BE CALCULATED
IN GOOD FAITH ON A SERIATIM BASIS BY THE CEDING COMPANY IN ACCORDANCE WITH SAP,
USING THE HIGHEST VALUATION INTEREST RATES PERMITTED UNDER SAP GUIDELINES FOR
THE LIABILITIES CEDED.
IN NO EVENT SHALL GROSS RESERVES INCLUDE (A) ADDITIONAL
ACTUARIAL RESERVES (AS USED IN CONNECTION WITH SAP), IF ANY, ESTABLISHED BY THE
CEDING COMPANY AS A RESULT OF ITS ANNUAL CASH FLOW TESTING, (B) ANY ASSET
VALUATION RESERVES (AS USED IN CONNECTION WITH SAP) ESTABLISHED BY THE CEDING
COMPANY, OR (C) ANY OTHER RESERVE NOT DIRECTLY ATTRIBUTABLE TO SPECIFIC
REINSURED POLICIES.
SECTION 9.02
FORM OF SECURITY.
THE REINSURER SHALL ENSURE THAT THE
CEDING COMPANY WILL RECEIVE CREDIT FOR THE REINSURANCE EFFECTED HEREUNDER ON ITS
STATUTORY FINANCIAL STATEMENTS FILED IN THE STATE OF IOWA AND ALL OTHER STATES
IN WHICH IT MUST FILE STATUTORY FINANCIAL STATEMENTS.
IN ORDER TO PROVIDE THE
CEDING COMPANY WITH SUCH CREDIT FOR REINSURANCE FOR THE CEDED RESERVES, THE
REINSURER SHALL:
(A)
REQUEST THE CEDING COMPANY TO ESTABLISH A
SEGREGATED ACCOUNT (THE "FUNDS WITHHELD ACCOUNT"), PURSUANT TO A TRUST AGREEMENT
ATTACHED AS EXHIBIT D, WITH A QUALIFIED UNITED STATES FINANCIAL INSTITUTION
MEETING THE REQUIREMENTS SET FORTH IN SECTION 9.03;
(B)
ESTABLISH A UNITED STATES TRUST ACCOUNT (A
"REINSURANCE TRUST") (NAMING THE REINSURER AS THE GRANTOR AND THE CEDING COMPANY
AS THE BENEFICIARY) WITH A QUALIFIED UNITED STATES FINANCIAL INSTITUTION MEETING
THE REQUIREMENTS SET FORTH IN SECTION 9.04;
(C)
CAUSE TO REMAIN IN FULL FORCE AND EFFECT
ONE OR MORE LETTERS OF CREDIT (EACH, A "LETTER OF CREDIT") MEETING THE
REQUIREMENTS SET FORTH IN SECTION 9.05;
(D)
UTILIZE ANY OTHER METHOD PERMITTED BY THE
IOWA INSURANCE DIVISION (INCLUDING BECOMING LICENSED AS A LIFE INSURANCE COMPANY
IN THE STATE OF IOWA); OR
(E)
PROVIDE A COMBINATION OF ITEMS (A), (B),
(C) AND (D) ABOVE.
THE REINSURER SHALL DETERMINE THE METHOD BY WHICH THE REINSURER PROVIDES CREDIT
FOR REINSURANCE HEREUNDER FOR THE CEDED RESERVES, AS LONG AS SUCH METHOD IS SET
FORTH IN THIS SECTION 9.02; PROVIDED, THAT ANY ELECTION BY THE REINSURER TO
SECURE ITS OBLIGATIONS HEREUNDER FOR THE CEDED RESERVES THROUGH THE USE OF ANY
METHOD OTHER THAN THAT SET FORTH IN SECTION 9.02(A) SHALL BE SUBJECT TO THE
CONSENT OF THE CEDING COMPANY (SUCH CONSENT NOT TO BE UNREASONABLY WITHHELD);
PROVIDED, FURTHER, NO CONSENT OF THE CEDING COMPANY SHALL BE REQUIRED IF THE
CEDING COMPANY IS IN BREACH OF ANY PROVISION OF THIS AGREEMENT AND SUCH BREACH
HAS NOT BEEN CURED WITHIN FIFTEEN (15) BUSINESS DAYS AFTER THE REINSURER HAS
PROVIDED NOTICE OF SUCH BREACH TO THE CEDING COMPANY.
IF THE RELEVANT LAWS OR
REGULATIONS OF THE STATE OF IOWA ARE AMENDED OR THERE IS A CHANGE IN LEGAL
STATUS BY EITHER THE CEDING COMPANY OR THE REINSURER SUBSEQUENT TO THE EFFECTIVE
DATE OF THIS AGREEMENT, AND IF, AS A RESULT OF SUCH CHANGE, A DIFFERENT AMOUNT
OR A DIFFERENT TYPE OF SECURITY IS NECESSARY TO MAINTAIN THE CEDING COMPANY'S
CREDIT FOR REINSURANCE, THE REINSURER
14
MAY, SUBJECT TO THE CONSENT OF THE CEDING COMPANY