A THREE PERCENT (3%) PER ANNUM
INFLATION FACTOR WILL BE ADDED TO THE ADMINISTRATION FEE COMMENCING ON THE FIRST
ANNIVERSARY OF THIS AGREEMENT.
THE POLICY EXPENSES SHALL BE PAYABLE BY THE
REINSURER TO THE CEDING COMPANY IN ACCORDANCE WITH SECTION 9.03.
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ARTICLE V
C-4 RISK CHARGE
SECTION 5.01
C-4 RISK CHARGE.
THE REINSURER WILL REIMBURSE THE CEDING
COMPANY FOR THE ECONOMIC COST OF FUNDING THE STATUTORY RISK-BASED-CAPITAL
ASSOCIATED WITH C-4 RISK (THE "C-4 RISK CHARGE") QUARTERLY IN AN AMOUNT EQUAL TO
17 BASIS POINTS PER ANNUM (0.17%) MULTIPLIED BY THE AVERAGE OF CEDED RESERVES
DURING THE RELEVANT QUARTERLY PERIOD.
THE C-4 RISK CHARGE SHALL BE PAYABLE IN
ACCORDANCE WITH SECTION 9.03.
ARTICLE VI
GUARANTY FUND ASSESSMENTS
SECTION 6.01
GUARANTY FUND ASSESSMENTS.
THE REINSURER SHALL REIMBURSE
THE CEDING COMPANY FOR THE QUOTA SHARE OF ANY GUARANTY FUND ASSESSMENTS PAID BY
THE CEDING COMPANY WITH RESPECT TO ANY REINSURED POLICY.
TO THE EXTENT THERE IS
ANY RECOVERY OF GUARANTY FUND ASSESSMENTS PAID BY THE REINSURER, THE CEDING
COMPANY SHALL PROMPTLY PAY THE QUOTA SHARE OF SUCH RECOVERY TO THE REINSURER.
ARTICLE VII
HEDGING
SECTION 7.01
ACQUISITION OF HEDGES; PAYMENTS.
(A)
IN ACCORDANCE WITH THE HEDGING PROCEDURES, THE CEDING COMPANY
SHALL PURCHASE DERIVATIVES IN CONNECTION WITH THE REINSURED POLICIES (THE
"HEDGES"), PRIMARILY IN THE FORM OF EQUITY INDEX CALL OPTIONS, TO HEDGE THE
INDEX RISK ASSOCIATED WITH THE REINSURED POLICIES.
THE CEDING COMPANY SHALL
ASSIGN TO THE REINSURER A FRACTIONAL INTEREST IN THE GROSS PROCEEDS IN RESPECT
OF THE HEDGES PURCHASED IN AN AMOUNT SUFFICIENT TO HEDGE THE INDEX RISK
ASSOCIATED WITH THE QUOTA SHARE OF THE REINSURED POLICIES (SUCH FRACTIONAL
INTEREST, THE "ASSIGNED HEDGE INTEREST PROPORTION").
SUCH ASSIGNMENT SHALL
OCCUR AUTOMATICALLY, WITHOUT FURTHER ACTION ON THE PART OF EITHER PARTY TO THIS
AGREEMENT, UPON THE PURCHASE BY THE CEDING COMPANY OF ANY HEDGE IN ACCORDANCE
WITH THE HEDGING PROCEDURES OR, IN THE CASE OF ANY HEDGES ENTERED INTO PRIOR TO
THE DATE HEREOF, AS OF THE DATE HEREOF.
(B)
THE CEDING COMPANY SHALL PAY TO THE REINSURER ANY ASSIGNED HEDGE
PROCEEDS AMOUNTS, AND THE REINSURER SHALL PAY TO THE CEDING COMPANY ANY ASSIGNED
HEDGE COSTS AMOUNTS, IN EACH CASE, IN ACCORDANCE WITH SECTION 9.03.
THE CEDING
COMPANY SHALL ACT AS THE AGENT FOR THE REINSURER IN MAKING PAYMENTS AND
COLLECTING PROCEEDS WITH RESPECT TO THE ASSIGNED HEDGE INTEREST PROPORTION OF
EACH HEDGE.
(C)
FOR THE AVOIDANCE OF DOUBT, IN THE EVENT THAT THERE ARE ASSIGNED
HEDGE PROCEEDS AMOUNTS WITH RESPECT TO A HEDGE FOR A WEEKLY HEDGING PROCEEDS
PERIOD AND THE CEDING COMPANY FAILS TO MAKE A CORRESPONDING WEEKLY ASSIGNED
HEDGE PROCEEDS SETTLEMENT AMOUNT PAYMENT, THE REINSURER SHALL HAVE THE RIGHT TO
SETOFF THE AMOUNT OF SUCH PAYMENT AGAINST ANY AMOUNTS OWED TO THE CEDING COMPANY
HEREUNDER.
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SECTION 7.02
HEDGING STANDARDS.
(A)
THE CEDING COMPANY SHALL USE REASONABLE CARE IN ITS HEDGING
ACTIVITIES WITH RESPECT TO THE REINSURED POLICIES, AND SUCH ACTIVITIES SHALL BE
(I) CONSISTENT WITH THE HEDGING PROCEDURES, (II) CONSISTENT WITH THE CEDING
COMPANY'S HEDGING STRATEGIES