Exhibit 10.3


 


REINSURANCE AND ADMINISTRATIVE
SERVICES


AGREEMENT


THIS AGREEMENT is entered into by and between American Heritage Life
Insurance Company, a Florida Corporation
located at 1776 American Heritage Life Drive, Jacksonville, Florida
32224 (“AHL” or “Ceding Company”) and Columbia Universal Life Insurance
Company, a Texas Corporation, located at
11044 Research Blvd., Bldg. A, Austin Texas, 78759 (“CUL” or “Reinsurer”) effective
the 1st day of February, 1998.


 


WHEREAS, AHL and CUL desire to develop a life insurance program
identified and described in Exhibit A attached hereto (“the Business”);


 


WHEREAS,
CUL desires  to accept the risk, as well as
administer and market the Business to which AHL will issue policies (“the
Policies”);


 


WHEREAS, AHL and CUL agree to do business, are
authorized to do business in accordance  with the terms of this Agreement, and are properly licensed and
authorized to transact said insurance business; and 


 


WHEREAS,
AHL and CUL agree to cooperate fully in the operation of this Agreement;


 


NOW THEREFORE, in consideration of the mutual covenants,
conditions, and promises set forth herein, AHL and CUL agree as follows:


 


ARTICLE I.  REINSURANCE


 


1. General Terms


 


1.1  Scope of Reinsurance.  As of the effective date of this
Agreement, one hundred percent of the
Business issued by AHL and as defined in Exhibit A  shall be exclusively and automatically reinsured
with CUL, including waiver of premium benefits and benefits arising from any
conditional receipt issued by AHI. hereunder. 
All reinsurance ceded shall automatically be subject to the terms
and conditions set forth herein.


 


1.2  Plan of Reinsurance.  The consideration to be paid by AHL to CUL
for reinsurance hereunder  shall be one hundred percent of the insurance
premiums subject to this Agreement. CUL shall pay one hundred percent of the
amount of all death claims incurred after the effective date, and all
surrender benefits. CL shall calculate and hold reserves which are required by
applicable statutes.  The reinsurance
shall be subject to the same terms and conditions as the policy issued by Ceding
Company to the Insureds.


 


1.3  Liability.  Upon execution of this Agreement,
CUL  shall be liable to Ceding Company for benefits covered by reinsurance
hereunder to the same extent as ceding company is liable to the insured for
such benefits, and all reinsurance shall be subject to the terms and conditions
of the particular policy under which Ceding Company is liable.


 

















 


1.4  Tax Credits.  Except in those instances where CUL is taxed directly and independently
on premiums collected by it, CUL shall reimburse AHL for taxes on insurance
premiums paid to such states, if any, that do not allow insurance premiums paid
to CUL by AHL as a deduction in the tax statement of AHL.  Such tax reimbursement shall be at the exact
tax rate applied.


2. DAC Tax - §1.848-2(g)(8) Election.


 


2.1  DAC Tax.  Pursuant to §1.848-2(g)(8) of the Income Tax Regulations issued December,
1992 under §848 of the Internal Revenue Code of 1986, as amended, CUL and AHL
agree to the following election for the current tax year and all subsequent tax
years for which this Agreement remains in effect.  The terms used in this Article are defined by
reference to Regulation Section 1.848-2 in effect December, 1992.


 


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


 


2.3  Both parties agree to exchange information
pertaining to the amount of net consideration under this Agreement each year to
ensure consistency or as otherwise required by the Internal Revenue Service.


 


2.4  CUL shall submit to AHL by June 1 of each
year a schedule of its calculation of the net consideration for the preceding
calendar year.  This schedule of
calculations will be accompanied by a statement signed by an officer of the
company stating that such net consideration will be reported in the tax return
for the preceding calendar year.


 


2.5  AHL may contest such calculation by providing
an alternative calculation in writing within thirty (30) days of receipt of
such calculation.  Unless notified
otherwise, AHL will report the net consideration as determined by CUL in its
tax return for the previous calendar year.


 


2.6  If AHL contests the calculation of the net
consideration, both parties will act in good faith to reach an agreement as to
the correct amount within thirty (30) days of the date the alternative
calculation is submitted.  If both
parties reach an agreement on an amount of net consideration, both parties
shall report such amount in their respective tax returns for the previous
calendar year.


 


ARTICLE II.  ADMINISTRATIVE SERVICES


 


1. General Administration


 


1.1  CUL agrees to adopt and implement procedures
as mutually  agreed upon with AHL to
issue, service, and underwrite the Business.  CUL’s administrative responsibilities are
limited to those items that directly relate to  the Business.  AHL 


 

















 


agrees that CUL has all marketing and 
administration rights to the Business while this Agreement is in
effect.  It is further agreed that CUL
has the right to take any rate actions, if such action is warranted by the
financial performance of the Business and in accordance with regulatory
requirements.


 


1.2  Reinsurer shall
also perform administrative services on the Policies, using forms and
procedures acceptable to AHL and in accordance with any and
all applicable rules and  regulations of
regulatory authorities. CUL shall perform all administrative services relating
to the Business, including but not limited to the following:


 


	
  a)

  	
   

  	
  Process applications for coverage according to the
  procedures;

  
	
  b)

  	
   

  	
  Prepare and issue policies or certificate booklets on
  forms for each eligible person or entity (“the Insureds”);

  
	
  c)

  	
   

  	
  Bill, receive and remit premiums;

  
	
  d)

  	
   

  	
  Audit premium payments and billing copies received to
  verify the accuracy of the payments;

  
	
  e)

  	
   

  	
  In addition to specific reports referenced herein,
  prepare and transmit to AHL, management reports containing such information
  as reasonably requested by AHL to properly monitor the Business;

  
	
  f)

  	
   

  	
  Maintain accounting records relating to the Business on
  behalf of AHL in a form mutually agreed by both parties. CUL shall prepare a
  final settlement and premium reconciliation on a quarterly basis in a format
  acceptable to AHL to fulfill AHL’s financial and data reporting obligations;

  
	
  g)

  	
   

  	
  Calculate and pay commissions to duly licensed and
  appointed agents in a timely fashion according to commission schedules;

  
	
  h)

  	
   

  	
  Handle all correspondence with brokers and subagents as
  well as with Insureds;

  
	
  i)

  	
   

  	
  Perform any other administrative services as may be
  agreed upon by the parties to this Agreement.

  



 


1.3  CUL
agrees to bear all expenses necessary to administer the Business, including but
not limited to medical examinations, inspections fees, and costs of printing
all forms used in administering this Agreement.


 


2. Marketing Services


 


2.1  CUL
shall have the authority to recommend agents and brokers for appointment.  CUL may contract agents and brokers directly,
submitting necessary appointment information as required to AHL.  AHL may, at its option, refuse to appoint any
proposed agent or broker, and may, at any time, refuse to accept any future business from any agent or broker proposed
by CUL and accepted by AHL.  CUL shall
pay all license appointment and termination fees.  CUL shall further administer payment of agent
commissions in accordance with commission schedules.


 


2.2  CUL
shall be responsible for all marketing and soliciting applications for the
Business and shall bear the entire cost for marketing, soliciting and printing,
promotional materials used for this purpose including, but not limited to,
sales brochures, agent applications, agent supply order forms, sales material,
underwriting and service guides, mailing envelopes, proposal request forms, any
correspondence and mass-produced printings related to 

















 


marketing, other sales literature, plan rates and
area classifications, and outline of coverage forms. 
All  solicitation materials
bearing the name of American Heritage Life Insurance Company shall be subject to prior  written approval by AHL.


 


3.
Underwriting Services


3.1  CUL
shall underwrite all applications at its expense for the benefit of AHL.  CUL shall maintain
all underwriting  files for AHL subject to audit by AHL  with  reasonable notice during normal
business hours.  All policy material,
certificates, and written communications shall be promptly delivered by AHL to
the appropriate parties at CUL.


 


3.2  CUL
shall have authority to establish procedures for approval of applicants for
coverage under the Policies.


 


4. Compliance


 


4.1  CUL shall
develop all forms, policies, riders, certificates and actuarial memoranda
required to comply with applicable state laws and to obtain
insurance department approvals for use of policy  forms. CUL shall be responsible for submission of all required filings,
including rate and advertising filings,
to the applicable insurance departments.


 


5. Premium Payments


 


5.1  The
payment to CUL of any premiums or charges for insurance by or on behalf of an
Insured shall be deemed to have been received by AHL.


 


5.2  CUL shall be responsible for sending coverage lapse notices to Insureds
for nonpayment of premium and shall retain copies
of said lapse notices for audit.


 


6. Claims Services


 


6.1  Whenever a claim is made under any reinsured policy subject to this
Agreement,  it shall be taken and considered by CUL to
be a claim for the  amount of reinsurance on such risk.


 


6.2  CUL shall
perform the claim services listed below on behalf of AHL in strict compliance
with the Policies and all applicable rules and regulations of regulatory
authorities.  CUL shall bear any expenses incurred in
defending or investigating any claim.


 


	
  a)

  	
   

  	
  Determine benefits and issue payment for valid
  claims under the Policies;

  
	
  b)

  	
   

  	
  Calculate benefits and issue payment for valid life
  insurance and accidental death and dismemberment claims; and

  
	
  c)

  	
   

  	
  Maintain complete claim and claim payment records;

  



 

















 


6.3  In every case of loss, proof of loss obtained
by CUL shall likewise be taken as sufficient by AHL.  Whether a claim payment is made under the
strict policy conditions or compromised for a lesser amount, any settlement
made by CUL shall be unconditionally binding upon AHL.


 


7. Records


 


7.1  CUL shall
maintain for AHL at CUL’s principal offices a
complete history of all in-force policies and certificates, as well as books
and records of all transactions between CUL and any Insureds, vendors, contractors,
subcontractors, in accordance with its records retention schedule.  CUL’s
records retention schedule shall comply  with prudent
standards of insurance record-keeping and all applicable rules and regulations of regulatory authorities. All
records maintained by CUL for the Business shall be
made available to AHL for inspection upon request during normal business hours
and in a form consistent with the way in which they are maintained.


 


8. Audit


 


 8.1  AHL shall be entitled to make audits of the
records, books, and accounts of CUL relating to the Business to determine the
accuracy of administration of the Business. 
Those audits shall be with
reasonable notice and during normal business hours,
and CUL shall cooperate to the fullest extent in accommodating all such audits.


 


8.2  CUL shall
permit access to records and cooperate with the
Commissioner or Director  of Insurance for
a given state for the purpose of examination, audit and inspection.


 


9. Advertisements


 


9.1  CUL
shall not use any written or oral advertisement bearing AHL’s name withoutAHL’s
express consent.


 


9.2  CUL is free to name the products and agrees to indemnify and
hold harmless AHL in the event a conflict with a registered or non-registered
trade or service mark occurs.


 


9.3  CUL shall be responsible
for obtaining all advertising approvals required by law and maintaining a
complete advertising file.


 


10. Complaints and Litigation


 


10.1  CUL shall maintain a complaint log of all
complaints which complies with the
respective state laws
and shall make it available for review by AHL. 
“Complaints” for purposes of this paragraph includes
any written correspondence from an insured, agent, provider, attorney or
beneficiary, which primarily expresses a specific
grievance and which
solicits a response.


 

















 


10.2  CUL and AHL  shall
promptly notify each other of any correspondence
from or inquiries by any state regulatory agency
concerning the Business, and of any litigation or written notice of suit, of which either becomes aware in connection with the Business.


 


10.3  CUL shall be
responsible for responding to any inquiries or complaints from governmental
authorities.


 


10.4  CUL will be responsible for and will pay
court costs and attorney’s fees for any legal actions arising from or relating to the Business. 
For any legal actions brought against AHL, CUL, or jointly against CUL and AHL relating to the Business, AHL shall have the option
of defending itself or having CUL handle its defense.


 


11. Indemnification


 


11.1  CUL agrees to indemnify and hold harmless AHL from any and all claims, demands
or suits brought against AHL for any losses, costs, damages, expenses and
attorneys’ fees arising out of or caused by the negligent, fraudulent or
criminal acts of CUL’s officers, agents and employees.


 


11.2  AHL agrees to indemnify and hold
harmless CUL from any and all claims, demands or suits brought against CUL for
any losses, costs, damages. expenses and attorneys’ fees arising out of or caused by CUL’s
actions, if required to be taken or not taken at the written direction or request of AHL,
provided that such losses, costs. claims, demands, damages. expenses, or fees
did not arise from or were not caused by the negligence or misconduct of CUL’s officers, agents, and employees in carrying out any such requirement, direction, or
request.


 


11.3  Neither party
shall be obligated under any circumstances to indemnify for in-house administrative or legal expenses.


 


12. Limitation of Liability


 


12.1  CUL and AHL agree to
exercise ordinary care in the performance of obligations under this
Agreement.  In no event shall either
party be liable for any indirect damages, including without limitation any
consequential, incidental, special or exemplary damages, even if the party has
been advised of the possibility of such damages.  Unless otherwise provided in writing, the
maximum liability of either party to the other shall be limited to actual
damages and out of pocket expenses.  The
parties make no warranties, express or implied. in law or in fact.


 


13. Relationship of the Parties


 


13.1  This contract, together with any exhibits, constitutes the entire agreement between AHL and CUL and supersedes all
prior agreements, oral or written.  No
waiver or modification of any of the same terms or conditions hereof shall be valid or binding on the 


 

















 


parties unless in writing and signed by both parties.


 


13.2  This
Agreement may not be assigned in whole or in pen by CUL without the prior
written consent of AHL. 
Any assignee shall be bound by the terms of this Agreement.


 


                                       14. Regulatory
Authorities


 


14.1  In the conduct of its business and in the performance of its obligations under this
Agreement, CUL shall comply  with all  applicable
statutes, ordinances, rules and regulations of any and  all federal, state, and municipal regulatory authorities.  Where requirements of any state law conflict
with any of the terms of this Agreement, the former shall control, but only with respect
to the state in which it applies.


 


14.2  It is understood and agreed that any change to this Agreement regarding and
affecting business written or administered for residents
in states which require notice of such changes be
communicated to the appropriate regulatory authorities, shall be complied with in full by CUL.


 


15. Error & Oversight


 


15.1  If, unintentionally and
through error or oversight, either AHL or CUL fails to comply with the terms of
this Agreement, and if, upon discovery by one of such failure, the other is
immediately notified, then the duties and responsibilities of both AHL and CUL
shall be as if each had complied with the terms of this Agreement, subject
always to correction of the error or oversight.


 


16. Term - Termination


 


16.1  This Agreement shall be unlimited as to its
duration.  The reinsurance  with CUL
on all policies reinsured under this
Agreement shall be maintained in force as long as such policies remain in force
either continuously, by reinstatement, by substitution, or conversion,
notwithstanding termination of this Agreement. 
CUL shall remain liable thereon until termination or expiration of the
insurance reinsured.  No reinsurance on
any policy may be reduced or recaptured by AHL.


 


16.2  This Agreement shall terminate automatically
when all the policies under this Agreement have expired.  This Agreement may also be terminated by the
mutual agreement of both parties at any time.  Upon notice of termination by either
party, AHL shall have the right to instruct CUL to cease all sales and solicitation of the Business.


 


17. Insolvency


 


17.1  Definition of insolvency.  For purposes of this section,
either party shall be deemed insolvent if: 
a) a court order is issued voluntarily or involuntarily placing it into
conservatorship, rehabilitation,  receivership,
or liquidation, or appointing a conservator, rehabilitator, receiver or
liquidator to take over its business; or b) it has 


 

















 


filed or consents to the filing of petition in bankruptcy,
seeks reorganization or an arrangement with creditors or takes advantage of any
bankruptcy, dissolution, liquidation or similar law or statute.


 


17.2  Insolvency
of CUL. 
In the event of the insolvency of CUL, all payments
due to CUL by AHL shall be payable directly
to CUL, its liquidator, receiver, or statutory successor on the basis of the
liability of AHL under the policies reinsured without diminution because of
insolvency.


 


17.3  Insolvency of AHL.  In  the
event of the insolvency of AHL, all payments due to AHL by CUL shall be
payable directly to AHL, its liquidator, receiver, or statutory successor on
the basis of the liability of CUL under the
policies reinsured without diminution because of insolvency.


 


17.4  Any debts or
credits, matured or unmatured, liquidated or unliquidated, in favor of or  against either party with respect to this
Agreement are deemed mutual debts or credits, as the case may be, and will be
offset, and only the balance will be allowed or paid.


 


18. Amendment of Agreement


 


18.1  This Agreement shall not be
modified or amended except in writing signed by an officer of CUL and an
officer of AHL.


 


19. Controlling Law


 


19.1  This Agreement shall be subject to and
construed under the laws of the State of Florida without regard to conflict of
law principles.  If any part, term, or provision of this Agreement shall be
held void, illegal, or unenforceable, the validity of the remaining portions or
provisions shall not be affected thereby.


 


20. Waiver or
Breach


 


20.1  Failure to insist upon strict compliance with
any of the terms herein shall not operate, or be construed, as a continuing
waiver of such provision or any other provision in this Agreement.  This right to insist upon full compliance and performance of such
terms in the future and to invoke any and  all
applicable remedies for breach shall not be affected by any prior waiver or
excuse of performance.


 


21. Counterparts


 


21.1  It is understood and agreed that this
Agreement may be executed in identical counterparts, each of which shall be
deemed an original for all purposes.

















THE
PARTIES HERETO affix their respective signature by their duly authorized and
acting officers as of the effective date of
this contract


 


 


 


AMERICAN
HERITAGE LIFE INSURANCE COMPANY


 


	
   

  	
  

  
	
   

  	
  By:

  	
  C. RICHARD MOREHEAD

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  



COLUMBIA
UNIVERSAL LIFE INSURANCE COMPANY


	
   

  	
  

  
	
   

  	
  By:

  	
  MIKE PINKHAM

  
	
   

  	
   

  	
  President and CEO

  



 
















 


EXHBIT
A


INSURANCE
PROGRAMS


 


Insurance Programs (the “Business”)
subject to this
Agreement constitute all the following life insurance and annuity policies
administered by CUL.


 


	
  INSURANCE
  PROGRAMS

  	
   

  	
  STATE

  	
   

  	
  FORM
  NO.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Simplified
  Issue Whole 

  Life
  (SIWL) Final Expense

  	
   

  	
  NC

  	
   

  	
  L-D022

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Summer
  Pay Annuity for 

  Retirement
  (SPAR)

  	
   

  	
  NC, VA

  	
   

  	
  A-B021

  


















 


Projected Annualized Premiums of Production Under


Reinsurance and Administrative Services Agreement


 


1999 through 2001


 


by and between


 


Columbia Universal Life Insurance Company and American Heritage Life
Insurance Company


 


 


1999


 


	
   

  	
  LIFE

  	
   

  	
   

  	
   

  	
  ANNUITY

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  $5,000

  	
   

  	
   

  	
   

  	
  $8,000,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  2000

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  LIFE

  	
   

  	
   

  	
   

  	
  ANNUITY

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  $0

  	
   

  	
   

  	
   

  	
  $12,000,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  2001

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  LIFE

  	
   

  	
   

  	
   

  	
  ANNUITY

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  $0

  	
   

  	
   

  	
   

  	
  $18,000,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTALS

  	
  $5,000

  	
   

  	
   

  	
   

  	
  $38,000,000