EXHIBIT
10.1


 


REINSURANCE AGREEMENT


 


between


 


AMERICAN HERITAGE LIFE INSURANCE COMPANY


 


and


 


ALLSTATE LIFE INSURANCE COMPANY


 


RECITALS


 


This Reinsurance
Agreement dated October 1, 2008 (hereinafter “Agreement”) is made and
entered into by and between AMERICAN HERITAGE LIFE INSURANCE COMPANY, a life
insurance company domiciled in the State of Florida (hereinafter “Ceding
Company”) and ALLSTATE LIFE INSURANCE COMPANY, a life insurance company
domiciled in the State of Illinois (hereinafter the “Reinsurer”).


 


WHEREAS, Ceding Company
and Reinsurer desire to enter this Agreement, whereby Ceding Company will cede
on a yearly renewable term basis 100% of the life insurance and supplemental
benefit liabilities of the Ceding Company arising under the Policies, except
for certain excluded liabilities.


 


NOW THEREFORE, in
consideration of the above stated premises and the promises and the mutual
agreements set forth below the Ceding Company and the Reinsurer agree as
follows.


 


ARTICLE I


DEFINITIONS


 


Unless otherwise defined
herein, as used in this Agreement the following terms shall have the meanings
ascribed to them below:


 


A.           “Affiliate”
shall mean, with respect to any person, any other person controlling,
controlled by or under common control with such person.  For purposes of the foregoing, “control,”
including the terms “controlling,” “controlled by” and “under common control
with,” shall mean the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person, whether through
the ownership of voting securities, by contract, as trustee or executor or
otherwise.


 


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B.             “Annual
Statement” shall mean the Ceding Company’s Life and Accident and Health
Companies Annual Statement for the General Account as filed with the Florida
Insurance Department.


 


C.             “Code”
shall mean the Internal Revenue Code of 1986, as amended.


 


D.            “Effective
Date” shall mean the effective date of this Agreement, which shall be 12:01 am
on October 1, 2008.


 


E.              “Excluded
Liabilities” shall mean liabilities ceded by Ceding Company under Third-Party
Reinsurance Agreements.


 


F.              “Extra-Contractual
Obligations” shall mean all liabilities and
obligations for consequential, extra-contractual, exemplary, punitive, special
or similar damages or any other amounts due or alleged to be due (other than
those arising under the express terms and conditions of the Policies) which
arise from any real or alleged act, error or omission, whether or not
intentional, in bad faith or otherwise, including without limitation, any act,
error or omission relating to: (i) the marketing, underwriting,
production, issuance, cancellation or administration of the Policies; (ii) the
handling of claims or disputes in connection with the Policies; or (iii) the
failure to pay or the delay in payment of benefits or claims, under or in
connection with the Policies.


 


G.             “Net
Benefits” shall mean the actual amounts paid or incurred by the Ceding Company
with respect to the Policies for all death benefits and payments on
supplemental benefits, net of Excluded Liabilities.


 


H.            “Net
Ceded Liabilities” shall mean any and all liabilities of the Ceding Company
arising under the Policies, but shall not include Excluded Liabilities.


 


I.                 “Policy
or Policies” shall mean the life insurance policies defined in Exhibit A
which are issued or reinsured by the Ceding Company.


 


J.                “Third-Party
Reinsurance Agreements” shall mean any written reinsurance agreements under
which Ceding Company has ceded liabilities with respect to the Policies, other
than this Agreement.


 


K.            “Net
Amount at Risk” shall mean the amount calculated by subtracting the account
value from death benefit of the Policy.


 


ARTICLE II


BASIS OF REINSURANCE


 


The
Ceding Company agrees to cede and the Reinsurer agrees to accept Net Ceded
Liabilities. 


 


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The
reinsurance provided hereunder shall be on a 100% yearly renewable term basis.


 


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ARTICLE III


LIABILITY OF REINSURER


 


A.                                   All
of the Net Ceded Liabilities shall be reinsured pursuant to the terms of this
Agreement as of the Effective Date.


 


B.                                     The
liability of the Reinsurer with respect to Policies in force on the Effective
Date will begin on the Effective Date. 
The liability of the Reinsurer with respect to any application received
or any contract issued after the Effective Date and reinsured hereunder will
begin simultaneously with that of the Ceding Company.  The Reinsurer’s liability with respect to any
Policy will terminate on the date the Ceding Company’s liability on such
contract terminates.  However,
termination of this Agreement will not terminate the Reinsurer’s liability for
Net Benefits paid or incurred by the Ceding Company on or after the Effective
Date and prior to the date of termination. If any of the Policies are reduced
or terminated by payment of a death benefit, withdrawal or surrender, the
reinsurance will be reduced proportionately or terminated.


 


C.                                     The
reinsurance provided under this Agreement is subject to the same limitations
and conditions as set forth in the Policies.


 


D.                                    Ceding
Company shall not make any changes in the terms and conditions of any Policy,
including, but not limited to any changes to comply with any applicable law, rule or
regulation unless it has given Reinsurer written notice of any proposed change
at least thirty (30) days prior to the proposed effective date.  .


 


E.                                      Ceding
Company shall not make any changes or modifications to any of its underwriting,
claims or administrative practices, procedures or systems for the Policies, nor
waive or exercise any of its rights under any of the Policies unless it has
given Reinsurer written notice of any proposed change at least thirty (30) days
prior to the proposed effective date.


 


F.                                      Conversions,
exchanges, or replacements of Policies shall continue to be reinsured under
this Agreement so long as it is a covered plan as defined in Exhibit A.


 


ARTICLE IV


CLAIMS


 


A.                                   Except
as provided below, Reinsurer shall pay its proportionate share of all
Extra-Contractual Obligations.


 


B.                                     Reinsurer
shall not be liable to pay Ceding Company for any Extra-Contractual Obligations
to the extent such liabilities or obligations arise directly from and are 


 


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proximately caused
by the gross negligence or willful acts or omissions of Ceding Company, its
agents, contractors or employees in the performance of Ceding Company’s duties
and obligations under this Agreement.


 


In the event of a change
in the amount of the Ceding Company’s liability on a Policy due to a
misstatement of age or sex, the Reinsurer’s liability will be changed
proportionately.


 


ARTICLE V


REINSURANCE PREMIUMS


 


The consideration to be
paid to Reinsurer for life reinsurance shall be the rates shown in Exhibit B
attached hereto.  The rates in Exhibit B
are guaranteed for one (1) year. 
After the initial one year period, the rates are guaranteed to be less
than the 2001 CSO Male Composite Ultimate mortality rates.  Any increase in reinsurance premiums will be
commensurate with the actual experience or reasonably expected future
performance on the underlying business.


 


ARTICLE VI


SETTLEMENT AND REPORTING


 


A.            Within
sixty (60) days after the end of each calendar month while this Agreement is in
effect, Ceding Company shall pay to Reinsurer, with respect to the Policies, a
monthly reinsurance premium in accordance with Article V.


 


B.            Within
sixty (60) days after the end of each calendar month while this Agreement is in
effect, Reinsurer shall pay to Ceding Company Net Benefits paid or incurred
during the settlement period by Ceding Company with respect to the Policies.


 


C.            Ceding
Company will provide Reinsurer with accounting reports on a time schedule
determined by Reinsurer, which schedule shall be no less frequently than
quarterly within fifteen (15) days following the end of each calendar
quarter.  These reports will contain
sufficient information about the Policies to enable the Reinsurer to prepare
its quarterly and annual financial reports.


 


D.            Within
sixty (60) days following the end of each calendar month, Ceding Company shall
provide Reinsurer a list of all policies reinsured under this agreement and in
force at the beginning of such calendar month.


 


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ARTICLE VII


TAX MATTERS


 


With respect to this
Agreement, the Ceding Company and the Reinsurer hereby make the election as set
forth in Exhibit C and as provided for in section 1.848-2(g)(8) of
the Treasury Regulations.  Each of the
parties hereto agrees to take such further actions as may be necessary to
ensure the effectiveness of such election.


 


ARTICLE VIII


RESERVE CREDIT


 


To the extent the
Reinsurer becomes unadmitted, unauthorized, or unaccredited in the state of
Florida, it shall take any steps necessary, pursuant to the requirements of
Florida for the Ceding Company to take appropriate statutory credit for
reinsurance ceded.


 


ARTICLE IX


OVERSIGHTS


 


Unintentional clerical
errors, oversights, omissions or misunderstandings in the administration of
this Agreement by either the Ceding Company or the Reinsurer shall not be
deemed a breach of this Agreement provided the clerical error, oversight,
omission or misunderstanding is corrected promptly after discovery.  Both the Ceding Company and the Reinsurer
shall be restored to the positions they would have occupied had such error,
oversight, omission, or misunderstanding not occurred.


 


ARTICLE X


INSPECTION OF RECORDS


 


Either party, their
respective employees or authorized representatives, may audit, inspect and
examine, during regular business hours, at the home office of either party, any
and all books, records, statements, correspondence, reports, trust accounts and
their related documents or other documents that relate to the Policies covered
under this Agreement.  The audited party
agrees to provide a reasonable workspace for such audit, inspection or
examination and to cooperate fully and to faithfully disclose the existence of
and produce any and all necessary and reasonable materials requested by such
auditors, investigators, or examiners. The party performing a routine audit
shall provide no less than five (5) working days advance notice to the
other party. The expense of the respective party’s employee(s) or
authorized representative(s) engaged in such activities will be borne
solely by such party.


 


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ARTICLE XI


INSOLVENCY


 


A.                                   The portion of any risk or obligation
reinsured by the Reinsurer under this Agreement, when such portion is ascertained,
shall be payable on demand of the Ceding Company at the same time as the Ceding
Company shall pay its net retained portion of such risk or obligation, and the
reinsurance shall be payable by the Reinsurer on the basis of the liability of
the Ceding Company under the Policies without diminution because of the
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 the Ceding Company, such
portion shall be payable to such conservator, liquidator or statutory successor
immediately upon demand, on the basis of claims allowed against the Ceding
Company by any court of competent jurisdiction or, by any conservator,
liquidator or statutory successor of the 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 claims.  Payments by the
Reinsurer as above set forth shall be made directly to the Ceding Company or
its conservator, liquidator or statutory successor.


 


B.                                     Further,
in the event of the insolvency of the Ceding Company, the liquidator, receiver
or statutory successor of the insolvent Ceding Company shall give written
notice to the Reinsurer of the pendency of any obligation of the insolvent
Ceding Company on any Net Ceded Liability, whereupon the Reinsurer may
investigate such claim and interpose at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses which it may
deem available to the Ceding Company or its liquidator or statutory
successor.  The expense thus incurred by
the Reinsurer shall be chargeable, subject to court approval, against the
insolvent Ceding Company as part of the expenses of liquidation to the extent
of a proportionate share of the benefit which may accrue to the Ceding Company
solely as a result of the defense undertaken by the Reinsurer.


 


C.                                     In
the event of the Reinsurer’s insolvency, any payments due the Reinsurer from
the Ceding Company pursuant to the terms of this Agreement will be made
directly to the Reinsurer or its conservator, liquidator, receiver or statutory
successor.


 


ARTICLE XII


ARBITRATION


 


A.                                   Prior
to initiation of arbitration, the Reinsurer and Ceding Company agree that they
will first negotiate diligently and in good faith to agree on a mutually
satisfactory resolution of any dispute. 
Provided, however that if any such dispute cannot be resolved within
sixty (60) days (or such longer period as the parties may agree) after written
notice invoking the negotiation period of this Article is delivered by
either party, the Reinsurer and the 


 


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Ceding Company agree that they will
submit this dispute to arbitration as described below.


 


B.                                     The
Reinsurer and the Ceding Company intend that any and all disputes between them
under or with respect to this Agreement be resolved without resort to any
litigation.  Any and all disputes or differences
between the Ceding Company and the Reinsurer arising out of this Agreement,
including, but not limited to, disputes or differences relating to the
interpretation or performance of this Agreement, its formation or validity, or
any transaction under this Agreement, whether arising before or after
termination, shall be submitted to arbitration. 
Arbitration shall be the sole method of dispute resolution, regardless
of the insolvency of either party, unless the conservator, receiver, liquidator
or statutory successor is specifically exempted from arbitration proceeding by
applicable state law of the insolvency.


 


C.                                     Arbitration
shall be initiated by the delivery of written notice of demand for arbitration
(“Arbitration Notice”) by one party to another.  Such written notice shall contain a brief
statement of the issue(s), remedies sought, and the failure of the parties to
reach amicable agreement as provided in Paragraph A above.


 


D.                                    The
arbitrators and umpire shall be present or former disinterested officers of
life reinsurance or insurance companies other than the two parties to this
Agreement or any company owned by, or affiliated with, either party.  Each party shall appoint an individual as
arbitrator and the two so appointed shall then appoint the umpire.  If either party refuses or neglects to
appoint an arbitrator within thirty (30) days after delivery of the Arbitration
Notice, the other party may appoint the second arbitrator.  If the two arbitrators do not agree on an
umpire within thirty (30) days of the appointment of the second appointed
arbitrator, each of the two arbitrators shall nominate three individuals.  Each arbitrator shall then decline two of the
nominations presented by the other arbitrator. 
The umpire shall be chosen from the remaining two nominations by drawing
lots.


 


E.                                      The
arbitration hearings shall be held in the city in which the Reinsurer’s head
office is located or any such other place as may be mutually agreed.  Each party shall submit its case to the
arbitrators and umpire within one hundred and eighty (180) days of the
selection of the umpire or within such longer period as may be agreed.


 


F.                                      The
arbitration panel shall make its decision with regard to the custom and usage
of the insurance and reinsurance business. 
The arbitration panel shall interpret this Agreement as an honorable
engagement; they are relieved of all judicial formalities and may abstain from
following strict rules of law.  The
arbitration panel shall be solely responsible for determining what evidence shall
be considered and what procedure they deem appropriate and necessary in the
gathering of such facts or data to decide the dispute.


 


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G.                                     The
decision in writing of the majority of the arbitration panel shall be final and
binding upon the parties.  Judgment may
be entered upon the final decision of the arbitration panel in any court having
jurisdiction.


 


H.                                    The
jointly incurred costs of the arbitration are to be borne equally by both
parties.  Jointly incurred costs are
specifically defined as any costs that are not solely incurred by one of the
parties (e.g., attorneys’ fees, expert witness fees, travel to the hearing
site, etc.).  Costs incurred solely by
one of the parties shall be borne by that party.  Once the panel has been selected, the panel
shall agree on one billable rate for each of the arbitrators and umpire and
that sole cost shall be disclosed to the parties and become payable as a
jointly incurred cost as described above.


 


ARTICLE XIII


PARTIES TO AGREEMENT


 


This Agreement is solely
between the Ceding Company and the Reinsurer.   
Except as otherwise provided herein, the terms and provisions of this
Agreement are intended solely for the benefit of the parties hereto, and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other person, and no
such rights shall be conferred upon any person or entity not a party to this
Agreement.  Ceding Company shall be and remain
directly and solely liable to any insured, contract owner, or beneficiary under
any contract reinsured hereunder.


 


ARTICLE XIV


DURATION OF AGREEMENT AND
TERMINATION


 


A.                                   Duration.  This agreement will be effective as of the
Effective Date, and shall terminate immediately upon Ceding Company and
Reinsurer ceasing to be Affiliates.


 


B.                                     Termination
for New Business.  This agreement may
be terminated for new business by either party with sixty (60) days prior
written notice.


 


C.                                     Recapture:  Ceding Company may recapture a proportionate
share of up to 100% of the Net Ceded Liabilities by providing Reinsurer with
sixty (60) days prior written notice. 
Any such recapture shall apply to all Policies reinsured under this Agreement.


 


Reinsurer
shall be liable for Net Benefits associated with recaptured amounts, as well as
for other claims as specified in Article IV, for Extra-Contractual
Obligations, each as incurred prior to the effective date of the recapture.


 


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ARTICLE XV


GENERAL PROVISIONS


 


A.                                   Entire
Agreement.  This Agreement supercedes
any and all prior discussions and understandings between the parties and
constitutes the entire Agreement between the Reinsurer and the Ceding Company
with respect to the Policies.  There are
no understandings between the parties other than as expressed in this
Agreement.


 


B.                                     Notices.  Any notice or communication given pursuant to
this Agreement must be in writing and (1) delivered personally, (2) sent
by facsimile transmission, (3) delivered by overnight express, or (4) sent
by registered or certified mail, postage prepaid, to such address or addresses
each party may designate from time to time for receipt of notices or
communications.  The initial notice
addresses are as follows:


 


	
  If to the
  Reinsurer:

  	
  Allstate Life
  Insurance Company

  
	
   

  	
  3100 Sanders Rd.

  
	
   

  	
  Northbrook,
  Illinois 60062

  
	
   

  	
  Attn: John
  Pintozzi, Chief Financial Officer

  
	
   

  	
  Facsimile No.:
   (847) 326-7315

  
	
   

  	
   

  
	
  If to the Ceding
  Company:

  	
  American
  Heritage Life Insurance Company

  
	
   

  	
  1776 American
  Heritage Life Drive

  
	
   

  	
  Jacksonville,
  Florida 32224-6688

  
	
   

  	
  Attention: Laura
  Clark, Senior Vice President

  
	
   

  	
  Facsimile No.: 
  (904) 992-3125

  



 


All
notices and other communications required or permitted under the terms of this
Agreement that are addressed as provided in this Article XV shall: (1) if
delivered personally or by overnight express, be deemed given upon delivery; (2) if
delivered by facsimile transmission, be deemed given when electronically
confirmed; and (3) if sent by registered or certified mail, be deemed
given when received.  Any party from time
to time may change its address for notice purposes by giving a similar notice
specifying a new address, but no such notice shall be deemed to have been given
until it is actually received by the party sought to be charged with the
contents thereof.


 


C.                                     Expenses.  Except as may be otherwise expressly provided
in this Agreement, whether or not the transactions contemplated hereby are
consummated, each of the parties hereto shall pay its own costs and expenses
incident to preparing for, entering into and carrying out this Agreement and
the consummation of the transactions contemplated hereby.


 


D.                                    Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.


 


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E.                                      Amendment.  Any modification or modification to this
Agreement shall be null and void unless made by a written instrument executed
by both parties hereto.


 


F.                                      Assignment;
Bind Effect.  Neither this Agreement
nor any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by either of the parties hereto without the
prior written consent of the other party, which consent shall not be
unreasonably withheld, and any such assignment that is attempted without such
consent shall be null and void.  Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by the parties and their respective successors
and permitted assigns.


 


G.                                     Invalid
Provisions.  If any provision of this
Agreement is held to be illegal, invalid, or unenforceable under any present or
future law, and if the rights or obligations of the parties hereto under this
Agreement will not be materially and adversely affected thereby, (1) such
provision shall be fully severable; (2) this Agreement shall be construed
and enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part hereof; and (3) the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance herefrom.


 


H.                                    Waiver.  Any term or condition of this Agreement may
be waived in writing at any time by the party that is entitled to the benefit
thereof.  A waiver on one occasion shall
not be deemed to be a waiver of the same or any other breach or nonfulfillment
on a future occasion.  All remedies,
either under the terms of this Agreement, or by law or otherwise afforded,
shall be cumulative and not alternative, except as otherwise provided by law.


 


I.                                         Headings,
etc.  The headings used in this
Agreement have been inserted for convenience and do not constitute matter to be
construed or interpreted in connection with this Agreement.  Unless the context of this Agreement
otherwise requires, (1) words using the singular or plural number also
include the plural or singular number, respectively; (2) the terms “hereof,”
“herein,” “hereby,” “hereto,” “hereunder,” and
derivative or similar words refer to this entire Agreement (including the
exhibits hereto); (3) the term “Article” refers to the specified Article of
this Agreement; (d) the term “Exhibit” refers to the specified Exhibit attached
to this Agreement; and (e) the term “party” means, on the one hand,
the Ceding Company, and on the other hand, the Reinsurer.


 


J.                                        Offset.  Any debits or credits incurred after the
Effective Date in favor of or against either the Ceding Company or the
Reinsurer with respect to this Agreement are deemed mutual debits or credits,
as the case may be, and shall be set off against each other dollar for dollar.


 


K.                                    Compliance
with Laws.  The parties hereto shall
at all times comply with all applicable laws in performing their obligations
under this Agreement.


 


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L.                                      Survival. All
provisions of this Agreement shall survive its termination to the extent
necessary to carry out the purposes of this Agreement or to ascertain and
enforce the parties’ rights or obligations hereunder existing at the time of
termination.


 


M.                                 Calendar
Days.  Unless otherwise
specified, all references to “day” in this Agreement shall mean calendar days.


 


IN WITNESS HEREOF, the
parties to this Agreement have caused it to be duly executed in duplicate by
their respective officers on the dates shown below.


 


 


ALLSTATE LIFE INSURANCE
COMPANY


 


 


	
  By

  	
     /s/
  Samuel H. Pilch

  	
   

  
	
   

  	
  Samuel H. Pilch

  	
   

  
	
  Title

  	
  Group Vice
  President and Controller

  	
   

  
	
   

  	
   

  	
   

  
	
  Date

  	
     October 22,
  2008

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   AMERICAN HERITAGE LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
  By

  	
     /s/
  Samuel H. Pilch

  	
   

  
	
   

  	
  Samuel H. Pilch

  	
   

  
	
  Title

  	
  Group Vice
  President

  	
   

  
	
   

  	
   

  	
   

  
	
  Date

  	
     October 22,
  2008

  	
   

  
				



 


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EXHIBIT A


ELIGIBLE AND
INELIGIBLE POLICIES


 


Policies reinsured under
this Agreement shall include all individual life insurance policies and all
group life insurance policies with the exception of group life insurance
administered on the Genelco administration system.  Additional insured riders, child term riders,
supplemental accidental death benefits, and supplemental accelerated benefits
attached to a reinsured policy as described above shall be reinsured under this
Agreement.


 


No credit life insurance
policies shall be reinsured under this Agreement.


 


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EXHIBIT B


REINSURANCE
PREMIUM CALCULATION


 


Reinsurance premiums
shall be calculated by multiplying the Policy’s Net Amount at Risk, the
reinsurance Premium Factors, and the Underlying Table, using the insured’s
attained age last birthday at the time of the calculation.


 


The Underlying Table is a
blend of gender-specific, tobacco use-specific 2001 CSO Ultimate mortality
using the following distribution as of the Effective Date:


 


Male Smoker:  13%


Male Non-Smoker:  39%


Female Smoker:  10%


Female Non-Smoker:  38%


 


Upon written notice,
Reinsurer may request an update to the existing Underlying Table distribution
for the purpose of calibrating to changes in the gender and tobacco use
distribution of the Policies. 
Prospective reinsurance premiums shall reflect the updated Underlying
Table distribution.


 


Premium Factors


 


	
  Duration

  	
   

  	
  Premium
  Factor

  
	
  1

  	
   

  	
  0.71

  
	
  2

  	
   

  	
  0.77

  
	
  3+

  	
   

  	
  0.92

  



 


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EXHIBIT C


TAX ELECTION


 


The Ceding Company and
the Reinsurer hereby make an election pursuant to Treasury Regulations Section 1.848-2(g)(8).  This election shall be effective for the tax
year during which the Effective Date falls and all subsequent taxable years for
which this Agreement remains in effect. 
Unless otherwise indicated, the terms used in this Exhibit are
defined by reference to Treasury Regulations Section 1.848-2 as in effect
on the date hereof.  As used below, the
term “party” or “parties” shall refer to the Ceding Company or
the Reinsurer, or both, as appropriate.


 


1.                                       The
party with the Net Positive Consideration (as defined in Section 848 of
the Code and related Treasury Regulations) with respect to the transactions
contemplated under this Agreement for any taxable year covered by this election
will capitalize specified policy acquisition expenses with respect to such
transactions without regard to the general deductions limitation of Section 848(c)(1) of
the Code.


 


2.                                       The
parties agree to exchange information pertaining to the amount of Net
Consideration (as defined in Section 848 of the Code and related Treasury
Regulations) under this Agreement each year to ensure consistency or as is
otherwise required by the Internal Revenue Service.  The exchange of information each year will
follow the procedures set forth below:


 


(a)                                  By
April 1 of each year, the Ceding Company will submit a schedule to the
Reinsurer 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 authorized representative
of the Ceding Company stating the amount of the Net Consideration the Ceding
Company will report in its tax return for the preceding calendar year.


 


(b)                                 Within
thirty (30) days of the Reinsurer’s receipt of the Ceding Company’s
calculation, the Reinsurer may contest such calculation by providing an
alternative calculation to the Ceding Company in writing.  If the Reinsurer does not notify the Ceding
Company that it contests such calculation within said 30-day period, the
calculation will be presumed correct and the Reinsurer shall also report the
Net Consideration as determined by the Ceding Company in the Reinsurer’s tax
return for the preceding calendar year.


 


(c)                                  If
the Reinsurer provides an alternative calculation of the Net Consideration pursuant
to clause (b), the parties will act in good faith to reach an agreement as to
the correct amount of Net Consideration within thirty (30) days of the date the
Ceding Company receives the alternative calculation from the Reinsurer.  When the Ceding Company and the Reinsurer
reach agreement on an amount of Net Consideration, each party shall report the
applicable amount in their respective tax returns for the preceding calendar
year.


 


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