  Applicable 
Law,  (vi)  reinsurance  records,  (vii)  underwriting  records  and (viii)
accounting records, but excluding any (a) Tax Returns and Tax records and all
other data and information  with  respect  to  Tax,  (b) files,  records,  data 
and  information  with  respect  to employees, records, data and information
with respect to any employee benefit plan, (d) any materials prepared for the
boards of directors of the Ceding Company or any of its Affiliates, (e) any
materials (including, for the avoidance of doubt, any records or data referred
to in clauses (i) through (viii) of this definition) that do not reasonably
relate to the Reinsured Liabilities ceded hereunder and/or the Ceding Company’s
performance hereunder, and (f) any materials that are privileged and/or
confidential. 

 

“[***]” has the meaning set forth in Section  2.9(e)(i)b.. 

 

“[***]” has the meaning set forth in Section  2.9(e)(i)d.. 

 

“Business Day” shall mean any day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in Bermuda or in Houston, Texas are permitted or
obligated by Applicable Law to be closed or (c) a day on which the New York
Stock Exchange or the U.S. government bond market is closed for trading. 

 

“Capital Markets Services Agreement” means a services agreement between the
Ceding Company and an Affiliate of the Ceding Company pursuant to which such
Affiliate provides derivatives services or similar services, which may include,
derivatives execution services, short-term cash investment and reverse
repurchase and securities lending transaction services, repurchase transaction
services, borrowing services, collateral management services and operational
support services. 

 

“Carlyle” has the meaning set forth in Section 9.1(d). 

 

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

 

“Ceding Company Extra-Contractual Obligations” means (a) all Extra-Contractual
Obligations to the extent arising out of, resulting from or relating to any act,
error or omission before the Closing Date, whether or not intentional,
negligent, in bad faith or otherwise, by the Ceding Company, any of its
Affiliates, any Subcontractors or any other service provider engaged or
compensated by the Ceding Company or any of its Affiliates or otherwise; (b) all
Extra-Contractual Obligations to the extent arising out of the gross negligence
or willful misconduct of the Ceding Company, any of its Affiliates, any
Subcontractor or any other service provider engaged or compensated by the Ceding
Company or any of its Affiliates or otherwise (other than Reinsurer Appointed
Administrators), on or after the Closing Date but prior to the Amendment Date;
(c) all Extra-Contractual Obligations to the extent arising out of, resulting
from or relating to any act, error or omission on or after the Amendment Date,
whether or not intentional, negligent, in bad faith or otherwise, by the Ceding
Company, any of its Affiliates, any Subcontractor or any other service provider
engaged or compensated by the Ceding Company or any of its Affiliates or
otherwise (other than Reinsurer Appointed Administrators), other than any 
liability arising from any act, error or omission of the Ceding Company, any of
its Affiliates, any Subcontractor or 

 

3 

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such other service provider made in the ordinary course of administering the
Covered Insurance Policies; and (d) on or after the Amendment Date,
Extra-Contractual Obligations arising out of or resulting from the Ceding
Company’s Contest of a claim for benefits under a Self-Administered Policy in
the circumstances described in Section 2.4(c)(iii); provided, however, that any
Extra-Contractual Obligations arising out of, resulting from or relating to any
act, error or omission undertaken by, or at the request of, or with the prior
written consent or ratification of, the Reinsurer, any of its Affiliates or any
Reinsurer Appointed Administrator shall not constitute a “Ceding Company
Extra-Contractual Obligation” and shall be deemed a Reinsurer Extra-Contractual
Obligation. 

 

“Change of Control” has the meaning set forth in Section 9.1(c). 

 

“Closing Date” has the meaning set forth in the recitals.

 

“Code” means the U.S. Internal Revenue Code of 1986, as amended.

 

“Coinsured Liabilities” means the Quota Share of Reinsured Liabilities and IMR
to the extent ceded to the Reinsurer hereunder on a coinsurance basis.

 

“Collateral Trust Account” has the meaning set forth in Section 4.4(a). 

 

“Collateral Trust Agreement” has the meaning set forth in Section 4.4(a). 

 

“Collateral Trust Authorized Investments” means Authorized Investments that,
other than in the case of cash and certificates of deposit, are publicly traded
securities and have an NAIC SVO designation of 1 or 2.

 

“Collateral Trust Required Balance” means 102% multiplied by the Risk Margin
Amount as of the end of the applicable Accounting Period. 

 

“Collateral Value” has the meaning set forth in Section 5.2(b). 

 

“Confidential Information” means:

 

(a) With respect to confidentiality obligations imposed on the Reinsurer and its
Affiliates and Representatives hereunder, all documents, materials and
information concerning the Ceding Company and any of its Affiliates, including
any derivative works thereof, as well as Personal Information, that are
furnished to the Reinsurer or its Affiliates or Representatives by the Ceding
Company or its Affiliates or Representatives in connection with this Agreement
or the transactions contemplated hereunder. 

 

(b) With respect to confidentiality obligations imposed on the Ceding Company
and its Affiliates and Representatives hereunder, all documents, materials and
information concerning the Reinsurer and any of its Affiliates, including any
derivative works thereof, that are furnished to the Ceding Company or its
Affiliates or Representatives by the Reinsurer in connection with this Agreement
or the transactions contemplated hereunder, but excluding (i) any information
furnished to the Reinsurer or its Affiliates or Representatives by the Ceding
Company or its Affiliates or Representatives as described in clause (a) of this
definition, including derivative works thereof, (ii) any information furnished
to the Ceding Company or its Affiliates or Representatives under any
Administrative Services Agreement to which it is party, and (iii) any
information furnished by the Reinsurer or its Affiliates or Representatives to
the Ceding Company or  its  Affiliates  or  Representatives  for  the  express 
purpose  of  the  Ceding  Company’s 

 

4 

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disclosure to a Governmental Authority pursuant to a statutory or regulatory
obligation or request, including, by way of example, calculations provided for
the Ceding Company’s financial statement reporting; provided, that, in each case
of clause (iii), all derivative works, workpapers, memoranda and other
documentation developed therefrom or prepared in connection therewith by the
Reinsurer or its Affiliates or Representatives shall be protected as
“Confidential Information” of the Reinsurer and the Reinsurer shall assert its
confidentiality interest to prevent or oppose disclosures by the recipient
Governmental Authority to the public or other third parties (unless such
disclosure is required by and made consistent with Applicable Law).

 

However, Confidential Information does not include information which: (x) at the
time of disclosure or thereafter is ascertainable or generally available to and
known by the public other than by way of a disclosure by the receiving Party or
by any Representative or Affiliate of the receiving Party in breach of this
Agreement or any other obligation of confidentiality attaching thereto; (y) was
in the possession of,  or becomes available to, the other Party or its
Representatives or Affiliates on a non-confidential basis, directly or
indirectly, from a source other than the disclosing Party to whom the
Confidential Information pertained or its Representatives or Affiliates in
breach of this Agreement or any other obligation of confidentiality attaching
thereto; provided, that such source is not, and was not, known to the receiving
Party or its Representatives or Affiliates after reasonable inquiry to be
prohibited from transmitting the information by a contractual, legal, fiduciary,
or other obligation of confidentiality by the party to whom the Confidential
Information pertained; or (z) was independently developed by the receiving Party
or any of its Representatives or Affiliates without violating any obligations
under this Agreement and without the use of, reference to, or reliance upon any
other Confidential Information or any derivative thereof. 

 

“Consultation Claims” has the meaning set forth in Section 2.4(b). 

 

“Contest” has the meaning set forth in Section 2.4(c). 

 

“Contested Claim” has the meaning set forth in Section 2.4(c). 

 

“Control” means the possession, directly or indirectly, of the power to direct
the management and policies of a Person through the ownership of securities, by
contract or otherwise and the terms “Controlling” and “Controlled” have meanings
correlative to the foregoing.

 

“Covered Insurance Policies” means, with respect to any Reinsured Portfolio, (a)
the policies listed in the electronic file specified in Schedule 1.2 with
respect to such Reinsured Portfolio, as such electronic file may be updated from
time to time in accordance with Schedule 1.2, (b) any such policy that is
terminated and then subsequently issued as a reinstatement of a Covered
Insurance Policy in accordance with Section 2.1(b), (c) any such policy that is
issued as an exchange, replacement or conversion of a Covered Insurance Policy
in accordance with Section 2.1(c), (d) any policy that is issued as a conversion
of a Covered Insurance Policy in accordance with Section 2.1(g), or (e) any
policy issued as a Supplemental Contract in accordance with Section 2.1(e) or
(f), in the case of each of (b) and (c), after the Effective Time and in each
case of (d) and (e), after the Amendment Date. 

 

“Deemed Paid” with respect to an item at a given time, means that liability on
the item has been discharged as of such time, whether by payment, by offset, or
otherwise. For the avoidance of doubt, the amount of the liability that is
Deemed Paid is measured by the amount of the consideration given for discharging
the liability, not by the carrying value of the liability prior to discharge. 

 

“[***]” has the meaning set forth in Section 2.9(e)(i)a.. 

 

“Derivative Margin Amount” has the meaning set forth in the Investment
Guidelines.

 

5 

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“Derivative Margin Requirement” has the meaning set forth in the Investment
Guidelines.

 

“Determination Date” has the meaning set forth in Section 3.4. 

 

“Disputed Assets” has the meaning set forth in Section 4.1(f)(ii). 

 

“[***]” has the meaning set forth in Section 2.9(b). 

 

“Dollars” or “$” refers to United States dollars.

 

“ECR Ratio” has the meaning set forth in Section 3.7(b). 

 

“ECR Reporting Deadline” has the meaning set forth in Section 3.7(b). 

 

“Effective Time” means 12:01 a.m. Eastern Time on January 1, 2017.

 

“Embedded Value Payment” has the meaning set forth in Section 9.5(a). 

 

“Enhanced Capital Requirement” has the meaning set forth in Section 9.1(b). 

 

“Ex Gratia Payments” means a payment that is both (a) outside the terms and
conditions of the applicable Covered Insurance Policy and (b) made by or on
behalf of the Ceding Company, not as a good faith settlement, adjustment, or
compromise of a dispute over coverage or the amount of a claim or loss, but,
rather, as a business accommodation to the beneficiary.

 

“Exchange Program” has the meaning set forth in Section 2.7(a). 

 

“Excluded NGE Change” has the meaning set forth in Section 2.5(a). 

 

“Excluded Policy Changes” has the meaning set forth in Section 2.3(a). 

 

“Exigent Circumstances” has the meaning set forth in Section 2.3(a). 

 

“Existing Practice” has the meaning set forth in Section 3.6(a). 

 

“Existing Reinsurance Agreements” means (a) all agreements, treaties, slips,
binders, cover notes and other similar arrangements under which the Ceding
Company has ceded to reinsurers (including those Affiliated with the Ceding
Company as of the Closing Date) risks arising in respect of the Covered
Insurance Policies where such agreements are (i) in-force or are treated as
being in-force as of the Closing Date, (ii) terminated but under which there
remains any outstanding Liability, whether known or unknown as of the Closing
Date, from the reinsurer, or (iii) entered into following the Closing Date with
the consent of the Reinsurer, and (b) any agreement, treaty, slip, binder, cover
note or other similar arrangement entered into by the Ceding Company to replace
any of such arrangements following any termination or recapture thereof, as all
such arrangements may be in-force from time to time and at any time.

 

“Extra-Contractual Obligations” means all Liabilities not arising under the
express terms and conditions of, or in excess of the applicable policy limits
of, the Covered Insurance Policies, including Liabilities for fines, penalties,
Taxes, fees, forfeitures, compensatory, punitive, exemplary, special, treble,
bad faith, tort or any other form of extra-contractual damages, and legal fees
and expenses relating thereto, which Liabilities arise from any actual or
alleged act, error or omission in connection with (a) the form, sale, 
marketing,  distribution,  underwriting,  production,  issuance,  cancellation 
or  administration  of 

 

6 

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the Covered Insurance Policies, (b) the investigation, defense, trial,
settlement or handling of claims, benefits, dividends or payments under the
Covered Insurance Policies, (c) the failure to pay or the delay  in payment or
errors in calculating or administering the payment of benefits, claims,
dividends or any other amounts  due  or  alleged  to  be  due  under  or  in 
connection  with  the  Covered  Insurance  Policies, escheat or unclaimed
property Liabilities arising under or relating to the Covered Insurance Policies
or the failure of the Covered Insurance Policies to qualify for their intended
Tax status. Interest required under the terms of the applicable Covered
Insurance Policy or by Applicable Law (whether payable to a beneficiary or
escheated) will constitute Extra-Contractual Obligations only to the extent such
interest is incurred as a result of a failure of the Ceding Company, any
Subcontractor or Reinsurer Appointed Administrator to act in accordance with
Applicable Law and shall otherwise be deemed a Reinsured Liability pursuant to
clause (x) or (y) of the definition of “Reinsured Liability”. 

 

“Fair Market Value” means the value at which the Ceding Company and the
Reinsurer agree to transfer an asset, reflecting the price at which a buyer and
seller who are knowledgeable, self-interested and not forced would transfer an
asset at an arms-length basis. For the avoidance of doubt, quoted market prices
for publicly traded securities are to be utilized where available. However, to
the extent “Fair Market Value” is being utilized in the context of valuing
Reinsurance Trust Account Authorized Investments or Collateral Trust Authorized
Investments, “Fair Market Value” shall be as defined in the applicable
agreement(s) governing such Reinsurance Trust Account(s) or Collateral Trust
Account(s), as applicable.

 

“FATCA” has the meaning set forth in Section 7.3. 

 

“Federal Excise Tax” has the meaning set forth in Section 7.2. 

 

“FLAS” means Fortitude Life & Annuity Solutions, Inc.

 

“FLAS Administrative Services Agreement” means any Administrative Services
Agreement between the Ceding Company, the Reinsurer and FLAS, dated on or after
the Amendment Date.

 

“GAAP Carrying Value” means, with respect to any ModCo Asset, as of the relevant
date of determination, the value thereof on the US GAAP balance sheet of the
Ceding Company determined in accordance with US GAAP as of such date, including
any investment income due and accrued thereon.

 

“Governmental Authority” means any court, administrative or regulatory agency or
commission, or other foreign, federal, provincial, state or local governmental
or self-regulatory authority, instrumentality or body having jurisdiction over
any Party.

 

“Guaranty Fund Assessments” has the meaning set forth in Section  7.5. 

 

“IMR” means the interest maintenance reserve (whether positive or negative)
determined in accordance with SAP attributable from time to time to the
Reinsured Liabilities. 

 

“Independent Actuary” has the meaning set forth in Section 9.5(d). 

 

“Independent Valuation Expert” has the meaning set forth in Section 9.5(d). 

 

“Information Systems” means any computer, computer network, computer
application, imaging device, storage device or media, mobile computing device,
or any other information technology that contains Confidential Information.

 

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“Initial Purchase Agreement” means the Membership Interest Purchase Agreement by
and among American International Group, Inc., Fortitude Group Holdings, LLC and
TC Group Cayman Investment Holdings, L.P, dated as of July 31, 2018 (as amended
by Amendment No. 1 to Membership Interest Purchase Agreement, dated as of
November 13, 2018, and Amendment No. 2 to Membership Interest Purchase
Agreement, dated as of November 25, 2019).

 

“Initial ModCo Deposit” has the meaning set forth in Section 3.1(a). 

 

“Insurance Act” has the meaning set forth in Section 9.1(b). 

 

“Interest Earned on Policy Loans” has the meaning set forth in Section
3.2(a)(iii). 

 

“Interest Rate” has the meaning set forth in Section 3.4. 

 

“Interim Required Collateral Balance” has the meaning set forth in Section
4.1(i). 

 

“Interim Return Collateral Balance” has the meaning set forth in Section
4.1(i). 

 

“Internal Capital Model” has the meaning set forth in Section 9.1(b). 

 

“Investment Expenses” has the meaning set forth in Section 3.2(a)(vi). 

 

“Investment Guidelines” has the meaning set forth in Section 4.1(d). 

 

“Investment Manager” has the meaning set forth in Section 4.1(d). 

 

“Legally Required Ceding Company Actions” means actions related to the
Administered Policies, the Administrative Services or the Retained Services that
the Ceding Company is required by Applicable Law or Governmental Authorities to
take without any administrator or a subcontractor acting on its behalf.

 

“Letter of Credit” has the meaning set forth in Section 5.2(a). 

 

“Liabilities” means any and all debts, liabilities, commitments or obligations,
whether direct or indirect, accrued or fixed, known or unknown, absolute or
contingent, matured or unmatured or determined or determinable, whether arising
in the past, present or future.

 

“LIBOR” has the meaning set forth in Section 3.4. 

 

“Long-Term Business Account” means the accounts of the Reinsurer in respect of
insurance business that constitutes “long-term business” within the meaning of
the Insurance Act.

 

“Long-Term Business Account Diversification Benefit” means, as of any date of
determination, the amount of the Overall Diversification Benefit calculated and
allocated by the Reinsurer to its Long- Term Business Account in a consistent
manner in accordance with the Reinsurer’s internal risk management policies and
practices and as reported to the Reinsurer’s Board of Directors and the Bermuda
Monetary Authority.

 

“[***]” has the meaning set forth in Section 2.9(e)(i). 

 

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“Margin Collateral Value” means:

 

(a)  With respect to cash, the amount thereof; and 

 

(b)  With respect to other ModCo Assets, the sum of (i) either (x) the closing
bid prices for the applicable ModCo Asset quoted on the relevant date which
appears on the display of Bloomberg Financial Markets Commodities News (or its
successor) published by Bloomberg L.P. or such other financial information
provider reasonably chosen by the Ceding Company; or (y) if the value for the
applicable ModCo Asset does not so appear, the arithmetic mean of the closing
bid prices quoted on the relevant date (or, if none are available on that date,
as of the next preceding date) of three recognized principal market makers for
such assets chosen by the Ceding Company; and (ii) the accrued interest on such
ModCo Assets if not reflected in such closing bid prices. 

 

“Material Ceding Company Administration Breach” has the meaning set forth in
Section 3.6(i). 

 

“ModCo Account” has the meaning set forth in Section 4.1(a). 

 

“ModCo Account Investment Income” has the meaning set forth in Section 4.1(j). 

 

“ModCo Assets” means (a) the cash and investment assets that are specifically
and separately allocated to the ModCo Account in respect of this Agreement, (b)
Policy Loans under the Covered Insurance Policies, and (c) without duplication,
any receivables related to cash or other investment assets posted under
permitted derivatives or Short Terms Borrowing Transactions in the ModCo Account
where such cash or other investment assets would otherwise no longer be
recognized as a ModCo Asset.

 

“ModCo Reinsurance Agreements” means this Agreement, the USL Reinsurance
Agreement and the VALIC Reinsurance Agreement.

 

“ModCo Reserves” has the meaning set forth in Section 4.1(k). 

 

“NGE Change Notice” has the meaning set forth in Section 2.5(a). 

 

“NGE MAE” has the meaning set forth in Section 2.5(b). 

 

“Non-Guaranteed Element” has the meaning set forth in Section 2.5(a). 

 

“Non-Transitioned TPAs” means any third party administrator providing
administrative services in respect of the Covered Insurance Policies which
Ceding Company and Administrator have expressly agreed will continue to be
overseen by Ceding Company; the Non-Transitioned TPAs as of the Amendment Date
are set forth on Schedule 1.3. 

 

“Objection Notice” has the meaning set forth in Section 4.1(f)(i). 

 

“Original Coinsurance Agreement” has the meaning set forth in the recitals.

 

“Overall Diversification Benefit” means as of any date of determination, the
amount of the diversification benefit calculated by the Reinsurer under the
Bermuda Solvency Capital Requirement (BSCR) rule, in aggregate, in a consistent
manner in accordance with the Reinsurer’s internal risk management policies and
practices and as reported to the Reinsurer’s Board of Directors and the Bermuda
Monetary Authority.

 

“Parent” means American International Group, Inc., a Delaware corporation.

 

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“[***]” has the meaning set forth in Section 2.9(e)(i)c.. 

 

“Party” or “Parties” has the meaning set forth in the preamble. 

 

“Permitted Assets” has the meaning set forth in Section  4.1(d). 

 

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

 

“Personal Information” means any financial or personal information provided by
or on behalf of one Party to the other Party in connection with the business
reinsured hereunder that identifies, relates to, describes, is capable of being
associated with, or could reasonably be linked to an individual, including name,
street or mailing address, electronic mail address, telephone or other contact
information, employer, social security or Tax identification number, date of
birth, driver’s license number, state identification card number, financial
account, credit or debit card number, health and medical information or
photograph or documentation of identity or residency (whether independently
disclosed or contained in any disclosed document), the fact that the individual
has a relationship with such Party or one or more of its Affiliates, and any
other information protected by any Applicable Privacy and Security Laws. 

 

“Policy Loans” means loans under the applicable Covered Insurance Policies.

 

“Premium Tax” has the meaning set forth in Section 7.4. 

 

“Premiums” has the meaning set forth in Section 3.2(a)(ii). 

 

“Proposed Practice” has the meaning set forth in Section 3.6(a). 

 

“Quarterly Net Settlement Amount” has the meaning set forth in Section 3.2(a). 

 

“Quota Share” means 100%.

 

“Recapture Effective Date” has the meaning set forth in Section 9.4(a). 

 

“Recapture Penalty” has the meaning set forth in Section 9.5(a). 

 

“Recapture Triggering Event” has the meaning set forth in Section 9.1(a). 

 

“Reinsurance Trust Account” has the meaning set forth in Section 5.2(a). 

 

“Reinsurance Trust Account Required Balance” has the meaning set forth in
Section 5.3(a). 

 

“Reinsurance Trust Account Statement” has the meaning set forth in Section
5.3(a). 

 

“Reinsured Liabilities” has the meaning set forth in Section 3.2(a)(i). 

 

“Reinsured Portfolio” means each of the portfolios listed on Schedule 1.2. 

 

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

 

“Reinsurer Appointed Administrator” has the meaning set forth in Section
3.6(e). 

 

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“Reinsurer Extra-Contractual Obligations” means all Extra-Contractual
Obligations other than any Ceding Company Extra-Contractual Obligations. 

 

“Replacement Program” has the meaning set forth in Section 2.7(a). 

 

“Representative” means, with respect to any Person, such Person’s consultants,
attorneys, actuaries, auditors, reinsurers and retrocessionaires.

 

“Required Balance” has the meaning set forth in Section 5.2(b). 

 

“[***]” has the meaning set forth in Section 2.9(c). 

 

“Restricted Purchaser” has the meaning set forth in Section 9.1(d). 

 

“Retained Services” has the meaning set forth in Section 3.6(b). 

 

“Risk Margin Amount” means the aggregate of the Statutory Book Value of the Risk
Assets (as defined in the Investment Guidelines) and the Statutory Book Value of
the Commercial Mortgage Loans with a mortgage factor used for calculating the
Ceding Company’s risk-based capital requirement of CM3 or below, in each case,
in the ModCo Account multiplied by the Risk Margin Factor(s) applicable to such
Risk Assets.

 

“Risk Margin Factor” means (i) for Below Investment Grade Obligations and
Commercial Mortgage Loans with a mortgage factor used for calculating the Ceding
Company’s risk-based capital requirement of CM3 or below, [***]%, and (ii) for
Equity Securities, Real Estate Equity or Other Investments (each as defined in
the Investment Guidelines), [***]%. 

 

“Sanctions Laws” has the meaning set forth in Section 10.15(a). 

 

“SAP” means, as to the Ceding Company, the statutory accounting principles
prescribed or permitted by the Governmental Authority responsible for the
regulation of insurance companies in the jurisdiction in which the Ceding
Company is domiciled (unless otherwise specified).

 

“Self-Administered Policies” means, (i) if the FLAS Administrative Services
Agreement or any replacement thereof is in effect, the meaning given to such
term in such agreement and (ii) if no Administrative Services Agreement is in
effect, the Covered Insurance Policies.

 

“Settlement Statement” has the meaning set forth in Section 3.2(a). 

 

“Short Term Borrowing Collateral Amount” has the meaning set forth in the
Investment Guidelines.

 

“Short Term Borrowing Collateral Requirement” has the meaning set forth in the
Investment Guidelines.

 

“Short Term Borrowing Transactions” has the meaning set forth in the Investment
Guidelines.

 

“[***]” has the meaning set forth in Section 2.9(e)(i)b.. 

 

“Significant Impairment” has the meaning set forth in Section 4.1(f)(i). 

 

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“Statutory Book Value” means, with respect to any ModCo Asset, as of the
relevant date of determination, the carrying value thereof on the books of the
Ceding Company determined in accordance with SAP as of such date, including any
investment income due and accrued thereon, as such amount is adjusted in
accordance with Section 4.1(f). 

 

“Statutory Financial Statements” means, with respect to any Party, the annual
and quarterly statutory financial statements of such Party filed with the
Governmental Authority charged with supervision of insurance companies in the
jurisdiction of domicile of such Party to the extent such Party is required by
Applicable Law to prepare and file such financial statements.

 

“Statutory Reserves” means, as of any date of determination, the statutory
reserves required to be held by the Ceding Company with respect to the Covered
Insurance Policies, as reported in Exhibits 5, 6 and 7 of its Statutory
Financial Statements as of such date determined (a) in accordance with the
methodologies used by the Ceding Company to calculate such amounts for purposes
of its Statutory Financial Statements prepared in accordance with SAP, and (b)
after giving effect to the credit for reinsurance taken by the Ceding Company in
respect of the Covered Insurance Policies for Existing Reinsurance Agreements as
of such date of determination.

 

“Subcontractor” has the meaning set forth in Appendix A. 

 

“Subsidiary” has the meaning set forth in Section 9.1(d). 

 

“Supplemental Contract” has the meaning set forth in Section 2.1(e). 

 

“Surplus Participation Payments” has the meaning set forth in Section
3.2(a)(viii). 

 

“Tax” (or “Taxes” as the context may require) means any tax, however
denominated, imposed by any federal, state, local, municipal, territorial or
provincial government or any agency or political subdivision of any such
government or agency charged with the collection, assessment, determination or
administration of such tax for such government or subdivision (a “Taxing
Authority”), including any net income, alternative or add-on minimum tax, gross
income, gross receipts, Premium, sales, use, gains, goods and services,
production, documentary, recording, social security, unemployment, disability,
workers’ compensation, estimated, ad valorem, value added, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
capital stock, occupation, personal or real property, environmental or windfall
profit tax, Premiums, custom, duty or other tax, governmental fee or other like
assessment or charge, together with any interest, penalty, addition to tax or
additional amount imposed by any Taxing Authority relating to the assessment or
collection thereof.

 

“Taxing Authority” has the meaning set forth in the definition of “Tax”.

 

“Tax Return” means any return, report, declaration, claim for refund,
certificate, bill, or other return or statement, including any schedule or
attachment thereto, and any amendment thereof, filed or required to be filed
with any Taxing Authority in connection with the determination, assessment or
collection of any Tax. 

 

“Terminal Accounting Period” means the Accounting Period during which the
Recapture Effective Date occurs. 

 

“Terminal Settlement” has the meaning set forth in Section 9.5(a). 

 

“Terminal Settlement Statement” has the meaning set forth in Section 9.5(a). 

 

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

 

“[***]” has the meaning set forth in Section 2.9(e)(i)d. 

 

“US GAAP” means accounting principles generally accepted in the United States of
America.

 

“USL” means The United States Life Insurance Company in the City of New York, a
New York life insurance company.

 

“USL Reinsurance Agreement” means the Amended and Restated Modified Coinsurance
Agreement, by and between USL and the Reinsurer, effective January 1, 2017 and
dated as of the Amendment Date.

 

“VALIC” means The Variable Annuity Life Insurance Company, a Texas life
insurance company.

 

“VALIC Reinsurance Agreement” means the Amended and Restated Combination
Coinsurance and Modified Coinsurance Agreement, by and between VALIC and the
Reinsurer, effective January 1, 2017 and dated as of the Amendment Date.

 

“Valuation Methodology” has the meaning set forth in Section 4.1(c). 

 

ARTICLE II

BASIS OF REINSURANCE AND BUSINESS REINSURED

 

Section 2.1       Reinsurance. 

 

(a)  Subject to the terms and conditions of this Agreement, effective as of the
Effective Time, the Ceding Company hereby cedes to the Reinsurer, and the
Reinsurer hereby accepts and agrees to assume and indemnity reinsure, a Quota
Share of all Reinsured Liabilities and IMR on a modified coinsurance basis.
Without limiting the foregoing, on and after the Effective Time, the Reinsurer
hereby assumes and agrees to indemnify and hold the Ceding Company harmless from
and against all Reinsurer Extra-Contractual Obligations. This Agreement is
solely between the Ceding Company and the Reinsurer and, except as contemplated
in Article VIII, shall not create any legal relationship whatsoever between  the
Reinsurer and any Person other than the Ceding Company. The reinsurance effected
under this Agreement shall be maintained in-force, without reduction, unless
such reinsurance is recaptured, terminated or reduced as provided herein. On and
after the Effective Time, subject to the terms and conditions herein, the
Reinsurer shall be obligated to make payments to or on behalf of the Ceding
Company, as and when due, of all Reinsured Liabilities. Notwithstanding anything
to the contrary herein, the Reinsurer shall have no liability for any (x) Ceding
Company Extra-Contractual Obligations or (y) Ex Gratia Payments absent the
Reinsurer’s prior written consent; provided, however, that any Ex Gratia
Payments made or approved by any affiliated or unaffiliated Reinsurer Appointed
Administrator shall be deemed to be a payment consented to in writing by the
Reinsurer. 

 

(b)  Upon reinstatement of any Covered Insurance Policy in accordance with its
terms and the Ceding Company’s reinstatement policies, the reinsurance hereunder
will be automatically reinstated with respect to such Covered Insurance Policy;
provided, that, to the extent that the reinstatement of such Covered Insurance
Policy requires payment of Premiums in arrears or reimbursement of claims paid,
following receipt  of  such  amounts,  the  Ceding  Company  shall  transfer 
to  the  Reinsurer  a  Quota  Share  of 

 

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all Premiums in arrears and a Quota Share of all reimbursements of claims paid
on such Covered Insurance Policy to the extent such claims had been reimbursed
by the Reinsurer hereunder.

 

(c)  Any conversion, exchange or replacement policy or contract arising from the
Covered Insurance Policies that is converted, exchanged or replaced pursuant to
and in accordance with its policy terms shall be deemed to constitute a Covered
Insurance Policy for purposes of this Agreement only (i) if such converted,
exchanged or replaced policy carries the same policy number or a valid policy
number permutation resulting from a Family Thrift Plan election on the
Masterfile administration system (or similar) as the original Covered Insurance
Policy so converted, exchanged or replaced or (ii) pursuant to Section 2.1(g)
and, in the event of such a conversion, exchange or replacement of any Covered
Insurance Policy, the Reinsurer shall reinsure the risk resulting from such
conversion on the basis set forth hereby with respect to the Covered Insurance
Policies. 

 

(d)  If, in the normal course of administration (other than the issuance of
Supplemental Contracts, which are addressed in Section 2.1(f) below), the policy
number of a Covered Insurance Policy is changed, the policy shall continue to
constitute a Covered Insurance Policy for purposes of this Agreement.

 

(e)  For so long as the Ceding Company retains administrative responsibilities
for all of the Covered Insurance Policies and until FLAS (or a replacement
thereof) is transferred to the Reinsurer or otherwise becomes an Affiliate of
the Reinsurer and assumes administration of Administered Policies, Supplemental
Contracts will not be Covered Insurance Policies whether or not such
Supplemental Contract was derived from a Covered Insurance Policy. “Supplemental
Contract” means a contract that is issued by Ceding Company to a policyholder or
beneficiary of a life insurance policy or an annuity contract issued by Ceding
Company pursuant to which Ceding Company retains proceeds of such life insurance
policy or annuity contract for payment in accordance with such contract. 

 

(f)  Should FLAS (or a replacement thereof) be transferred to the Reinsurer or
otherwise become an Affiliate of the Reinsurer and assume administration of
Administered Policies, Supplemental Contracts will be reinsured as follows from
and after the commencement of such administration: 

 

(i)         A Supplemental Contract issued by the Ceding Company and
administered on a system utilized by FLAS (or such replacement) to a
policyholder or beneficiary of a life insurance policy or annuity contract
issued and administered on a system utilized by FLAS, another Reinsurer
Appointed Administrator or a Subcontractor (whether or not such life insurance
policy or annuity contract is a Covered Insurance Policy), shall be a Covered
Insurance Policy. 

 

(ii)        A Supplemental Contract issued and administered on a system utilized
by FLAS (or such replacement) to a policyholder or beneficiary of a life
insurance policy or annuity contract issued and administered on a system
utilized by the Ceding Company but that is not a Covered Insurance Policy, shall
be a Covered Insurance Policy if (A) such Supplemental Contract is identified
after the calendar year end in which it was issued and (B) the Ceding Company
and the Reinsurer agree on mutually acceptable terms for such transfer and a
corresponding amendment to Schedule 1.2 to add such Supplemental Contracts;
provided, however, such Supplemental Contracts ceded under this Section
2.1(f)(ii) will not be ceded hereunder until after January 1 of the calendar
year immediately following the calendar year in which such Supplemental Contract
is issued, provided  that once ceded hereunder, such cession shall be effective
as of the issue date of such Supplemental Contract. For the avoidance of doubt,
nothing in this Section 2.1(f)(ii) shall require either the Ceding Company to
cede, or the Reinsurer to reinsure, the Supplemental Contracts described in this
Section 2.1(f)(ii) if, for any calendar year, the Parties do not mutually agree
to do so. 

 

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(g)  A conversion policy issued after the Amendment Date arising from a Covered
Insurance Policy that does not carry the same policy number or a valid policy
number permutation resulting from a Family Thrift Plan election on the
Masterfile administration system (or similar) as the original Covered Insurance
Policy so converted shall also constitute a Covered Insurance Policy for
purposes of this Agreement; provided, however, that the conversion policy will
not be ceded hereunder until January 1 of the calendar year immediately
following the calendar year in which such conversion policy is issued, provided
that once ceded hereunder, such cession shall be effective as of the issue date
of such conversion policy.

 

(h)  To the extent any policies are ceded to the Reinsurer as Covered Insurance
Policies pursuant to Sections 2.1(c), (f)  or (g)  following the Amendment Date,
the Ceding Company will incorporate the additional policy numbers into the
programs, processes or procedures that provide data from the Ceding Company or a
Subcontractor to the Reinsurer (including with respect to the applicable
requirements set forth in Exhibit A). The Ceding Company will also provide the
Reinsurer an annual list of policies added under these sections. In connection
with the entry into the FLAS Administrative Services Agreement (or replacement
thereof), the Parties agree to enter into an amendment to Schedule 1.2 to add
(i) a detailed description of the additional Supplemental Contracts ceded to the
Reinsurer pursuant to Section 2.1(f), with references to the systems on which
such contracts are issued and administered, and (ii) the conversion policies
ceded to the Reinsurer pursuant to Section  2.1(g) 

 

(i)   For each Supplemental Contract ceded to the Reinsurer pursuant to Section
2.1(f)(ii) after the Amendment Date, the Ceding Company shall pay to the
Reinsurer, as consideration for the reinsurance hereunder, cash equal to (A) the
sum of all amounts received by the Ceding Company in respect of each
Supplemental Contract from the issuance date of such Supplemental Contract to
the date such Supplemental Contract is ceded to the Reinsurer hereunder,
including the amount of the initial deposit into the deposit accounts of the
Ceding Company upon the issuance of such Supplemental Contract, less (B) the sum
of all Reinsured Liabilities paid by the Ceding Company under such Supplemental
Contract prior to the date such Supplemental Contract is ceded to the Reinsurer
hereunder, including any distribution payments, plus (C) interest thereon
calculated at the Annual Cession Interest Rate in effect on the first Business
Day of the Accounting Period in which such Supplemental Contract was issued from
the 15th day of the second month of such Accounting Period to December 31 of the
year of such issuance. For each conversion policy ceded to the Reinsurer
pursuant to Section 2.1(g) after the Amendment Date, the Ceding Company shall
pay to the Reinsurer, as consideration for the reinsurance hereunder, cash equal
to (I) the sum of all amounts received by the Ceding Company in respect of such
conversion policy from the issuance date of such conversion policy to the date
such conversion policy is ceded to the Reinsurer hereunder, including the sum of
all premium payments received by the Ceding Company in respect of such
conversion policy (less any return premium thereon), less (II) the sum of all
Reinsured Liabilities paid by the Ceding Company under such conversion policy
prior to the date such conversion policy is ceded to the Reinsurer hereunder,
plus (III) interest thereon calculated at the Annual Cession Interest Rate in
effect on the first Business Day of the Accounting Period in which such
conversion policy was issued from 15th day of the second month of such the
Accounting Period to December 31 of the year of such issuance. The payments
required by this Section 2.1(i) shall be made by the Ceding Company as soon as
practicable after January 1 of the calendar year immediately following the
calendar year in which any such contract or policy was issued and the Ceding
Company has determined that such contract or policy has become a Covered
Insurance Policy hereunder. 

 

Section 2.2       Existing  Reinsurance. 

 

(a)  This Agreement is written on a “net” basis such that (i) amounts payable to
the Reinsurer hereunder shall be adjusted to take into account amounts paid by
the Ceding Company under Existing Reinsurance Agreements and (ii) amounts due
from the Reinsurer hereunder shall be adjusted to take into 

 

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account amounts recoverable by the Ceding Company under the Existing Reinsurance
Agreements, in the case of each of (i) and (ii), in respect of the Covered
Insurance Policies. All amounts recoverable by the Ceding Company under the
Existing Reinsurance Agreements for periods (or portions of periods) prior to,
on or after the Effective Time shall inure to the benefit of the Reinsurer. The
Ceding Company shall bear the risk of non-collection of amounts due in respect
of the Covered Insurance Policies under the Existing Reinsurance Agreements.

 

(b)  The Ceding Company shall be responsible for administration of the Existing
Reinsurance Agreements. However, the Ceding Company shall (i) except with
respect to changes resulting from the resolution of disputes contemplated in
Section 2.2(d), consult with and obtain prior written consent of the Reinsurer,
which consent shall not be unreasonably withheld, conditioned or delayed with
respect to Existing Reinsurance Agreements that cover both Covered Insurance
Policies and other policies of the Ceding Company that are not reinsured
hereunder, (x) for any pricing rate changes or cost of insurance changes under
any such Existing Reinsurance Agreements initiated or agreed by Ceding Company
or (y) to terminate or replace any Existing Reinsurance Agreements, and (ii)
provide prior written notice to the Reinsurer of the initiation or resolution of
any disputes with reinsurers thereunder. 

 

(c)  To the extent Existing Reinsurance covers only Covered Insurance Policies,
the Reinsurer may make recommendations consistent with the rights of the Ceding
Company under such agreements and the Ceding Company will use its reasonable
best efforts to effect such rights.

 

(d)  [***]. 

 

Section 2.3       Insurance Contract Changes. 

 

(a)  Except as permitted in Section 2.3(b), the Ceding Company shall not
voluntarily make or agree to any change to the terms or conditions of, any
Covered Insurance Policy for any reason without the prior written consent of the
Reinsurer (other than (i) any Excluded NGE Change or any other change in
Non-Guaranteed Elements, which are subject to Section 2.5 and shall not be
governed by or subject to this Section 2.3, (ii) changes that are initiated by
policyowners under the terms of a Covered Insurance Policy, (iii) changes
required by Applicable Law, a Governmental Authority or any Existing Reinsurance
Agreement, and (iv) changes resulting from exigent circumstances that require
immediate action and affect the Covered Insurance Policies due to situations
including natural or manmade disaster, pandemic, governmental actions or
economic circumstances, which exigent circumstances may or may not be dictated
by Applicable Law; provided  that such changes are (x) made to address the
circumstances, (y) consistent with actions taken and changes made by the Ceding
Company or its Affiliates to similar policies issued by the Ceding Company or
such Affiliate that are not Covered Insurance Policies, if any, in response to
the relevant situation and (z) consistent with actions taken and changes made by
similarly situated insurers or financial institutions not Affiliated with the
Ceding Company to similar types of insurance policies as the affected Covered
Insurance Policies in response to the relevant situation (“Exigent
Circumstances”, and each of the items listed in (ii), (iii) and (iv), are
referred to herein as an “Excluded Policy Change”)). 

 

(b)  The Reinsurer will provide written notification to the Ceding Company as to
the Reinsurer’s acceptance or rejection of any change requiring its consent
within fifteen (15) Business Days after receipt of notice of such change. If the
Reinsurer accepts such change, the Reinsurer will share in the Quota Share of
any increase or decrease in the liability of the Ceding Company on such Covered
Insurance Policy. If the Reinsurer rejects any such change and determines that
it would reasonably be expected to have a material adverse effect on the
Reinsurer’s liability under this Agreement (i) the Reinsurer shall notify the
Ceding Company of such determination and (ii) if the Ceding Company nevertheless
elects  to  make  such  change,  the  Ceding  Company  will  work  together  in 
good  faith  with  the 

 

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Reinsurer to put the Reinsurer in substantially the same economic position as it
would have been in if such change had not occurred. In the event that the
Parties, acting in good faith, are unable to agree upon the existence or amount
of such material adverse effect or how to put the Reinsurer in substantially the
same economic position, such dispute shall be referred to an Independent Actuary
to determine whether such a material adverse effect has occurred and, if so, an
appropriate remedy. Both Parties will promptly supply the Independent Actuary
with the necessary data to perform its analysis, subject to such actuary’s entry
into a customary non-disclosure agreement. The Independent Actuary’s written
decision as to the existence of a material adverse effect and the amount thereof
and/or of how to put the Reinsurer in substantially the same economic position
will be binding on the Parties. The fees and expenses of the Independent Actuary
will be borne equally by the Ceding Company and the Reinsurer; provided, that if
the Independent Actuary determines that there will not be a material adverse
effect, the Reinsurer will pay or promptly reimburse the Ceding Company for all
fees and expenses of the Independent Actuary. The Reinsurer shall be deemed to
have consented to such change if it fails to act in accordance with this Section
2.3(b) within fifteen (15) Business Days following receipt of written notice of
such change. 

 

(c)  Excluded Policy Changes shall be automatically binding on the Reinsurer.
Within a reasonable period of time prior to effecting any Excluded Policy
Change, the Ceding Company shall provide reasonably detailed notice to the
Reinsurer describing the nature of such change and the reasons for making such
change. Within five (5) Business Days following the Reinsurer’s receipt of
notice of any (i) change made due to Exigent Circumstances, or (ii) change
required by Applicable Law, a Governmental Authority or any Existing Reinsurance
Agreement pursuant to Section 2.3(a)(iii), the Reinsurer shall provide written
notice to the Ceding Company of any disagreement that such change was an
Excluded Policy Change. If the Reinsurer fails to provide such notice to the
Ceding Company within such time period, the Reinsurer shall be deemed to have
accepted such change. Should the Reinsurer provide timely notice of
disagreement, during the five (5) Business Days immediately following the
delivery of such notice, the Ceding Company and the Reinsurer will seek in good
faith to resolve any disputes as to the proposed change. In the event the
Parties cannot resolve such dispute within such period, either Party may elect
to refer the dispute for arbitration pursuant to Section 10.3(b). In the event
of any such proceeding, the arbitration panel shall only be authorized to
determine whether the disputed change is an Excluded Policy Change. If the
resolution of the dispute results in a determination that the change was not an
Excluded Policy Change, the Parties will use the mechanism set forth in Section
2.3(b) to value the impact of the change. 

 

(d)  Except as otherwise provided for in this Agreement, the Ceding Company
shall not voluntarily terminate, or waive any material provisions of, the
Covered Insurance Policies, except (i) in the ordinary course of business, (ii)
as required by Applicable Law or a Governmental Authority or (iii) with the
Reinsurer’s prior consent which consent shall not be unreasonably withheld,
conditioned or delayed.

 

Section 2.4       Follow the Fortunes; Follow the Settlements; Contested
Claims. 

 

(a)  The Reinsurer’s liability under this Agreement shall attach simultaneously
with that of the Ceding Company under the Covered Insurance Policies and shall
be subject in all respects to the same risks, terms, rates, conditions,
interpretations, assessments, waivers, modifications, alterations, cancellations
and proportion of Premiums paid without any deductions as the respective
insurances (or reinsurances) of the Ceding Company, the true intent of this
Agreement being that the Reinsurer shall, subject to the terms, conditions, and
limits of this Agreement, follow the fortunes of the Ceding Company under the
Covered Insurance Policies and with respect to the Reinsured Liabilities.
Subject to the terms and conditions of this Agreement and any Administrative
Services Agreement, the Ceding Company alone and in its full discretion, as
applicable, shall adjust, settle or compromise all claims and losses and shall
commence, continue, defend, compromise, settle or withdraw from actions, suits
or proceedings, and 

 

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generally do all such matters and things relating to the validity and lapse or
in-force status of any Covered Insurance Policy, any claim or loss as in its
judgment may be beneficial or expedient. The Parties acknowledge and agree that
the Ceding Company may exercise such discretion itself or through any
Subcontractor. All of the Ceding Company’s liability as determined by a court or
arbitration panel or arising from a judgment, settlement, compromise or
adjustment of claims or losses under the Reinsured Liabilities, including
payments involving coverage issues and/or the resolution of whether such claim
is required by law, regulation, or regulatory authority to be covered (or not to
be excluded), shall, subject to the terms, conditions and limits of this
Agreement, be binding on the Reinsurer regardless of whether such court or
arbitration determination, judgment, settlement, compromise or adjustment is in
respect of a liability recognized by or contrary to the governing law of this
Agreement. Such court or arbitration determination, settlement, compromise or
adjustment shall be considered a satisfactory proof of loss. 

 

(b)  While the Ceding Company retains ultimate decision-making authority for the
handling of all claims and losses and any disposition thereof in respect of the
Self-Administered Policies, from and after the Amendment Date, the Ceding
Company shall consult with the Reinsurer in good faith before (i) making a
single claims payment in respect of a Self-Administered Policy in excess of $3.5
million; (ii) making a claims payment on a Self-Administered Policy that is a
life insurance policy during any applicable contestability period; (iii)
establishing a claims reserve with respect to a single Self- Administered Policy
in excess of $3.5 million; or (iv) denying a claim in respect of a
Self-Administered Policy in excess of $1 million (any claims listed in (i),
(ii), (iii) or (iv), a “Consultation Claim”); provided,  however, that such
consultation rights shall (x) not apply to Self-Administered Policies that as of
the Amendment Date are in pay-out status and (y) be limited to the extent that
any Non-Transitioned TPAs have authority to take any of the foregoing actions on
behalf of the Ceding Company without prior notice to, or consultation with, the
Ceding Company. The Reinsurer shall honor the Ceding Company’s calculations of
Reinsured Liabilities related to such Consultation Claims and shall settle in
the ordinary course the Reinsured Liabilities as so calculated; provided, that
notwithstanding anything to the contrary in this Section 2.4, the Reinsurer
shall then have the right to notice a dispute subject to Section 10.3 hereof, to
be resolved in accordance with Section 10.3 and the following framework: 

 

(i)        The Reinsurer shall bear the burden of proof to establish such
settlement was not reasonable. When determining the reasonableness of the Ceding
Company’s settlements in any such arbitration, the panel shall consider whether
the settlement would have been different had this Agreement not been entered
into. 

 

(ii)       If the panel determines the Ceding Company’s settlement would have
been different in the absence of this Agreement being in effect, the panel shall
award the Reinsurer all monetary damages, if any, to put the Reinsurer in
substantially the same position had the Ceding Company’s settlements been made
without regard to the existence of this Agreement. The panel shall determine the
corresponding adjustments to the calculation of Reinsured Liabilities in this
regard.

 

(iii)       The panel shall not award any damages, other than legal fees and
costs, to compensate the Reinsurer for the failure of the Ceding Company to act
in good faith. 

 

(iv)       The remedies set forth in this Section 2.4(b) are the Reinsurer’s
exclusive remedies in respect of Consultation Claims. 

 

(v)        If any Party’s position in the arbitration is determined not to have
been taken or maintained in good faith and not consistent with the mutual intent
of the Parties as expressed in this Agreement, the panel shall have the power to
award attorneys’ fees and costs to the other Party, which shall be at the losing
Party’s own expense. 

 

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For the avoidance of  doubt,  except  as  specifically  set  forth  in  this 
Agreement, including this Section 2.4(b) in respect of Consultation Claims,
nothing herein shall deprive or otherwise limit the dispute rights of the
Reinsurer with respect to any other matter set forth herein. 

 

(c)  From and after the Amendment Date, the Ceding Company will, as promptly as
practicable, notify the Reinsurer of the Ceding Company’s intention to contest,
arbitrate, dispute or litigate (any such action, a “Contest”) any claim for
benefits under a Self-Administered Policy (any such claim, a “Contested Claim”),
and, if requested by the Reinsurer, will promptly share information pertaining
thereto; provided, however, that claims denials and administrative actions in
the normal course of administration and litigation initiated by a policyholder
or beneficiary after such a denial or action, shall not constitute “Contested
Claims”. To the extent the Reinsurer accepts participation (pursuant to the
provisions below), the Ceding Company will consult with the Reinsurer with
respect of such Contest. Once notified, the Reinsurer will promptly notify the
Ceding Company in writing of its decision concerning participation in the
Contest; provided, that if the Reinsurer has not responded in writing either way
to the Ceding Company within ten (10) Business Days following its receipt of
such notice from the Ceding Company, the Reinsurer shall be deemed to have
accepted participation in such Contest. If the Reinsurer provides written notice
within ten (10) Business Days following its receipt of such notice from the
Ceding Company that it has elected not to participate, the Reinsurer shall
promptly pay the applicable amount in full as contemplated in clause (c)(i)
below. For the avoidance of doubt, the Reinsurer shall be deemed to have
accepted participation in any Contest in respect of an Administered Policy. In
addition, the Reinsurer shall be deemed to have accepted participation in any
Contest in respect of a Covered Insurance Policy initiated by or on behalf of
the Ceding Company prior to the Amendment Date, and the Reinsurer hereby waives
any requirement of the Ceding Company to provide notice to, or consultation
with, the Reinsurer with respect to any such Contest prior to the Amendment
Date, including all contests and disputes set forth on Schedule 2.4. Whether the
Reinsurer accepts participation in any Contest or not, the Reinsurer will
cooperate and will encourage any Reinsurer Appointed Administrator to cooperate
with the Ceding Company with respect to the handling of such Contest, including,
by way of example, making individuals available as needed for depositions and
providing information necessary to appropriately manage any Contest. 

 

(i)         If the Reinsurer does not accept participation, it will fulfil its
obligation for such Contested Claim by paying the Ceding Company its Quota Share
of (A) all amounts specified in clause (x) of the definition of “Reinsured
Liabilities” that are alleged to be due under the Self- Administered Policy in
such Contested Claim; (B) the costs and expenses specified in clause (y) of the
definition of “Reinsured Liabilities” relating to the Self-Administered Policy
that is the subject of such Contested Claim to the extent such costs and
expenses were incurred prior to the Ceding Company’s receipt of the Reinsurer’s
notice that it will not so participate; and (C) as specified in clause (z) of
the definition of “Reinsured Liabilities,” all Reinsurer Extra-Contractual
Obligations that relate to such Contested Claim but do not arise out of or
resulting from such Contest. Such payment will fully and completely satisfy all
of the Reinsurer’s obligations in regards to such Contested Claim, and the
Reinsurer shall not share in any reduction in the Reinsured Liabilities arising
from such Contest, nor in any costs or expenses awarded or  recouped by the
Ceding Company in connection with such Contest. For the avoidance of doubt, the
Reinsurer shall not be responsible for any Extra-Contractual Obligations arising
out of or resulting from any Contest that the Reinsurer does not accept
participation in (including deemed acceptance) hereunder. 

 

(ii)        If the Reinsurer accepts participation in the Contest (including
deemed acceptance pursuant  to  Section  2.4(c)),  the  Reinsurer  will  share, 
in  proportion  to  its  Quota  Share: (x) in any Extra-Contractual Obligations
arising out of or resulting from the Ceding Company’s Contest, including any
compromise or settlement resulting from such Contest; (y) all Reinsured

 

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Liabilities and (z) all additional costs and expenses specified in clause (y) of
the definition of “Reinsured Liabilities” that arise out of or result from such
Contest. Furthermore, if the Ceding Company’s Contest results in a reduction in
the Ceding Company’s contractual liability, the Reinsurer will share in any such
reduction in the Reinsured Liabilities in proportion to its Quota Share. To the
extent the Ceding Company is awarded or recoups its costs and expenses resulting
from such Contest, the Ceding Company will pay the Reinsurer the Quota Share of
the amount awarded or recouped (net of costs and expenses incurred by the Ceding
Company in obtaining such award or recoupment that are not so awarded or
recouped). The Ceding Company will promptly advise the Reinsurer of all
significant developments, including notice of legal proceedings (including
consumer complaints or actions by Governmental Authorities) initiated in
connection therewith.

 

(iii) Any failure of the Ceding Company to timely notify the Reinsurer of the
Ceding Company’s intention to Contest a claim for benefits under a
Self-Administered Policy pursuant to Section 2.4(c) shall not limit the
Reinsurer’s obligations or liabilities under this Agreement for
Extra-Contractual Obligations; provided  that notice of such Contest is given to
the Reinsurer as soon as practicable after the Ceding Company discovers or is
made aware of such failure and provided further that the Reinsurer was not
materially prejudiced by such late notice. In the event that (A) the Reinsurer
was materially prejudiced by a late delivered notice under this clause (iii), or
(B) notice of such Contest was not given to the Reinsurer as soon as practicable
after the Ceding Company discovers or is made aware of such failure, and
following notice of such Contest, the Reinsurer timely elects not to participate
in such Contest, the Reinsurer shall not share in any Extra-Contractual
Obligations that arise out of or result from such Contest and, with respect to
the costs and expenses described in clause (y) of the definition of “Reinsured
Liabilities”, shall only share in fifty percent (50%) of such costs and expenses
relating to the Self- Administered Policy that is the subject of such Contested
Claim that were incurred prior to the Ceding Company’s receipt of the
Reinsurer’s notice that it will not so participate.

 

Section 2.5 Non-Guaranteed Elements. 

 

(a)  The Reinsurer acknowledges that the Ceding Company shall have the ultimate
authority to establish  and  control  (i)  the  non-guaranteed  elements  of 
the  Covered  Insurance  Policies,  including (A) the initial and renewal
crediting rates, (B) Premiums following the expiration of the period during
which Premium amounts for the applicable Covered Insurance Policies are fixed
and constant (i.e., rate guarantee periods), (C) insurance charges, (D) loads
and expense charges, (E) mortality and expense charges,  (F) administrative 
expense  risk  charges,  (G) policyholder  dividends,  (H) Policy Loan rates,
(I) index cap and (J) participation rates and (ii) in respect of the Surplus
Participation Payments, (A) the average payout timing of such payments and (B)
the surplus tally calculation of such payments (each of such items, a
“Non-Guaranteed Element”); provided, however, that the Ceding Company shall
manage all Non-Guaranteed Elements in a manner consistent with the practices and
procedures applied by the Ceding Company for its similar businesses and in
accordance with Applicable Law. The Ceding Company agrees that, from and after
the Amendment Date, it shall take into account the recommendations of the
Reinsurer regarding the Non-Guaranteed Elements (whether in response to a change
proposed by the Ceding Company or at the initiative of the Reinsurer), and, to
the extent such recommendations comply with Applicable Law, the terms of this
Agreement, the applicable Covered Insurance Policies and generally accepted
actuarial standards of practice, the Ceding Company shall not unreasonably
reject such recommendations. Each time the Ceding Company elects to change any
Non-Guaranteed Elements, other than (1) any change in initial or renewal
crediting rates, Policy Loan rates, index cap or participation rates, any other
similar change or any change required by any Applicable Law or Governmental
Authority or (2) any change in term Premiums charged in respect of term Covered
Insurance Policies that have reached  the  end  of  the  level-term period 
(each  of  the  items  listed  (1) or  (2),  a  an  “Excluded  NGE 

 

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Change”), the Ceding Company shall notify the Reinsurer in writing of such
change to any Non- Guaranteed Elements as soon as practicable but in no case
later than forty-five (45) calendar days after  the effective date of such
change; provided, however, that, in the case of any such change to a Non-
Guaranteed Element specified in clauses (i) or (ii)(A) of the definition thereof
that affects more than five percent (5%) of the Covered Insurance Policies in
any Reinsured Portfolio, the Ceding Company will use its reasonable best efforts
to notify the Reinsurer thirty (30) calendar days before such change takes place
(each form of notice described in this sentence, an “NGE Change Notice”). 

 

(b)  If the Reinsurer reasonably determines that any such change, or the
unreasonable rejection of any recommendations by the Reinsurer, to the
Non-Guaranteed Elements, other than Excluded NGE Changes, would reasonably be
expected to have a material adverse impact on the Reinsurer’s liability
hereunder (an “NGE MAE”), the Reinsurer may so notify the Ceding Company in
writing of such determination within twenty-five (25) calendar days following
the Reinsurer’s receipt of notice from the Ceding Company of the change,
including an NGE Change Notice. Within thirty (30) calendar days of receipt of
such a notice from the Reinsurer, the Ceding Company shall engage an Independent
Actuary, with the selection of the Independent Actuary subject to the
Reinsurer’s prior written consent, not to be unreasonably withheld, to (i)
determine whether the change to the Non- Guaranteed Elements will have an NGE
MAE (if the existence of an NGE MAE is disputed) and (ii) if so, estimate the
present value of the NGE MAE impact (if any). If the Independent Actuary
determines that there will be an NGE MAE, the Ceding Company will work together
in good faith with the Reinsurer to put the Reinsurer in substantially the same
economic position as it would have been in if such change had not occurred. Both
Parties will promptly supply the Independent Actuary with the necessary data to
perform its analysis, subject to such Independent Actuary’s entry into a
customary non-disclosure agreement.  The Independent Actuary’s written decision
as to the existence and amount of any NGE  MAE will be binding on the Parties.
The fees and expenses of the Independent Actuary will be borne equally by the
Ceding Company and the Reinsurer; provided, that if the Independent Actuary
determines there will not be any NGE MAE, the Reinsurer will pay or promptly
reimburse the Ceding Company for all fees and expenses of the Independent
Actuary. The Reinsurer hereby agrees that any change to a Non- Guaranteed
Element that is initiated, recommended, approved or ratified by the Reinsurer,
any Affiliate of the Reinsurer or a Reinsurer Appointed Administrator shall be
deemed not to have a material adverse effect on the Reinsurer’s liability
hereunder. 

 

(c)  Within a reasonable period of time prior to effecting any Excluded NGE
Change required by Applicable Law or a Governmental Authority, the Ceding
Company shall provide reasonably detailed notice to the Reinsurer describing the
nature of such change and the reasons for making such change. Within five (5)
Business Days following the Reinsurer’s receipt of notice of any such Excluded
NGE Change, the Reinsurer shall provide written notice to the Ceding Company of
any disagreement that such change is an Excluded NGE Change. If the Reinsurer
fails to provide such notice to the Ceding Company within such time period, the
Reinsurer shall be deemed to have accepted such change. Should the Reinsurer
provide timely notice of disagreement, during the five (5) Business Days
immediately following the delivery of such notice, the Ceding Company and the
Reinsurer will seek in good faith to resolve any disputes as to the change. In
the event the Parties cannot resolve such dispute within such period, either
Party may elect to refer the dispute for arbitration pursuant to Section
10.3(b). In the event of any such proceeding, the arbitration panel shall only
be authorized to determine whether the disputed change is an Excluded NGE
Change. If the resolution of the dispute results in a determination that the
change was not an Excluded NGE Change, the Parties will use the mechanism set
forth in Section 2.5(b) to value the impact of the change. 

 

Section 2.6 Misstatement of Age, Sex or Any Other Material Fact. If the Ceding
Company’s liability under any of the Covered Insurance Policies is changed
because of a misstatement of age, sex or any other material fact, the Reinsurer
shall: (a) assume a Quota Share of that portion of any increase in the

 

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Ceding Company’s liability resulting from the change; and (b) receive credit for
a Quota Share of that portion of any decrease in the Ceding Company’s liability
resulting from the change. The reinsurance with the Reinsurer shall be restated
and, as applicable, adjusted between the Parties from commencement on the basis
of the adjusted amounts in the Covered Insurance Policy using Premiums and
reserves at the correct age and sex or other material fact. If the Ceding
Company returns Premium to the policyowner or beneficiary under a Covered
Insurance Policy based on contestable misrepresentation or suicide of the
insured, the Reinsurer will refund the net reinsurance Premiums received on that
Covered Insurance Policy to the Ceding Company as part of the Quarterly Net
Settlement Amount pursuant to Section  3.2. 

 

Section 2.7       Programs of Internal Replacement. 

 

(a)  Unless otherwise agreed by the Parties, the Ceding Company will not, and
will cause its Affiliates not to, directly or indirectly, undertake, solicit,
sponsor or support any exchange program in respect of the Covered Insurance
Policies (an “Exchange Program”) or otherwise target in a directed, programmatic
or systematic manner, the Covered Insurance Policies for replacement (a
“Replacement Program”). 

 

(b) An Exchange Program or Replacement Program shall be considered undertaken,
solicited, sponsored or supported by the Ceding Company or such Affiliates if
the program is initiated by the Ceding Company or any of such Affiliates and the
program offers financial incentives (e.g., bonuses or commissions) for
policyholders or sales representatives for the purpose of inducing the
replacement of the Covered Insurance Policies. A program designed to encourage
current policyholders to convert term life coverage shall not be considered to
be either an Exchange Program or Replacement Program so long as such program is
not specifically directed principally to policyowners of Covered Insurance
Policies. 

 

(c)  The offering by the Ceding Company or any of such Affiliates to new clients
and to policyholders of the Covered Insurance Policies of an insurance, annuity,
or investment product that offers then-market terms that are more favorable to
the policyholders of the Covered Insurance Policies in the normal course of the
Ceding Company’s or such Affiliate’s business and consistent with its past
practices shall not be considered to be an Exchange Program in violation of this
obligation; provided, that such product is not specifically directed principally
to policyowners of the Covered Insurance Policies and does not otherwise
constitute a Replacement Program. 

 

Section 2.8 Actuarial Review. The Reinsurer  shall  engage  an  independent 
third  party  actuarial firm to conduct a review (a) no less than once every
thirty-six (36) months covering the Long Term Care business (as defined in
Schedule 1.2 hereof) and (b) no less than every sixty (60) months covering the
First Generation Universal Life and SunAmerica Life Reinsured Portfolios (each
as defined in Schedule 1.2 hereof), in each case ceded by the Ceding Company
hereunder, and the Reinsurer shall either pay directly, or, to the extent such
review is required by a Governmental Authority, reimburse the Ceding Company
for, all fees, costs and expenses of such firm. However, the Reinsurer shall
obtain the prior written consent of the Ceding Company as respects the choice of
such actuarial firm, as well as the lead actuarial partner working on such
matter(s), prior to formalizing such engagement, such consent not to be
unreasonably withheld. Any changes to the firm and/or lead actuarial partner
shall also require the prior written consent of the Ceding Company, such consent
not to be unreasonably withheld. Prior to the commencement of any such annual
review, the Reinsurer and the Ceding Company shall agree on the scope of work to
be performed by such third party actuarial firm; provided, that the scope of
work to be performed by such third party actuarial firm must include all work
reasonably necessary to satisfy the requirements of the review required pursuant
to clauses (a) and (b) of this Section 2.8 and all reporting requirements of the
Reinsurer’s domestic regulators with respect to reserves ceded from the Ceding
Company to the Reinsurer under this Agreement. Any additional work requested of
such actuarial firm  by the  Ceding  Company  shall  be  the  subject  of  a 
separate  scope  of  work  between  the  Ceding  Company 

 

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and such firm, the costs of which shall not be borne by the Reinsurer and shall
be borne by the Ceding Company at its own expense. In addition, nothing herein
shall preclude the Ceding Company from seeking from such third party actuarial
firm a right to consult with such firm from time to time in the course of such
review and/or a right to receive, concurrent with the Reinsurer’s receipt,
copies of all draft reports and material correspondence from such third party
actuarial firm, and the Reinsurer shall consent to such consultation or access
requested by the Ceding Company. The Reinsurer shall, and shall cause its
Reinsurer Appointed Administrator(s) to, fully cooperate with any third party
actuarial firm conducting any such reviews. 

 

Section 2.9       Other Restrictions and Other Funding Obligations. 

 

(a)  From and after the Amendment Date, the Reinsurer shall use its commercially
reasonable efforts to obtain an investment grade (financial strength / FSR)
rating from at least one of the following nationally recognized statistical
rating organizations: Moody’s Investors Service Inc., S&P Global Ratings or
Fitch Ratings Inc. (an “Acceptable  Rating”). 

 

(b)  [***]. 

 

(c)  [***]. 

 

(d)  [***]. 

 

(e)  [***]: 

 

(i)         [***]: 

 

a.         [***]; 

 

b.         [***]; 

 

c.         [***];  and 

 

d.         [***]. 

 

(ii)        [***]. 

 

Section 2.10 Reinsurer Net Retention. At all times during the term of this
Agreement, the Reinsurer, together with one or more of its Affiliates, shall
retain net for its own account (and not reinsured or retroceded) at least [***]%
of the Statutory Reserves ceded to the Reinsurer hereunder (as measured on the
basis of SAP); provided, that the foregoing restriction shall not take into
account and shall not apply to any retrocession or similar arrangement solely
between the Reinsurer and any of its Affiliates.

 

ARTICLE III

INITIAL PAYMENTS; SETTLEMENTS;

ADMINISTRATION; REPORTING; BOOKS AND RECORDS 

 

Section 3.1       Initial  Payments. 

 

(a)  Initial ModCo Deposit. On the Closing Date, the Ceding Company shall
deposit Permitted Assets with a Statutory Book Value, as of the Closing Date,
equal to $25,331,667,332 into the ModCo Account (the “Initial ModCo Deposit”). 

 

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(b)  Ceding   Commission.  On the Closing Date, the Reinsurer shall pay to the
Ceding Company a ceding commission in an amount equal to $0. 

 

Section 3.2       Settlements. 

 

(a)  A quarterly net settlement amount (the “Quarterly Net Settlement Amount”)
shall be payable under this Agreement for each Accounting Period in accordance
with a settlement statement substantially in the form set forth on Exhibit B
(the “Settlement Statement”), which shall reflect the following settlement: 

 

(i)         a Quota Share of all Reinsured Liabilities paid by the Ceding
Company during such Accounting Period; “Reinsured Liabilities” shall mean (x)
all liabilities and obligations (including death claims and other contractual
benefits, such as policyholder dividends, cash surrender and withdrawal payments
(net of surrender charges and fees), maturities, disability payments and income
payments, endowments and interest owed under Applicable Law or the terms of the
policy on policy claims) of the Ceding Company under the express terms and
conditions of the Covered Insurance Policies (whether paid to a beneficiary or
escheated), plus (y) all obligations of the Ceding Company for loss adjustment
expenses in respect of the Covered Insurance Policies, including legal fees,
court costs, pre-and post-judgment interest, and including costs and expense
incurred in connection with interpleader and declaratory judgment actions and
responding to subpoenas, as well as charges and expenses contractually incurred
through the use of the Ceding Company’s Affiliated claims services or technical
services companies providing such contest, compromise or litigation service on
the Covered Insurance Policies (but excluding any part of the general office
expenses and overhead of the Ceding Company), in each case, net of any such
liabilities paid by the Ceding Company that are recoverable by the Ceding
Company under the Existing Reinsurance Agreements, plus (z) all Reinsurer
Extra-Contractual Obligations, minus 

 

(ii)       a Quota Share of “Premiums” for such Accounting Period, which shall
equal (w) the gross premiums and other amounts, payments, collections,
considerations, recoveries, policy fees, deposits and similar receipts received
by or on behalf of the Ceding Company in respect of the Covered Insurance
Policies (other than Interest Earned on Policy Loans addressed below), minus 
(x) 100% of any premiums and other amounts paid by the Ceding Company in respect
of the Existing Reinsurance Agreements for such Accounting Period, minus  (y)
all refunds of unearned premiums for such Accounting Period as a result of the
termination of any Covered Insurance Policies, whether due to lapse or death, or
arising due to the termination of this Agreement, minus  (z) any Federal Excise
Tax payable pursuant to Section 7.2,  minus 

 

(iii)       a Quota Share of “Interest Earned on Policy Loans” for such
Accounting Period, which shall equal (x) the interest collected on Policy Loans,
plus  (y) the increase in accrued interest on Policy Loans, minus  (z) the
increase in unearned loan interest on Policy Loans during such Accounting
Period, or, in the alternative, any reasonable approximation method for accrued
and unearned interest as agreed to by the Parties, plus 

 

(iv)       a Quota Share of Guaranty Fund Assessments for such Accounting Period
paid pursuant to Section 7.5,  plus 

 

(v)        the “Aggregate Expense Allowance” for such Accounting Period, which
shall equal the sum of the Expense Allowances for each Reinsured Portfolio
included in the Covered Insurance Policies as calculated in accordance with
Schedule 1.1,  plus 

 

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(vi)      the “Investment Expenses” for such Accounting Period, which means the
sum of (x) aggregate fees, expenses and other amounts and costs Deemed Paid by
the Ceding Company or any of its Affiliates or designees to any Investment
Manager or any other Person relating to investment advice, investment
management, hedging support, derivatives advisory services, tracking of
derivatives transactions, securities lending, repurchase, reverse repurchase and
similar transactions and trade processing, settlement, pricing, collateral and
margin management, and other related services for such transactions, in each
case, relating to the ModCo Assets or relating to the custody of any ModCo
Assets, plus  (y) an expense allowance for investment accounting services
(including maintenance of the Reinsurer accounting basis for the ModCo Assets)
provided, or caused to be provided, by the Ceding Company or its Affiliates
equal to [***] basis points times the GAAP Carrying Value of the ModCo Assets as
of the beginning of such Accounting Period, plus 

 

(vii)      the Quota Share of the total balance of Policy Loans outstanding as
of the end of the Accounting Period minus the Quota Share of the total balance
of Policy Loans outstanding as of the end of the preceding Accounting Period,
plus 

 

(viii)     a Quota Share of “Surplus Participation Payments”, if any, made
during such Accounting Period, which shall equal all amounts paid to
policyholders of certain Covered Insurance Policies having a participating
policyholder dividend feature that by statute or historic course of practice
provides for participation rights in a separately tracked surplus tally
calculation attributable to such block of Covered Insurance Policies; Surplus
Participation Payments will be made consistent with the Ceding Company’s
Description of Par Dividend Surplus Tally Spreadsheet memorandum, dated October
12, 2017, in effect on the Closing Date, attached as Exhibit F; provided,
however, the average payout timing of such Surplus Participation Payments may be
changed in accordance with Section  2.5). 

 

Following the Amendment Date, the Parties shall use their reasonable best
efforts to develop a mutually agreeable mechanism for separately reporting to
the Reinsurer all Reinsurer Extra-Contractual Obligations and Ex Gratia Payments
paid by the Ceding Company during an Accounting Period.

 

The Ceding Company will provide a Settlement Statement to the Reinsurer for each
Accounting Period on the fifteenth (15th) Business Day of the second calendar
month following each Accounting Period (other than a calendar year-end
Accounting Period) and on the first day of the third calendar month following
each calendar year-end Accounting Period. The Settlement Statement shall also
include the Ceding Company’s current list of Restricted Purchasers.

 

(b)  The Quarterly Net Settlement Amount payable under this Agreement for each
Accounting Period and any Terminal Accounting Period (as set forth in the
Settlement Statement) shall be payable as follows: 

 

(i)         if the Quarterly Net Settlement Amount is positive, the Reinsurer
shall pay such amount to the Ceding Company no later than the later of seven (7)
Business Days after the receipt by the Reinsurer of the Settlement Statement or
seven (7) Business Days after the due date for the Settlement Statement; and 

 

(ii)       if the Quarterly Net Settlement Amount is negative, no later than
seven (7) Business Days after the due date for the Settlement Statement, the
Ceding Company shall pay the absolute value of such negative amount to the
Reinsurer;

 

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provided, that any amounts payable pursuant to Sections 3.2(b)(i) and (ii) 
shall be adjusted (positive or negative) for any amounts transferred to or paid
by or on behalf of a Party during the period between the end of the Accounting
Period and the date any remittance is paid hereunder.

 

In lieu of cash payments in respect of the Quarterly Net Settlement Amount, the
Parties may settle by means of an asset transfer. In such event: (A) if an
amount is due the Ceding Company, the Reinsurer shall transfer Permitted Assets
with a Fair Market Value equal to such amount and as mutually agreed upon by the
Parties; or (B) if an amount is due the Reinsurer, the Ceding Company shall
transfer assets with a Fair Market Value equal to such amount that are mutually
agreed upon by the Parties. 

 

Section 3.3 Aggregate Expense Allowance, Investment Expenses and Surplus
Participation Payments. On a quarterly basis, the Reinsurer shall pay to the
Ceding Company, each as a component of the Quarterly Net Settlement Amount, (a)
the Aggregate Expense Allowance to cover the cost of providing administrative
and other services necessary or appropriate in connection with the
administration of the Covered Insurance Policies and the Reinsured Liabilities
in an aggregate amount calculated in accordance with Schedule 1.1, (b) the
Investment Expenses, and (c) a Quota Share of any Surplus Participation Payments
made during the Accounting Period. Subject to the last sentence of this Section 
3.3, the Parties shall cooperate in good faith to mutually agree to (i)
reasonable adjustments to the Aggregate Expense Allowance or Investment Expenses
for one or more Reinsured Portfolios to reflect changes in the premium tax,
commissions and/or administration costs of such Reinsured Portfolios or
investment expenses in respect of the ModCo Assets and (ii) make a corresponding
one-time payment from one Party to the other, as applicable, in connection with
any adjustment made pursuant to (i), equal to the change in the fair value of
the Reinsurer’s liability for the applicable future Aggregate Expense Allowance
payments or Investment Expense payments, as applicable, following implementation
of such adjustment as determined in accordance with the Insurance Act, including
the Insurance (Prudential Standards) (Class C, Class D and Class E Solvency
Requirement) Rules 2011, utilizing a discount rate to be agreed between the
Parties at the time of such payment, taking account of any flooring of the
Ceding Commission at $0 as of the Effective Time (an increase in the fair value
of the Aggregate Expense Allowance payments or Investment Expenses payments
would result in a one-time payment to the Reinsurer, while a decrease in such
fair value payments would result in a one-time payment to the Ceding Company);
provided, however, that no adjustment shall be made to the Ceding Commission due
to any increase or decrease in (1) the Aggregate Expense Allowance that results
from any increase or decrease in fees or other amounts charged by any Reinsurer
Appointed Administrator or (2) the Investment Expenses that results from any
increase or decrease in fees or other amounts charged by any Investment Manager
that is not affiliated with the Ceding Company and is designated by the
Reinsurer pursuant to Section  4.1(d)(ii). Any such adjustments shall be
effected by an amendment to this Agreement in accordance  with Section 10.13
hereof. Notwithstanding the foregoing, solely with respect to the adjustments
made to the Aggregate Expense Allowance and Investment Expenses that become
effective as of the Amendment Date, the Parties shall use the following
methodology to determine the one-time payment required hereunder: the one-time
payment (calculated as of the Amendment Date) shall equal the midpoint of (x)
the amount of the one-time payment based on the original discount rate used to
determine the Ceding Commission as of the Closing Date and (y) the amount of the
one-time payment based on then-current (i.e., as of the calculation date)
technical provision discount rate applied to Reinsurer’s Liabilities pursuant to
the Insurance Act. 

 

Section 3.4 Delayed Payments. If there is a delayed  settlement  of  any 
Quarterly  Net  Settlement Amount due hereunder that is actually reflected in
the related Settlement Statement, interest will accrue on such payment at a per
annum rate equal to (a) the London interbank offered rate for deposits in
Dollars having a maturity of three (3) months (“LIBOR”) as of the date that such
payment was due (the “Determination Date”), adjusted and compounded at each
three (3)-month anniversary thereof, plus  (b)  1.25%  (the  “Interest  Rate”) 
until  settlement  is  made,  unless  the  Parties  mutually  agree  that 

 

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interest on such delayed settlement payment shall be waived. If the Ceding
Company determines in its reasonable good faith judgment on the relevant
Determination Date that the LIBOR base rate has been permanently discontinued,
then the Parties shall mutually agree to use as a successor base rate the
alternative reference rate publicly-selected by the central bank, reserve bank,
monetary authority or any similar institution (including any committee or
working group thereof) that is consistent with accepted market practice on the
Determination Date (the “Alternative Rate”). If the Parties use the  Alternative
Rate as the successor base rate pursuant to the foregoing, the Parties shall
work in good faith, to the extent not provided by the terms thereof, to mutually
agree upon and determine in their commercially reasonable good faith judgment
the interest rate determination date and any other relevant methodology for
calculating the Alternative Rate, including any adjustment factor (including any
necessary spread adjustment) needed to make the Alternative Rate comparable to
the LIBOR base rate, in each case in a manner that is consistent with
industry-accepted practices for the Alternative Rate (including by reference to
price quotations listed on futures and derivatives exchanges). For purposes of
this Section 3.4, a Quarterly Net Settlement Amount will be considered overdue,
and such interest will begin to accrue, on the first day immediately following
the date such payment is due. For greater clarity, (i) a Quarterly Net
Settlement Amount shall be deemed to be due hereunder on the last date on which
such payment may be timely made under the applicable provision and (ii) interest
will not accrue on any Quarterly Net Settlement Amount due the Reinsurer
hereunder if the delayed settlement was caused by the Reinsurer or any Reinsurer
Appointed Administrator, including delays caused by the inability to liquidate
ModCo Assets in a timely manner that were chosen for withdrawal by the Reinsurer
to fund amounts due to the Reinsurer hereunder. Further, no interest will accrue
on the initial Quarterly Net Settlement Amount hereunder.

 

Section 3.5       Offset. 

 

(a)  Each Party shall have, and may exercise at any time and from time to time,
the right to offset any undisputed balance or balances, due from such Party to
the other Party under this Agreement, and may offset the same against any
undisputed balance or balances due to the former from the latter under this
Agreement. In the event of any insolvency, rehabilitation, conservatorship or
comparable proceeding by or against the Ceding Company or the Reinsurer, the
rights of offset and recoupment set forth in this Section 3.5 shall apply to the
fullest extent permitted by Applicable Law. Balances will be considered
“disputed” if one Party has contested the balance in writing to the other
Party. 

 

(b)  This right of offset will not be diminished by any insurance business
transfer pursuant to any Applicable Law similar in effect to Part VII of the
Financial Services and Markets Act 2000, a scheme of arrangement pursuant to
895-899 of the Companies Act 2006, a company voluntary arrangement pursuant to
Part I of the Insolvency Act 1986, or any provision which replaces the
foregoing, or has the same effect as the foregoing in any jurisdiction, so that
the Ceding Company or the Reinsurer may continue to offset against any assignee
or statutory transferee amounts due under any prior or related agreement against
sums claimed under this Agreement, notwithstanding any assignment of this
Agreement, or any insurance business transfer including this Agreement, or any
such scheme of arrangement or company voluntary arrangement affecting
liabilities under it. 

 

Section 3.6       Administration. 

 

(a)  For the period between the Closing Date and the Amendment Date, the Ceding
Company and its appointed administrators and other designees shall administer
the Covered Insurance Policies and perform all accounting therefor. During such
period, the Ceding Company shall be permitted to assign any of its
administrative functions, including claims administration, to any of its
Affiliates and/or third party administrators; provided, that the Ceding Company
shall remain ultimately responsible to the policyholders for such
administration. Such administration shall be conducted with no less skill, 

 

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diligence and expertise as the Ceding Company applies to servicing its other
business and in material conformance with the terms and conditions of the
Covered Insurance Policies and all Applicable Laws; provided, further, that the
performance of any material administrative services with regard to the Covered
Insurance Policies by any administrator that is not an Affiliate of the Ceding
Company or that is not acting as an administrator for such Covered Insurance
Policy as of the Effective Time shall be subject to the advance written approval
of the Reinsurer, such approval not to be unreasonably withheld, conditioned,
delayed or denied. Without limitation of the foregoing, in undertaking the
direct and reinsurance administration and claims practices relating to the
Covered Insurance Policies during such period, the Ceding Company and any
administrator or other designee appointed by the Ceding Company shall act in
accordance and consistent with the Ceding Company’s existing administrative and
claims practices in effect on the Effective Time (each, an “Existing Practice”);
provided, that, to the extent the Ceding Company or any administrator proposes
to modify materially an Existing Practice from time to time following the
Effective Time (an Existing Practice, as proposed to be modified from time to
time, a “Proposed Practice”), the Ceding Company shall (i) not, without the
prior written consent of the  Reinsurer (which shall not be unreasonably
withheld, conditioned, delayed or denied), implement or agree to the
implementation of the Proposed Practice and (ii) if the Reinsurer furnishes such
written consent, act in accordance and consistent with the Proposed Practice. In
the event that the Ceding Company or an administrator appointed by the Ceding
Company implements a Proposed Practice during such period without obtaining the
prior written consent of the Reinsurer and the Reinsurer reasonably determines
that it would reasonably be expected to have a material adverse effect on the
Reinsurer’s liability under this Agreement (x) the Reinsurer shall notify the
Ceding Company of such determination, and (y) the Ceding Company will work
together in good faith with the Reinsurer to put the Reinsurer in substantially
the same economic position as it would have been in if the implementation of
such Proposed Practice had not occurred. If the Ceding Company outsources any
material administrative services during such period, the Ceding Company shall
secure the Reinsurer’s right to audit and inspect the party performing such
outsourced services. Following the Amendment Date, this Section 3.6(a) shall
cease to apply to the Ceding Company’s administration of the Covered Insurance
Policies. 

 

(b)  Following the Amendment Date, subject to the receipt of all requisite
regulatory approvals, the Parties intend to enter into the FLAS Administrative
Services Agreement pursuant to which the Ceding Company would appoint FLAS to
perform certain administrative services with respect to the Administered
Policies described therein, other than certain administrative services that the
Ceding Company agrees to continue to perform in respect of such Administered
Policies (the “Retained Services”). Notwithstanding any appointment by the
Ceding Company of FLAS or any replacement third party administrator to perform
administrative services with respect to the Administered Policies, the Ceding
Company shall remain ultimately responsible to the policyholders for such
administration. 

 

(c)  For any period between the Amendment Date and the date the Parties enter
into the FLAS Administrative Services Agreement (or any replacement thereof),
and for any period thereafter that the FLAS Administrative Services Agreement
(or any replacement thereof) is not in effect, the Ceding Company shall provide
all of the administrative services in respect of the Covered Insurance
Policies.   For any period that the FLAS Administrative Services Agreement (or
any replacement thereof) is in effect, (i) pursuant to the terms of such
administrative service agreement, FLAS (or any other Reinsurer Appointed
Administrator) shall perform certain administrative services with respect to the
Administered Policies described therein, other than any Retained Services; and
(ii) the Ceding Company shall provide all of the administrative services in
respect of the Self-Administered Policies and perform the Retained Services. All
services to be performed by the Ceding Company hereunder at any point in time on
or after the Amendment Date (the “Administrative Services”) shall be performed
in accordance with the Appendix A hereto (the “Administrative  Appendix”). 

 

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(d)  The Reinsurer shall be bound by all payments and settlements entered into
(i) by any Reinsurer Appointed Administrator and (ii) by the Ceding Company in
accordance with Section 2.4. For purposes of interpreting Sections 2.4 and 3.6,
the Reinsurer shall be absolutely bound by any act or failure to act by it or
any Reinsurer Appointed Administrator providing all or a portion of
administrative services as respects the Covered Insurance Policies reinsured
hereunder. 

 

(e)  Following the Amendment Date, in addition to entering into the FLAS
Administrative Services Agreement and transitioning the administration of the
Administered Policies to FLAS (which transition is governed by the terms of the
Initial Purchase Agreement and shall not be subject to the requirements of this
Section 3.6(e)), the Reinsurer shall have the right to recommend to the Ceding
Company that the administration of all or a portion of the Administrative
Services remaining with the Ceding Company be transferred to FLAS or an
alternative administrator (each alternative administrator, FLAS and any
replacement of any of the foregoing, a “Reinsurer Appointed Administrator”), and
the Ceding Company shall not unreasonably withhold its consent as respects a
transition to any such Reinsurer Appointed Administrator; provided, that (i)
except as set forth below in Section 3.6(i), the Reinsurer shall bear all costs
to transition any Administrative Services to such Reinsurer Appointed
Administrator, as well as any damages or costs resulting from such transition,
including, without limitation, any early termination fees, any increases in
service fees on business remaining with the predecessor administrator to the
extent such increase in service fees results from such transition, and any other
costs and expenses resulting from the transition, (ii) all requisite regulatory
approvals shall have been received for such Reinsurer Appointed Administrator to
administer the applicable Administrative Services and (iii) the Ceding Company
reserves the right to perform due diligence on any proposed Reinsurer Appointed
Administrator prior to granting or withholding its consent and the Reinsurer
shall give due regard to the Ceding Company’s views regarding the qualifications
of any such Reinsurer Appointed Administrator; and provided, further, that any
recommendation to transition Administrative Services that are being performed by
any Non-Transitioned TPAs, shall be subject to the terms, conditions and
limitations contained in the applicable administrative services agreements with
such Non- Transitioned TPAs. Such transition may be accomplished in stages on an
administration function-by- administration function basis as the Parties shall
mutually agree, pursuant to a mutually acceptable administrative services
agreement (or an amendment to the FLAS Administrative Services Agreement or any
replacement thereof) (each such agreement, the FLAS Administrative Services
Agreement and any replacement of any of the foregoing, an “Administrative
Services Agreement”) having terms and conditions reasonably acceptable to the
Ceding Company, which shall include the specific services required to be
performed, the accounting and reporting requirements, the service standards,
financial consideration, insurance requirements and the term and termination of
the arrangement. 

 

(f)  Notwithstanding any provision of this Agreement to the contrary, no act or
failure to act by the Reinsurer or any Reinsurer Appointed Administrator shall
be considered an act or failure to act by the Ceding Company for any purpose of
this Agreement unless such act or failure to act is at the written direction or
request of the Ceding Company. Without limiting the foregoing, the Ceding
Company shall not be deemed to be in breach of this Agreement as a result of any
failure to perform, or inadequacy in the performance of, any obligation of the
Ceding Company hereunder to the extent such performance by the Ceding Company is
reasonably dependent on the performance by a Reinsurer Appointed Administrator
of its obligations under any Administrative Services Agreement that has not been
properly, timely and fully performed.

 

(g)  Reinsurer shall be deemed to have knowledge of, approved, consented to,
and/or ratified any act or failure to act by any Reinsurer Appointed
Administrator. Any fact, circumstance or issue that  is known or should
reasonably be known by any Reinsurer Appointed Administrator shall be deemed
known by the Reinsurer. 

 

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(h)  Reinsurer shall, and shall cause any Reinsurer Appointed Administrator, to
provide all data and any reports reasonably requested by Ceding Company in
connection with the Administered Policies to enable Ceding Company to comply
with all applicable financial, regulatory, tax and rating agency requirements,
as well as all other filings required by Applicable Law or in connection with
Actions or Legally Required Ceding Company Actions, subject to and in accordance
with the terms of any applicable Administrative Services Agreement. Reinsurer
shall, and shall cause any Reinsurer Appointed Administrator to, prepare and
deliver any such data and reports on a timely basis in order for Ceding Company
to manage any Actions or comply with any filing or other mandatory deadlines
required by Applicable Law or Ceding Company’s internal reporting requirements. 

 

(i)   In the event that the administration of all or a portion of the
Administrative Services are transferred from the Ceding Company to FLAS or an
alternative administrator pursuant to Section 3.6(e) above due to a Material
Ceding Company Administration Breach, the Ceding Company shall bear all costs to
transition such Administrative Services to such Reinsurer Appointed
Administrator, as well as any damages or costs resulting from such transition,
including, without limitation, any early termination fees, any increases in
service fees on business remaining with the predecessor administrator to the
extent such increase in service fees results from such transition, and any other
costs and expenses resulting from the transition. A “Material Ceding Company
Administration Breach” shall have occurred (A) if there is any material breach
by the Ceding Company in the performance of the Administrative Services in
accordance with the terms of this Agreement that has had, or would be reasonably
expected to have, a material adverse effect on the business, reputation,
relations with regulators or financial condition of the Reinsurer or its
Affiliates and such breach is not cured within twenty (20) Business Days
following receipt by the Ceding Company of written notice of such breach from
the Reinsurer, or (B) if there is any pattern of breaches by the Ceding Company
in the performance of the Administrative Services in accordance with the terms
of this Agreement that have caused, or would be reasonably expected to cause,
material detriment to the Reinsurer, following thirty (30) Business Days written
notice thereof to the Ceding Company by the Reinsurer and a one-time opportunity
to cure, if such pattern of breaches is capable of being cured and material
detriment to Ceding Company has not occurred. For purposes hereof, “material
detriment to the Reinsurer” means (I) any remedy of specific performance,
injunction, consent order or other form of equitable relief imposed on the
Reinsurer that would be material to any line of business of the Reinsurer, (II)
any loss by the Reinsurer of any insurance license or qualification, (III) the
inability of the Reinsurer to satisfy material regulatory requirements, (IV) a
determination by an applicable regulator that such activity constitutes an
intentional and material violation of any material  law, statute or regulation
or any criminal act, or (V) any material and adverse impact on the Reinsurer’s
ability to conduct its business or its relationships with regulators. 

 

Section 3.7       Certain Reports. 

 

(a)  The Reinsurer shall provide written notice of the occurrence of any
Recapture Triggering Event within five (5) Business Days after its occurrence.
In addition, the Reinsurer will provide immediate written notice to the Ceding
Company in the event that (i) the Reinsurer’s ECR Ratio in respect of its
Long-Term Business Account, after taking account of the Long-Term Business
Account Diversification Benefit, falls below [***]% or (ii) to the Reinsurer’s
knowledge, the occurrence of a Recapture Triggering Event pursuant to clause
(ii) of the definition of such term is reasonably likely to occur. The Reinsurer
shall also cooperate fully with the Ceding Company and promptly respond to the
Ceding Company’s reasonable inquiries from time to time concerning whether a
Recapture Triggering Event has occurred. In addition to the foregoing, the
Reinsurer shall also provide written notice of any of the following occurrences
within five (5) Business Days of its occurrence: (i) a direct or indirect Change
of Control of the Reinsurer; (ii) the Reinsurer cedes more than fifty percent
(50%) of the Statutory Reserves ceded hereunder (as measured on the basis of
SAP) to a single “person” or “group” (within the meaning of  Rule  13d-5  of 
the  Securities  Exchange  Act  of  1934  as  in  effect  on  the  Closing 
Date)  or  (iii) the Reinsurer makes an application for any insurance business
transfer pursuant to Part VII of the

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Financial Services and Markets Act 2000 or a scheme of arrangement pursuant to
895-899 of the Companies Act 2006, or any provision that replaces the foregoing,
or has a substantially similar effect as the foregoing in any jurisdiction, in
each case of (i), (ii) and (iii), that does not constitute a Recapture
Triggering Event.

 

(b)  The Reinsurer shall provide the Ceding Company with copies of its annual
and quarterly Statutory Financial Statement (or equivalent thereof required by
its domiciliary jurisdiction) promptly following the filing thereof.
Concurrently, the Reinsurer shall provide the  Ceding Company with (i) in the
case of its annual Statutory Financial Statement, the Reinsurer’s Available
Statutory Economic Capital and Surplus as a percentage of its Enhanced Capital
Requirement (“ECR Ratio”) as of the applicable year end, (ii) in the case of its
quarterly Statutory Financial Statement, the Reinsurer’s best estimate of its
ECR Ratio as of the applicable quarter end (in each case, the “ECR Reporting
Deadline”) and (iii) loss recognition reports and cash flow testing reports on
the Covered Insurance Policies. Without limiting the foregoing, upon the
reasonable request of the Ceding Company, the Reinsurer shall also provide the
Ceding Company with a report setting forth the Reinsurer’s estimate of its ECR
Ratio as of any applicable month end. Each such calculation shall include (A)(I)
the Reinsurer’s ECR Ratio  in respect of its Long-Term Business Account both
before and after taking account of the Long-Term Business Account
Diversification Benefit and (II) the Reinsurer’s overall ECR Ratio both before
and after taking account of the Overall Diversification Benefit; and (B)
reasonable supporting detail with respect to such calculations, including
Reinsurer’s economic balance sheet and any filings with the Bermuda Monetary
Authority required in connection with the calculation of the Reinsurer’s Bermuda
Solvency Capital Requirements. The Ceding Company shall maintain the
confidentiality of each such statement or report, in each case to the extent
that such statement or report is not publicly available. 

 

(c)  Except as otherwise specified in any Administrative Services Agreement, the
Ceding Company shall provide the Reinsurer with the reports and data specified
in Exhibit A at the times specified in Exhibit A. All reports provided by the
Ceding Company pursuant to Exhibit A shall be prepared consistent with the
Ceding Company’s books and records. 

 

(d)  Internal Control Support.  [***] 

 

(i)         [***]. 

 

(ii)        [***]. 

 

(iii)       [***]. 

 

(iv)       [***]. 

 

(v)        [***]. 

 

Section 3.8       Books and Records. 

 

(a)  The Ceding Company shall, and shall cause its Affiliates to, preserve until
such date as the obligations of the Ceding Company and the Reinsurer hereunder
are fully and finally satisfied and two (2) years thereafter (or such other
later date as may be required by Applicable Law), all Books and Records related
to this Agreement and the transactions contemplated by this Agreement. During
such period, upon any reasonable request from the Reinsurer or its
Representatives, the Ceding Company shall (i) provide to the Reinsurer and its
Representatives reasonable access to such Books and Records during normal
business hours; provided, that such access shall not unreasonably interfere with
the conduct of the 

 

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business of the Ceding Company, and (ii) permit the Reinsurer and its
Representatives to make copies of any such Books and Records, in each case, at
no cost to the Reinsurer or its Representatives (other than reasonable
out-of-pocket expenses). Such Books and Records may be sought under this Section
3.8 by the Reinsurer for any reasonable purpose, including to the extent
reasonably required in connection with accounting, litigation, securities law
disclosure, external or internal audits, or other similar purpose. 

 

(b)  Notwithstanding anything to the contrary in Section 3.8(a), the Ceding
Company reserves the right to withhold any Books and Records from the Reinsurer
that, in the Ceding Company’s judgment, are protected from discovery by any
applicable privilege and/or immunity, including the attorney-client privilege
and/or work product doctrines, and will notify the Reinsurer in the event any
such documents are withheld. In the event that the Ceding Company withholds such
privileged materials, it shall take steps as reasonably necessary to attempt to
provide the Reinsurer with the information it requested without jeopardizing the
privileged nature of the material withheld. However, in no event shall the
Reinsurer have access to privileged materials relating to any dispute between
the Reinsurer and the Ceding Company. Further, should the Reinsurer request
access to materials protected by a confidentiality or protective order, the
Parties will use reasonable efforts to provide access in a manner that does not
violate such order. 

 

(c)  Promptly, but no later than thirty (30) calendar days after completion of
any inspection conducted by the Reinsurer, the Reinsurer shall consult with the
Ceding Company with respect to any and all questions or issues raised by the
inspection. If, as a result of any inspection, the Reinsurer denies or disputes
coverage for any claims, the Reinsurer shall, upon the Ceding Company’s request,
promptly provide the Ceding Company with a report or analysis completed by the
Reinsurer or its Representatives outlining the findings of the inspection and
identifying the reasons for denying or disputing such claim. 

 

(d)  The Reinsurer may request and the Ceding Company shall use commercially
reasonable efforts to give the Reinsurer reasonable access to any Subcontractor
performing administrative services in respect of the Long Term Care Reinsured
Portfolio for purposes of monitoring the performance of such Subcontractor’s
administration of the Long Term Care Reinsured Portfolio, as may be further
agreed by the Parties from time to time; provided, however, that the Reinsurer
shall reimburse the Ceding Company for any costs and expenses billed to Ceding
Company by such Subcontractor resulting from Reinsurer’s request for information
to any such Subcontractor or other exercise of access as provided herein. The
Reinsurer agrees and acknowledges that it has no right to, and shall not, direct
the activities of any such Subcontractor. The Reinsurer shall keep the Ceding
Company informed each time the Reinsurer seeks access to any such Subcontractor.
To the extent any such Subcontractor seeks additional fees from the Ceding
Company by virtue of the Reinsurer’s exercise of such access, the Ceding Company
shall notify the Reinsurer of such request and the Parties will convene to
determine how to respond to such request. 

 

ARTICLE IV

MODCO ACCOUNT; COLLATERAL TRUST

 

Section 4.1       ModCo Account; Investment Guidelines. 

 

(a)  On the Closing Date, the Ceding Company (i) established one or more
custodial accounts (the “ModCo Account”) and (ii) in accordance with Section
3.1(a), made the Initial ModCo Deposit. The ModCo Account and the assets
maintained therein will (x) be retained, controlled, owned and maintained by the
Ceding Company, (y) be used exclusively for the purposes set forth in this
Agreement and (z) be maintained by the Ceding Company in one or more custodial
accounts segregated and distinct from the Ceding Company’s other general account
assets. Such assets shall be valued, for purposes of this Agreement, according
to their Statutory Book Value. In accordance with SAP, the Ceding Company 

 

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elects to cede all realized capital gains and losses in respect of the ModCo
Assets to the Reinsurer on a gross basis.

 

(b)  The amount of the ModCo Reserves shall be determined for each Accounting
Period by the Ceding Company in accordance with SAP consistently applied as of
the last calendar day of such Accounting Period and shall be set forth in each
applicable Settlement Statement; provided, that the Ceding Company shall not
seek any permitted practices from a Governmental Authority that would have the
effect of increasing the amount of ModCo Reserves required in respect of the
liabilities ceded to the Reinsurer hereunder in accordance with SAP as
applicable to Ceding Company without first consulting in good faith with the
Reinsurer and considering any reasonable recommendations of the Reinsurer before
proceeding; provided, that if the Ceding Company obtains any such permitted
practice and does not accept the Reinsurer’s recommendations, and the Reinsurer
determines that such permitted practice (x) is commercially unreasonable (viewed
solely in the context of this Agreement and the other ModCo Reinsurance
Agreements, without reference to any other business relationships the Ceding
Company may have with any particular insured) and (y) has had a material adverse
effect on the Reinsurer’s liability and/or overall economic position hereunder,
then the Reinsurer must raise any such determination promptly to the Ceding
Company. If the Ceding Company agrees, the Parties will cooperate to determine
how to handle such situation in a mutually agreeable manner. If the Parties
cannot so agree, then the Reinsurer may bring an arbitration proceeding pursuant
to Section 10.3 hereof, with the Reinsurer bearing the burden of proof that such
permitted practice was commercially unreasonable (viewed solely in the context
of this Agreement and the other Modco Reinsurance Agreements, without reference
to any other business relationships the Ceding Company may have with any
particular insured), and caused a material adverse effect on the Reinsurer’s
liability and/or overall economic position hereunder. The arbitration panel
shall only be authorized to adjust the calculation of the ModCo Reserves
required to be held in the ModCo Account as of any relevant date of
determination to put the Reinsurer in substantially the same economic position
it would have been in had the Ceding Company not obtained such permitted
practice (with no other damages, including any equitable awards, being
permissible). 

 

(c)  For purposes of calculating the ModCo Reserves pursuant to this Agreement,
the Ceding Company shall perform such calculations in a manner materially
consistent with the [***]  Valuation Methodology Memorandum, from [***] to File
(inclusive of the memoranda embedded therein), dated November 29, 2017, attached
as Exhibit E, which sets forth the Ceding Company’s valuation methodology and
basis for valuation, including valuation interest rates or assumptions, for the
Covered Insurance Policies (the “Valuation Methodology”) as of the Effective
Time. The Ceding Company shall not modify or change the Valuation Methodology on
any of the Covered Insurance Policies without the prior written consent of the
Reinsurer, unless such modifications or changes are required pursuant to SAP or
otherwise under Applicable Law. In the event that the Reinsurer does not provide
its consent to a modification or change requested by the Ceding Company (which
change is not otherwise required by SAP or under Applicable Law, it being
understood that no Reinsurer consent is required for modifications or changes
required pursuant to SAP or otherwise under Applicable Law) and the Parties are
unable to resolve the dispute within thirty (30) calendar days of the Ceding
Company’s request for a change in the Valuation Methodology, notwithstanding
Section 10.3, the Ceding Company shall engage an Independent Actuary, with the
selection of the Independent Actuary subject to the Reinsurer’s prior written
consent, not to be unreasonably withheld, and the Independent Actuary’s written
determination as to whether the Ceding Company’s proposed modification or change
to the Valuation Methodology is reasonable will be binding on the Parties. Both
Parties will promptly supply the Independent Actuary with the necessary data to
reach its determination, subject to such Independent Actuary’s entry into a
customary non-disclosure agreement. The fees and expenses of such Independent
Actuary will be borne equally by the Parties; provided, that if the Independent
Actuary determines that  the Valuation Methodology shall be modified as proposed
by the Ceding Company, the Reinsurer will pay or promptly reimburse the Ceding
Company for all fees and expenses of the Independent Actuary. 

 

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(d)  The ModCo Assets (other than Policy Loans) (I) will be managed and invested
by the Ceding Company and/or AIG Asset Management (U.S.), LLC, as the investment
manager appointed by the Ceding Company hereunder, and/or such other investment
manager designated from time to time as provided below (each, an “Investment
Manager”) in a manner consistent with the investment guidelines attached hereto
as Exhibit C (the “Investment Guidelines”), and (II) shall consist only of cash,
any securities qualifying as admitted assets in the state of domicile of the
Ceding Company, and any other form of security acceptable to the primary
insurance regulatory authority in such state (“Permitted Assets”). Such assets
will be free and clear of claims, liens and encumbrances running to the benefit
of third parties other than those (x) arising in the ordinary course of
investment management with respect to admitted assets, or (y) permitted in the
Investment Guidelines; provided, that if a claim, lien or encumbrance arises
with respect to any such asset, except as permitted under clause (x) and (y),
the Ceding Company will use its commercially reasonable efforts to cure such
claim, lien or encumbrance as promptly as practicable following its discovery
thereof. 

 

(i)        The Ceding Company shall not amend, modify or otherwise change the
investment guidelines pursuant to which any Investment Manager manages Permitted
Assets, or, prior to the third anniversary of the Amendment Date, the terms
relating to the fees and expense reimbursement payable to any such Investment
Manager, without the Reinsurer’s prior written consent thereto. In addition, not
less than ninety (90) calendar days prior to the effective date of any proposed
amendments to the fees payable to any Investment Manager following the third
anniversary of the Amendment Date, the Ceding Company shall give the Reinsurer
written notice of such proposal, and the Parties shall consult in good faith
with respect to such proposed amendments to such fees. If the Investment Manager
resigns or is removed, or, following the third anniversary of the Amendment
Date, the Reinsurer requests that the Investment Manager be replaced in
accordance with the requirements of this Section 4.1(d), the Ceding Company
shall appoint a replacement investment manager as directed by the Reinsurer with
respect to the Permitted Assets, if such replacement investment manager is
reasonably acceptable to the Ceding Company; provided, however, that no
replacement investment manager shall have authority to engage in any of the
following, for or in respect of, the Modco Assets: (A) derivatives, (B) foreign
currency transactions (for the avoidance of doubt, not including foreign
currency denominated securities), (C) Short Term Borrowing Transactions, or (D)
Short Term Investments comprising reverse repurchase agreements, cash-out
securities lending agreements or liquidity pools managed by the Ceding Company
or any of its Affiliates. 

 

(ii)       From time to time following the third anniversary of the Amendment
Date, if directed to do so by the Reinsurer, the Ceding Company shall appoint
one or more additional Investment Managers reasonably acceptable to the Ceding
Company with respect to the Permitted Assets; provided, however, that no
additional investment manager shall have authority to engage in any of the
following, for or in respect of, the Modco Assets: (A) derivatives, (B) foreign
currency transactions (for the avoidance of doubt, not including foreign
currency denominated securities), (C) Short Term Borrowing Transactions, or (D)
Short Term Investments comprising reverse repurchase agreements, cash-out
securities lending agreements or liquidity pools managed by the Ceding Company
or any of its Affiliates. Not less than ninety (90) calendar days prior to the
effective date of any proposed replacement or appointment of additional
Investment Managers following the third anniversary of the Amendment Date, the
Reinsurer shall give the Ceding Company written notice of such proposal, and the
Parties shall consult in good faith with respect to such proposed replacement or
additional Investment Managers. Any replacement or additional Investment Manager
shall accept its appointment by entering into an investment management agreement
with respect to the Permitted Assets in a form, including the terms and
conditions, reasonably acceptable to the Ceding Company and the Reinsurer.
Notwithstanding anything in this Agreement  to  the  contrary,  the  Ceding 
Company  shall  not  be  responsible  for  any  breach  of 

 

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the Investment Guidelines caused by an act or omission by any Investment Manager
appointed at the direction of the Reinsurer; provided, that such breach was not
caused by the act, failure to act or direction of the Ceding Company.
Additionally, the Ceding Company agrees to consult with the Reinsurer, in
advance, regarding any proposals by its Investment Managers to appoint any
subadvisers in respect of ModCo Assets that are unaffiliated with the Investment
Managers. 

 

(iii)      The Ceding Company and the Reinsurer will cooperate reasonably to
give effect to (and the Ceding Company will instruct its applicable Investment
Manager to give effect to) any (x) proposal by the Reinsurer to transfer for
Fair Market Value one or more assets between an account owned by the Reinsurer,
on the one hand, and the ModCo Account, on the other hand; provided, that the
Ceding Company shall have no obligation to take any action with respect to  any
transfer that could, as reasonably determined by the Ceding Company or its
advisors, (i) cause any breach or exception to any provision of this Agreement
(including the Investment Guidelines) or any Applicable Insurance Regulation,
(ii) give rise to a requirement to obtain any regulatory approval or
non-disapproval; or (iii) contravene any provision of Applicable Law, including
the U.S. securities laws, or any rule promulgated thereunder; or (y) other
commercially reasonable direction from the Reinsurer with respect to management
of the ModCo Assets; provided that such direction does not violate this
Agreement (including the Investment Guidelines), any Applicable Law or any law
or regulation applicable to such Investment Managers or insurance company
investments; provided, further, that, in the case of either of clause (x) or
(y), any such direction from, or proposal by, the Reinsurer shall be given in
writing, including by email, by its designated representative described below.
The Reinsurer shall designate an authorized individual to provide such direction
or proposal, and the Ceding Company shall designate an individual to receive any
such direction or proposal and deliver such direction or proposal to the
applicable Investment Manager. Notwithstanding the foregoing, the Parties
acknowledge that the Reinsurer bears the economic risk of the ModCo Assets as
described in this Agreement, and agree that, other than the obligation to (A)
cooperate in giving effect to any proposal in respect of a transfer and/or (B)
deliver any direction to the applicable Investment Manager as contemplated
above, the Ceding Company shall have no obligation, and shall incur no
liability, with respect to such direction or proposal, as applicable. 

 

(iv)       Furthermore, each of the Ceding Company and the Reinsurer
acknowledges and agrees that any fees and expenses paid by the Ceding Company
under any Capital Markets Services Agreement in respect of ModCo Assets shall
constitute Investment Expenses, and that the Ceding Company shall not agree to
amend any terms relating to fees and expense reimbursements payable to any
Person under such Capital Markets Services Agreement in respect of ModCo Assets
without the Reinsurer’s prior written consent.

 

(e)  For the avoidance of doubt, the Ceding Company and the Reinsurer agree that
the IMR is ceded to the Reinsurer. The IMR shall be calculated by the Ceding
Company. 

 

(f)  Statutory  Impairments. 

 

(i)         Determinations of statutory impairments of ModCo Assets which are
made by the Ceding Company shall be based upon the statutory rules and
guidelines and the impairment policy used by the Ceding Company for purposes of
calculating statutory impairments  reflected in the Ceding Company’s Statutory
Financial Statements and without regard to the existence of this Agreement.
Notwithstanding Section 10.3, any disagreements with respect to determinations
of statutory impairments of ModCo Assets shall be subject to this Section
4.1(f). If the Ceding Company determines that any ModCo Assets have become
impaired for purposes of determining Statutory Book Value and such impairments
exceed $10,000,000 in the aggregate as respects any 

 

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Accounting Period (a “Significant Impairment”), the Ceding Company shall notify
the Reinsurer as promptly as practicable after such determination and in no
event later than ten (10) Business Days following the last day of such
Accounting Period. Any report notifying the Reinsurer of a Significant
Impairment shall provide the CUSIP, ISIN or similar security identifier  (as
applicable)  for the impaired ModCo Assets and describe the reason for each such
impairment  and the effect on Statutory Book Value of the applicable ModCo
Assets. In addition, any such report shall state whether any impaired assets are
held in other portfolios of the Ceding Company or any of its Affiliates and, if
so, shall confirm that the Statutory Book Value treatment for each such asset is
consistent across all such portfolios. Within five (5) Business Days following
the Reinsurer’s receipt of written notification of a Significant Impairment, the
Reinsurer shall provide written notice to the Ceding Company of its objection
(the “Objection Notice”) to any such impairment determination. If the Reinsurer
fails to provide such Objection Notice to the Ceding Company within such time
period, the Reinsurer shall be deemed to have accepted such impairment
determination. During the five (5) Business Days immediately following the
delivery of an Objection Notice, the Ceding Company and the Reinsurer will seek
in good faith to resolve any disputes as to the determination or calculation of
statutory impairments of the applicable ModCo Assets. The Parties shall use
reasonable efforts and work together in good faith to  resolve any such dispute
prior to the date on which the Ceding Company is required to file the relevant
Statutory Financial Statement with the relevant insurance regulator. If the
Parties are unable to resolve any such dispute prior to the date on which the
Ceding Company is required to file a Statutory Financial Statement with an
applicable insurance regulator, the Ceding Company may use its own good faith
calculation of the statutory impairment for purposes of preparing its Statutory
Financial Statements. If the Parties are unable to resolve any such dispute
prior to the date on which a quarterly settlement is due hereunder, the Parties
shall use the Ceding Company’s good faith calculation of the statutory
impairment for purposes of effecting such required quarterly settlement. If
thereafter the dispute is ultimately decided in the Reinsurer’s favor pursuant
to the arbitration process set forth in Section 4.1(f)(ii), then the necessary
adjustment will be made between the Parties and reflected in the quarterly
settlement for the Accounting Period in which such dispute is ultimately
resolved. 

 

(ii)        In the event that the Parties cannot resolve a dispute regarding a
Significant Impairment with the five (5) Business Days immediately following the
delivery of an Objection Notice, at the Reinsurer’s option, the Parties may
engage one or more Independent Valuation Experts (depending on whether different
asset classes are implicated in the same Significant Impairment, thereby
entailing different experts for valuation purposes), with the selection of such
Independent Valuation Experts subject to the Reinsurer’s prior written consent,
not to be unreasonably withheld, to arbitrate the dispute. If the Parties cannot
agree on the choice of  expert, the process in Section 9.5(e) shall be followed
for such selection. The Independent Valuation Experts shall evaluate which of
the Parties’ two (2) determinations with respect to the Statutory Book Value of
the relevant ModCo Assets (the “Disputed Assets”) is more reasonable in light of
the evidence provided by both Parties in connection with their respective
submissions to such Independent Valuation Experts. The Independent Valuation
Experts shall select one and only one of the determinations submitted by the
Parties. Both Parties will promptly supply the Independent Valuation Experts
with the necessary data to perform its analysis, subject to each such expert’s
entry into a customary non-disclosure agreement. Each Independent Valuation
Expert’s written decision as to the more reasonable Statutory Book Value of the
Disputed Assets under the circumstances will be binding on the Parties. The fees
and expenses of the applicable Independent Valuation Expert will be borne by the
Party that such expert decides against in its determination of the more
reasonable Statutory Book Value of the Disputed Assets. 

 

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(iii)      In addition to the  Reinsurer’s  right  to  pursue  the  process 
set  forth  in  Section 4.1(f)(ii), if a Significant Impairment dispute cannot
be resolved by the Parties within the five (5)-Business Day period following the
delivery of an Objection Notice, the Reinsurer may elect to do either of the
following: 

 

(x)        Instruct the Ceding Company to continue to hold any Disputed Assets
in the ModCo Account and not to sell, or cause to be sold, any such Disputed
Assets unless directed to do so by the Reinsurer (or unless the sale or other
transfer thereof is necessary to satisfy a reinsured obligation in accordance
with this Agreement or unless necessary to remain in compliance with Applicable
Law and/or the Investment Guidelines); or 

 

(y)        To the extent such Disputed Assets are readily transferable, instruct
the Ceding Company to transfer any such Disputed Assets to the Reinsurer. 

 

(iv)       For the sake of clarity, the risk of impairments is fully transferred
to the Reinsurer as noted by the reference to line 34 (Net realized capital
gains and losses) of the Summary of Operations of the Ceding Company’s Statutory
Financial Statements as contained in the definition of ModCo Account Investment
Income. 

 

(g)  In addition to the settlement of the Quarterly Net Settlement Amount for
each  Accounting Period, if the aggregate Statutory Book Value of the ModCo
Assets as of the end of such Accounting Period (first taking into account any
transfer to the Reinsurer of any Disputed Assets pursuant Section 4.1(f)(iii)(y)
above and excluding the Statutory Book Value, whether positive or negative, of
any derivatives held in the ModCo Account) exceeded the sum of (i) the ModCo
Reserves as of the end of such Accounting Period, plus (ii) the sum of (x) the
Derivative Margin Amount as of the end of such Accounting Period and (y) the
Short Term Borrowing Collateral Amount as of the end of such Accounting Period,
plus (iii) [***], the Ceding Company shall withdraw Permitted Assets as directed
by the Reinsurer having a Statutory Book Value as of the end of such Accounting
Period in an amount no greater than the lesser of (x) such excess and (y) the
aggregate Statutory Book Value of Permitted Assets and shall transfer cash or
other Permitted Assets to the Reinsurer equal to such withdrawn amount;
provided, that the Reinsurer shall direct the Ceding Company as respects
allocation between cash and Permitted Assets as well as the choice of the
Permitted Assets, if any, to so withdraw and transfer; provided, further, that
the aggregate Statutory Book Value of the ModCo Assets following such withdrawal
shall be no less than the sum of (i) the ModCo Reserves as of the end of such
Accounting Period, plus (ii) the sum of (x) the Derivative Margin Amount as of
the end of such Accounting Period and (y) the Short Term Borrowing Collateral
Amount as of the end of such Accounting Period, plus (iii) [***]. For the sake
of clarity, the aggregate Statutory Book Value of the ModCo Assets as of the end
of an Accounting Period in Sections 4.1(g) and (h)  will be inclusive of any
ModCo Assets held therein in respect of any ModCo Account Investment Income for
such Accounting Period. 

 

(h)  In addition to the settlement of the Quarterly Net Settlement Amount for
each  Accounting Period, if the aggregate Statutory Book Value of ModCo Assets
as of the end of such Accounting Period (first taking into account any transfer
to the Reinsurer of any Disputed Assets pursuant Section 4.1(f)(iii)(y) above
and excluding the Statutory Book Value, whether positive or negative, of any
derivatives held in the ModCo Account) was less than the sum of (i) the ModCo
Reserves as of the end of such Accounting Period, plus (ii) the sum of (x) the
Derivative Margin Amount as of the end of such Accounting Period and (y) the
Short Term Borrowing Collateral Amount as of the end of such Accounting Period,
plus (iii) [***], the Reinsurer shall transfer to the Ceding Company for deposit
into the ModCo Account cash or other Permitted Assets having an aggregate Fair
Market Value or Margin Collateral Value, as applicable, as of the day of
transfer sufficient to cure such shortfall. The obligation to transfer amounts
for deposit into the ModCo Account as described herein shall in no manner be
construed 

 

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to obligate the Ceding Company to top up the ModCo Account independently in any
manner separate from amounts so paid by the Reinsurer for such purpose.

 

(i)   In addition to the requirements in Section 4.1(h), if on any Business Day,
the sum of (x) the portion of the aggregate Derivative Margin Requirement for
the ModCo Account that has not yet been funded through the deposit of assets to
the ModCo Account, plus (y) the portion of the aggregate Short Term Borrowing
Collateral Requirement for the ModCo Account that has not yet been funded
through the deposit of assets to the ModCo Account (such sum, the “Interim
Required Collateral Balance”)  exceeds $[***], the Reinsurer shall deposit into
the ModCo Account additional ModCo Assets having an aggregate Margin Collateral
Value (for the avoidance of doubt, such amount inclusive of the $[***]
threshold) as of the day of transfer at least equal to such Interim Required
Collateral Balance, which amount shall be deposited into the ModCo Account no
later than 5:00 p.m. on the second Business Day after which written notice of
such Interim Required Collateral Balance is provided by the Ceding Company to
the Reinsurer; provided, however, that if such notice is received by the
Reinsurer later than 11:00 a.m. on any Business Day, the Reinsurer shall have
until 5:00 p.m. on the third Business Day after which such notice is provided to
make such deposit. In addition to the requirements in Section 4.1(g), if on any
Business Day, the sum of (x) the portion of the aggregate Derivative Margin
Amount for the ModCo Account in excess of the Derivative Margin Requirement, and
not previously withdrawn by or transferred to Reinsurer and (y) the portion of
the aggregate Short Term Collateral Amount for the ModCo Account in excess of
the Short Term Borrowing Collateral Requirement and not previously withdrawn by 
or  transferred  to  Reinsurer  (such  sum,  the  “Interim  Return  Collateral 
Balance”)  exceeds $[***], the Ceding Company shall withdraw ModCo Assets as
directed by the Reinsurer having an aggregate Statutory Book Value as of the
date of transfer equal to the Interim Return Collateral Balance (for the
avoidance of doubt, such amount inclusive of the $[***] threshold), which amount
shall be transferred to Reinsurer no later than 5:00 p.m. on the second Business
Day after written notice of such Interim Return Collateral Balance is provided
by the Ceding Company to the Reinsurer via the daily report referenced below;
provided, however, that if such notice is received by the Reinsurer later than
11:00 a.m. on any Business Day, the Ceding Company shall have until 5:00 p.m. on
the third Business Day after which such notice is provided to complete such
transfer; provided, that the Reinsurer shall direct the Ceding Company as
respects such allocation between cash and other ModCo Assets as well as the
choice of the ModCo Assets, if any, to so withdraw and transfer; provided,
further, that the aggregate Statutory Book Value of ModCo Assets in the ModCo
Account following such withdrawal is no less than the sum  of  (i)  ModCo 
Reserves  as  of  the  last  day  of  the  previous  Accounting  Period,  plus 
(ii)  the  sum  of (x) the Derivative Margin Amount for the ModCo Account and
(y) the Short Term Borrowing Collateral Amount for the ModCo Account, with each
of (x) and (y) measured as of the previous Business Day, plus (iii) [***]. On
each Business Day, the Ceding Company shall provide a report to the Reinsurer
stating the value of the Derivatives Margin Amount and the  Short Term Borrowing
Collateral Amount, each as of the previous Business Day. The obligation to
deposit such cash or other ModCo Assets into the ModCo Account as described
herein shall in no manner be construed to obligate the Ceding Company to top up
the ModCo Account independently in any manner separate from amounts so paid by
the Reinsurer for such purpose. Any amounts paid by or transferred to a Party
under this Section 4.1(i) during a given Accounting Period shall be reflected in
the report delivered by the Ceding Company for such Accounting Period pursuant
to Section 3.2 for such Accounting Period and taken into account in determining
the amounts due under Sections 4.1(g) and (h), respectively, with respect to
such Accounting Period. 

 

(j)   “ModCo Account Investment Income” for an Accounting Period shall equal the
sum of the net investment income calculated by the Ceding Company on the ModCo
Assets during such Accounting Period in accordance with line 3 (Net Investment
Income) (excluding the impact of any investment expenses, calculated in
accordance with line 11 on the Exhibit of Net Investment Income from its
Statutory Financial Statements), line 4 (Amortization of Interest Maintenance
Reserve), line 34 (both column 1  and  inset  amount  #1  together)  (Net 
realized  capital  gains  (losses),  prior  to  reduction  for  taxes) 

 

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and line 38 (Change in net unrealized capital gains (losses) prior to reduction
for taxes) of the Summary of Operations from its Statutory Financial Statement,
earned and realized; provided, however, the ModCo Account Investment Income
shall not include any Interest Earned on Policy Loans. The ModCo Account
Investment Income calculation will not be reduced for any investment expenses
(as the Investment Expenses are a separate allowance hereunder payable by the
Reinsurer). For the sake of clarity, the Reinsurer bears full investment risk of
the ModCo Assets, with no independent obligation of the Ceding Company to top up
the ModCo Assets due to impairments or otherwise, with all such risk being
transferred and effected in connection with the adjustments contemplated in
Section 4.1(g) and (h)  above. 

 

(k)  “ModCo Reserves” means, for each Accounting Period, an amount equal to 100%
of the Quota Share of (a) the Statutory Reserves, plus  (b) the IMR, minus  (c)
the result of (i) uncollected premium, plus  (ii) deferred and accrued premium,
minus  (iii) advance premium (where (c) is calculated in accordance with Exhibit
1 of the Statutory Financial Statements), plus  (d) the result of (i) resisted
claims, plus (ii) pending claims, plus  (iii) incurred but not reported claims
(where (d) is calculated in accordance with Exhibit 8 of the Statutory Financial
Statements), each as determined as of the last calendar day of the current
Accounting Period in accordance with the methodologies used by the Ceding
Company to calculate such amounts in accordance with SAP, and after giving
effect to the credit for reinsurance taken by the Ceding Company in respect of
the Covered Insurance Policies for the Existing Reinsurance Agreements (for
avoidance of doubt, all accruals net of reinsurance ceded are included in these
amounts, such as amounts recoverable from reinsurers and other amounts
receivable under Existing Reinsurance Agreements).

 

(l)   All deposits under Section 4.1(h) shall be made no later than ten (10)
Business Days after the receipt by the Reinsurer of the Settlement Statement.
Notwithstanding anything to the  contrary, where a deposit is made pursuant to
Section 4.1(h) with respect to any year end settlement, the Ceding Company may
provide a projected calculation of ModCo Reserves for such year-end at any time
following December 1 prior to such year end, and the Reinsurer shall transfer to
the Ceding Company any collateral shortfalls reflected therein within the later
of (x) ten (10) Business Days after receipt of the aforementioned report of
projections and (y) the last Business Day of December of the year for which the
Ceding Company is filing its Statutory Financial Statement (assuming the report
on year-end collateral requirements has been reported to the Reinsurer five (5)
Business Days prior to such date). Any true-ups to such amounts shall occur as
part of the regular periodic settlement that follows the finalization of the
Ceding Company’s annual Statutory Financial Statements. 

 

Section 4.2    Interest on Policy Loans. Each Accounting Period and pursuant to
the Settlement Statement, the Reinsurer shall participate in a Quota Share of
Interest Earned on Policy Loans. Such payments will be based on the best
estimate of the Ceding Company.

 

Section 4.3    Credit  for  Reinsurance  for  Modified  Coinsurance  Cession. 
The  Ceding Company shall own the ModCo Account and the assets maintained
therein, and the Reinsurer will not be required to provide reserve credit in
respect of any Reinsured Liabilities ceded hereunder on a modified coinsurance
basis. 

 

Section 4.4    Collateral  Trust. 

 

(a)  Within thirty (30) days following the Closing Date, the Reinsurer shall
establish a collateral trust account (the “Collateral Trust Account”) with a
third party trustee for the benefit of the Ceding Company pursuant to the terms
of a reinsurance trust agreement substantially in the form of Exhibit D (the
“Collateral Trust Agreement”), with such changes thereto as may be mutually
agreed by the Parties. The Reinsurer shall maintain the Collateral Trust Account
with Collateral Trust Authorized Investments having an aggregate Fair Market
Value no less than the Collateral Trust Required Balance. 

 

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The Collateral Trust Required Balance shall be adjusted as of the end of each
Accounting Period. The Collateral Trust Authorized Investments shall be valued
according to their current Fair Market Value.

 

(b)  Notwithstanding any other provision of this Agreement, the Ceding Company
or any successor by operation of law, including any liquidator, rehabilitator,
receiver or conservator of the Ceding Company may draw upon the assets held in
the Collateral Trust Account at any time, without diminution because of the
insolvency of any Party only for the following purposes: (i) to reimburse the
Ceding Company for the Reinsurer’s share of premiums returned to the owners of
the Covered Insurance Policies on account of cancellation of such policies; (ii)
to reimburse the Ceding Company for the Reinsurer’s share of surrenders and
benefits or losses paid by the Ceding Company pursuant to the provisions of the
Covered Insurance Policies; (iii) to pay any other amount that the Ceding
Company claims is due under this Agreement; or (iv) in the event that the Ceding
Company receives notice of termination of the Collateral Trust Agreement, to
fund an account with the Ceding Company in an  amount at least equal to the
Collateral Trust Required Balance. In the event that any amount drawn by the
Ceding Company is subsequently determined not to be due, the Ceding Company
shall promptly return to the Reinsurer the excess amounts so drawn and, until
such excess amounts are returned to the Reinsurer, such amounts, together with
interest thereon accrued at the Interest Rate (or the Alternative Rate, if
applicable), shall be held by the Ceding Company in trust for the complete and
sole benefit of the Reinsurer and the Reinsurer shall be entitled to all rights,
title and interest in said amounts. 

 

(c)  If as of the end of any Accounting Period the Fair Market Value of
Collateral Trust Authorized Investments is less than the Collateral Trust
Required Balance, the Reinsurer shall deposit Collateral Trust Authorized
Investments into the Collateral Trust Account having an aggregate Fair Market
Value sufficient to make up such difference. If as of the end of any Accounting
Period the Fair Market Value of Collateral Trust Authorized Investments exceeds
the Collateral Trust Required Balance, the Reinsurer may request the Ceding
Company to release an amount up to such excess. 

 

(d)  The Reinsurer shall arrange for assets to be deposited into the Collateral
Trust Account. Prior to depositing any assets with the trustee of such
Collateral Trust Account, the Reinsurer shall execute assignments or
endorsements in blank, or transfer legal title of such assets to the trustee of
all shares, obligations or any other assets requiring assignment so that the
Ceding Company, or the trustee upon the Ceding Company’s direction, may,
whenever necessary, negotiate any such assets without the consent or signature
of the Reinsurer or any other entity. 

 

(e)  Upon the Ceding Company’s approval, which shall not be unreasonably
withheld, conditioned or delayed, the Reinsurer may withdraw all or any of the
assets held in the Collateral Trust Account and replace the withdrawn assets
with other Collateral Trust Authorized Investments having a Fair Market Value at
least equal to the Fair Market Value of the assets so withdrawn so as to
maintain at all times on deposit Collateral Trust Authorized Investments in an
amount at least equal to the Collateral Trust Required Balance. 

 

(f)  Notwithstanding any rule of any Applicable Law regarding the existence or
non- existence of irreparable injury, the provisions of this Section 4.4 are
agreed to be specifically enforceable including by motion for preliminary
injunction or other provisional remedies. 

 

ARTICLE V

COINSURANCE CESSION

 

Section 5.1    Coinsurance Cessions Generally.   At the Effective Time, no
cession shall be made hereunder on a coinsurance basis. 

 

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Section 5.2       Security  Required. 

 

(a)  To the extent any cession is made hereunder on a coinsurance basis, the
Reinsurer shall secure its obligations with respect to the Coinsured Liabilities
by, at its option, either (i) posting a “clean”, irrevocable, unconditional and
evergreen letter of credit issued by a bank acceptable to the Ceding Company in
its sole discretion that meets the requirements of Applicable Law and would
permit the Ceding Company  full  credit  as  admitted  reinsurance  of  the 
Coinsured  Liabilities  (a  “Letter  of  Credit”), (ii) establishing and funding
a reinsurance trust account (the “Reinsurance Trust Account”) for the benefit of
the Ceding Company, which Reinsurance Trust Account shall consist only of cash
(United States legal tender), certificates of deposit (issued by a United States
bank and payable in United States legal tender) and/or investments of the types
permitted by Article 3.10, § (d), or Article 5.75-1, § (d) of the Texas
Insurance Code and permitted by investment guidelines mutually agreed between
the Ceding Company and the Reinsurer, provided, that such investments are issued
by an institution that is not the parent, Subsidiary or other Affiliate of
either the Ceding Company or the Reinsurer (“Authorized Investments”), deposited
pursuant to a trust agreement in form and substance, and with a third party
trustee, in each case satisfactory to the Ceding Company in its sole discretion
that, at all times, meets the requirements of any Applicable Law, and that would
permit the Ceding Company full credit as admitted reinsurance of the Coinsured
Liabilities, or (iii) a combination of both a Letter of Credit and Reinsurance
Trust Account. Assets deposited into the Reinsurance Trust Account shall be
valued according to their current Fair Market Value. 

 

(b)  The Reinsurer shall maintain the face amount of the Letter of Credit plus
the Fair Market Value of Reinsurance Trust Account Authorized Investments
(“Collateral Value”) at an amount no less than the then-applicable Required
Balance. The Required Balance shall be adjusted as of the end of each Accounting
Period. “Required Balance” means, with respect to any Accounting Period, an
amount equal to the Coinsured Liabilities as of the end of the most recent
Accounting Period plus, to the extent required, any additional amount necessary
to provide the Ceding Company full credit for reinsurance for the Coinsured
Liabilities under Applicable Law.

 

(c)  If at any time the Collateral Value is less than the Required Balance, the
Reinsurer shall, at its option, either (i) deposit Authorized Investments into
the Reinsurance Trust Account having an aggregate Fair Market Value sufficient
to make up such difference, (ii) secure delivery to the Ceding Company of an
amendment to the existing Letter of Credit or a new Letter of Credit with a face
amount sufficient to make up such difference or (iii) a combination of (i) and
(ii). 

 

(d)  If, following the date on which payment of the applicable Quarterly Net
Settlement Amount is paid, the Collateral Value exceeds the Required Balance as
of the end of the immediately prior Accounting Period, the Reinsurer may
request, at its option, the Ceding Company to release excess credit (whether in
the form of a downward adjustment in the Letter of Credit and/or a release of
assets in the Reinsurance Trust Account) in an amount no greater than the excess
of the Collateral Value over the Required Balance. The Ceding Company shall
cooperate in such regard; provided, that, following such reduction and/or
withdrawal, the Required Balance does not exceed the Collateral Value and the
Reinsurance Trust Account Authorized Investments is at least equal to 102% of
the Reinsurance Trust Account Required Balance. 

 

Section 5.3    Reinsurance Trust Account. 

 

(a)  For so long as all or some portion of the reinsurance of the Coinsured
Liabilities is secured through the use of the Reinsurance Trust Account, the
Reinsurer shall maintain in such Reinsurance Trust Account Authorized
Investments having, with respect to any date of determination, a Fair Market 
Value  equal  to  (i)  the  Required  Balance  as  of  such  date  of 
determination,  minus  (ii)  the  face 

 

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amount of the Letter of Credit, if any, as of such date of determination (the
“Reinsurance Trust Account Required Balance”). As promptly as practicable
following the date on which payment of the applicable Quarterly Net Settlement
Amount is due, the Reinsurer shall prepare and deliver to the Ceding Company a
statement (the “Reinsurance Trust Account Statement”) setting forth: (x) the
Reinsurance Trust Account Required Balance with respect to such Accounting
Period and (y) the Fair Market Value of the assets held in the Reinsurance Trust
Account as of the end of such Accounting Period. 

 

(b)  The Reinsurer shall arrange for assets to be deposited into the Reinsurance
Trust Account. Prior to depositing any assets with the trustee of such
Reinsurance Trust Account, the Reinsurer shall execute assignments or
endorsements in blank, or transfer legal title to the trustee of all shares,
obligations or any other assets requiring assignment so that the Ceding Company,
or the trustee upon the Ceding Company’s direction, may, whenever necessary,
negotiate any such assets without the consent or signature of the Reinsurer or
any other entity. Notwithstanding the composition of assets in the Reinsurance
Trust Account, all settlements with respect to the Reinsurance Trust Account
between the Ceding Company and the Reinsurer shall be in cash or its
equivalent. 

 

(c)  Upon the Ceding Company’s approval, which shall not be unreasonably
withheld, conditioned or delayed, the Reinsurer may withdraw all or any of the
assets held in the Reinsurance Trust Account and replace the withdrawn assets
with other Authorized Investments having a Fair Market Value at least equal to
the Fair Market Value of the assets so withdrawn so as to maintain at all times
on deposit Authorized Investments in an amount at least equal to the Reinsurance
Trust Account Required Balance. 

 

Section 5.4    Additional  Withdrawals.  Notwithstanding  any  other  provision 
of  this Agreement, the Ceding Company or any successor by operation of law,
including any liquidator, rehabilitator, receiver or conservator of the Ceding
Company may draw upon the Letter of Credit or the assets held in the Reinsurance
Trust Account at any time, without diminution because of the insolvency of any
Party only for the following purposes: (a) to reimburse the Ceding Company for
the Reinsurer’s share of premiums returned to the owners of the Covered
Insurance Policies on account of cancellation of such policies; (b) to reimburse
the Ceding Company for the Reinsurer’s share of surrenders and benefits or
losses paid by the Ceding Company pursuant to the provisions of the Covered
Insurance Policies; (c) to pay any other amount that the Ceding Company claims
is due under this Agreement; or (d) in the event that the Ceding Company
receives notice of nonrenewal of any Letter of Credit or termination of any
trust agreement to fund an account with the Ceding Company in an amount at least
equal to the Required Balance. In the event that any amount drawn by the Ceding
Company is subsequently determined not to be due, the Ceding Company shall
promptly return to the Reinsurer the excess amounts so drawn and, until such
excess amounts are returned to the Reinsurer, such amounts, together with
interest thereon accrued at the Interest Rate (or the Alternative Rate, if
applicable), shall be held by the Ceding Company in trust for the complete and
sole benefit of the Reinsurer and the Reinsurer shall be entitled to all rights,
title and interest in said amounts. 

 

Section 5.5    General. 

 

(a)  Notwithstanding anything to the contrary herein, the Reinsurer agrees to
take other commercially reasonable actions that are necessary to allow the
Ceding Company to receive full credit as admitted reinsurance under any
Applicable Law for the reinsurance of the Coinsured Liabilities. In the event
that the Reinsurer at any time fails to meet its security obligations as set
forth in this Article V, the Ceding Company shall be entitled to hold back, as
funds withheld, any amounts otherwise due to the Reinsurer under this Agreement
or any other agreement between the Ceding Company and the Reinsurer. 

 

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(b)  The Ceding Company may, at its discretion, require payment of any sum in
default instead of resorting to any security held, and it shall be no defense to
any such claim that the Ceding Company might have had recourse to any such
security. 

 

(c)  Notwithstanding any rule of any Applicable Law regarding the existence or 
non-existence of irreparable injury, the provisions of this Article V are agreed
to be specifically enforceable including by motion for preliminary injunction or
other provisional remedies. 

 

(d)  For purposes of this Article V, “any Applicable Law” shall include but not
be limited to all laws and regulations affecting the ability of the Ceding
Company to take credit for reinsurance, including all such laws and regulations
applicable to foreign branches of the Ceding Company. 

 

ARTICLE VI

OVERSIGHTS; COOPERATION

 

Section 6.1    Oversights. Any unintentional or inadvertent delay, omission or
error made in connection with this Agreement or any transaction hereunder shall
not relieve either Party from any Liability that would attach to it hereunder if
such delay, omission or error had not been made; provided, that such delay,
omission or error is rectified upon discovery. If (a) the failure of either
Party to comply with any provision of this Agreement is unintentional or the
result of a misunderstanding or oversight and

(b) such failure to comply is promptly rectified, both Parties shall be restored
as closely as possible to the positions they would have occupied if no error or
oversight had occurred. 

 

Section 6.2    Cooperation. Each Party shall cooperate fully with the other in
all reasonable  respects in order to accomplish the objectives of this
Agreement. 

 

ARTICLE VII

TAX; GUARANTY FUND ASSESSMENTS

 

Section 7.1    DAC  Tax  Election.   The   Parties   shall   make   the  
election   provided   in Section 1.848-2(g)(8) of the Treasury Regulations under
Section 848 of the Code. The specifics of this election are as follows: 

 

(a)  The Ceding Company and the Reinsurer shall make the following election
pursuant to Section 1.848-2(g)(8) of the Treasury Regulations under Section 848
of the Code. This election shall be effective for the first year in which this
Agreement is effective and for all subsequent taxable years for which this
Agreement remains in effect. Each Party shall make the election by timely
attaching to its Tax Returns the schedule required by Section 1.848-2(g)(8)(ii)
of such Treasury Regulation identifying this Agreement as one for which such
election has been made. 

 

(b)  The terms used in this Article VII, and not otherwise defined in this
Agreement, are defined by reference to Treasury Regulation Section 1.848-2 in
effect on the date this Agreement is executed.

 

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

 

(d)  Both Parties shall exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency or as
otherwise required by the Internal Revenue Service.

 

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(e)  The Ceding Company shall submit a schedule to the Reinsurer by May 1 of
each year of its calculation of the net consideration for the preceding calendar
year. This schedule of calculations shall be accompanied by a statement signed
by an officer of the Ceding Company stating that the Ceding Company shall report
such net consideration in its Tax Return for the preceding calendar year. 

 

(f)  The Reinsurer may contest such calculation by providing an alternative
calculation to the Ceding Company in writing within thirty (30) calendar days of
Reinsurer’s receipt of the Ceding Company’s calculation. If the Reinsurer does
not so notify the Ceding Company, the Reinsurer shall report the net
consideration as determined by the Ceding Company in the Reinsurer’s Tax Return
for the previous calendar year. 

 

(g)  If the Reinsurer contests the Ceding Company’s calculation of the net
consideration, the Parties shall act in good faith to reach an agreement as to
the correct amount within thirty (30) calendar days of the date the Reinsurer
submits its alternative calculation. If the Ceding Company and the Reinsurer
reach agreement on an amount of net consideration, each Party shall report such
amount in their respective Tax Returns for the previous calendar year. If the
Ceding Company and the Reinsurer do not reach agreement on the calculation of
net consideration with such thirty (30) calendar day period, then the net
consideration for the preceding calendar year shall be determined by an
independent accounting firm, selected by the Ceding Company and reasonably
acceptable to the Reinsurer, within twenty (20) calendar days after the
expiration of such thirty (30) calendar day period. All fees and expenses
relating to the work performed by the independent accounting firm shall be
shared equally between the Ceding Company and the Reinsurer. 

 

Section 7.2    Federal Excise Tax. The Reinsurer will allow for the purpose of
paying federal excise tax (“Federal Excise Tax”) the applicable percentage of
Premiums payable hereunder to the extent such Premiums are subject to Federal
Excise Tax and will, in all cases, indemnify the Ceding Company for any Federal
Excise Tax liability with respect to the Premiums payable hereunder. 

 

Section 7.3    FATCA. The Reinsurer shall provide to the Ceding Company, on or
before the Closing Date, documentation on forms approved by the United States
Internal Revenue Service establishing an exemption from withholding of Premium
payable hereunder in accordance with the Foreign Account Tax Compliance Act
(“FATCA”), and the Reinsurer shall provide or otherwise make available updated
documentation upon the Ceding Company’s request therefor. In the event that the
Reinsurer fails to do so or ceases to be exempt from withholding in accordance
with FATCA, the Ceding Company shall withhold the applicable percentage of
Premium payable hereunder, and the Reinsurer shall allow such withholding.
Interest shall not be payable on any amounts withheld in accordance with this
paragraph, nor shall any such amounts be subject to offset.

 

Section 7.4    Premium Tax.  The Parties agree that the Ceding Company shall be
compensated for a Quota Share of any Tax imposed on Premiums (“Premium Tax”)
through the Aggregate Expense Allowance mechanism set forth in Schedule  1.1. 

 

Section 7.5    Guaranty Fund  Assessments.  The  Reinsurer  shall  reimburse 
the  Ceding Company for a Quota Share of any guaranty fund assessments paid by
the Ceding Company with respect to any Covered Insurance Policy (the “Guaranty
Fund Assessments”) in accordance with  Section 3.2. Any Guaranty Fund
Assessments paid by the Ceding Company shall be reflected in the Settlement
Statement for the applicable Accounting Period. To the extent there is any
recovery of Guaranty Fund Assessments paid by the Reinsurer, the Ceding Company
shall promptly pay the Quota Share of such recovery to the Reinsurer. 

 

 

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Section 7.6    BEAT  Tax. 

(a)  During the term of this Agreement, the Reinsurer will not seek to withdraw
its 953(d) Election unless (i) the Reinsurer delivers to the Ceding Company a
tax opinion of nationally recognized tax counsel, which opinion is reasonably
acceptable to the Ceding Company, to the effect that either, (A) the Reinsurer
should remain a U.S. Person within the meaning of Section 7701(a)(30) of the
Code following such withdrawal, or (B) assuming the Reinsurer were no longer
treated as a U.S. Person within the meaning of Section 7701(a)(30) of the Code
following such withdrawal, the Reinsurer should not be treated as a “related
person” within the meaning of Section 59A(g) of the Code with respect to the
Ceding Company or (ii) the Ceding Company consents to such withdrawal, such
consent not to be unreasonably withheld, conditioned, or delayed. 

 

(b)  The Ceding Company covenants and agrees to reasonably cooperate with the
Reinsurer in the preparation of a tax opinion described in clauses (i)(A) or
(i)(B) of Section 7.6(a), including through providing a representation letter
acceptable to the Ceding Company and the Reinsurer upon which the Reinsurer and
its counsel can reasonably rely in the preparation of such tax opinion;
provided, however, that (i) any representations requested from the Ceding
Company or any of its Affiliates shall be purely factual in nature, and (ii) the
Reinsurer shall bear all costs and expenses associated with such tax opinion and
shall indemnify the Ceding Company for any such costs and expense incurred by
the Ceding Company or its Affiliates. 

 

Section 7.7    Indemnification.   The  Reinsurer  agrees  to indemnify the 
Ceding Company for any Tax Liability, or interest or penalty related to such Tax
Liability, that the Ceding Company may incur (a) pursuant to FATCA, (b) under
Section 4371 (or any amendments or supplements thereto) of the Code, or (c)
pursuant to any other withholding Tax requirement. 

 

Section 7.8    Return of Premium. In the event any return of premium is due to
the Ceding Company, the Reinsurer will return the premium paid hereunder and the
Ceding Company or its agent will recover Taxes paid to the United States
Government in accordance with this Article VII. Notwithstanding the foregoing,
in the event that the Ceding Company’s attempt to recover such Taxes is denied,
contested or disputed by the United States Government, then the Reinsurer shall
reimburse the Ceding Company for such Taxes within thirty (30) days of receipt
of written notice of such denial, contest or dispute. 

 

ARTICLE VIII

INSOLVENCY

 

Section 8.1    Insolvency of the Ceding Company. 

 

(a)  In the event the Ceding Company has entered into or has otherwise become
subject to an order of supervision, rehabilitation, liquidation or other
proceeding that is in substance the same type of proceeding as the
aforementioned, but conducted under a different name, whether involuntary or
otherwise, this reinsurance shall be payable directly to the Ceding Company or
to its liquidator, rehabilitator, receiver or statutory successor on the basis
of liability of the Ceding Company, without diminution by reason of the
insolvency of the Ceding Company or because the liquidator, rehabilitator,
receiver or statutory successor of the Ceding Company has failed to pay all or a
portion of any claim. It is agreed, however, that the liquidator, receiver or
statutory successor of the Ceding Company shall give written notice of the
pendency of a claim against the Ceding Company on the Covered Insurance Policy
within a reasonable time after such claim is filed in the insolvency proceeding.
It is further agreed that during the pendency of such claim the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defenses which it deems available to
the Ceding Company, its liquidator, receiver or statutory successor. Such
expense shall be chargeable,

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subject to  court  approval,  against  the  Ceding  Company  as  part  of  the 
expense  of  liquidation  to  the  extent of a proportionate share of the
benefit which may accrue to the Ceding Company solely as a result of the defense
undertaken by the Reinsurer.

 

(b)  Where two (2) or more reinsurers are involved in the same claim and a
majority in interest elects to interpose defense to such claim, the expense
shall be apportioned in accordance with the terms of this Agreement as though
such expense had been incurred by the Ceding Company. 

 

(c)  The reinsurance provided hereunder shall be payable by the Reinsurer to the
Ceding Company or to its liquidator, receiver, conservator, or statutory
successor, except (i) where this Agreement specifically provides another payee
of such reinsurance in the event of the insolvency of the Ceding Company, (ii)
where the Reinsurer with the consent of the direct insured or insureds has
voluntarily assumed such Covered Insurance Policy obligations of the Ceding
Company as direct obligations of the Reinsurer to the payees under such Covered
Insurance Policies and in substitution for the obligations of the Ceding Company
to the payees or (iii) where provided otherwise under Applicable Law.

 

ARTICLE IX

DURATION; SURVIVAL; RECAPTURE; TERMINAL SETTLEMENT

 

Section 9.1    Certain Definitions. 

 

(a)  “Recapture Triggering Event” means any of the following occurrences: 

 

(i)         the Reinsurer becomes (whether voluntary or involuntary) insolvent
or has been placed into liquidation, rehabilitation, conservation, supervision,
receivership, bankruptcy action or similar proceedings (whether judicial or
otherwise), or there has been instituted against it proceedings for the
appointment of a receiver, liquidator, rehabilitator, conservator, or trustee in
bankruptcy, or other agent known by whatever name, to take possession of its
assets or assume control of its operations; 

 

(ii)        the Reinsurer’s ECR Ratio in respect of its Long-Term Business
Account, after taking account of the Long-Term Business Account Diversification
Benefit, (A) falls below [***]% and the Reinsurer has not cured such shortfall
within one hundred twenty (120) calendar days of becoming aware thereof;
provided, however, such one hundred twenty (120) day cure period shall be tolled
for up to ninety (90) calendar days if, prior to the end of such cure period,
the Reinsurer has entered into a binding transaction to cure such shortfall but
the closing of such transaction is subject to regulatory approval which the
parties to such transaction are using their reasonable best efforts to obtain;
and provided, further, that if such ECR Ratio is not cured in accordance with
the timelines in this clause (A) but is subsequently restored to at least [***]%
and continuously remains at or above [***]% for at least ninety (90) calendar
days, the Ceding Company shall no longer have a right to recapture this
Agreement as a result of such occurrence (unless and until such ECR Ratio again
falls below [***]%); or (B) falls below [***]% and the Reinsurer has not
increased such ECR Ratio to at least [***]% within the shorter of any then
remaining cure period set forth in clause (A) above or forty-five (45) calendar
days of becoming aware thereof; 

 

(iii)       there has been a failure by the Reinsurer to pay any amounts due
hereunder in excess of $[***] or to fund the ModCo Account in an amount in
excess of $[***], in each case for which the Ceding Company shall not have
received a certificate executed by the Chief Financial Officer  or  other 
senior  officer  of  the  Reinsurer  certifying  that  the  Reinsurer  disputes 

 

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such amounts in good faith and, in each case, such breach has not been cured
within forty-five (45) calendar days after notice from the Ceding Company of
such failure;

 

(iv)       without the Ceding Company’s prior written consent, (a) the Reinsurer
undergoes a direct or indirect Change of Control to a Restricted Purchaser; or
(b) the Reinsurer cedes more than fifty percent (50%) of the Statutory Reserves
ceded hereunder (as measured on the basis of SAP) to a single “person” or
“group” (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934
as in effect on the Closing Date) that (i) at any time during such cession does
not hold an investment grade (financial strength/FSR) rating from at least one
of the following nationally recognized statistical rating organizations: Moody’s
Investors Service Inc., S&P Global Ratings or Fitch Ratings Inc. or (ii) at the
time of such cession, was a Restricted Purchaser; provided, however, that clause
(a) and clause (b)(ii) of the Recapture Trigger Event set forth in this Section
9.1(a)(iv) shall cease to apply in the event of a Change of Control of the
Ceding Company after the Amendment Date to any Person other than Parent or one
or more Affiliates of Parent, provided that a Change of Control of Parent to any
Person shall not constitute a Change of Control of the Ceding Company; or 

 

(v)        without the Ceding Company’s prior written consent, the Reinsurer
makes an application for any insurance business transfer pursuant to Part VII of
the Financial Services and Markets Act 2000 or a scheme of arrangement pursuant
to 895-899 of the Companies Act 2006, or any provision that replaces the
foregoing, or has a substantially similar effect as the foregoing in any
jurisdiction, in each case in respect of a transaction involving a Restricted
Purchaser. 

 

(b)  “Enhanced Capital Requirement” means, solely in respect of the Reinsurer
for purposes of this Agreement, a capital and surplus requirement imposed by or
under the Insurance Act 1978 and related regulations and in particular the
provisions of Bermuda Insurance (Prudential Standards) (Class 4 and Class 3B
Solvency Requirement) Rules 2008, as amended (“Insurance Act”), that is
calculated by reference to (i) the Bermuda Solvency Capital Requirement model
for the Reinsurer unless and until (ii) the Reinsurer is permitted to use a
Bermuda Monetary Authority-approved internal capital model (an “Internal Capital
Model”) and/or bespoke capital charges to calculate its capital and surplus, in
which case the Internal Capital Model and/or bespoke capital charges, as
applicable, shall be utilized for such calculation; provided, that, to the
extent there has been a material change in the factors or formulae prescribed by
the Bermuda Monetary Authority with respect to the components of and
methodologies contained in such calculations, or the Reinsurer redomesticates to
a jurisdiction outside Bermuda, the Parties shall amend this Agreement to
incorporate the equivalent ratio or requirement that represents the supervisory
minimum capital ratio applicable to the Reinsurer under the Applicable Laws of
Bermuda or the Reinsurer’s then current jurisdiction of domicile; provided, that
if (x) such supervisory minimum capital ratio results in an amount of capital
required to be held by the Reinsurer that the Ceding Company reasonably
determines is substantially dissimilar to the amount of capital required to be
held by the Reinsurer on the date immediately prior to the effective date of
such material change or redomestication and (y) the Ceding Company objects to
amending this Agreement to incorporate such supervisory minimum capital ratio
based on the dissimilarity cited in clause (x), then the Parties shall work in
good faith to amend this Agreement to reflect an alternative calculation that is
reasonably equivalent to the components of and methodologies contained in the
calculation of the Reinsurer’s Enhanced Capital Requirement in effect as of the
Amendment Date within thirty (30) calendar days after implementation of such
change and if the Parties cannot agree on any such alternative, then the
Reinsurer shall, for purposes of this Agreement, continue to calculate its
Enhanced Capital Requirement as if such material change had not occurred or the
Reinsurer had not redomesticated, as applicable. 

 

(c)  “Change of Control” of any Person shall be deemed to have occurred if,
after the Amendment Date, any “person” or “group” (within the meaning of Rule
13d-5 of the Securities Exchange

 

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Act of 1934 as in effect on the Closing Date) shall acquire ownership, directly
or indirectly, beneficially or of record, of shares representing more than fifty
percent (50%) of the aggregate ordinary voting power represented by the issued
and outstanding capital stock of such Person, who does not own more than fifty
percent (50%) thereof as of the Amendment Date. Notwithstanding the foregoing,
any  restructuring which has as its purpose the insertion of a new direct or
indirect holding company parent in the chain of ownership of the Reinsurer, or
the changing of any such parent holding company from one form of organization to
another, shall not constitute a Change of Control of the Reinsurer if the same
Persons who directly or indirectly owned the Reinsurer immediately prior thereto
directly or indirectly own the Reinsurer in the same proportions as to voting
and economic rights as immediately prior to such restructuring. The Parties
agree that the “Acquisition” contemplated by the 2019 Purchase Agreement shall
not constitute a Change of Control for purposes of this Agreement. 

 

(d)  “Restricted Purchaser” means: (A) any “person” or “group” (within the
meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the
Closing Date) set forth on a list of no more than five persons or groups whom
the Ceding Company has determined would be unacceptable as a reinsurance
counterparty or the owner of a reinsurance counterparty, which list may be
revised by the Ceding Company no more frequently than twelve months after the
previous revision (or after the Amendment Date, in the case of the first such
revision) and provided to the Reinsurer in writing; and (B) any Person (x) newly
formed within the last twelve (12) months, formed for, or being used principally
for, the purpose of a transaction involving the Reinsurer or the business
covered hereunder, or (y) affiliated with a private equity fund, hedge fund or
similar investment group; provided, that the Ceding Company will not
unreasonably withhold its consent to a Change of Control involving a Restricted
Purchaser described in this clause (B); and provided, further, that The Carlyle
Group Inc. (as successor to The Carlyle Group, L.P.) (“Carlyle”) and any of its
Subsidiaries shall not be considered Restricted Purchasers, as long as (i) no
Person that is not a Subsidiary of Carlyle shall acquire ownership, directly or
indirectly, beneficially or of record, of shares or other equity interests
representing more than fifty percent (50%) of the aggregate ordinary voting
power represented by the issued and outstanding capital stock or other equity
interests of the Reinsurer (including through acquiring such an interest in
Carlyle) and (ii) the Reinsurer remains a Subsidiary of Carlyle continuously
following the Amendment Date. For purposes of this Agreement, a Person shall be
considered a “Subsidiary” of another Person if such other Person beneficially
owns, directly or indirectly, shares or other equity interests representing more
than fifty percent (50%) of the aggregate ordinary voting power represented by
the issued and outstanding capital stock or other equity interests of such first
Person. 

 

Section 9.2    Duration.  This Agreement  shall  continue in-force until  such
time as (a)  the  Ceding Company’s liability arising out of or related to all
Covered Insurance Policies reinsured hereunder is terminated in accordance with
their respective terms, and the Reinsurer has satisfied all of its obligations
to the Ceding Company hereunder or (b) the Ceding Company has elected to
recapture the Covered Insurance Policies in full following a  Recapture 
Triggering  Event  in  accordance  with  Section 9.4(a), and the Ceding Company
has received all applicable payments which discharge such liability in full in
accordance with Section  9.5. 

 

Section 9.3    Survival. All of the provisions of this Agreement shall, to the
extent necessary to carry out the purposes of this Agreement or to ascertain and
enforce the Parties’ rights hereunder, survive its termination in full force and
effect. 

 

Section 9.4    Recapture. 

 

(a)  At any time following the occurrence of a Recapture Triggering Event
(provided, with respect to a Recapture Triggering Event under clause (ii) of the
definition of the term, that such Recapture Triggering Event has not been
cured), the Ceding Company shall have the right (but not the obligation) to 

 

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recapture all, and not less than all, of the reinsurance of the Covered
Insurance Policies ceded under this Agreement, by providing the Reinsurer with
prior written notice of its intent to effect such recapture specifying the date
upon which such recapture will be effective (the “Recapture Effective Date”),
which Recapture Effective Date must be the last calendar day of an Accounting
Period. The Ceding Company will also recapture all, and not less than all, of
the reinsurance of the Covered Insurance Policies ceded under this Agreement if
termination of this Agreement is awarded by an arbitration panel pursuant to
Section 10.3(d); provided  that the Recapture Effective Date for any such
recapture shall be determined by the arbitration panel unless otherwise agreed
between the Parties in writing.

 

(b)  Notwithstanding anything in this Agreement to the contrary, upon any
recapture by the Ceding Company, the Ceding Company will only recapture
liabilities arising under the express terms of the Covered Insurance Policies
and will not be liable for any Extra-Contractual Obligations incurred before the
Recapture Effective Date other than Ceding Company Extra-Contractual
Obligations. 

 

(c)  Following any recapture pursuant to this Section 9.4, subject to the
payment obligations described in Section 9.5, both the Ceding Company and the
Reinsurer will be fully and finally released from all rights and obligations
under this Agreement in respect of the applicable Covered Insurance Policies,
other than any payment obligations due hereunder as respects periods through the
Recapture Effective Date but still unpaid on such date, any Extra-Contractual
Obligations incurred before the Recapture Effective Date other than Ceding
Company Extra-Contractual Obligations, and any other obligations of the
Reinsurer with respect to the Reinsured Liabilities incurred prior to the
Recapture Effective Date. Following the consummation of the recapture or
termination, no additional Premiums or other amounts payable under such Covered
Insurance Policies shall be payable to the Reinsurer hereunder.

 

(d)  Notwithstanding the remedies contemplated by this Article IX, the Ceding
Company may, in its sole discretion, require direct payment by the Reinsurer of
any sum in default under this Agreement in lieu of exercising the remedies in
this Article IX, and it shall be no defense to any such claim that the Ceding
Company might have had other recourse. 

 

Section 9.5    Terminal  Settlement. 

 

(a)  In connection with a termination of this Agreement or recapture of the
Covered Insurance Policies pursuant to Section 9.4, a Terminal Settlement will
take place. In connection therewith, the Ceding Company shall deliver to the
Reinsurer, within forty-five (45) calendar days following the Recapture
Effective Date, a statement (the “Terminal Settlement Statement”) setting forth
the Ceding Company’s computation of the Terminal Settlement, including a good
faith calculation of the Embedded Value Payment. The “Terminal Settlement” shall
consist of (i) the Quarterly Net Settlement Amount for the Terminal Accounting
Period, and (ii) the Embedded Value Payment with respect to the then in-force
Covered Insurance Policies as of the Recapture Effective Date. “Embedded Value
Payment” means an amount equal to (x)(A) the present value, based on the best
estimate assumptions and market conditions at the Recapture  Effective  Date, 
of  statutory  after-tax  future  profits  and  losses  from  this  Agreement, 
minus  (B) the present value of the cost of capital, based on the standalone
target capital for a capital ratio of [***]% of company action level risk-based
capital calculated under SAP where the cost of capital is the change in the
amount of target capital over the projected duration of the business reinsured
hereunder, net of after-tax investment income on the target capital, where (A) –
(B) is adjusted for taxes, including federal income tax and DAC tax impact based
on relevant tax rules applicable to the Ceding Company as of the Recapture
Effective Date, all discounted at [***]%, minus  (y) the aggregate expense to
the Ceding Company, not to exceed $[***], associated with replacing the
reinsurance provided hereunder or entering into a reasonably equivalent
alternative arrangement, minus  (z) the Recapture Penalty. If the Embedded Value
Payment  is  positive,  such  amount  will  be  paid  by  the  Ceding  Company 
to  the  Reinsurer  as  part  of 

 

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the Terminal Settlement. If the Embedded Value Payment is negative, the absolute
value of such negative amount shall be paid by the Reinsurer to the Ceding
Company as part of the Terminal Settlement. “Recapture Penalty” means $[***]. 

 

(b)  The Terminal Settlement shall be paid on a net basis by the Reinsurer or
the Ceding Company, as the case may be, within seven (7) Business Days following
the delivery by the Ceding Company to the Reinsurer of the Terminal Settlement
Statement. If, subsequent to the Terminal Settlement, a change is made with
respect to any amounts due solely as a result of a mathematical error in the
calculation of the Terminal Settlement, a supplementary accounting will take
place.  Any amount owed to the Ceding Company or to the Reinsurer by reason of
such supplementary accounting will be paid promptly upon the completion
thereof. 

 

(c)  Following the Terminal Settlement, any assets remaining in (i) the ModCo
Account shall be retained by the Ceding Company, and the ModCo Account shall be
terminated and (ii) the Collateral Trust Account shall be released to the
Reinsurer, and the Collateral Trust Account shall be terminated in accordance
with its terms. 

 

(d)  Within thirty (30) calendar days after its receipt of the Terminal
Settlement Statement, the Reinsurer shall notify the Ceding Company in writing
if the Reinsurer disagrees with the Ceding Company’s calculation of the Embedded
Value Payment. During the ten (10) Business Days immediately following the
delivery of such notice of disagreement, the Ceding Company and the Reinsurer
will seek  in good faith to resolve any disputes as to such calculation.
Notwithstanding anything to the contrary herein, any and all disputes as to the
calculation of the Embedded Value Payment that have not been resolved during
such ten (10) Business Day period shall be submitted to an independent and
disinterested actuarial firm (the “Independent Actuary”), as respects the ModCo
Reserves, or to one or more independent and disinterested asset valuation
experts, as respects the ModCo Assets (each, an “Independent Valuation Expert”),
reasonably agreed to by each of the Ceding Company and the Reinsurer for review
and determination. Should the Parties proceed with such an evaluation by an
Independent Actuary or the Independent Valuation Expert(s), such evaluation
shall assess which of the Parties’ two results is the more reasonable
calculation in light of the evidence provided by both Parties to support their
calculations. The Parties shall instruct the Independent Actuary and Independent
Valuation Expert(s) to render their decisions as to the more reasonable
calculation of the applicable component(s) of the Embedded Value Payment within
thirty (30) calendar days after the submission of the matter for its review (or
as soon thereafter as possible). The Independent Actuary’s or the Independent
Valuation Expert’s decision, as applicable, shall be final and binding upon each
of the Ceding Company and the Reinsurer. All fees and expenses relating to the
work performed by the Independent Actuary and the Independent Valuation Expert
shall be shared equally between the Ceding Company and the  Reinsurer. In the
event of any conflict between this Section 9.5(d) and any other provision of
this Agreement, the terms of this Section 9.5(d) shall control. 

 

(e)  If the Ceding Company and the Reinsurer are unable to agree upon the
identity of the Independent Actuary or the Independent Valuation Expert within
five (5) Business Days of beginning such process,  then  each  Party  shall 
submit,  within  seven  (7)  calendar  days  thereafter,  the  names  of  three
(3) candidates to the other Party whom the submitting Party shall consider to be
independent and disinterested. Unless otherwise agreed by the Parties, each
candidate for Independent Actuary must be a current Fellow of the Society of
Actuaries in good standing and neither presently nor formerly retained by,
employed by, or Affiliated with either the Ceding Company or the Reinsurer or
any company Affiliated with either within the past twelve (12) months. Unless
otherwise agreed by the Parties, each candidate for Independent Valuation Expert
must be neither presently nor formerly employed by, or Affiliated with, either
the Ceding Company or the Reinsurer or any company Affiliated with either within
the past  twelve  (12)  months.  In  contacting  possible  candidates  to 
serve  in  either  such  role,  neither  Party 

 

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shall disclose the nature of the dispute nor its own position to such
candidates, but may only describe the identities of the Ceding Company and the
Reinsurer, the type of business reinsured and/or assets in dispute and the fact
that an issue exists hereunder as to the embedded value of the business
hereunder and/or the assets in dispute. From the list of six (6) candidates thus
produced, within five (5) Business Days, each of the Ceding Company and the
Reinsurer shall strike two (2) names so that among the remaining names a
disinterested actuary or disinterested valuation expert shall be chosen by
drawing lots. The candidate selected from this method shall be the Independent
Actuary or the Independent Valuation Expert who shall resolve the difference as
described above. These same procedures shall be used as necessary for
determining the Independent Actuary and/or Independent Valuation Expert for the
specified disputes involving such experts as contemplated in Sections 2.3, 2.5 
and 4.1(f), as applicable. 

 

ARTICLE X

MISCELLANEOUS

 

Section 10.1 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given (a) on the date of service if served personally on the Party to whom
notice is to be given, (b) on the day of transmission if sent via electronic
mail to the email address given below, or (c) on the Business Day after delivery
to an overnight courier (such as Federal Express) or an overnight mail service
(such as the Express Mail service) maintained by the United States Postal
Service, to the applicable Party as follows:

 

To the Ceding Company:

 

American General Life Insurance Company

2727A Allen Parkway

Life Building 4C-2

Houston, TX 77019  

E-mail: [***] 

Attention: Head of Life and Retirement Reinsurance Finance and Operations

With concurrent copies (which will not constitute notice) to:

American International Group, Inc.

21650 Oxnard Street, Suite 750

Woodland Hills, CA 91367

E-mail: [***] 

Attn: General Counsel, Life & Retirement

To the Reinsurer:

Fortitude Reinsurance Company, Ltd.

Chesney House – 3rd Floor

96 Pitts Bay Road

Pembroke HM 08, Bermuda  

E-mail: [***] 

Attention: James Bracken, Chief Executive Officer

With concurrent copies (which will not constitute notice) to:

 

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Fortitude Reinsurance Company, Ltd.

Chesney House – 3rd Floor

96 Pitts Bay Road

Pembroke HM 08, Bermuda  

E-mail: [***] 

Attention: Jeffrey Burman, General Counsel

 

Either Party may change its notice information upon fifteen (15) calendar days’
advance notice in writing to the other Party.

 

Section 10.2  Entire Agreement, Interpretation. 

 

(a)  With respect to the subject matter hereof, (i) this Agreement, including
any Schedules, Exhibits, Appendices and documents expressly incorporated by
reference herein and the other documents delivered pursuant hereto and thereto
(including the Collateral Trust Agreement and the FLAS Administrative Services
Agreement), constitutes the entire agreement between the Parties with respect to
the subject matter hereof and (ii) supersedes all prior agreements,
understandings, representations and warranties, written or oral, with respect
thereto. Any change to or modification of this Agreement will be made by written
amendment to this Agreement, signed by the Parties. 

 

(b)  This Agreement is between sophisticated parties, each of which has reviewed
this Agreement and is fully knowledgeable about its terms and conditions. The
Parties therefore agree that  this Agreement shall be construed without regard
to the authorship of the language and without any presumption or rule of
construction in favor of either of them. 

 

(c)  The table of contents, articles, titles, captions and headings to Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement. The
Schedules, Exhibits and Appendices referred to herein are to be construed with
and as an integral part of this Agreement to the same extent as if they were set
forth verbatim herein. All references herein to Articles, Sections, Exhibits,
Schedules and Appendices shall be construed to refer to Articles and Sections
of, and Exhibits, Schedules and Appendices to, this  Agreement. Whenever the
words “include”, “includes” or “including” are used in this Agreement, they are
deemed to be followed by the words “without limitation”. Unless the context
otherwise requires, the word “Agreement” means this Agreement, together with all
Exhibits, Schedules and Appendices attached hereto or incorporated by reference,
and the words “hereof”, “herein” and “hereunder” and words of similar import
when used in this Agreement refer to this Agreement in its entirety and not to
any particular Article, Section or provision of this Agreement. All terms
defined in this Agreement have the defined meanings when used in any certificate
or other document made or delivered pursuant hereto unless otherwise defined
therein. The definitions in this Agreement are applicable to the singular as
well as the plural forms of such terms and to the masculine as well as to the
feminine genders of such term. Any agreement or instrument defined or referred
to herein or any agreement or instrument that is referred to herein means such
agreement or instrument as from time to time amended, modified or supplemented,
including by waiver or consent and references to all attachments thereto and
instruments incorporated therein. Any statute or regulation referred to herein
means such statute or regulation as amended, modified, supplemented or replaced
from time to time (and, in the case of statutes, includes any rules and
regulations promulgated under the statute), and references to any section of any
statute or regulation include any successor to such section. References to a
Person are also to its successors and permitted assigns. Any agreement referred
to herein includes reference to all Exhibits, Schedules and other documents or
agreements attached thereto. 

 

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Section 10.3  Arbitration. 

 

(a)  Any and all disputes or differences arising out of or relating to this
Agreement for which a dispute resolution mechanism is not otherwise provided
herein shall be referred to arbitration, except that disputes or differences
involving the formation and/or validity of this Agreement may be submitted to
the Supreme Court of the state and county of New York or the United States
District Court for the Southern District of New York. Any arbitration shall be
conducted in accordance with the ARIAS • U.S. Rules for the Resolution of U.S.
Insurance and Reinsurance Disputes (Arb Prov 2014) (the “ARIAS • U.S. Rules”). 

 

(b)  However, if either Party demands arbitration of a dispute, such dispute
does not relate to the formation and/or validity of this Agreement, and the
total amount in dispute in such arbitration (i) is less than $1,000,000 (or, if
the applicable currency is other than Dollars, the equivalent amount based on
the applicable exchange rates used in the Ceding Company’s books at the date of
the arbitration demand), or (ii) pertains to the determination as to whether a
change by the Ceding Company of the terms or conditions of any Covered Insurance
Policy is an Excluded Policy Change or a change in a Non- Guaranteed Element is
an Excluded NGE Change, the dispute shall be resolved in accordance with the
ARIAS • U.S. Streamlined Rules for  Small  Claim  Disputes  (Streaml  Prov 
2014)  (the  “ARIAS  •   U.S. Streamlined Rules”). 

 

(c)  The arbitration panel shall be appointed in accordance with the ARIAS •
U.S. Rules and ARIAS • U.S. Streamlined Rules, as applicable. The panel shall
interpret this Agreement as an honorable engagement, and shall not be obligated
to follow the strict rules of law or evidence. In making their decision, the
panel shall apply the custom and practice of the insurance and reinsurance
industry, with a view to effecting the general purpose of this Agreement. Each
arbitrator serving on the panel must be a life insurance or reinsurance industry
professional with no less than ten (10) years of experience in such industry.
Notwithstanding anything to the contrary in the ARIAS U.S. Rules or the ARIAS
U.S. Streamlined Rules, ARIAS certification shall not be required in order to
act as an arbitrator on the panel.

 

(d)  The Ceding Company shall not be restricted from seeking, and the
arbitration panel shall not be restricted from awarding, termination as a remedy
with respect to any claim by the Ceding Company alleging material breach of this
Agreement by the Reinsurer that has not been cured within thirty (30) calendar
days after the Reinsurer’s receipt of notice thereof from the Ceding Company. To
the extent the arbitration panel determines that there has been such a material
breach and awards termination of this Agreement as a remedy, the Parties shall
effect a recapture of this Agreement in accordance with Article IX. For the
avoidance of doubt, nothing in this Section 10.3(d) shall require the
arbitration panel to award termination as a remedy for material breach or to
otherwise limit any other remedies that may be awarded by the panel in respect
thereof. The arbitration panel shall only be permitted to award termination of
this Agreement as a remedy if the Ceding Company so requests termination as a
remedy or potential remedy. If the arbitration panel awards termination of this
Agreement, the Parties shall request the arbitration panel to set the Recapture
Effective Date unless the Parties have otherwise agreed to such date in
writing. 

 

(e)  The arbitration shall take place in New York, New York. 

 

(f)  Unless prohibited by Applicable Law, the Supreme Court of the state and
county of New York and the United States District Court for the Southern
District of New York shall have exclusive jurisdiction over any and all court
proceedings that either Party may initiate in the case of a dispute involving
the formation or validity of this Agreement or in connection with the
arbitration, including proceedings to compel, stay, or enjoin arbitration or to
confirm, vacate, modify, or correct an arbitration award. In addition, the
Ceding Company and the Reinsurer shall have the right to seek and obtain in
such 

 

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courts provisional relief prior to the panel being fully formed pursuant to this
Section 10.3, including  prior to the commencement of the arbitration
proceeding. 

 

(g)  In the event of any conflict between this Section 10.3 and the ARIAS • U.S.
Rules or the ARIAS • U.S. Streamlined Rules, as applicable, this Section 10.3,
and not the ARIAS • U.S. Rules or the ARIAS • U.S. Streamlined Rules, as
applicable, will control. 

 

Section 10.4  Governing Law. This Agreement shall be governed by and  construed 
in  accordance with the Applicable Laws of the state of New York, without regard
to its conflicts of law principles.

 

Section 10.5  No Third Party Beneficiaries. Nothing in this Agreement is
intended or shall be construed to give any party, other than the Parties, their
successors and permitted assigns, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.

 

Section 10.6  Expenses. Except as otherwise provided herein, the Parties shall
each bear their respective expenses incurred in connection with the negotiation,
preparation, execution, and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of counsel, actuaries and
other Representatives.

 

Section 10.7  Mode of Execution; Counterparts. 

 

(a)  Unless otherwise required by Applicable Law, this Agreement may be executed
by:     (i) an original written ink signature; (ii) an exchange of facsimile
copies showing the original signature; or (iii) electronic signature technology
employing computer software and a digital signature or digitizer pen pad to
capture an individual’s handwritten signature in such a manner that the
signature is unique to the individual signing, under the sole control of the
individual signing, capable of verification to authenticate the signature, and
linked to the document signed in such a manner that if the data is changed, such
signature is invalidated.

 

(b)  Unless otherwise required by Applicable Law, the use of any one or
combination of these methods of execution shall constitute a legally binding and
valid signing of this Agreement. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a number of copies hereof each signed by less
than all, but together signed by all, of the Parties. 

 

Section 10.8 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions  of this Agreement in any other jurisdiction, so long as the economic
or legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any Party. If any provision of this Agreement
is so broad as to be unenforceable, that provision shall be interpreted to be
only so broad as is enforceable. In the event of such invalidity or
unenforceability of any term or provision of this Agreement, the Parties shall
use their commercially reasonable efforts to reform such terms or provisions to
carry out the commercial intent of the Parties as reflected herein, while curing
the circumstance giving rise to the invalidity or unenforceability of such term
or provision. 

 

Section 10.9 Waiver of Jury Trial. Each Party irrevocably waives, to  the 
fullest  extent  permitted by  Applicable  Law,  any  right  it  may  have  to 
a  trial  by  jury  in  respect  of  any  action  arising  out 

 

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of or relating to this Agreement, and whether made by claim, counterclaim, third
person claim or otherwise. Each Party (a) certifies that no Representative or
agent of the other Party has represented, expressly or otherwise, that such
other Party would not, in the event of litigation, seek to enforce the foregoing
waiver and (b) acknowledges that it and the other Party have been induced to
enter into this Agreement by, among other things, the mutual waivers and
certifications in this Section 10.9. 

 

Section 10.10   Treatment of Confidential Information. 

 

(a)  Each Party agrees that, other than as contemplated by this Agreement or any
Administrative Services Agreement, and to the extent permitted or required to
implement the transactions contemplated by this Agreement or thereby, it and its
Affiliates and Representatives will keep  confidential and will not use or
disclose the other Party’s Confidential Information or the terms and conditions
of this Agreement, including the Exhibits, Schedules and Appendices hereto. 

 

(b)  Each Party shall be permitted to disclose this Agreement and any
Confidential Information of the other Party to such receiving Party’s Affiliates
and its Representatives that need to know such information for the purposes
below; provided, that the receiving Party advises such parties of the
confidential nature of the Confidential Information and their obligation to
maintain its confidentiality in accordance with the terms hereof. The receiving
Party shall be responsible for any breach of this provision by any of its
Representatives or Affiliates. 

 

(c)  Confidential Information provided by one Party to the other Party or such
Party’s Representatives or Affiliates and any reports derived therefrom may only
be used by the receiving Party and its Representatives and Affiliates only for
purposes relating to such receiving Party’s rights and obligations under this
Agreement or any Administrative Services Agreement to which it is a party, or
for the receiving Party’s own internal administration and risk management. The
receiving Party may use knowledge gleaned from the Confidential Information
provided to it by the disclosing Party in the conduct of the receiving Party’s
normal business, provided that no such material shall be used by the receiving
Party or its Representatives or Affiliates to compete with the disclosing Party
or any of the disclosing Party’s Affiliates. 

 

(d)  Nothing herein shall prohibit the receiving Party from disclosing this
Agreement and any Confidential Information of the disclosing Party provided in
connection herewith (i) if legally compelled to do so or as required in
connection with an examination by an insurance regulatory authority or otherwise
by Governmental Authorities or Applicable Law; (ii) to the extent necessary for
the performance of such receiving Party’s obligations hereunder or under any
Administrative Services Agreement to which it is a party; (iii) to enforce the
rights of the receiving Party or its Affiliates under this Agreement or any
Administrative Services Agreement; (iv) as required by a Tax Authority to
support a position taken on any Tax Return; or (v) as required by the rules of
any stock exchange on which the stock of a receiving Party’s Affiliate is
traded, as applicable. Upon any such permissible disclosures, a receiving Party
must also assert the confidential nature of the Confidential Information to any
third party recipient and obtain appropriate assurance of continued confidential
treatment where practicable. If a receiving Party or any of its Affiliates, or
any of their respective Representatives, becomes legally compelled to disclose
any Confidential Information (other than as required in connection with any
insurance regulatory examination or as required to a Tax Authority to support a
position on any Tax Return), the receiving Party shall notify the disclosing
Party immediately and afford it an opportunity, to the full extent possible and
at the disclosing Party’s own expense, to make any objections or challenges to
the disclosure sought as the disclosing Party may deem appropriate. If the
disclosing Party objects to or challenges disclosure, the receiving Party will
take reasonable measures to cooperate with the disclosing Party, at the
disclosing Party’s own expense, in its efforts to resist such disclosure. If no
remedy is obtained or  the  disclosing  Party  otherwise  waives  its 
compliance  herewith,  the  receiving  Party  or  its 

 

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Affiliates, as applicable, shall furnish only that portion of Confidential
Information that it is legally required to be provided and exercise its
commercially reasonable efforts to obtain assurances that appropriate
confidential treatment will be accorded to the Confidential Information.

 

Section 10.11  Treatment of Personal Information. 

 

(a)  The Reinsurer shall comply with its obligations under Applicable Privacy
and Security Laws and shall cooperate with the Ceding Company’s efforts to
comply with such laws. The Ceding Company may perform, or have a third party
perform, reasonable security audits, investigations or assessments of the
Reinsurer upon reasonable notice, and the Reinsurer shall provide all reasonably
requested security reports, information and access. The Parties agree that, for
the purposes of Applicable Privacy and Security Laws, each Party (to the extent
it processes Personal Information pursuant to or in connection with this
Agreement) processes Personal Information as an independent data controller in
its own right. Nothing in this Agreement (or the arrangements contemplated by
it) is intended to construe either Party as the data processor of the other
Party or as joint data controllers with one another with respect to Personal
Information. 

 

(b)  Each Party agrees that, to the extent it discloses Personal Information to
the other Party, such disclosure shall be in accordance with Applicable Privacy
and Security Laws. Each Party also  agrees that no such Personal Information
shall be disclosed for monetary or other valuable consideration. 

 

(c)  The Reinsurer shall maintain a comprehensive information security program
designed to protect the confidentiality, integrity and availability of
Information Systems and to protect all Confidential Information from
unauthorized use, alteration, access, disclosure or loss. The information
security program shall, at a minimum, comply with the requirements of Applicable
Privacy and Security Laws and, in particular, shall include: (i) written
policies and procedures, which shall be periodically assessed and revised to
address changes in risks and the effectiveness of controls; and (ii) technical,
administrative, physical, organizational and operational controls that are
appropriate to the information security risk, including encryption of Personal
Information at rest and in transit where feasible and commensurate with the
sensitivity of the Personal Information, controls to limit unauthorized access
to Information Systems and Confidential Information, and the use of multi-factor
authentication when accessing any Information Systems of the Ceding Company or
its Affiliates from outside the Ceding Company’s or its Affiliates’ network. 

 

(d)  The Reinsurer shall: (i) promptly (and without undue delay) notify the
Ceding Company in writing of any reasonably suspected unauthorized or unlawful
use, processing, alteration, access, disclosure, loss or unavailability of
Confidential Information or Information Systems (if reasonably likely to provide
unauthorized access to Confidential Information) and shall cooperate with the
Ceding Company to investigate and respond to such events; and (ii) permit no
third party to access or use the Confidential Information or any Information
Systems of the Ceding Company except as necessary for the purposes of this
Agreement or otherwise permitted hereby. 

 

(e)  The Reinsurer shall (i) immediately notify the Ceding Company of any
requests from individuals regarding their Personal Information; and (ii) be
responsible for responding to any requests it receives from the Ceding Company
or directly from individuals regarding their Personal Information, inquiries or
complaints (including any request by a data subject to exercise their rights
under Applicable Privacy and Security Laws), unless otherwise agreed between the
Parties in writing. The Ceding Company shall also promptly forward to the
Reinsurer any data subject rights requests that require the Reinsurer to
facilitate either Party’s compliance with Applicable Law. 

 

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(f)  If and where Personal Information is disclosed or transferred
internationally to the Reinsurer or its Representatives, the Reinsurer shall, as
reasonably requested by the Ceding Company, cooperate with the Ceding Company in
concluding the most appropriate contractual framework to comply with Applicable
Privacy and Security Laws, such as standard model contract clauses approved by
the European Commission (or such other transfer mechanism approved by the
European Commission) or AIG’s International Data Processing and Transfer
Agreement. 

 

(g)  Except as otherwise specifically provided in this Agreement, nothing herein
shall be constructed as granting or conferring rights by license or otherwise in
Confidential Information disclosed to the receiving Party. Each Party shall
destroy the Confidential Information of the other Party when no longer needed
for the purposes described and permitted herein or to comply with Applicable Law
or such Party’s internal record retention policies. 

 

(h)  The Parties hereby acknowledge and agree that money damages may be both
incalculable and an insufficient remedy for any breach of this Article by the
breaching Party or its Representatives and that any such breach may cause the
other Party irreparable harm. Accordingly, each Party shall  be entitled to seek
equitable relief, including injunctive relief and specific performance, in the
event of any breach of the provisions of this Article by the other Party or its
Representatives, in addition to all other remedies available at law or in
equity. 

 

Section 10.12 Assignment.  This  Agreement shall be binding upon and inure to
the benefit of  the Parties and their respective successors and permitted
assigns. Except as provided below in this  Section 10.12, neither Party may
assign any of its rights, duties or obligations hereunder without the prior
written consent of the other Party and any attempted assignment in violation of
this Section 10.12 shall be invalid ab initio; provided, however, that this
Agreement shall inure to the benefit and bind those who, by operation of law,
become successors to the Parties, including any receiver or any successor,
merged or consolidated entity. 

 

Section 10.13  Waivers and Amendments. 

 

(a)  This Agreement may be amended, superseded, canceled, renewed or extended,
and the terms hereof may be waived, only by an instrument in writing signed by
the Parties hereto, or, in the case of a waiver, by the Party waiving
compliance. Any amendment requiring the approval of any state insurance
department under Applicable Law shall not be effective until so approved. 

 

(b)  No delay on the part of any Party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any such right, power or privilege. No waiver of any breach of this
Agreement shall be held to constitute a waiver of any other or subsequent
breach. 

 

Section 10.14  Service of Suit. 

 

(a)  At the request of the Ceding Company, the Reinsurer hereby agrees to submit
to the jurisdiction of any court of competent jurisdiction within the United
States and agrees to comply with the requirements necessary to give the court
jurisdiction with respect to any and all court proceedings that the Ceding
Company may initiate in connection with an arbitration, including proceedings to
compel, stay or enjoin arbitration or to confirm, vacate, modify or correct an
arbitration award. The Reinsurer agrees to abide by the final decision of that
court or of an appellate court in the event of an appeal, and consents to any
effort to enforce the final decision of that court within its home jurisdiction,
including the granting of full faith and credit or comity in the Reinsurer’s
home jurisdiction or any other jurisdiction where the Reinsurer is  subject  to 
jurisdiction.  Nothing  in  this  Section 10.14 constitutes  or  should  be 
understood  to 

 

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constitute a waiver of the rights of the Reinsurer to remove such an action to a
United States District Court, or to seek a transfer of such a case to another
court as permitted by the Applicable Laws of the United States or of any state
in the United States, or to commence an action in connection with the
arbitration in any court of competent jurisdiction in the United States. It is
further agreed that service of process on the Reinsurer in such suit may be made
upon Corporation Service Company, 1180 Avenue of the Americas, Suite 210, New
York, NY 10036, or such other entity at its New York address as is specifically
designated in the applicable signing page of this Agreement, and that, in any
suit instituted against the Reinsurer under this Agreement, the Reinsurer will
abide by the final decision of such court or of any Appellate Court in the event
of an appeal.

 

(b)  Corporation Service Company, 1180 Avenue of the Americas, Suite 210, New
York, NY 10036, or such other designated entity, is authorized and directed to
accept service of process on behalf of the Reinsurer in any such suit and/or
upon the request of the Ceding Company to give a written undertaking to the
Ceding Company that they will enter a general appearance on the Reinsurer’s
behalf in the event such a suit shall be instituted. 

 

(c)  Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer also hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his or her successor or
successors in office, 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 or any beneficiary hereunder arising out of this
Agreement, and hereby designates Corporation Service Company, 1180 Avenue of the
Americas, Suite 210, New York, NY 10036, or such other entity as designated, as
the entity to whom the said officer is authorized to mail such process or a true
copy thereof. 

 

(d)  This Section 10.14 shall not be read to conflict with or override any
obligation of the Parties hereunder to arbitrate a dispute or difference arising
out of this Agreement. 

 

Section 10.15  OFAC  Compliance. 

 

(a)  Each of the Ceding Company and the Reinsurer represents, as to itself, that
it is in compliance in all material respects with all laws, regulations,
judicial and administrative orders applicable to the Covered Insurance Policies
as they pertain to applicable sanction laws and regulations, and specifically
those administered by the U.S. Treasury Department’s Office of Foreign Assets
Control, as such laws may be amended from time to time (collectively the
“Sanctions Laws”). Each of the Ceding Company and the Reinsurer agrees to comply
in all material respects with applicable Sanctions Laws throughout the term of
this Agreement as respects the subject matter hereof. Neither Party shall be
required to take any action under this Agreement that would violate said
Sanctions Laws as respects itself, its parent company or its ultimate
controlling entity, including making any payments in violation of the Sanctions
Laws. 

 

(b)  Should either Party discover or otherwise become aware that a transaction
subject to the reinsurance hereunder has been entered into or a payment has been
made in violation of applicable Sanction Laws, the Party that first becomes
aware of the actual or potential violation of applicable Sanctions Laws shall
notify the other Party, and the Parties shall cooperate in order to take all
necessary corrective actions. 

 

(c)  Where coverage provided by this Agreement would be in violation of
applicable Sanctions Laws as respects either Party, its parent company or its
ultimate controlling entity, such coverage shall  be  null  and  void.  In 
such  event,  each  Party  shall  be  restored  to  the  position  it  would 
have 

 

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occupied under this Agreement if the violation had not occurred, including the
return of any payments received, unless prohibited by Applicable Law.

 

Section 10.16 Incontestability. Each Party hereby acknowledges that this
Agreement, and each and every provision hereof, is and shall be enforceable
according to its terms. Each Party hereby irrevocably waives any right to
contest in any respect the validity or enforceability hereof. This Agreement
shall not be subject to rescission, or to an award of damages, restitution, or
reformation in lieu thereof, on any basis whatsoever, including intentional
fraud. 

 

[The rest of this page intentionally left blank.] 

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
effective as of the Amendment Date.

 

AMERICAN GENERAL LIFE INSURANCE COMPANY

 

 

By:   /s/ Michael P.  Harwood                                        

Name: Michael P. Harwood

Title: Senior Vice President, Chief Actuary and

Corporate Illustration Actuary

 

FORTITUDE REINSURANCE COMPANY, LTD.

 

 

By:   /s/  James  Bracken                                                

Name: James Bracken

Title: Chief Executive Officer

 

 

By:    /s/ Jeffrey S.  Burman                                           

Name: Jeffrey S. Burman

Title: SVP, General Counsel & Secretary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to AGL ModCo Agreement] 

 

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