exv10w5



 





Exhibit
10.5















COINSURANCE AGREEMENT




Effective
as of January 1, 2000,




between




SAFECO LIFE INSURANCE COMPANY

of

Redmond, Washington,




referred to in this Agreement as “SAFECO,” and




THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

of

Fort Wayne, Indiana,




referred
to in this Agreement as “Lincoln.”




	 	 	 	 	 
	 

	 	Inspected By
	 	EIG 
	 
	 	 	 	 
	 

	 	Date
	 	8/24/2001 
	 
	 	 	 	 
	 

	 	Doc
	 	000026sl.agm 
	 
	 	 	 	 
	RECONCILED

	 	CCN/Agmt. No.
	 	2098 / 12 






 









 





TABLE OF CONTENTS




	 	 	 	 	 
	Reinsurance Coverage
	 	 	1	 
	Automatic Reinsurance
	 	 	1	 
	Facultative Reinsurance
	 	 	2	 
	Continuations
	 	 	3	 
	Terms of Reinsurance
	 	 	4	 
	Payments by SAFECO
	 	 	5	 
	Payments by Lincoln
	 	 	5	 
	Reinsurance Administration
	 	 	6	 
	Reserve Information
	 	 	6	 
	Settlement of Claims
	 	 	6	 
	Reinstatements and Restorations
	 	 	8	 
	Reductions in Insurance
	 	 	8	 
	Increases in Policy Face Amounts
	 	 	8	 
	Changes in Retention
	 	 	9	 
	Assignment of Reinsurance
	 	 	10	 
	Material Changes
	 	 	11	 
	Errors
	 	 	11	 
	Audits of Records and Procedures
	 	 	11	 
	Arbitration
	 	 	11	 
	Insolvency of SAFECO
	 	 	12	 
	Offset
	 	 	13	 
	Parties-to the Agreement
	 	 	13	 
	Commencement and Termination
	 	 	13	 
	Entire Agreement
	 	 	13	 
	Deferred Acquisition Cost Tax Election
	 	 	14	 
	Definitions
	 	 	14	 
	Execution
	 	 	16	 
	 
	 	 	 	 
	LIFE BENEFITS SCHEDULE
	 	 	18	 
	ADMINISTRATION SCHEDULE
	 	 	20	 
	PREMIUM AND ALLOWANCE SCHEDULE
	 	 	23	 
	ARBITRATION SCHEDULE
	 	 	26	 
	WAIVER OF PREMIUM BENEFIT ADDENDUM
	 	 	28	 
	ACCIDENTAL DEATH BENEFIT ADDENDUM
	 	 	3l	 
	ACCELERATED BENEFITS RIDER ADDENDUM
	 	 	34	 
	GUARANTEED PURCHASE OPTION ADDENDUM
	 	 	36	 






 









 





Reinsurance Coverage





	A.	 	SAFECO agrees to cede, and Lincoln agrees to accept, reinsurance of the Policies
specified in the Life Benefits schedule. (The term “Policies” and certain other terms used in this
Agreement are defined in the “Definitions” article.)
	 
	B.	 	A Policy’s death benefit and associated lapse and investment risks are reinsured.
Supplemental benefits are reinsured if and as specified in applicable Addenda.
	 
	C.	 	SAFECO agrees to either






	 	(1)	 	cede reinsurance of a Policy to Lincoln as
Automatic Reinsurance;
	 
	 	2)	 	submit the Policy to Lincoln for consideration as
Facultative Reinsurance; or
	 
	 	(3)	 	cede reinsurance of a Policy as a Continuation.





Automatic Reinsurance





	A.	 	SAFECO agrees to cede the Reinsurance Amount of a Policy as Automatic Reinsurance if the
following conditions are met:






	 	(1)	 	It retains its Retention on the insured life when the Policy is issued;
	 
	 	(2)	 	It underwrites and issues the Policy in accordance with its underwriting
rules and practices previously disclosed to Lincoln;
	 
	 	(3)	 	The sum of (a) and (b) does not exceed the sum of its Retention and the Automatic
Limit, where






	 	(a)	 	equals the amount of individual life insurance issued by SAFECO then in force on the
insured life, or in the case of individual life insurance with increasing death
benefits, the Ultimate Amount of such Policies; and
	 
	 	(b)	 	equals the amount of life insurance currently being applied for from SAFECO, or in
the case of individual life insurance with increasing death benefits, the
Ultimate Amount;






	 	(4)	 	The sum of (a) and (b) does not exceed the Participation Limit, where






	 	(a)	 	equals the amount of individual life insurance then in force on the insured life in
all companies, or in the case of individual life insurance with increasing death





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	 	 	 	benefits, the Ultimate Amount of such Policies; and
	 
	 	(b)	 	equals the amount currently applied for on the insured life from
all companies, or in the case of individual life insurance with
increasing death benefits, the Ultimate Amounts;






	 	(5)	 	It has not submitted a facultative application to Lincoln or any other insurance
or reinsurance company for reinsurance of the current application; and
	 
	 	(6)	 	The Policy is not a Continuation.






	B.	 	Policies issued pursuant to any special underwriting program adopted by SAFECO may be ceded as
Automatic Reinsurance only with Lincoln’s consent to reinsure such Policies.
	 
	C.	 	A Policy shall not be ceded as Automatic Reinsurance if the Reinsurance Amount of the Policy is
less than the minimum cession amount specified in the Administration Schedule.





Facultative Reinsurance





	A.	 	SAFECO may submit Policies not satisfying the conditions for Automatic Reinsurance, and
Policies which it does not wish to cede as Automatic Reinsurance, for consideration by Lincoln
as Facultative Reinsurance. SAFECO may also submit for consideration as Facultative
Reinsurance any individual life insurance issued on a Policy form that is not specified in the
Life Benefits Schedule provided reinsurance terms and conditions are established and agreed
upon by means of the Facultative Reinsurance application process.
	 
	B.	 	An application for Facultative Reinsurance shall be made in the manner set forth in the
Administration Schedule. Copies of all information that SAFECO has pertaining to the
insurability of the proposed insured, including written summaries of any such information that
cannot be copied, shall accompany the application.
	 
	C.	 	Upon receipt of an application, Lincoln agrees to promptly examine the underwriting
information and communicate






	 	(1)	 	an offer to reinsure the Policy as applied for;
	 
	 	(2)	 	an offer to reinsure the Policy other than as applied for;





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	 	(3)	 	an offer to reinsure the Policy subject to the satisfaction of
additional underwriting requirements;
	 
	 	(4)	 	a request for additional underwriting information; or
	 
	 	(5)	 	its unwillingness to make an offer to reinsure the Policy.






	D.	 	To accept an offer to reinsure made by Lincoln, SAFECO agrees to






	 	(1)	 	satisfy any conditions stated in the offer to reinsure; and
	 
	 	(2)	 	follow the procedure for placing reinsurance into effect as specified in the
Administration Schedule.






	E.	 	SAFECO agrees to immediately inform Lincoln of any additional information pertaining to the
insurability of a proposed insured that is brought to SAFECO’S attention before the
completion of the procedures for accepting Lincoln’s offer to reinsure. Upon its receipt of
such information, Lincoln may withdraw or modify its earlier offer to reinsure.
	 
	F.	 	The terms of an offer to reinsure shall supercede the terms of this Agreement to the extent
of any conflicts between the two. Otherwise, reinsurance of a Policy ceded as Facultative
Reinsurance shall be in accordance with the terms of this Agreement.





Continuations





	A.	 	If SAFECO issues a Continuation of a Policy within its normal continuation rules and
practices, reinsurance of such a Policy shall terminate effective as of the date of the
continuation (conversion or exchange). If SAFECO initiates any special program that encourages
or rewards its policyholders for such a continuation, reinsurance shall continue






	 	(1)	 	under the reinsurance agreement between SAFECO and Lincoln which provides
reinsurance of the Policy form of the Continuation; or
	 
	 	(2)	 	under this Agreement if there is no such agreement.






	B.	 	A Policy which is a Continuation of a Policy that was not previously reinsured with
Lincoln may only be reinsured under this Agreement with the written consent of Lincoln and the
original reinsure.





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	C.	 	If the original Policy was ceded to Lincoln as Facultative Reinsurance and SAFECO
approves an increase in the face amount of the Continuation based upon receipt of any new
information pertaining to the insurability of the proposed insured in connection with an
application for the Continuation, SAFECO agrees to submit the Continuation to Lincoln for
consideration as Facultative Reinsurance. In such case, Lincoln shall only be bound to
reinsure the Continuation in accordance with its offer to reinsure the Continuation.
	 
	D.	 	Reinsurance at issue of the Continuation shall equal the lesser of






	 	(1)	 	the Reinsurance Amount of the Continuation; and
	 
	 	(2)	 	the Reinsurance Amount of the original Policy immediately prior to the
issuance of the Continuation.






	E.	 	Premiums payable for reinsurance of a Continuation shall be calculated using the rate
schedule applicable to the Policy form of the Continuation as specified in the Premium and
Allowance Schedule. If there is no rate schedule applicable to the Policy form of the
Continuation, reinsurance premiums shall be payable using the rate schedule applicable to the
original Policy.
	 
	F.	 	If the Continuation results in a change in the life status of the insured from a single-insured
plan to a joint-or multiple-insured plan, Lincoln must consent to the Continuation.





Terms of Reinsurance





	A.	 	The plan of reinsurance shall be coinsurance of the Reinsurance Amount. Reinsurance shall
follow the forms of the Policies, including but not limited to the premium structure of the
Policies.
	 
	B.	 	Reinsurance of a Policy shall commence on the Policy date, except






	 	(1)	 	in the case of Facultative Reinsurance, reinsurance shall commence on the Policy
date only if Lincoln’s offer to reinsure is the best offer of reinsurance received by
SAFECO as determined by SAFECO’S published reinsurance placement rules in effect as of
such date; and
	 
	 	(2)	 	if a premium receipt is issued by SAFECO in connection with an application for
the Policy, reinsurance shall commence prior to the Policy





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	 	 	 	date only if and as specified in the Premium Receipt Addendum.






	C.	 	SAFECO agrees not to use Lincoln’s name in connection
with the sale of the Policies.
	 
	D.	 	In no event shall reinsurance under this Agreement be in force with respect to a Policy
unless the issuance and delivery of the Policy is in compliance with the laws of all
applicable jurisdictions and SAFECO’S corporate charter.
	 
	E.	 	SAFECO agrees to maintain reinsurance of a Policy in force in accordance with the terms of
this Agreement for as long as its Policy remains in force.





Payments by SAFECO





	A.	 	SAFECO agrees to pay Lincoln premiums for reinsurance of a Policy equal to the Proportionate
Share times the gross premium charged the policyholder by SAFECO.
	 
	B.	 	The Premium and Allowance Schedule specifies other monetary amounts which SAFECO agrees
to take into account when calculating the amount due Lincoln.
	 
	C.	 	Reinsurance premiums shall be due and payable as specified in the Administration
Schedule.
	 
	D.	 	The payment of reinsurance premiums is a condition precedent to the liability of Lincoln under
this Agreement. If reinsurance premiums are not paid when due, Lincoln may give SAFECO thirty (30)
days written notice of its intent to terminate because of SAFECO’S failure to pay reinsurance
premiums. Reinsurance of all Policies having reinsurance premium in arrears shall terminate as of
the date to which reinsurance premiums had previously been paid unless all premiums in arrears are
paid before the end of the thirty (30) day notice period. If reinsurance on any Policy terminates
because of SAFECO’S failure to pay reinsurance premium, reinsurance of Policies with premiums
subsequently becoming due shall automatically terminate as of the date on which new reinsurance
premiums become due.
	 
	E.	 	Lincoln’s guaranteed premiums follow the guarantee of the underlying Policy. The allowances
are guaranteed for the premiums as set forth in the Premium and Allowance Schedule.





Payments by Lincoln





	A.	 	Lincoln agrees to pay SAFECO the Reinsurance Amount of any claim paid by SAFECO
pursuant to a Policy in accordance with the “Settlement of Claims” article.





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	B.	 	Lincoln agrees to pay the Proportionate Share of any expenses incurred in connection
with Policy claims except as set forth in the “Settlement of Claims” article.
	 
	C.	 	The Premium and Allowance Schedule specifies other monetary amounts that Lincoln agrees to pay
SAFECO pursuant to this Agreement.





Reinsurance Administration




	 	 	The methods for placing reinsurance into effect, for paying reinsurance premiums, and for
notifying Lincoln of Policy lapses, reinstatements, reductions, Continuations, increases in
the Reinsurance Amount and of other changes affecting reinsurance are specified in the
Administration Schedule.





Reserve Information





	A.	 	Lincoln and SAFECO each acknowledge that some or all of the products reinsured under
this Agreement are subject to the NAIC Valuation of Life Insurance Policies Model Regulation #830
(“Regulation”).
	 
	B.	 	Annually, as requested by Lincoln, SAFECO agrees to provide Lincoln with sufficient
information that Lincoln’s valuation actuary can opine that the X-factors used in
calculating the reserves on the affected products meet the requirements of Section 5
Subsection B(3) of the Regulation:





Settlement of claims





	A.	 	SAFECO agrees to give Lincoln prompt written notice of its receipt of any claim on a Policy
and to keep Lincoln in formed of any legal proceedings or settlement negotiations in connection
with a claim. Copies of written materials relating to such claim, legal proceedings or negotiation
shall be furnished to Lincoln upon request.
	 
	B.	 	SAFECO agrees to act in accord with its standard practices applicable to all claims in
enforcing the terms and conditions of the Policies and with respect to the administration,
negotiation, payment, denial or settlement of any claim or legal proceeding.
	 
	C.	 	Lincoln agrees to accept the good faith decision of SAFECO in payment of settlement of any
claim for which Lincoln has received the required notice. Lincoln agrees to pay SAFECO the
Reinsurance Amount on which reinsurance premiums have been computed upon receiving proper evidence
that SAFECO has paid a Policy claim.





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	 	 	Payment of the Reinsurance Amount on account of death shall be made in one (1)
lump sum.
	 
	D.	 	Lincoln’s liability shall include indemnification of the Proportionate Share of any
expenses incurred by SAFECO in defending or investigating a Policy claim except for






	 	(1)	 	salaries of employees or other internal expenses of SAFECO;
	 
	 	(2)	 	routine investigative or administrative expenses;
	 
	 	(3)	 	expenses incurred in connection with a dispute arising out of conflicting
claims of entitlement to proceeds of a Policy which SAFECO admits are payable;
	 
	 	(4)	 	any gratuitous payments made by SAFECO; and
	 
	 	(5)	 	any punitive damages awarded against SAFECO, and expenses incurred in
connection with such damages, which are based on the acts or omissions of SAFECO or
its agents.






	E.	 	Lincoln agrees to hold SAFECO harmless from certain expenses and liabilities that result
from Lincoln’s own acts or omissions as provided in this paragraph. For this purpose,
Lincoln agrees to indemnify SAFECO for Lincoln’s equitable share of those punitive and
exemplary damages awarded against SAFECO, and expenses incurred in connection with a claim
for such damages, if






	 	(1)	 	Lincoln actively participated in the acts or omissions, including
the decision to deny a claim for Policy benefits; and
	 
	 	(2)	 	those acts or omissions serve as a material basis for the punitive
or exemplary damages.






	 	 	Lincoln’s equitable share shall be determined by an assessment of Lincoln’s participation in the
particular case.
	 
	F.	 	If SAFECO should contest or compromise any claim and the amount of SAFECO’S liability is
thereby reduced, Lincoln’s liability shall be reduced by the Proportionate Share of the
reduction.
	 
	G.	 	If SAFECO should recover monies from any third party in connection with or arising out of any
Policy, SAFECO agrees to pay Lincoln the Proportionate Share of the recovery.
	 
	H.	 	If the amount of insurance provided by a Policy is increased or reduced because of a
misstatement of age or sex, Lincoln’s liability shall be increased or reduced by the
Proportionate Share of the amount of the increase or reduction.





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	I.	 	If SAFECO pays interest on a claim, Lincoln agrees to pay the interest on the
Reinsurance Amount computed at the same rate and for the same period as that paid by
SAFECO, but in no event later than the date the claim is finally adjudicated by SAFECO.
	 
	J.	 	If SAFECO is required to pay penalties and interest imposed automatically by statute, Lincoln
shall indemnify SAFECO for the Proportionate Share of such penalties and interest.





Reinstatements and Restorations





	A.	 	If SAFECO reinstates a lapsed Policy in accordance with the terms of the Policy and SAFECO’S
underwriting rules and practices, Lincoln agrees to automatically reinstate reinsurance of the
Policy unless Lincoln’s offer to reinsure the Policy specifies that reinsurance of the Policy
may only be reinstated as Facultative Reinsurance.
	 
	B.	 	If SAFECO reinstates or restores a Policy pursuant to any state law or regulations that require
such reinstatements or restorations of the Policy following a “free look” period of a proposed
replacement policy that is rejected by the insured, Lincoln agrees to restore reinsurance of the
Policy under its original terms and conditions as set forth herein: SAFECO shall follow its
reinstatement procedures and rules to the extent that such procedures and rules do not conflict
with the applicable state law or regulations requiring reinstatement or restoration. All of the
foregoing shall apply to Automatic Reinsurance or Facultative Reinsurance, as applicable.
	 
	C.	 	If SAFECO collects premiums in arrears from the policy holder of a reinstated or restored
Policy, it agrees to pay Lincoln a Proportionate Share of all premiums charged the policyholder in
connection with the reinstatement, together with Lincoln’s Proportionate Share of any interest
received by SAFECO in connection with the reinstatement or restoration.





Reductions in Insurance





	 	 	If individual life insurance on a life reinsured under this Agreement terminates, the
Reinsurance Amount shall be reduced as specified in the Administration Schedule.





Increases in Policy Face Amounts





	A.	 	If the Policy face amount on a Policy increases and the increase is subject to SAFECO’S
underwriting approval, the Reinsurance Amount of the Policy shall only increase






Page 8









 






if the conditions of either the “Automatic Reinsurance” or “Facultative Reinsurance” articles are satisfied.




	B.	 	If the Policy face amount on a Policy increases causing the
Reinsurance Amount to exceed the Reinsurance Amount at issue of the
Policy, and the increase is not subject to SAFECO’S underwriting
approval, Lincoln agrees to accept a portion of such increases only if
and as specified in the Increasing Policy Addendum.





Changes in Retention





	A.	 	If SAFECO increases its Retention on hew Policies, it agrees
to notify Lincoln in writing within sixty (60) days of such increase.
The notice shall specify the new Retention and the effective date
thereof.
	 
	B.	 	Whenever SAFECO increases its Retention on new Policies, it
agrees to also indicate in its notice whether it wishes to






	 	(1)	 	  continue its previous Retention on in force Policies; or
	 
	 	(2)	 	   increase its Retention on in force Policies and recapture reinsurance.






If SAFECO elects (2), SAFECO’S new Retention on an in force Policy
shall be calculated using the insured’s age, mortality class, Policy
form and country of residence at issue of the Policy.




	C.	 	If SAFECO elects to increase its Retention on in force Policies
pursuant to paragraph B, its new Retention for such Policies shall
become effective on the later of






	 	(1)	 	the reinsurance renewal date of the Policy first following
the effective date of its new Retention for new Policies; and
	 
	 	(2)	 	the Policy anniversary date specified in the Administration Schedule.






	 	 	If SAFECO fails to initiate recapture of reinsurance within one
hundred and eighty days (180) of when the first of its Policies
becomes eligible for recapture, its election to recapture reinsurance,
as of the date of the Retention change, shall be considered waived.
This does not preclude SAFECO from increasing its Retention on
existing reinsurance at a later date.






	D.	 	If SAFECO elects to recapture a Policy before the end of the
Policy’s level term period, subject to the Policy anniversary date
specified in the Administration Schedule, SAFECO recognizes and agrees
that no reserves on such a Policy shall be released to SAFECO at the
time of such recapture.





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	E.	 	If an in force Policy is subject to a waiver of premium claim on the date the
Policy qualifies for a new Retention, the new Retention shall nonetheless become
effective on such date for purposes of life reinsurance.
	 
	F.	 	SAFECO may only elect to increase its Retention on in force Policies if






	 	(1) 	it maintained a Retention greater than zero dollars ($0) at the time the
Policy was issued
and retained its Retention at such time;
	 
	 	(2) 	it increases its Retention on all eligible in force Policies; and
	 
	 	(3) 	it retains the insurance recaptured from Lincoln at its own risk without
benefit of any proportional or nonproportional reinsurance other than catastrophe
accident reinsurance.
	 
	G.	 	Notwithstanding the preceding,
	 
	 	(1) 	the recapture of the Reinsurance Amount shall be limited to Lincoln’s portion of
all reinsurance ceded by SAFECO of the Policy;
and
	 
	 	(2) 	if SAFECO gives notice of its intent to increase its Retention on in force
Policies within five (5) years following a merger with another insurance company
or the date it accepts the Policies by means of an assignment, the new Retention
applicable to such Policies shall be limited to one hundred fifty percent (150%) of
the original reinsured’s pre-merger or pre- assignment Retention.
	 
	H.	 	For purposes of this article, Continuations shall be considered issued on the
issue date of the original Policy.





Assignment of Reinsurance





	 	 	If SAFECO sells, assumption reinsures or otherwise transfers the Policies to
another insurer, it agrees to require that the other insurer assumes all rights and
obligations of SAFECO under this Agreement. Lincoln may object to any such transfer
that would result in a material adverse economic impact to Lincoln. If Lincoln so
objects, SAFECO and Lincoln agree to mutually calculate a termination charge that
shall be paid by SAFECO to Lincoln upon the transfer, and this Agreement shall be
terminated with respect to all Policies transferred by SAFECO.





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Material Changes




A. SAFECO agrees to notify Lincoln in writing of any anticipated
Material Change in any terms or conditions of the Policies, including
but not limited to SAFECO’S direct Policy premium rates, in SAFECO’S
underwriting rules and practices applicable to the Policies or in
SAFECO’S claims practices and procedures.




B. In the event of a Material Change to the Policies, to SAFECO’S
underwriting rules and practices or to its claims practices and
procedures, Lincoln may at its option





	 	(1)	 	  continue to reinsure the Policies under current terms;
	 
	 	(2)	 	  reinsure Policies under modified terms to reflect the Material Change; or
	 
	 	(3)	 	  consider future Policies as issued in a Policy form which is not reinsured under this Agreement.





Errors





	A.	 	Any Error by either SAFECO or Lincoln in the administration
of reinsurance under this Agreement shall be corrected by restoring
both SAFECO and Lincoln to the positions they would have occupied had
no Error occurred. Any monetary adjustments made between SAFECO and
Lincoln to correct an Error shall be without interest.
	 
	B.	 	When a party claims that an Error should be corrected pursuant to paragraph A, that party agrees to investigate whether
other instances of the Error have also occurred and agrees to report
its findings to the other party.





Audits of Records and Procedures





	A.	 	Lincoln or SAFECO may audit, at any reasonable time and at its
own expense, all records and procedures relating to reinsurance under
this Agreement. The party being audited agrees to cooperate in the
audit, including providing any information requested by the other in
advance of the audit.
	 
	B.	 	Upon request, SAFECO agrees to furnish Lincoln with copies of any
underwriting information in SAFECO’S files pertaining to a Policy.





Arbitration





	A.	 	If SAFECO and Lincoln cannot mutually resolve a dispute that
arises out of or relates to this Agreement, the dispute shall be
decided through arbitration as specified in the Arbitration Schedule.
The arbitrators shall base their decision on the terms and conditions
of this Agreement





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	 	 	plus, as necessary, on the customs
and practices of the insurance and
reinsurance industry rather than
solely on a strict interpretation of
applicable law. There shall be no
appeal from their decision, except
that either party may petition a
court having jurisdiction over the
parties and the subject matter to
reduce the arbitrators’ decision to
judgement.
	 
	B.	 	The parties intend this
article to be enforceable in
accordance with the Federal
Arbitration Act (9 U.S.C. §§ 1 et
seq.), including any amendments to
that Act which are subsequently
adopted. If either party refuses to
submit to arbitration as required by
paragraph A, the other party may
request a United States Federal
District Court to compel arbitration
in accordance with the Federal
Arbitration Act. Both parties
consent to the jurisdiction of such
court to enforce this article and to
confirm and enforce the performance
of any award of the
arbitrators.





Insolvency of SAFECO





	A.	 	In the event of the
insolvency of SAFECO and the
appointment of a conservator,
liquidator or statutory successor of
SAFECO, reinsurance shall be payable
to such conservator, liquidator or
statutory successor on the basis of
claims allowed against SAFECO by
any court of competent jurisdiction
or by the conservator, liquidator or
statutory successor of SAFECO
without diminution because of the
insolvency of SAFECO or because such
conservator, liquidator or statutory
successor has failed to pay all or a
portion of any claims.
	 
	B.	 	In the event of the insolvency of
SAFECO, the conservator, liquidator
or other statutory successor of
SAFECO agrees to give Lincoln
written notice of the pendency of a
claim on a Policy within a
reasonable time after such claim is
filed in the insolvency proceeding.
During the pendency of any such
claim, Lincoln may investigate the
claim and interpose in the
proceeding where such claim is to be
adjudicated in the name of SAFECO
(its conservator, liquidator or
statutory successor), but at its own
expense, any defense or defenses
which Lincoln may deem available to
SAFECO or its conservator,
liquidator or statutory
successor.
	 
	C.	 	A percentage of the expense
thus incurred by Lincoln shall be
charged, subject to court approval,
against SAFECO as part of the
expense of liquidation.





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Offset





	 	 	Any debts or credits, matured or unmatured, liquidated or
unliquidated, regardless of when they arose or were incurred, in favor
of or against either SAFECO or Lincoln with respect to this Agreement
or any other agreement between the parties, shall be offset and only
the balance allowed or paid. If either SAFECO or Lincoln is then under
formal insolvency proceedings, this right of offset shall be subject
to the laws of the state exercising primary jurisdiction over such
proceedings.





Parties to the Agreement





	 	 	This is an Agreement for indemnity reinsurance solely between
SAFECO and Lincoln. The acceptance of reinsurance under this Agreement
shall not create any right or legal relation whatever between Lincoln
and an insured, policyholder, beneficiary or any other party to or
under any Policy.





Commencement and Termination





	A.	 	This Agreement shall be effective as of the date set forth on
the cover page, except that SAFECO may issue a Policy dated as much
as six (6) months prior to the Effective Date in order to save age of
the applicant.
	 
	B.	 	Either SAFECO or Lincoln may terminate this Agreement for
new reinsurance by giving ninety (90) days, written notice to the other
party. In such case, SAFECO agrees to continue to cede, and Lincoln
agrees to continue to accept, reinsurance in accordance with this
Agreement of Policies issued prior to the expiration of the ninety
(90) day period. All reinsurance which has been placed in effect prior
to such date shall remain in effect in accordance with the terms of
this Agreement, until the earlier of






	 	(1)	 	the termination or expiration of the Policy; and
	 
	 	(2)	 	the termination of this Agreement pursuant to paragraph C below.






	C.	 	Lincoln may terminate all reinsurance under this Agreement in
accordance with paragraph D of the “Payments by SAFECO” article if
SAFECO fails to pay reinsurance premiums when due.





Entire Agreement





	A.	 	This Agreement represents the entire agreement between SAFECO
and Lincoln and supercedes any prior oral or written agreements
between the parties regarding its subject matter.





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	B.	 	No modification of this Agreement shall be
effective unless set forth in a written amendment
executed by both parties.
	 
	C.	 	A waiver of a right created by this Agreement
shall constitute a waiver only with respect to the
particular circumstance for which it is given and not a
waiver in any future circumstance.





Deferred Acquisition Cost Tax Election





	A.	 	Lincoln and SAFECO each acknowledge that it is
subject to taxation under Subchapter “L” of the Internal
Revenue Code of 1986 (the “Code”).
	 
	B.	 	With respect to this Agreement, Lincoln and
SAFECO agree to the following pursuant to Section
1.848-2(g)(8) of the Income Tax Regulations issued
December 1992, whereby:






	 	(1)	 	Each party agrees to attach a schedule to its
federal income tax return which identifies this
Agreement for which the joint election under the
Regulation has been made;
	 
	 	(2)	 	The party with net positive consideration, as
defined in the Regulation promulgated under Code Section
848, for this Agreement for each taxable year, agrees to
capitalize specified Policy acquisition expenses with
respect to this Agreement without regard to the general
deductions limitation of Section 848(c)(l);
	 
	 	(3)	 	Each party agrees to exchange information
pertaining to the amount of net consideration under this
Agreement each year to ensure consistency; and
	 
	 	(4)	 	This election shall be effective for the year that
this Agreement was entered into and for all subsequent
years that this Agreement remains in effect.





Definitions





	A.	 	Automatic Limit — the amount specified in the
Life
Benefits Schedule used to calculate the maximum
Reinsurance Face Amount that may be ceded as Automatic
Reinsurance.
	 
	B.	 	Automatic Reinsurance— reinsurance satisfying certain
conditions relating to the reinsurance as specified in
the Agreement that is ceded to Lincoln without obtaining
a specific offer to reinsure from Lincoln.
	 
	C.	 	Continuation — a new Policy replacing a Policy
or a change in an existing Policy issued or made
either





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	 	(1)	 	in compliance with the terms of the Policy; or
	 
	 	(2)	 	without






	 	(a)	 	the same new underwriting information SAFECO would obtain in the absence of the Policy;
	 
	 	(b)	 	a suicide exclusion or contestable period as long as those contained in other new issues of Policies; or
	 
	 	(c)	 	the payment of the same commissions in the first year that SAFECO would have paid in the absence of the original Policy.






	D.	 	Effective Date — the date specified on the cover page on which
this Agreement becomes binding on SAFECO and Lincoln.
	 
	E.	 	Error— any isolated deviation from the terms of this Agreement
resulting from the act or omission of an employee of either SAFECO or
Lincoln whose principal function relates to the administration of
reinsurance, whether such deviation results from inadvertence or a
mistake in judgment. “Error” shall not include any failure to comply
with the terms of an offer of Facultative Reinsurance or any negligent
or deliberate deviation from the terms of this Agreement.
	 
	F.	 	Facultative Reinsurance — reinsurance which is ceded to Lincoln
only after SAFECO has obtained and accepted a specific offer to reinsure
made by Lincoln. Such reinsurance may be ceded to Lincoln only upon the
terms specified by Lincoln in its offer to reinsure and other terms of
this Agreement which do not conflict with the specific offer to
reinsure.
	 
	G.	 	Material Change — a change that a prudent insurance or reinsurance
executive would consider as likely to impact upon a party’s financial
experience under this Agreement.
	 
	H.	 	Participation Limit — the amount specified in the Life
Benefits Schedule used as a condition for ceding Automatic Reinsurance.
	 
	I.	 	Policy(ies) — an individual life insurance contract issued by
SAFECO on any of the Policy forms specified in the Life Benefits
Schedule. A “Policy” shall include any attached riders and endorsements
specified in the Life Benefits Schedule or any Addendum to this
Agreement.
	 
	J.	 	Proportionate Share — the Reinsurance Amount divided by the
death benefit as of the date of issue or as of the date of a subsequent
change to the Policy that affects the Reinsurance Amount.





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	K.	 	Reinsurance Amount — the Policy death benefit at issue less the
Retention on the Policy times the percentage of Automatic Reinsurance
ceded to Lincoln as specified in the Life Benefits Schedule. For
Facultative Reinsurance, the “Reinsurance Amount” is that amount of the
Policy death benefit at issue for which SAFECO accepts Lincoln’s offer to
reinsure.
	 
	L.	 	Retention — the amount specified in the Life Benefits Schedule that is
held by SAFECO at its own risk on a life without the benefit of
proportional reinsurance. In calculating the Retention, the sum retained by
SAFECO on the life and in force as of the date of issue of the Policy shall
be taken into account.
	 
	M.	 	Ultimate Amount — the projected maximum Policy face amount that a Policy
could achieve based on reasonable assumptions made about the operation of
certain characteristics of the Policy form.





Execution





	 	 	SAFECO and Lincoln, by their respective officers, executed this
Agreement in duplicate on the dates shown below. As of the Effective Date,
this Agreement consists of






	 	•	 	this Coinsurance Agreement numbered 12;
	 
	 	•	 	a Life Benefits Schedule;
	 
	 	•	 	an Administration Schedule;
	 
	 	•	 	a Premium and Allowance Schedule;
	 
	 	•	 	an Arbitration Schedule;
	 
	 	•	 	a Waiver of Premium Addendum;
	 
	 	•	 	an Accidental Death Benefit Addendum;
	 
	 	•	 	an Accelerated Benefits Rider Addendum; and
	 
	 	•	 	a Guaranteed Purchase Option Addendum.






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	SAFECO LIFE INSURANCE COMPANY
	 
	 
	 		Signed at Redmond, WA
	 	 	 
	 

	By 	/s/ 
	 
	 
	 

	Title 
	 
	 
	 

	Date 8/30/01
	 
	 
	 

	By 	/s/ 
	 
	 
	 

	Title Actuary
	 
	 
	 

	Date 8/31/01
	 
	 
	 

	THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
	 

	Signed at FortWayne, Indiana
	 
	 
	 

	By 	/s/ 
	 

	Date 8/27/01
	 
	 
	 

	By 	/s/ 
	 

	     Assistant Secretary
	 
	 
	 

	Date August 24, 2001







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