Exhibit
10.37


 


QUOTA
SHARE RETROCESSION AGREEMENT


 


 


This Quota Share Retrocession Agreement
(“Agreement”), effective as of January 1, 2002, is made and entered into by and
between ACE CAPITAL RE OVERSEAS LTD. (the “Retrocedent”), an insurance company
registered and licensed under the laws of the Islands of Bermuda, and ACE INA
OVERSEAS INSURANCE COMPANY LTD. (the “Retrocessionaire”), an insurance company
registered and licensed under the laws of the Islands of Bermuda.


 


In consideration of the mutual covenants
herein contained and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Retrocedent and the Retrocessionaire agree as
follows:


 


ARTICLE 1


 


DEFINITIONS


 


Section
1.1.   Definitions.  For all purposes with regard to this
Agreement, (A) unless otherwise defined in this Agreement, capitalized terms
shall have the meanings assigned to them in (i) the Stop Loss Reinsurance
Agreement dated as of October 1, 1997 between Central United Life Insurance
Company (the “Original Reinsured”) and the Retrocedent and (ii) the
Retrocession Agreement dated as of October 1, 1997 between the Original
Reinsured and the Retrocedent (collectively, the “Underlying Agreements”), and
(B) all accounting terms shall have the meanings assigned to them under
generally accepted accounting principles (“GAAP”).


 


Section
1.2.   Headings.  All captions, headings or titles preceding any Section or Article
in this Agreement are solely for convenience of reference and are not part of
this Agreement and shall not affect its meaning, construction or effect.


 


ARTICLE 2


 


TERM


 


Section
2.1.   Term.  The term of this Agreement (the “Retrocession Term”) shall
commence at 12:01 a.m., eastern standard time, on January 1, 2002 (the
“Effective Date”) and shall remain in force until all of the Retrocedent’s
obligations under the Underlying Agreements have been discharged.


 

















 


ARTICLE
3


 


TYPE


 


Quota share retrocession.


 


ARTICLE 4


 


COVERAGE;
REIMBURSEMENT OF EXPENSES


 


Section
4.1.   Coverage.  The Retrocedent hereby cedes to the Retrocessionaire, and the
Retrocessionaire hereby assumes as reinsurance from the Retrocedent and agrees
to indemnify the Retrocedent for, 100% of amounts paid by the Retrocedent to
the Original Reinsured after the Effective Date in respect of the Underlying
Agreements, whether by way of settlement, in respect of a judgment or award or
otherwise.


 


Section
4.2.   Allocated Loss Adjustment Expenses.  The Retrocessionaire shall reimburse the
Retrocedent for 100% of Allocated Loss Adjustment Expenses to the extent
incurred by the Company on or after the Effective Date. “Allocated Loss
Adjustment Expenses” means those expenses of the Company relating to the
adjustment of claims under the Underlying Agreements, including without
limitation court and/or arbitration panel costs, pre-judgment interest,
interest upon judgments as it accrues, declaratory judgment expenses, security
bond costs and allocated investigation, adjustment, and legal expenses
chargeable to the investigation, negotiation, settlement or defense of a claim
or the protection and perfection of any subrogation or salvage rights.  For the avoidance of doubt, “Allocated Loss
Adjustment Expenses” does not include salaries paid to employees of the Company
or other overhead expenses.


 


Section
4.3.   Trust Account Fees and Expenses.  The Retrocessionaire shall reimburse the
Retrocedent for 100% of the fees and expenses paid by the Retrocedent with
respect to the Trust Account (as defined below), to the extent such fees and
expenses are paid directly by the Retrocedent (rather than deducted from the
income arising from Trust Account assets). “Trust Account” means trust account
#8338979300 established pursuant to the reinsurance trust agreement among the
Original Reinsured, the Retrocedent and Bank One, Texas, NA, dated December 30,
1997.


 


ARTICLE
5


 


RETROCESSION
PREMIUM


FUNDS
WITHHELD ACCOUNT


 


Section
5.1.   Retrocession Premium.  The Retrocedent shall pay to the
Retrocessionaire, as of the Effective Date, an up-front premium in the amount
of $19,593,097 (the “Up-Front Premium”). 
The Retrocedent shall also pay to the Retrocessionaire 100% of the
periodic premium, net of expense allowance, payable under the Underlying
Agreements on or after the Effective Date to the extent actually received by
the Retrocedent, within 10 business days of receipt thereof (the “Periodic
Premium” and, together with the Up-Front Premium,


 


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the “Retrocession Premium”). The Retrocession
Premium shall be paid on a funds withheld basis.


 


Section
5.2.   Funds Withheld Account.  The Retrocedent shall calculate a notional
account (the “Funds Withheld Account”) and shall (A) credit thereto (i) the
Retrocession Premiums and (ii) interest at the Earned Rate on the average daily
balance of the Funds Withheld Account during each calendar quarter and (B)
debit therefrom the Permitted Debits (as defined below).  For purposes of calculating such interest,
interest shall be credited to the Funds Withheld Account on the last day of
each calendar quarter, Retrocession Premiums shall be credited to the Funds
Withheld Account on the dates payable, and Permitted Debits shall be debited on
the dates the corresponding amounts owed by the Retrocedent are withdrawn from
the Trust Account or deducted from the income arising from Trust Account
assets, as the case may be.  The balance
of the Funds Withheld Account shall be payable to the Retrocessionaire within
five (5) business days of the date on which the Retrocedent has no further
liability under the Underlying Agreements.


 


“Earned Rate” means, with respect to a
quarter, the book yield plus realized gains and losses for such quarter on the
portfolio of assets held in the Trust Account.


 


ARTICLE 6


 


RIGHTS
AND SETTLEMENTS


 


The Retrocessionaire agrees to abide by the
claim settlements of the Retrocedent. 
The Retrocedent shall be the sole judge of:


 


A.            The
interpretation of the Underlying Agreements;


 


B.            What
shall constitute a claim under the Underlying Agreements; and


 


C.            The Retrocedent’s liability under the
Underlying Agreements and the proper amounts for the Retrocedent to pay
thereunder.


 


Notwithstanding the foregoing, the
Retrocedent shall not settle any litigation or other disputes between the
Retrocedent and the Original Reinsured without the prior consent of the
Retrocessionaire, which consent shall not be unreasonably withheld.


 


ARTICLE
7


 


REPORTS
AND REMITTANCES


 


Section
7.1.   Reports Received from Original Reinsured.  Within five (5) business days of receipt by
the Retrocedent, the Retrocedent shall deliver to the Retrocessionaire copies
of all reports provided to the Retrocedent by the Original Reinsured.


 


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Section
7.2.   Quarterly Report.  Within 30 days following the end of each
calendar quarter during the Retrocession Term, the Retrocedent will prepare and
deliver to the Retrocessionaire a report (the “Quarterly Report”) containing
information relevant to the calculation of the amount owed by or to the
Retrocessionaire hereunder in respect of such calendar quarter as well as a
statement of the Earned Rate in respect of such calendar quarter and the
balance of the Funds Withheld Account as at the end of such calendar quarter
(which report shall be in such form as the Retrocedent and the Retrocessionaire
shall reasonably agree).


 


Section
7.3.   Permitted Debits.  Amounts payable by the Retrocessionaire
under Section 4.1 hereof shall be debited from the Funds Withheld Account to
the extent the Retrocedent is permitted to use funds in the Trust Account to
pay amounts owed by the Retrocedent to the Original Reinsured in respect of
such amounts.  Amounts payable by the
Retrocessionaire under Section 4.3 hereof shall be debited from the Funds
Withheld Account to the extent such fees and expenses are deducted from the
income arising from Trust Account assets (rather than being paid directly by
the Retrocedent).  The amounts that may
be debited from the Funds Withheld Account in accordance with this Section 7.3
are referred to herein as the “Permitted Debits”.


 


Section
7.4.   Remittances.  Net payments owed to the Retrocessionaire
shall accompany the Quarterly Report. 
Net payments owed to the Retrocedent shall be made within five (5)  business days of delivery of the
Quarterly Report; provided, however, at the option and upon the demand of the
Retrocedent, when the amount due from the Retrocedent exceeds $100,000, the
Retrocedent shall be paid by wire transfer of same day federal funds within two
business days following the date of receipt by the Retrocessionaire of a
special loss accounting.


 


ARTICLE 8


 


GENERAL CONDITIONS


 


Section
8.1.   Follow the Fortunes.  This Agreement is based on the original
terms of the Underlying Agreements so that the Retrocessionaire’s rights and
obligations vis-à-vis the Retrocedent with respect to the reinsurance provided
under this Agreement shall, subject to the terms of this Agreement, follow the
fortunes of the Retrocedent in all respects under the Underlying Agreements.


 


Section
8.2.   No Third Party Rights.  Nothing herein shall be construed to expand
the liability of the Retrocessionaire beyond what is specifically assumed under
this Agreement by creating in any third party any rights hereunder.


 


Section
8.3.   Insolvency.  In the event of the insolvency of the
Retrocedent, this reinsurance shall be payable directly to the Retrocedent, or
its liquidator, receiver, conservator or statutory successor immediately upon
demand on the basis of the liability of the Retrocedent without diminution
because of the insolvency of the Retrocedent or because


 


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the liquidator, receiver, conservator or
statutory successor of the Retrocedent has failed to pay all or a portion of
any claim.  It is agreed, however, that
within a reasonable time the liquidator, receiver, conservator or statutory
successor of the Retrocedent shall give written notice to the Retrocessionaire
of the pendency of a claim against the Retrocedent under the Underlying
Agreements.  During the pendency of such
claim, the Retrocessionaire may investigate such claim and interpose, at its
own expense, in the proceeding where such claim is to be adjudicated, any
defense or defenses that it may deem available to the Retrocedent or its
liquidator, receiver, conservator or statutory successor. The expense thus
incurred by the Retrocessionaire shall be chargeable, subject to the approval
of the court, against the Retrocedent as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may accrue
to the Retrocedent solely as a result of the defense undertaken by the
Retrocessionaire.


 


Section
8.4.   Access to Records.  The Retrocessionaire or its duly authorized
representative shall have access to and the right to inspect the books and
records of the Retrocedent at all reasonable times for the purpose of obtaining
information concerning this Agreement, the Underlying Agreements or the subject
matter hereof.


 


Section 8.5.   Offset.  The Retrocessionaire or the Retrocedent may
offset any balance(s) due from one party to the other under this Agreement or
any other agreement exclusively between the parties hereto.  The party asserting the right of offset may
exercise such right at any time whether the balance(s) due are on account of
premiums or losses or otherwise.  In the
event of the insolvency of a party hereto, offsets shall only be allowed in
accordance with applicable law.


 


Section
8.6.   Errors and Omissions.  Any inadvertent delay, omission or error
shall not be held to relieve either party hereto from any liability which would
attach to it hereunder if such delay, omission or error had not been made,
provided such delay, omission or error is rectified as soon as possible after
discovery.


 


Section
8.7.   Governing Law.  This Agreement shall be governed by and is
to be construed in accordance with the laws of the State of New York without
giving effect to choice of law provisions and rules thereof.


 


Section
8.8.   Arbitration.  Any dispute or other matter in question
relating to this Agreement that cannot be resolved by the Retrocedent and the
Retrocessionaire arising out of, or relating to, the formation, interpretation,
performance or breach of this Agreement, whether such dispute arises before or
after termination of this Agreement, will be subject to arbitration.  Arbitration will be initiated by the
delivery of a written notice of demand for arbitration by one party to the
other within a reasonable time after the dispute has arisen and cannot be
otherwise settled by the parties.


 


Within thirty (30) days of the date of
delivery of the notice of arbitration, each party will appoint a disinterested
individual as arbitrator and the two so appointed will then appoint a third
arbitrator who will serve as the umpire. 
If either party fails to appoint an arbitrator


 


5

















 


within thirty (30) days, the other party may
appoint the second arbitrator.  If the
two arbitrators do not agree on a third arbitrator within fifteen (15) days of
the date on which the second arbitrator was appointed, the parties shall employ
the ARIAS-U.S. Umpire Appointment Procedures to appoint the third
arbitrator.  If the ARIAS-U.S. Umpire
Appointment Procedures have been terminated, the parties shall jointly petition
the American Arbitration Association to appoint the third arbitrator.  The arbitrators will be active or retired
officers of insurance or reinsurance companies who do not have a personal or
financial interest in the result of the arbitration and who are not past or
current officers, employees or directors of the Retrocedent, the
Retrocessionaire or their respective affiliates.


 


The arbitration hearings will be held in New
York, New York, or such other place as the parties may mutually agree.  Within thirty (30) days after appointment of
the third arbitrator, the panel shall meet and determine timely periods for
briefs, discovery procedures and schedules for hearings.  The decision of the panel shall be rendered
within forty-five (45) days following the termination of the hearings.


 


In making its decision, the panel shall
consider the customs and practices of the reinsurance industry.  The arbitrators will not be obliged to
follow judicial formalities or the rules of evidence except to the extent
required by the laws of the State of New York. 
Insofar as the arbitration panel looks to substantive law, it shall
consider the laws of the State of New York. 
The decision of any two arbitrators when rendered in writing shall be
final and binding.  The panel is
empowered to grant interim relief as it may deem appropriate.  Judgment upon the award may be entered in
any court having jurisdiction thereof. 
The substantive laws of the State of New York, without regard to its
conflict of laws rules, will govern any action or suit brought to compel any
such arbitration or to enforce any award rendered pursuant to such arbitration.


 


Each party shall bear the expense of its own
arbitrator and shall jointly and equally bear with the other party the cost of
the third arbitrator.  The remaining
costs of the arbitration shall be allocated by the panel.  The panel may, at its discretion, award such
further costs and expenses as it considers appropriate, including but not
limited to attorneys’ fees, to the extent permitted by law.


 


Except as provided above, arbitration will be
based, to the extent applicable, upon ARIAS-U.S. procedures.


 


The procedures specified in this Section will
be the sole and exclusive procedures for the resolution of irreconcilable
disputes between the parties arising out of or relating to the formation,
interpretation, performance or breach of this Agreement.


 


This Section shall survive the termination of
this Agreement.


 


Section
8.9.   Service of Suit.  Each party hereby irrevocably submits to the
nonexclusive jurisdiction of any Federal or State of New York court sitting in
the State of New York over any suit, action or proceeding relating to the
enforcement of the parties’ agreement to


 


6

















 


arbitrate or the enforcement of an arbitral
award.  Each party irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding brought in such court and any claim that any suit, action or
proceeding brought in such court has been brought in an inconvenient
forum.  Each party agrees that a final
judgment, not subject to any further appeal, in any such suit, action or
proceeding brought in such a court shall be conclusive and binding upon it and
will be given effect in its state or country of domicile, as applicable, to the
fullest extent permitted by applicable law and may be enforced in any Federal
or State of New York court sitting in the State of New York, by a suit upon such
judgment, provided that service of process is effected upon it as specified in
this Section or as otherwise permitted by law. 
Nothing herein shall be deemed to limit or waive a party’s right to
remove a suit, action or proceeding to Federal court.


 


Further, each party hereby designates the
Superintendent of Insurance of the State of New York, or his successor or
successors in office, as the 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 other party under this Agreement and arising out of this Agreement, and
hereby designates the person named in the “Notice” provision of this Agreement
as the person to whom the Superintendent or such successor is authorized to
mail such process or a true copy thereof.


 


Each party hereby consents to process being
served in any suit, action or proceeding of the nature referred to above in any
Federal or State of New York court sitting in the State of New York by service
of process as set forth above; provided that, to the extent lawful and
possible, written notice of said service shall be mailed by registered or
certified air mail, postage prepaid, return receipt requested, to the other
party at its address specified herein or to any other address of which such
party shall have given notice.  Each
party irrevocably waives, to the fullest extent permitted by law, ail claim of
error by reason of any such service and agrees that such service shall be deemed
in every respect effective service of process upon such party in any such suit,
action or proceeding and shall, to the fullest extent permitted by law, be
taken and held to be valid and personal service upon and personal delivery to
such party.


 


Service of process may be affected in any
other manner permitted by law.  Nothing
in this Section shall limit the right of a party to bring proceedings against
the other party in any court having jurisdiction over such other party and such
proceeding for the purpose of enforcing the parties’ agreement to arbitrate or
to enforce an arbitral award.


 


Section
8.10.   Notice.  As used in this Agreement, notice shall mean any and all notices,
requests, demands or other communications required or permitted to be given
hereunder.  All notices shall be in
writing and shall be (i) delivered personally, (ii) sent by an overnight
delivery service, or (iii) sent by confirmed facsimile transmission, addressed
to the parties at the addresses set forth below.  Any such notice shall be deemed given (i) in the case of personal
delivery, when so delivered personally, (ii) if sent by overnight delivery
service,


 


7

















 


one day after delivery of such notice to such
service, and (iii) if sent by confirmed facsimile transmission, at the time of
transmission.


 


If to the Retrocedent:


 


ACE Capital Re Overseas Ltd.


Victoria Hall


11 Victoria Street


PO Box HM 1826


Hamilton, Bermuda HM HX


Facsimile:  441-292-1563


Attention: Corporate
Secretary


 


with a copy to:


 


ACE Capital Re Inc.


1325 Avenue of the Americas


New York, New York 10019


Telephone: 212-974-0100


Facsimile:  212-581-3268


Attention: General Counsel


 


If to the Retrocessionaire:


 


ACE INA Overseas Insurance
Company Ltd.


 


Clarendon House


2 Church Street


PO Box HM 1022


Hamilton, Bermuda HM 11


Fax:


Phone:


Attention: Corporate
Secretary


 


with a copy to


ACE Financial Solutions Inc.


1133 Avenue of the Americas


New York, NY 10036


Telephone:  212-642-7800


Facsimile:  212-642-7801


Attention: President


 


The Retrocedent and the Retrocessionaire shall
provide each other with wiring instructions for monies to be transferred under
this Agreement promptly after execution of this Agreement and at the time of
any change in such instructions.


 


8

















 


Section
8.11.  Assignment.  This Agreement may not be assigned by either party without the
prior written consent of the other party.


 


Section
8.12.  Amendments.  This Agreement may not be modified or amended except by mutual
written consent of the parties.


 


Section 8.13.  Changes
to Underlying Agreements.  The
Retrocedent shall not amend, modify or supplement the Underlying Agreements
without the prior written consent of the Retrocessionaire.


 


Section
8.14.  Waivers.  The terms of this Agreement may be waived only with the written
consent of the party waiving compliance. 
No failure or delay in exercising any right, power or privilege
hereunder will operate as a waiver thereof, nor will any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder.


 


Section
8.15.  Entire Agreement; Rights and Remedies.  This Agreement constitutes the entire
agreement between the parties relating to the subject matter hereof and
supersedes all prior written and oral statements with respect hereto.  The rights and remedies provided herein are
cumulative and are not exclusive or any rights or remedies that any party may
have at law or in equity.


 


9

















 


Section
8.16.   Counterparts.  This Agreement may be executed in any number
or counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.


 


 


IN WITNESS WHEREOF, this Agreement has been
signed by a duly authorized officer of each of the parties on the respective
dates set forth below.


 


	
  ACE CAPITAL RE OVERSEAS
  LTD.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Rebecca  L.  Carne

  	
   

  
	
   

  	
  Name:

  	
  Rebecca  L. Carne

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
   

  
	
  ACE INA OVERSEAS INSURANCE
  COMPANY LTD.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
  Date:

  
						



 


10

















 


EXHIBIT I


 


[Underlying
Agreements]


 


11

















 


STOP LOSS REINSURANCE AGREEMENT


 


 


This Stop Loss Reinsurance Agreement dated as
of October 1, 1997 (“Agreement”) is made and entered into by and between
Central United Life Insurance Company (“Central United” or the “Ceding
Company”), a Texas stock life insurance company, and KRE Reinsurance Ltd.
(“KRE” or the “Assuming Company”), an insurance company registered under the
laws of the Islands of Bermuda.


 


In consideration of the mutual covenants and
upon the terms and conditions set forth in this Agreement, Central United and
the KRE hereby agree as follows:


 


ARTICLE 1


 


DEFINITIONS


 


Section 1.1.   Definitions. 
Except as expressly defined otherwise in this Agreement, for all
purposes with regard to this Agreement, all capitalized terms in this Agreement
shall have the meanings assigned to them below.  Any definitions set forth herein shall (i) include the singular
as well as plural, and (ii) all accounting terms shall have the meanings
ascribed to them under statutory accounting principles prescribed or permitted
under the laws and regulations of the State of Texas.


 


A.    “Animal Limit of Liability” means two million
dollars ($2,000,000).


 


B.    “Annual Retention” means three million
dollars ($3,000,000).


 


C     “Covered Policies” means all policies,
contracts, binders of insurance or similar agreements issued by Central United,
in force prior to the Effective Date and classified as policies of universal
life or interest-sensitive life (all such polices are listed on Schedule A
attached hereto).


 


D.    “Effective Date” means October 1, 1997.


 


E.     “Net Liability” moans Central United’s contractual
liabilities under all Covered Polices net of all reinsurance of such
liabilities ceded by Central United to third-parties.


 


F.     “Retrocession Agreement” means the
Retrocession Agreement dated as of October 1, 1997, by and between KRE and
Central United.


 


G.    “Term” means the period during which this
Agreement is in effect as provided in Article 3


 


Section 1.2.   Headings.  All
captions, headings or titles preceding any Section or Article in this Agreement
are solely for convenience of reference and are not part of this Agreement and
shall not affect its meaning, construction or effect.


 


1

















 


ARTICLE 2


 


BUSINESS RETROCEDED


 


Subject to the terms and conditions of this
Agreement, for each calendar year during the Term, Central United hereby cedes
to the Assuming Company and the Assuming Company hereby assumes as reinsurance
one hundred percent (100%) of the Net Liability of Central United under the
Covered Policies in excess of the Ceding Company’s Annual Retention.  The Assuming Company’s aggregate liability
for any calendar year during the Term of this Agreement is expressly limited to
the Annual Limit of Liability.  The
Ceding Company’s Annual Retention shall be fully paid and satisfied by Central
United before KRE shall be liable for any payment for any liability assumed
under this Agreement.  KRE shall not be
liable for any portion of Central United’s Annual Retention under any
circumstances including, but not limited to, Central United’s bankruptcy, insolvency,
inability or unwillingness to pay claims under Covered Policies for any reason
whatsoever or the uncollectability of any other insurance or reinsurance
covering any of the Covered Policies.


 


ARTICLE 3


 


TERM AND TERMINATION


 


Section 3.1.  Term.  This
Agreement shall be effective 12:01 A.M., Central Time, October 1, 1997, and
shall remain in full force and effect until the natural expiration of the
liabilities assumed hereunder or until sooner terminated as provided herein.


 


Section 3.2.  Termination


 


A.    Central United shall have the right (but not
the obligation) to terminate this Agreement at any time after the termination
of the Retrocession Agreement of even date herewith by and between Central
United and KRE, by giving at least 5 days prior written Notice to KRE.


 


B.    This Agreement may be terminated by KRE
(solely at KRE’s option) immediately upon Notice by KRE to Central United if
Central United fails to pay any Premium due to KRE within fifteen (15) days
after such Premium is due under this Agreement.


 


Section 3.3.  Effect of Termination.  Upon
termination of this Agreement under Section 3.2, Central United shall reassume
all liability ceded under this Agreement and the KRE shall transfer to Central
United any reserves maintained by KRE relating to the liabilities assumed
hereunder.


 


ARTICLE 4


 


PREMIUM


 


Section 4.1.  Premium. 
Central United shall pay to KRE a quarterly premium equal to fifty
thousand thousand dollars ($50,000) payable in advance on the first day of each
calendar quarter during the term.  KRE
shall have the right, in its sole discretion, to increase the quarterly premium
payable hereunder to a maximum of one hundred thousand dollars ($100,000) upon
giving Central United at least 15 days notice prior to first day of such
calendar quarter.


 


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ARTICLE 5


 


CLAIMS


 


Section 5.1.  Claims for Loss.  The
Ceding Company agrees to provide Notice of any claim covered under this
Agreement (a “Loss Notice”) as soon as is reasonably possible.  Failure to provide such Notice shall not
relieve the Assuming Company of its obligations hereunder for any loss
resulting from such claim.


 


Section 5.2.  Rights and Settlements.  All
losses, compromises, payments and expenses and allowances in consequence of a
claim or a potential claim under the Covered Policies shall be settled by the
Ceding Company without the intervention of the Assuming Company and shall be
binding upon the Assuming Company and the Assuming Company shall allow or pay
as the case may be each settlement in accordance with the terms of this
Agreement.  The Ceding Company shall be
the sole judge of (i) the interpretation of the Covered Policies, (ii) what
shall constitute a claim or Covered Losses covered under the Covered Policies;
and (iii) the amount it shall be proper for the Ceding Company to pay under the
Covered Policies.


 


ARTICLE 6


 


ACCOUNTS


 


Within twenty (20) days following the end of
each calendar quarter the Ceding Company shall render an account to the
Assuming Company (i) all claims made and paid by the Ceding Company under the
Covered Polices and the cumulative amount of such claims during the current
calendar year, (ii) a notation advising of the statutory reserves at the end of
such calendar quarter relating to the Covered Policies, (iii) KRE’s share of
any claims based on the coverage provided under this Agreement, and (iv) such
other information as may be requested by the Assuming Company.  Claims under this Agreement shall be payable
to Central United within ten (10) business days after KRE’s receipt of each
quarterly account provided for in this Article.


 


ARTICLE 7


 


GENERAL CONDITIONS


 


Section 7.1.  Insolvency.  Any
risk or obligation assumed by the Assuming Company pursuant to this Agreement
shall be payable by the Assuming Company on the basis of its liability under
this Agreement without diminution because of any insolvency of the Ceding
Company.  In the event of the insolvency
of the Ceding Company and the appointment of a conservator, liquidator or
statutory successor of any Ceding Company, all payments due hereunder shall be
payable to such conservator, liquidator or statutory successor in accordance
with this Agreement, with reasonable provision for verification, on the basis
of claims allowed against such Ceding Company by any court of competent
jurisdiction or by any conservator, liquidator or statutory successor of such
Ceding Company having authority to allow such claims, without diminution
because of such insolvency or because such conservator, liquidator or statutory
successor has failed to pay all or a portion of any such claim.  Payments by the Assuming Company as set
forth above shall be made directly to such Ceding Company or its conservator,
liquidator or statutory successor.


 


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Section 7.2.  Reinsurance
Follows Original Policies.   All reinsurance for which Assuming Company
shall be liable by subscribing to this Agreement shall be subject in all
respects to the same terms, conditions, waivers and to the same modification,
alterations and cancellations of the Covered Policies to which such reinsurance
relates, the true intent of this Agreement is that the Assuming Company shall,
in every case to which this Agreement applies, follow the fortunes of the
Ceding Company, including loss payments and the timing thereof.  Except as specifically provided in this
Agreement and any endorsement hereto, nothing herein shall be construed to
expand the liability of the Assuming Company beyond what is specifically
assumed under this Agreement by creating in any third party any rights
hereunder.


 


Section 7.3.  Errors and
Omissions.   Any
inadvertent delays, errors or omissions made in connection with this Agreement
or any transaction hereunder shall not relieve either the Ceding Company or
Assuming Company from any liability which would have attached had such delay,
error or omission not occurred, including but not limited to any error or
accidental omission by the other party in reporting any claim or loss under the
Covered Policies.


 


Section 7.4.  Access to
Records and Reports; Audits.  The Assuming
Company or its duly authorized representative shall have access to and the
right to inspect the books and records of the Ceding Company at all reasonable
times for the purpose of obtaining information concerning this Agreement, the
Covered Policies or the subject matter hereof or thereof.  The Assuming Company, at its sole expense,
shall have the right to audit all of the Ceding Company’s records and procedures
relating to the Covered Policies at the office of the Ceding Company during
regular business hours.


 


Section 7.5.  Arbitration; Service of Process and Jurisdiction.  As a condition
precedent to any right of action hereunder, if any dispute shall arise between
the parties hereto with reference to the interpretation of this Agreement or
their rights with respect to any transaction involved, whether such dispute
arises before or after termination of this Agreement, such dispute, upon the
written request of either party, shall be submitted to three arbitrators, one
to be chosen by each party, and the third by the two arbitrators so
chosen.  If either party refuses or
neglects to appoint an arbitrator within thirty (30) days after the receipt of
written notice from the other party requesting it to do so, the requesting
party may appoint two arbitrators.  If
the two arbitrators fail to agree in the selection of a third arbitrator within
thirty (30) days of their appointment, each of them shall name two, of whom the
other shall decline one and the decision shall be made by drawing lots.  All arbitrators shall be active or retired
disinterested officers of insurance or reinsurance companies or underwriters at
Lloyd’s of London not under the control of either party hereto.


 


Except as may be otherwise provided herein,
the arbitrators shall promulgate rules to interpret this Agreement based upon
the Commercial Arbitration Rules of the American Arbitration Association
applicable to commercial disputes and the Convention on Recognition and
Enforcement of Foreign Arbitral Awards (June 10, 1958).  The arbitrators shall interpret this
Agreement as an honorable engagement rather than as a legal obligation and will
make their award with the view to effecting the general purpose and intent of
this Agreement, rather than in accordance with the literal interpretation of
the Agreement.


 


The party requesting the arbitration shall
submit its case to the arbitrators within forty-five (45) days of the
appointment of the third arbitrator. 
The party responding to the request for arbitration shall submit its
case to the arbitrators within forty-five (45) days of the receipt of the
petitioner’s case.  A hearing shall be
held within thirty (30) days after receipt of the parties cases in
writing.  The arbitrators shall render
their decision within thirty (30) days after completion of the hearing.


 


4

















 


The decision in writing of any two
arbitrators, when filed with the parties hereto, shall be final and binding on
both parties.  Judgment may be entered
upon the final decision of the arbitrators in any court having
jurisdiction.  Each party shall bear the
expense of its own arbitrator and shall jointly and equally bear with the other
party the expense of the third arbitrator and arbitration.  Said arbitration shall take place in
Houston, Texas unless some other place is mutually agreed upon by the parties
hereto.


 


The Assuming Company hereby irrevocably
submits to the nonexclusive jurisdiction of any Federal or State of Texas court
sitting in the State of Texas over any suit, action or proceeding arising out
of or relating to this Agreement.  The
Assuming Company irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding brought in such court and any claim than
any suit, action or proceeding brought in such court has been brought in an
inconvenient forum.  The Assuming
Company agrees that a final judgment, not subject to any further appeal, in any
such suit, action or proceeding brought in such a court shall be conclusive and
binding upon it and will be given effect in the country of domicile of the
Assuming Company to the fullest extent permitted by applicable law and may be
enforced in any Federal or State of Texas court sitting in the State of Texas,
by a suit upon such judgment, provided that service of process is effected upon
it as specified in this Section or as otherwise permitted by law.


 


Further, pursuant to any statute of any
state, territory or district of the United States that makes provision
therefor, the Assuming Company hereby designates the superintendent,
Commissioner or Director of Insurance or other officer specified for the
purpose in the statute, or his successor or successors in office, as the 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 Assuming Company under
this Agreement, and hereby designates the person named in this Agreement in
Section 7.12 as the person whom the officer is authorized to mail such process
or a true copy thereof.


 


The Assuming Company consents to process
being served in any suit, action or proceeding of the nature referred to above
in any Federal or State of New York court sitting in the State of New York by
service of process as set forth above, provided that, to the extent lawfully
possible, written notice of said service shall be mailed by registered or
certified air mail, postage prepaid, return receipt requested, to the Assuming
Company at its address specified herein or to any other address of which the
Assuming Company shall have given notice to the Ceding Company.  The Assuming Company irrevocably waives, to
the fullest extent permitted by law, all claim of error by reason of any such
service and agrees that such service shall be deemed in every respect effective
service of process upon the Assuming Company in any such suit, action or
proceeding and shall, to the fullest extent permitted by law, be taken and held
to be valid and personal service upon and personal delivery to the Assuming
Company.


 


Nothing in this Section shall affect the
right of the Assuming Company from receiving service of process in any other
manner permitted by law or limit the right of the Ceding Company to bring
proceedings against the Assuming Company in any court having jurisdiction over
the Assuming Company and such proceeding.


 


Section 7.6.  Offset and
Remittances.  The Ceding Company and the Assuming Company hereby
grant each other the right to offset any amounts owed by one party to the other
under this Agreement, including but not limited to amounts owed hereunder as
Premiums, claims for loss payments, or under any judgment entered upon any
arbitration award made pursuant to the provisions of Section 6.4 hereof.  Accordingly, the amount of any payments to
be made to either party pursuant to the terms of this Agreement shall be
reduced by offsetting all amounts payable


 


5

















 


by such party to the other party so there
shall be a single net payment due under this Agreement from one party to the
other.  In the event of the insolvency
of a party hereto, offsets shall only be allowed in accordance with applicable
law.  If any payment due under this
Agreement is not timely made, then the amount thereof shall be increased by
interest at a rate equal to the average daily one-year U.S. Treasury Bill rate
in effect during the period from the time such payment was due through the date
of the payment thereof.


 


Section 7.7.  Applicable Law.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
Texas, without regard to principles regarding choice of law.  Any arbitration under this Agreement, or any
dispute regarding the right to arbitration shall be governed by the Federal
Arbitration Act (9 USC Section I, et  seq.).


 


Section 7.8.  Reserves.  The Assuming
Company shall establish maintain all statutory reserves relating to the
liabilities assumed hereunder as may be required by the Covered Policies and
applicable law and regulation.  The
reinsurance provided by this Agreement shall not be affected or invalidated by
reason of any action or interpretation by any commissioner or superintendent of
insurance of any jurisdiction with respect to the establishment or maintenance
of any of the reserves described in this Article.  The Ceding Company shall furnish to the Assuming Company such
information respecting its Coinsurance Share of liabilities assumed hereunder
as the Assuming Company shall reasonably require in order to accurately compute
or verify the amount of any such reserves.


 


The Assuming Company agrees to take all steps
necessary to comply with all applicable laws and regulations so as to permit
the Ceding Company to obtain full statutory financial statement credit for the
reinsurance provided by this Agreement in all relevant jurisdictions, including
but not limited to the establishment of reserves, trusts or letters of credit
necessary for the Ceding Company to receive such credit


 


Section 7.9.  Currency.  All
payments under this Agreement and all accounts and reports pursuant to this
Agreement and any arbitration awards or court judgments arising out of this
Agreement shall be in United States currency.


 


Section 7.10. Confidentiality.  The Assuming
Company and the Ceding Company shall maintain the confidentiality of all
information related to the Covered Policies and all other information
denominated as confidential by the other party provided to it in connection
with this Agreement and shall not disclose such information to any third
parties without the prior written consent of the other party, except as may be
required by governmental or regulatory authorities, rating agencies, or pursuant
to legal process.


 


Section 7.11.  Entire
Agreement.  This Agreement supersedes all prior
discussions and agreements between the parties with respect to the subject
matter of this Agreement, and this Agreement, including any Schedules or
Exhibits hereto, contains the sole and entire agreement between the Ceding
Company and the Assuming Company with respect to the subject matter hereof.


 


Section 7.12.  Notice.  As used in
this Agreement, Notice shall mean any and all notices, requests, demands or
other communications required or permitted to be given hereunder, and all
Notices shall be given or mailed by first class certified mail, return receipt
requested, or by an overnight courier service, addressed to the parties at the
addresses set forth below:


 


6

















 


If to the Ceding Company, to:


 


Central United Life
Insurance Company


2727 Allen Parkway, 6th
Floor


Houston, Texas 77019-2115


Attn: President


 


If to the Assuming Company, to:


 


KRE Reinsurance Ltd.


Victoria Hall, Victoria
Street


P.O. Box HM 1826


Hamilton HM HX


Bermuda


Attn: Account Executive


 


With a copy to:


 


Capital Re Management
Corporation


1326 Avenue of the Americas


18th Floor


New York, New York 10019


Attn: General Counsel


 


Section 7.13.  Taxes.


 


A.    The Ceding Company shall be liable for all
premium and other taxes in connection with the Covered Policies.


 


B.    KRE and Central United agree to the following
pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations under Section
848 of the Internal Revenue Code of 1986, as amended:


 


(i)            The term “party” shall refer to either KRE or
Central United, as appropriate.  The
terms used in this subsection B are defined by reference to Federal Income Tax
Regulation 1.848-2 and the term “net consideration” shall refer to either the
net consideration as defined in Federal Income Tax Regulation 1.848-2(f) or the
gross amount of premiums and other consideration as defined in Federal Income
Tax Regulation l-848-3(b), as appropriate;


 


(ii)           Each party shall attach a schedule to its Federal income tax return
which identifies the relevant Reinsurance Agreements for which the joint
election has been made;


 


(iii)          The party with net positive consideration, as defined in the Income Tax
Regulations promulgated under Section 848, for such Reinsurance
Agreements for each taxable year shall capitalize specific policy acquisition
expenses with respect to such Reinsurance Agreements without regard to the
general deductions limitation ofSection 848(c)(1) of the Internal Revenue
Code;


 


7

















 


(iv)          Each party agrees to exchange information pertaining to the amount of
net consideration under such Reinsurance Agreements each year to ensure
consistency; and


 


(v)           The joint election agreed to hereunder shall be effective beginning
with the Effective Date of this Agreement.


 


Section 7.14.  Wire Transfers.
 The Ceding Company and the Assuming Company
shall each promptly notify each other of the bank accounts into which wire
transfers of money are to be made for any and all payments due under this
Agreement.


 


Section 7.15.  No Third Party
Beneficiaries.  This Agreement constitutes an indemnity
reinsurance agreement solely between the Assuming Company and the Ceding
Company, and is intended solely for the benefit of the parties hereto and their
permitted successor and assigns, and it is not the intention of the parties to
confer any rights as a third-party beneficiary to this Agreement upon any other
person.


 


Section 7.16.  Severability.  If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law or if
determined by a court of competent jurisdiction to be unenforceable, and it f
the rights or obligations of the Assuming Company or Ceding Company under this
Agreement will not be materially and adversely affected thereby, such provision
shall be fully severable, and this Agreement will be construed and enforced as
if such illegal, invalid or unenforceable provision had never comprised a part
of this Agreement, and the remaining provisions of this Agreement shall remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.


 


Section 7.17.  Good Faith.  The parties
agree to deal with each other fairly and in utmost good faith in the
performance of this Agreement.


 


Section 7.18.  Not Assignable.
 This Agreement may not be assigned by either
party.


 


Section 7.19.  Counterparts.
 This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.


 


Section 7.20.  Waivers and Amendments.  Any term or
condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof.  Such
waiver must be in writing and must be executed by a duly authorized officer of
such party.  A waiver on one occasion
will not be deemed to be a waiver of the same or any other term or condition on
a future occasion.  This Agreement may
not be altered or changed except by a writing executed by the Ceding Company
and the Assuming Company


 


8

















 


IN WITNESS
WHEREOF, the parties
hereto have caused this Agreement to be executed by their duly authorized
officers and delivered as of the date first written above.


 


	
  CENTRAL UNITED LIFE
  INSURANCE COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ David W. Harris

  	
   

  	
   

  
	
  Name:

  	
  DAVID W. HARRIS

  	
   

  	
   

  
	
  Title:

  	
  CHAIRMAN

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
  3/31/1998

  	
   

  
	
   

  	
   

  
	
  KRE REINSURANCE LTD.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Rebecca L Carne

  	
   

  	
   

  
	
  Name:

  	
  REBECCA CARNE

  	
   

  	
   

  
	
  Title:

  	
  Assistant Secretary

  	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
  3/31/1998

  	
   

  
							



 


9

















 


RETROCESSION
AGREEMENT


 


 


This Retrocession Agreement dated as of October 1, 1997 (“Agreement”)
is made and entered into by and between Central United Life Insurance Company
(“Central United” or the “Ceding Company”), a Texas stock life insurance
company, and KRE Reinsurance Ltd. (“KRE” or the “Assuming Company”), an
insurance company registered under the laws of the Islands of Bermuda.


 


In consideration of the mutual covenants and upon the terms and
conditions set forth in this Agreement, Central United and the KRE hereby agree
as follows:


 


ARTICLE
1


 


definitions


 


Section 1.1.  Definitions.  Except
as expressly defined otherwise in this Agreement, for all purposes with regard
to this Agreement, all capitalized terms in this Agreement shall have the
meanings assigned to them below.  Any
definitions set forth herein shall (i) include the singular as well as plural,
and (ii) all accounting terms shall have the meanings ascribed to them under
statutory accounting principles prescribed or permitted under the laws and
regulations of the State of Texas.


 


A.    “Assumption Agreement” means
the Assumption Reinsurance Agreement, dated July 14, 1997, by and between
Commonwealth National Life Insurance Company, a Mississippi stock life
insurance company and Central United (a copy of which is attached hereto as Exhibit B).


 


B.    “Closing Date” means the date on which the Placement Slip for the
reinsurance coverage provided under this Agreement was executed by Central
United.


 


C.    “Coinsurance Agreement” means the Coinsurance Reinsurance
Agreement, dated July 14, 1997, and effective October 1, 1997, by and between
Commonwealth National Life Insurance Company, a Mississippi stock life
insurance company and Central United (a copy of which is attached hereto as
Exhibit A).


 


D.    “Earned Rate” means the rate of return (net of trustee fees),
including amortization of premium or discount, and realized and unrealized
gains and losses on the portfolio of assets held in trust for the benefit of
Central United as provided for under Section 8.8 of this Agreement.


 


E.     “Effective Date” means October 1, 1997.


 


F.     “Excluded Liabilities” shall have the meaning assigned to it in
Section 1.19 of the Coinsurance Agreement


 


G.    “Portfolio Indemnity Benefits” means KRE’s benefit payments to
Central United related to its Coinsurance Share of the liability assumed under
the Underlying Agreements.


 


H.    “Recapture Account” means the notional account established under
Section 3.5 of this Agreement.


 


I.      “Statutory Reserves” means
the sum of all reserves required to be maintained by Central United for the
liabilities assumed under the Underlying Agreements calculated consistent with
the reserve requirements, statutory accounting rules and actuarial principles prescribed or
permitted by applicable law and regulation.


 


1

















 


J.     “Stop Loss Benefits” means the payments of
death benefits made by KRE to Central United under and in accordance with the
Stop Loss Reinsurance Agreement.


 


K.    “Stop Loss Reinsurance Agreement” means the
Stop Loss Reinsurance Agreement dated as of October 1, 1997 by and between KRE and Central United.


 


L.     “Term” means the period during which this
Agreement is in effect as provided in Article 3


 


M.   “Underlying Agreements” means the Assumption Agreement and the Coinsurance Agreement.


 


Section 1.2.  Headings.  All captions, headings or titles preceding
any Section or Article in this Agreement are solely for convenience of
reference and are not part of this Agreement and shall not affect its meaning,
construction or effect.


 


ARTICLE 2


 


BUSINESS RETROCEDED


 


Subject to the terms and conditions of this
Agreement, Central United hereby cedes to the Assuming Company and the Assuming
Company hereby assumes as reinsurance, on a quota share basis, thirty-seven and
one half percent (37.5%) (the “Coinsurance Share”) of the interests and
liabilities (other than the Excluded Liabilities) of Central United under each
of the Underlying Agreements.


 


ARTICLE 3


 


TERM AND TERMINATION


 


Section 3.1.  Term.  This
Agreement shall be effective 12:01 A.M., Central Time, October 1, 1997, and
shall remain in full force and effect until the natural expiration of the
liabilities assumed hereunder or until sooner terminated as provided herein.


 


Section 3.2.  Termination


 


A.    Central United shall have the right (but not
the obligation) to terminate this Agreement (i) at any time after the fourth
anniversary of the Effective Date (i.e., October 1, 2001) up to, but not
including, the fifteenth anniversary of the Effective Date of this Agreement
(i.e., October 1, 2012) by giving at least 90 days prior written Notice to KRE
and paying to KRE on the effective date of such termination an amount equal to
the positive balance, if any, of the Recapture Account calculated in accordance
with Section 3.5 as of the effective date of termination, (ii) on the fifteenth
anniversary of the Effective Date of this Agreement (i.e., October 1, 2012) by
giving at least 90 days prior written Notice to KRE.  If Central United terminates this Agreement in accordance with
subsection (ii), Central United shall have no obligation to pay KRE any amount
based on the balance in the Recapture Account and (iii) at any time prior to
the fourth anniversary of the Effective Date (i.e., October 1, 2001)) by giving
at least 90 days prior written Notice to KRE if the balance in the Recapture
Account is zero.


 


B.    This Agreement may be terminated by KRE
(solely at KRE’s option) immediately upon Notice by KRE to Central United if Central United fails to pay any Periodic Premium (defined below) due to KRE
within fifteen (15) days after such Premium is due under this Agreement.   If KRE terminates this Agreement in
accordance with this paragraph, Central United shall be obligated to pay KRE an
amount equal to the positive balance of the Recapture Account calculated as of
the end of the preceding calendar quarter, and that obligation shall survive
the termination of this Agreement.


 


2

















 


Section 3.3.  Effect of
Termination.   Upon termination of this Agreement under
Section 3.2, Central United shall reassume all liability ceded under this
Agreement and the KRE shall transfer to Central United the Statutory Reserves
maintained by KRE relating to KRE’s Coinsurance Share of the liabilities under
the Underlying Agreements.


 


Section 3.4.  Notice of
Termination.  The Notice of termination required by Section
3.2A(i) and (ii) shall specify the effective date termination and otherwise
comply with the requirements of Section 3.2 and 8.12 of this Agreement.


 


Section 3.5.  Recapture
Account Balance.  For the purpose of determining
the amount due KRE, if any, upon termination of this Agreement under Section
3.2A. a notional Recapture Account shall be established and maintained with
respect to the coverage provided under this Agreement.  As of the Effective Date, the balance in the
Recapture Account shall equal the Initial Expense Allowance (defined
below).  Thereafter, the balance in the
Recapture Account shall be equal to the result of the following formula as of
the end of each calendar quarter:


 


Recapture Account Balance = A + B – C, where


 


A =
the balance of the Recapture Account as of the end of the immediately preceding
calendar quarter plus interest on that amount accrued for a calendar quarter at
the Earned Rate, and


 


B =
the sum of (i) Portfolio Indemnity Benefits and Stop Loss Benefits, plus (ii)
all Periodic Expense Allowance payments, (iii) plus the increase, or minus
decrease, from the immediately preceding calendar quarter in KRE’s Coinsurance
Share of the Statutory Reserves associated with the Underlying Agreements, plus
(iv) the greater of (x) 0.625% of the balance of the Recapture Account as of
the end of the immediately preceding calendar quarter and (y) $7,500, and


 


C =
the sum of (i) the Initial Premium and all Periodic Premiums paid, plus (ii)
interest income (accrued at the Earned Rate) for a calendar quarter on KRE’s
Coinsurance Share of the Statutory Reserves associated with the Underlying
Agreements.


 


ARTICLE 4


 


PREMIUM AND EXPENSE ALLOWANCE


 


Section 4.1.  Premium.  Central United shall pay to KRE as premium (i) on the Closing
Date, an amount (the “Initial Premium”) equal to KRE’s Coinsurance Share of the
Statutory Reserves associated with the Underlying Agreements as of the Closing
Date, (ii) as and when received by Central United, KRE’s Coinsurance Share of
the gross premiums Central United receives for the coverage provided under the
Underlying Agreements, net of all premiums paid by Central United by the
Effective Date for other reinsurance of liabilities ceded under the Underlying
Agreements (the “Periodic Premium”).


 


Section 4.2.  Expense
Allowance.  KRE shall pay to Central United an expense
allowance (i) on the Closing Date, an amount (the “Initial Expense Allowance”)
equal to the lesser of (x) $4,500,000, and (y) twenty-eight percent (28%) of
KRE’s Coinsurance Share of the Statutory Reserves associated with the
Underlying Agreements as of the Effective Date of this Agreement and (ii) as
and when received by KRE, an amount (the “Periodic Expense Allowance”) equal to
twenty-five percent (25%) of the Periodic Premium.


 


3

















 


ARTICLE 5


 


RIGHTS AND SETTLEMENTS


 


All losses, compromises, payments and
expenses and allowances in consequence of a claim or a potential claim under
the Underlying Agreements shall be settled by the Ceding Company without the
intervention of the Assuming Company and shall be binding upon the Assuming
Company and the Assuming Company shall allow or pay as the case may be each
settlement in accordance with the terms of this Agreement.  The Ceding Company shall be the sole judge
of (i) the interpretation of the Underlying Agreements, (ii) what shall
constitute a claim or Covered Losses covered under the Underlying Agreements;
and (iii) the amount it shall be proper for the Ceding Company to pay under the
Underlying Agreements.


 


ARTICLE 6


 


PROGRAM OF INTERNAL REPLACEMENT


 


Should Central United, Commonwealth National
Life Insurance Company (“Commonwealth National”), or any of their affiliates,
successors or assigns, initiate a Program of Internal Replacement (as defined
below) that would include any of the Assumed Policies (as defined in the
Coinsurance Agreement) reinsured under this Agreement, Central United will
immediately notify KRE.  For each
Assumed Policy reinsured under this Agreement that has been replaced under a
Program of Internal Replacement, KRE shall have the option, at its sole
discretion, of either treating the liability thereon as recaptured or
continuing reinsurance on the new policy under this Agreement.


 


The term “Program of Internal Replacement”
shall mean any program offered to a class of policyowners in which an Assumed
Policy or any portion of the Assumed Policy is exchanged for another policy or
contract, not reinsured under this Agreement, which is written by the Central
United, Commonwealth National, or any of their affiliates, successors or
assigns.  For the purposes of this
Agreement, a  Program of Internal
Replacement includes new polices made or issued either (i) in compliance with
the terms of the original Assumed Policy, (ii) without the same new
underwriting information that Central United or Commonwealth National would
obtain in the absence of the original Assumed Policy or (iii) without an
exclusion period or contestable period of equal duration as those contained in
the new issues by Central United or Commonwealth National.


 


ARTICLE 7


 


ACCOUNTS


 


Within twenty (20) days following the end of
each calendar quarter the Ceding Company shall render an account to the
Assuming Company showing (i) gross premium received by the Ceding Company and
Periodic Premium due and paid to KRE, (ii) Period Expense Allowance due and
paid to Central United, (iii) all claims made and paid by the Ceding Company
under the Underlying Agreements and KRE’s Coinsurance Share thereof, (iv) a
notation advising of the Statutory Reserves at the end of such calendar quarter
and KRE’s Coinsurance Share thereof, and (v) such other information as is
necessary to calculate the balance of the Recapture Account or as may be
requested by the Assuming Company. 
KRE’s Coinsurance Share of any claims for benefits under the Underlying
Agreements shall be payable to Central United within ten (10) business days
after KRE’s receipt of each quarterly account provided for in this Article.


 


4

















 


ARTICLE 8


 


GENERAL CONDITIONS


 


Section 8.1.  Insolvency.  Any
risk or obligation assumed by the Assuming Company pursuant to this Agreement
shall be payable by the Assuming Company on the basis of its liability under
this Agreement without diminution because of any insolvency of the Ceding
Company.  In the event of the insolvency
of the Ceding Company and the appointment of a conservator, liquidator or
statutory successor of any Ceding Company, all payments due hereunder shall be
payable to such conservator, liquidator or statutory successor in accordance
with this Agreement, with reasonable provision for verification, on the basis
of claims allowed against such Ceding Company by any court of competent
jurisdiction or by any conservator, liquidator or statutory successor of such
Ceding Company having authority to allow such claims, without diminution
because of such insolvency or because such conservator, liquidator or statutory
successor has failed to pay all or a portion of any such claim.  Payments by the Assuming Company as set forth
above shall be made directly to such Ceding Company or its conservator,
liquidator or statutory successor.


 


Section 8.2.  Retrocession
Follows Original Cession.  All reinsurance for which
Assuming Company shall be liable by subscribing to this Agreement shall be
subject in all respects to the same terms, conditions, waivers and to the same
modification, alterations and cancellations of the Underlying Agreements to
which such reinsurance relates, the true intent of this Agreement is that the
Assuming Company shall, in every case to which this Agreement applies, follow
the fortunes of the Ceding Company, including benefit payments and the timing
thereof.  Except as specifically
provided in this Agreement and any endorsement hereto, nothing herein shall be
construed to expand the liability of the Assuming Company beyond what is
specifically assumed under this Agreement by creating in any third party any
rights hereunder.


 


Section 8.3.  Errors and Omissions.  Any inadvertent delays, errors or omissions
made in connection with this Agreement or any transaction hereunder shall not
relieve either the Ceding Company or Assuming Company from any liability which
would have attached had such delay, error or omission not occurred, including
but not limited to any error or accidental omission by the other party in
reporting any claim or loss under the Underlying Agreements.


 


Section 8.4.  Access to Records and Reports; Audits.  The
Assuming Company or its duly authorized representative shall have access to and
the right to inspect the books and records of the Ceding Company at all
reasonable times for the purpose of obtaining information concerning this
Agreement, the Underlying Agreements or the subject matter hereof or
thereof.  Upon the request of the
Assuming Company, the Ceding Company shall forward to the Assuming Company any
reports received by the Ceding Company pursuant to Section 4.8 of the
Coinsurance Agreement.  The Assuming
Company, at its sole expense, shall have the right to audit all of the Ceding
Company’s records and procedures relating to the Underlying Agreements at the
office of the Ceding Company during regular business hours.


 


Section 8.5.  Arbitration;
Service of Process and Jurisdiction.  As
a Condition precedent to any right of action hereunder, if any dispute shall
arise between the parties hereto with reference to the interpretation of this
Agreement or their rights with respect to any transaction involved, whether
such dispute arises before or after termination of this Agreement, such
dispute, upon the written request of either party, shall be submitted to three
arbitrators, one to be chosen by each party, and the third by the two
arbitrators so chosen.  If either party
refuses or neglects to appoint an arbitrator within thirty (30) days after the
receipt of written notice from the other party requesting it to do so, the
requesting party may appoint two arbitrators. 
If the two arbitrators fail to agree in the selection of a third
arbitrator within thirty (30) days of their appointment, each of them shall
name two, of whom the other shall decline one and the decision shall be made by
drawing lots.  All arbitrators shall be
active or retired disinterested officers of insurance or reinsurance companies
not under the control of either party hereto.


 


Except as may be otherwise provided herein, the arbitrators shall
promulgate rules to interpret this Agreement based upon the Commercial
Arbitration Rules of the American Arbitration Association applicable to
commercial disputes and the Convention on Recognition and Enforcement of
Foreign Arbitral


 


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Awards (June 10, 1958).  The
arbitrators shall interpret this Agreement as an honorable engagement rather
than as a legal obligation and will make their award with the view to effecting
the general purpose and intent of this Agreement, rather than in accordance
with the literal interpretation of the Agreement.


 


The party requesting the arbitration shall submit its case to the
arbitrators within forty-five (45) days of the appointment of the third
arbitrator.  The party responding to the
request for arbitration shall submit its case to the arbitrators within
forty-five (45) days of the receipt of the petitioner’s case.  A hearing shall be held within thirty (30)
days after receipt of the parties cases in writing.  The arbitrators shall render their decision within thirty (30)
days after completion of the hearing. 
The decision in writing of any two arbitrators, when filed with the
parties hereto, shall be final and binding on both parties.  Judgment may be entered upon the final
decision of the arbitrators in any court having jurisdiction.  Each party shall bear the expense of its own
arbitrator and shall jointly and equally bear with the other party the expense
of the third arbitrator and arbitration. 
Said arbitration shall take place in Houston, Texas unless some other
place is mutually agreed upon by the parties hereto.


 


The Assuming Company hereby irrevocably submits to the nonexclusive
jurisdiction of any Federal or State of Texas court sitting in the State of
Texas over any suit, action or proceeding arising out of or relating to this
Agreement.  The Assuming Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in such court and any claim than any suit, action
or proceeding brought in such court has been brought in an inconvenient
forum.  The Assuming Company agrees that
a final judgment, not subject to any further appeal, in any such suit, action
or proceeding brought in such a court shall be conclusive and binding upon it
and will be given effect in the country of domicile of the Assuming Company to
the fullest extent permitted by applicable law and may be enforced in any
Federal or State of Texas court sitting in the State of Texas, by a suit upon
such judgment, provided that service of process is effected upon it as
specified in this Section or as otherwise permitted by law.


 


Further, pursuant to any statute of any state, territory or district of
the United States that makes provision therefor, the Assuming Company hereby
designates the superintendent, Commissioner or Director of Insurance or other
officer specified for the purpose in the statute, or his successor or
successors in office, as the 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 Assuming Company under this Agreement, and hereby designates the person
named in this Agreement in Section 8.12 as the person whom the officer is
authorized to mail such process or a true copy thereof.


 


The Assuming Company consents to process being served in any suit,
action or proceeding of the nature referred to above in any Federal or State of
New York court sitting in the State of New York by service of process as set
forth above, provided that, to the extent lawfully possible, written notice of
said service shall be mailed by registered or certified air mail, postage
prepaid, return receipt requested, to the Assuming Company at its address
specified herein or to any other address of which the Assuming Company shall
have given notice to the Ceding Company. 
The Assuming Company irrevocably waives, to the fullest extent permitted
by law, all claim of error by reason of any such service and agrees that such
service shall be deemed in every respect effective service of process upon the
Assuming Company in any such suit, action or proceeding and shall, to the
fullest extent permitted by law, be taken and held to be valid and personal
service upon and personal delivery to the Assuming Company.


 


Nothing in this Section shall affect the right of the Assuming Company
from receiving service of process in any other manner permitted by law or limit
the right of the Ceding Company to bring proceedings against the Assuming
Company in any court having jurisdiction over the Assuming Company and such
proceeding.


 


Section 8.6.  Offset
and Remittances.  The
Ceding Company and the Assuming Company hereby grant each other the right to
offset any amounts owed by one party to the other under this Agreement,
including but not limited to amounts owed hereunder as Premiums, claims for
loss payments, or under any judgment entered upon any arbitration award made
pursuant to the provisions of Section 6.4 hereof.  Accordingly, the amount of any payments to be made to either
party pursuant to the terms of this Agreement shall be reduced by offsetting
all amounts payable by such party to the other party so there shall be a single
net


 


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payment due under this Agreement from one party to the other.  In the event of the insolvency of a party
hereto, offsets shall only be allowed in accordance with applicable law.  If any payment due under this Agreement is
not timely made, then the amount thereof shall be increased by interest at a
rate equal to the average daily one-year U.S. Treasury Bill rate in effect
during the period from the time such payment was due through the date of the
payment thereof.


 


Section 8.7.  Applicable
Law.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
Texas, without regard to principles regarding choice of law.  Any arbitration under this Agreement, or any
dispute regarding the right to arbitration shall be governed by the Federal
Arbitration Act (9 USC Section 1, et  seq.).


 


Section 8.8.  Reserves.  The Assuming Company shall establish and
maintain all Statutory Reserves relating to its Coinsurance Share of
liabilities assumed hereunder as may be required by the Underlying Agreements
and applicable law and regulation.  The
reinsurance provided by this Agreement shall not be affected or invalidated by
reason of any action or interpretation by any commissioner or superintendent of
insurance of any jurisdiction with respect to the establishment or maintenance
of any of the reserves described in this Article.  The Ceding Company shall furnish to the Assuming Company such
information respecting its Coinsurance Share of liabilities assumed hereunder
as the Assuming Company shall reasonably require in order to accurately compute
or verify the amount of any such reserves.


 


The Assuming Company agrees to take all steps necessary to comply with
all applicable laws and regulations so as to permit the Ceding Company to
obtain full statutory financial statement credit for the reinsurance provided
by this Agreement in all relevant jurisdictions, including but not limited to
the establishment of reserves, trusts or letters of credit necessary for the
Ceding Company to receive such credit or amending this Agreement to comply with
such laws.  Any trust agreement
established by the Assuming Company for the benefit of the Ceding Company shall
comply in all respects with all applicable law for the purpose of providing the
Ceding Company with statutory credit for Statutory Reserves ceded hereunder.


 


Section 8.9.  Currency.  All payments under this Agreement and all
accounts and reports pursuant to this Agreement and any arbitration awards or
court judgments arising out of this Agreement shall be in United States
currency.


 


Section 8.10.  Confidentiality.  The Assuming Company and the Ceding Company
shall maintain the confidentiality of all information related to the Underlying
Agreements and all other information denominated as confidential by the other
party provided to it in connection with this Agreement and shall not disclose
such information to any third parties without the prior written consent of the
other party, except as may be required by governmental or regulatory
authorities, rating agencies, or pursuant to legal process.


 


Section 8.11.  Entire Agreement.  This
Agreement supersedes all prior discussions and agreements between the parties
with respect to the subject matter of this Agreement, and this Agreement,
including any Schedules or Exhibits hereto, contains the sole and entire
agreement between the Ceding Company and the Assuming Company with respect to
the subject matter hereof.


 


Section 8.12.  Notice.  As
used in this Agreement, Notice shall mean any and all notices, requests,
demands or other communications required or permitted to be given hereunder,
and all Notices shall be given or mailed by first class certified mail, return
receipt requested, or by an overnight courier service, addressed to the parties
at the addresses set forth below:


 


If to the Ceding Company, to:


 


Central United Life Insurance Company


2727 Allen Parkway, 6th  Floor


Houston, Texas 77019-2115


Attn: President


 


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If to the Assuming Company, to:


 


KRE Reinsurance Ltd.


Victoria Hall, Victoria Street


P.O. Box HM 1826


Hamilton HM HX


Bermuda


Attn: Account Executive


 


With a copy to:


 


Capital Re Management Corporation


1326 Avenue of the Americas


18th Floor


New York, New York 10019


Attn: General Counsel


 


Section 8.13.  Taxes.


 


A.    The Ceding Company shall be
liable for all premium and other taxes in connection with the Covered Policies.


 


B.    KRE and Central United agree
to the following pursuant to Section 1.848-2(g)(8) of the Income Tax
Regulations under Section 848 of the Internal Revenue Code of 1986, as amended:


 


(i)            The term “party” shall
refer to either KRE or Central United, as appropriate.  The terms used in this subsection B are
defined by reference to Federal Income Tax Regulation 1.848-2 and the term “net
consideration” shall refer to either the net consideration as defined in
Federal Income Tax Regulation l.848-2(f) or the gross amount of premiums and
other consideration as defined in Federal Income Tax Regulation 1-848-3(b), as
appropriate;


 


(ii)           Each party shall attach
a schedule to its Federal income tax return which identifies the relevant
Reinsurance Agreements for which the joint election has been made;


 


(iii)          The party with net positive consideration, as defined in the Income Tax
Regulations promulgated under Section 848, for such Reinsurance Agreements for
each taxable year shall capitalize specific policy acquisition expenses with
respect to such Reinsurance Agreements without regard to the general deductions
limitation ofSection 848(c)(1) of the Internal Revenue Code;


 


(iv)          Each party agrees to exchange information pertaining to the amount of
net consideration under such Reinsurance Agreements each year to ensure consistency;
and


 


(v)           The joint election agreed to hereunder shall be effective beginning
with the Effective Date of this Agreement.


 


Section 8.14.  Wire Transfers.
 The Ceding Company and the Assuming Company
shall each promptly notify each other of the bank accounts into which wire
transfers of money are to be made for any and all payments due under this
Agreement.


 


Section 8.15.  No Third Party
Beneficiaries.  This Agreement constitutes an indemnity
reinsurance agreement solely between the Assuming Company and the Ceding
Company, and is intended solely for the benefit of the parties hereto and their
permitted successor and assigns, and it is not the intention of the parties to
confer any rights as a third-party beneficiary to this Agreement upon any other
person.


 


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Section 8.16.  Severability.  If any
provision of this Agreement is held to be illegal, invalid or unenforceable
under any present or future law or if determined by a court of competent
jurisdiction to be unenforceable, and it f the rights or obligations of the
Assuming Company or Ceding Company under this Agreement will not be materially
and adversely affected thereby, such provision shall be fully severable, and
this Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of this Agreement shall remain in full force and effect
and will not be affected by the illegal, invalid or unenforceable provision or
by its severance herefrom.


 


Section 8.17.  Good Faith.
 The parties agree to deal with each other
fairly and in utmost good faith in the performance of this Agreement.


 


Section 8.18.  Not Assignable.  This Agreement may not be assigned by either
party.


 


Section 8.19.  Counterparts.
 This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.


 


Section 8.20.  Waivers and
Amendments.  Any term or condition of this Agreement may
be waived at any time by the party that is entitled to the benefit
thereof.  Such waiver must be in writing
and must be executed by a duly authorized officer of such party.  A waiver on one occasion will not be deemed
to be a waiver of the same or any other term or condition on a future
occasion.  This Agreement may not be
altered or changed except by a writing executed by the Ceding Company and the
Assuming Company


 


IN WITNESS
WHEREOF, the parties
hereto have caused this Agreement to be executed by their duly authorized
officers and delivered as of the date first written above.


 


	
  CENTRAL UNITED LIFE
  INSURANCE COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/ David W. Harris

  	
   

  	
   

  
	
  Name:

  	
    DAVID W.
  HARRIS

  	
   

  	
   

  
	
  Title:

  	
    CHAIRMAN

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
  3/31 1998

  	
   

  
	
   

  	
   

  
	
  KRE REINSURANCE LTD.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/ Rebecca L
  Carne

  	
   

  	
   

  
	
  Name:

  	
    REBECCA CARNE

  	
   

  	
   

  
	
  Title:

  	
    Assistant
  Secretary

  	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
  March 31 1998

  	
   

  
						



 


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