Document:

EXHIBIT
10.15

 

COINSURANCE AGREEMENT

between

AMERICAN MAYFLOWER LIFE INSURANCE 

COMPANY OF NEW YORK

and

UNION FIDELITY LIFE INSURANCE COMPANY

Dated as of April 15, 2004

 

 

TABLE OF
CONTENTS

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  I

  	
   

  	
  DEFINITIONS

  	
   

  	
  1

  
	
  ARTICLE II

  	
   

  	
  COVERAGE

  	
   

  	
  4

  
	
  ARTICLE III

  	
   

  	
  ADMINISTRATION; GENERAL PROVISIONS

  	
   

  	
  5

  
	
  ARTICLE IV

  	
   

  	
  CLAIMS SETTLEMENT ACCOUNT; CLAIMS

  	
   

  	
  8

  
	
  ARTICLE
  V

  	
   

  	
  REINSURANCE ASSET TRANSFER; CEDING COMMISSION

  	
   

  	
  9

  
	
  ARTICLE VI

  	
   

  	
  EXPENSE ALLOWANCES

  	
   

  	
  10

  
	
  ARTICLE VII

  	
   

  	
  ACCOUNTING AND SETTLEMENT

  	
   

  	
  11

  
	
  ARTICLE VIII

  	
   

  	
  DURATION AND TERMINATION

  	
   

  	
  11

  
	
  ARTICLE IX

  	
   

  	
  INSOLVENCY

  	
   

  	
  12

  
	
  ARTICLE
  X

  	
   

  	
  CREDIT FOR REINSURANCE

  	
   

  	
  12

  
	
  ARTICLE XI

  	
   

  	
  REINSURANCE SECURITY

  	
   

  	
  13

  
	
  ARTICLE XII

  	
   

  	
  DEFERRED ACQUISITION COSTS

  	
   

  	
  15

  
	
  ARTICLE XIII

  	
   

  	
  DISPUTE RESOLUTION

  	
   

  	
  15

  
	
  ARTICLE XIV

  	
   

  	
  MISCELLANEOUS PROVISIONS

  	
   

  	
  17

  

 

SCHEDULES

 

	
  SCHEDULE A

  	
   

  	
  —

  	
   

  	
  POLICY FORMS

  
	
  SCHEDULE B

  	
   

  	
  —

  	
   

  	
  FORM OF
  ADMINISTRATIVE SERVICES AGREEMENT

  
	
  SCHEDULE C

  	
   

  	
  —

  	
   

  	
  CEDING
  COMMISSION

  
	
  SCHEDULE D

  	
   

  	
  —

  	
   

  	
  ASSETS

  
	
  SCHEDULE E

  	
   

  	
  —

  	
   

  	
  EXPENSE
  ALLOWANCES

  
	
  SCHEDULE F - PART I

  	
   

  	
  —

  	
   

  	
  INITIAL
  REPORT

  
	
  SCHEDULE F -
  PART II

  	
   

  	
  —

  	
   

  	
  QUARTERLY
  REPORT

  
	
  SCHEDULE F -
  PART III

  	
   

  	
  —

  	
   

  	
  ANNUAL
  REPORT

  
	
  SCHEDULE G

  	
   

  	
  —

  	
   

  	
  FORM OF
  TRUST AGREEMENT

  
	
  SCHEDULE H

  	
   

  	
  —

  	
   

  	
  ELIGIBLE
  SECURITIES

  

 

 

i

 

 

COINSURANCE AGREEMENT

 

This Coinsurance Agreement,
dated as of April 15, 2004 (this “Agreement”), is made and entered into by and
between American Mayflower Life Insurance Company of New York, an insurance
company organized under the laws of the State of New York (the “Company”), and
Union Fidelity Life Insurance Company, an insurance company organized under the
laws of the State of Illinois (the “Reinsurer”).  Defined terms used herein are defined below.

The Company and the
Reinsurer mutually agree to reinsure the risks described in this Agreement
under the terms and conditions stated herein. 
This Agreement is an indemnity coinsurance agreement solely between the
Company and the Reinsurer, and the performance of the obligations of each party
under this Agreement shall be rendered solely to the other party.  In no instance shall anyone other than the
Company or the Reinsurer have any rights under this Agreement.  The Company shall be and shall remain the
only party hereunder that is liable to any insured, contract holder, policyholder,
claimant or beneficiary under any insurance policy or contract reinsured
hereunder.

This Agreement is entered
into in connection with an intercompany reorganization among the Company, the
Reinsurer and certain of their Affiliates.

ARTICLE I

DEFINITIONS

 

1.1.          Definitions.  As used in this Agreement, the following
terms shall have the following meanings (definitions are applicable to both the
singular and the plural forms of each term defined in this Article):

 

“Accounting Period”
means calendar quarter, except that the last Accounting Period shall be the
period commencing with the first day of the calendar quarter in which the
Termination Date falls and ending with the Termination Date.

“Affiliate” means any
other Person that directly or indirectly controls, is controlled by, or is
under common control with, the first Person. 
“Control” (including the terms, “controlled by” and “under
common control with”) means the possession, directly or indirectly, 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 or
credit arrangement, as trustee or executor, or otherwise.

“Agreement” shall
have the meaning specified in the first paragraph of this Agreement.

“Annual Report” shall
have the meaning specified in Section 7.4.

 

“Applicable Law”
means any federal, state, local or foreign law (including common law), statute,
ordinance, rule, regulation, order, writ, injunction, judgment, permit,
governmental agreement or decree applicable to a Person or any of such Person’s
subsidiaries, properties, assets, or to such Person’s officers, directors,
managing directors, employees or agents in their capacity as such.

“Assets” shall have
the meaning specified in Section 5.3(a).

“Assignment Letter
Agreement” means the letter agreement dated the date hereof among General
Electric Capital Corporation, a Delaware corporation, the Reinsurer, the
Company and certain affiliates of the Company relating to the assignment by
General Electric Capital Corporation of the Capital Maintenance Agreement.

“Benefits” shall have
the meaning specified in Section 2.3(a).

“Business Day” means
any day other than a Saturday, Sunday or other day on which commercial banks in
the States of Illinois or Virginia are required or authorized by law to be
closed.

“Capital Maintenance
Agreement” means the Capital Maintenance Agreement between General Electric
Capital Corporation, a Delaware corporation, and the Reinsurer.

“Ceding Commission”
shall have the meaning specified in Section 5.2.

“Claims Settlement
Account” shall have the meaning specified in Section 4.1(a).

“Closing Date” means
April 15, 2004.

“Code” means the
Internal Revenue Code of 1986, as amended.

“Company Account”
shall have the meaning specified in Section 11.1(e).

“CPR” shall have the
meaning specified in Section 13.3.

“CPR Arbitration Rules”
shall have the meaning specified in Section 13.4(a).

“Dispute” shall have
the meaning specified in Section 13.1(a).

“Eligible Securities”
shall have the meaning specified in Section 11.1(c).

“Expense Allowance”
shall have the meaning specified in Section 6.1.

“Extra Contractual
Liabilities” means all liabilities for damages (including compensatory,
consequential, exemplary, punitive, bad faith or similar or other damages)
which relate to the marketing, sale, underwriting, issuance, delivery,
cancellation or administration of the Reinsured Contracts, including liability
arising out of or relating to any alleged or actual acts, errors or omissions
by the Company or its agents, whether intentional or otherwise, with respect to
any of the Reinsured Contracts, including (A) any alleged or actual reckless
conduct or bad faith in connection with the handling of any claim arising out
of or under Reinsured Contracts, or 

 

2

 

(B)
the marketing, sale, underwriting, issuance, delivery, cancellation or
administration of any of the Reinsured Contracts.

“Force Majeure” shall
have the meaning specified in Section 3.7(b)(iii).

“Funding Requirement”
shall have the meaning specified in Section 11.1(e).

“GAAP” means U.S.
generally accepted accounting principles consistently applied.

“Governmental Authority”
means any foreign or national government, any state or other political subdivision
thereof, and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.

“Inception Date”
shall have the meaning specified in Section 2.1.

“Initial Notice”
shall have the meaning specified in Section 13.2.

“Initial Reinsurance
Premium” shall have the meaning specified in Section 5.1.

“Initial Report”
shall have the meaning specified in Section 7.1.

“Insolvency Fund”
means any guarantee fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or governed, which provides
for any assessment of or payment or assumption by the Company of part or all of
any claim, debt, charge, fee or other obligation of an insurer or reinsurer, or
its successors or assigns, which has been declared by any competent authority
to be insolvent, or which is otherwise deemed unable to meet any claim, debt,
charge, fee or other obligation in whole or in part.

“Minimum Claims
Settlement Amount” shall have the meaning specified in Section 4.1(b).

“Person” means any
natural person, firm, limited liability company, general partnership, limited
partnership, joint venture, association, corporation, trust, Governmental
Authority or other entity.

“Quarterly Report”
shall have the meaning specified in Section 7.2.

“Quarterly Settlement”
shall have the meaning specified in Section 5.3(a).

“RBC Reporting Letter
Agreement” means the letter agreement dated the date hereof among the
Company, the Reinsurer and certain affiliates of the Company relating to the
Reinsurer’s requirement to provide periodic certifications and reports
regarding the Reinsurer’s risk based capital ratio.

“Reinsured Contracts”
means the structured settlements immediate annuity contracts issued by the Company
and recorded in the Company’s valuation system on or prior to 

 

3

 

December
3, 2003 or reinsured by the Company under reinsurance agreements in effect
prior to January 1, 2004, and, in each case, written on the policy forms
described in Schedule A.

“Reinsured Risks”
shall have the meaning specified in Section 2.1.

“Response” shall have
the meaning specified in Section 13.2.

“SAP” means statutory
accounting practices prescribed or permitted by the Insurance Department of the
State of New York.

“Tax DAC” means
specified policy acquisition expenses capitalized and amortized under section
848 of the Code.

“Termination Date”
means the effective date of any termination of this Agreement as provided in
Article VIII.

“Termination Letter
Agreement” means the letter agreement dated the date hereof among the
Company, the Reinsurer and certain affiliates of the Company relating to the
rescission of this Agreement upon the failure of certain events to occur after
the date hereof.

“Total SAP Ceded Reserves”
means, as of any given date, the gross policy reserves of the Company
calculated in accordance with SAP with respect to the Reinsured Risks.

“Total GAAP Ceded
Reserves” means, as of any given date, the gross policy reserves of the
Company calculated in accordance with GAAP with respect to the Reinsured Risks.

“Trust Account” shall
have the meaning set forth in Section 11.1(a).

“Trust Agreement”
shall have the meaning set forth in Section 11.1(a).

“Trustee” shall have
the meaning set forth in Section 11.1(a).

ARTICLE II

 

COVERAGE

 

2.1.          Coverage. 
Upon the terms and subject to the conditions and other provisions of
this Agreement, as of 12:01 a.m. Eastern Time on January 1, 2004 (the
“Inception Date”), the Company hereby cedes to the Reinsurer, and the Reinsurer
hereby agrees to indemnify the Company for, one hundred percent (100%) of the
liability incurred by the Company for Benefits on or after the Inception Date
(the “Reinsured Risks”).

2.2.          Conditions. 
(a) If the Company’s liability under any of the Reinsured Contracts is
changed because of changes made on or after the Inception Date in the terms and
conditions of the Reinsured Contracts (including to any contract riders or
endorsements thereto) that are required due to changes in Applicable Law, the
Reinsurer will share in the change 

 

4

 

proportionately to the
coinsurance share hereunder and the Company and the Reinsurer will make all
appropriate adjustments to amounts due each other under this Agreement.

(b)   Except as otherwise set forth in paragraph
(a) above, no changes, amendments or modifications made on or after the
Inception Date in the terms and conditions of the Reinsured Contracts which
adversely affect the liability of the Reinsurer hereunder shall be covered
hereunder without the prior written approval of such changes, amendments or
modifications by the Reinsurer, which approval shall not be unreasonably
withheld or delayed.  In the event that
any such changes, amendments or modifications are made in any Reinsured
Contract without the prior written approval of the Reinsurer, this Agreement
will cover liability incurred by the Company for Benefits as if the
non-approved changes, amendments or modifications had not been made.

2.3.          Benefits.  (a) 
Subject to the provisions of Sections 2.2, 2.3(b) and (c) and the terms
and conditions of this Agreement, “Benefits” shall mean the actual benefits
payable by the Company under the Reinsured Contracts.

(b)   Any Extra Contractual Liabilities resulting
from actions of the Company or its agents or reinsured by the Company under the
Reinsured Contracts shall be treated as a Benefit payable for the purposes of
this Agreement to the extent permitted by state law, except to the extent that
any such Extra Contractual Liabilities are attributable to the conduct of the
Company in the administration of the Reinsured Contracts on or after the
Inception Date, other than actions taken by the Company at the written request
or direction of the Reinsurer.

(c)   This Agreement excludes all liability arising
by contract, operation of law, or otherwise from the Company’s participation or
membership, whether voluntary or involuntary, in any Insolvency Fund.

2.4.          Territory. 
The territorial limits of this Agreement shall be identical with those
of the Reinsured Contracts.

2.5.          Ceded Reinsurance. 
Subsequent to the Inception Date, the Company will not enter into any
reinsurance arrangements with respect to the Reinsured Contracts without the
prior written consent of the Reinsurer, in its sole discretion.

ARTICLE III

 

ADMINISTRATION; GENERAL PROVISIONS

 

3.1.          Contract Administration.  (a)  Subject to Section
3.7, the Company shall provide policyholder and claims servicing with respect
to the Reinsured Contracts in accordance with the terms hereof.  All Benefits paid by the Company shall be
binding upon the Reinsurer; provided, however, that such Benefits
are within the terms, conditions and limitations of the Reinsured
Contracts.  The Company shall provide
policyholder and claims servicing with respect to the Reinsured Contracts
(including the administration of claims for Benefits thereunder) in good faith
and with the care, skill, prudence and diligence of a person experienced in
administering structured settlement business. 
The Company shall provide policyholder and 

 

5

 

claims servicing with
respect to the Reinsured Contracts, (i) in accordance with the terms of
the Reinsured Contracts, (ii) in accordance with the applicable terms of this
Agreement, (iii) in compliance with Applicable Law and, subject to the
foregoing, (iv) in the same manner as it conducts its own business not subject
to this Agreement and (v) in accordance with the Company’s administrative
performance standards in effect on the date hereof, with such revisions to such
standards as are no less favorable to the Reinsurer than such standards.  Notwithstanding the foregoing, the parties
may, from time to time, mutually develop specific and/or different standards
for providing such services with respect to the Reinsured Contracts.

(b)   The Company may subcontract for the
performance of any policyholder or claims servicing service or services with
respect to the Reinsured Contracts to (i) an Affiliate or (ii) any other Person
with the prior written consent of the Reinsurer, such consent not to be
unreasonably withheld; provided, that the Company also subcontracts for
such service or services for its own structured settlement annuities business
not subject to this Agreement to such subcontractor; and provided, further,
that no such subcontracting shall relieve the Company from any of its
obligations or liabilities hereunder, and the Company shall remain responsible
for all obligations or liabilities of such subcontractor with regards to the
providing of such service or services as if provided by the Company.

3.2.          Claims Settlements. 
The Company agrees that it will provide prompt notice to the Reinsurer
of its intention to contest, compromise or litigate a claim with respect to a
Reinsured Contract, along with copies of all pleadings and reports of
investigation with respect thereto.  The
Reinsurer shall have the right, at its own expense, to participate jointly with
the Company in the investigation, adjustment or defense of such claims.  In addition, in the event that litigation
arises against the Company in connection with a claim which seeks damages in
excess of $1 million or other remedies deemed material to the Reinsurer, the
Reinsurer may, upon written notice to the Company, assume the defense thereof
with counsel selected by the Reinsurer and reasonably satisfactory to the
Company.  If the Reinsurer assumes such
defense, the Company shall have the right, at its own expense, to participate
jointly with the Reinsurer in the defense thereof.  If the Reinsurer assumes the defense of litigation, the Reinsurer
shall not settle such litigation without the Company’s prior written consent
(which consent shall not be unreasonably withheld or delayed) unless (i) there
is no finding or admission of any violation of law or any violation of the
rights of any Person, (ii) such settlement would not reasonably be expected to
have material adverse precedential consequences to the Company and (iii) the
sole relief provided is monetary damages that are paid in full by the
Reinsurer.

3.3.          Inspection.  The Company shall keep accurate and complete
records, files and accounts of all transactions and matters with respect to the
Reinsured Contracts and the administration hereof in accordance with Applicable
Law and its record management practices in effect from time to time for the
Company’s insurance business not covered by this Agreement.  The Reinsurer and its designated
representatives may upon reasonable notice inspect, at the offices of the
Company where such records are located, the papers and any and all other books
or documents of the Company reasonably relating to this Agreement, including
the Reinsured Contracts and the administration thereof by the Company (including
compliance with the provisions of Section 3.1), and shall have access to
appropriate employees and representatives of the Company, in each case during
normal business hours for such period as this Agreement is in effect or for as
long thereafter as the Company seeks performance by the Reinsurer pursuant to 

 

6

 

the terms of this Agreement
or the Reinsurer reasonably needs access to such records for regulatory, tax or
similar purposes.  The information obtained
shall be used only for purposes relating to the transactions contemplated under
this Agreement.

3.4.          Errors and Omissions.  If any delay, omission, error or failure to pay amounts due or to
perform any other act required by this Agreement is unintentional and caused by
misunderstanding or oversight, the Company and the Reinsurer will adjust the
situation to what it would have been had the misunderstanding or oversight not
occurred.  The party first discovering
such misunderstanding or oversight, or an act resulting from such
misunderstanding or oversight, will notify the other party in writing promptly
upon discovery thereof, and the parties shall act to correct such
misunderstanding or oversight within twenty (20) Business Days of such other
party’s receipt of such notice. 
However, this Section shall not be construed as a waiver by either party
of its right to enforce strictly the terms of this Agreement.

3.5.          Age, Sex and Other Adjustments.  If the Company’s liability under any of the
Reinsured Contracts is changed because of a misstatement of age or sex or any
other material fact, the Reinsurer will share in the change proportionately to
the coinsurance share hereunder and the Company and the Reinsurer will make all
appropriate adjustments to amounts due each other under this Agreement.

3.6.          Setoff.  Any
debts or credits, matured or unmatured, in favor of or against either the
Company or the Reinsurer with respect to this Agreement are deemed mutual debts
or credits, as the case may be, and shall be setoff from any amounts due to the
Company or the Reinsurer hereunder, as the case may be, and only the net
balance shall be allowed or paid.

3.7.          Administration by Reinsurer.  (a) 
At any time from and after the fifteenth (15th) anniversary of the
Inception Date, the Reinsurer shall have the right to assume from the Company
the administration of the Reinsured Contracts, provided that the
Reinsurer provides twelve (12) months prior written notice of such assumption,
which notice may be given as early as the fourteenth (14th) anniversary of the
Inception Date to take effect as of the fifteenth (15th) anniversary of the
Inception Date.  The Reinsurer shall
bear all transition costs associated with an assumption of the administration
of the Reinsured Contracts pursuant to this paragraph (a) of this Section 3.7.

(b)   In addition to the provisions of Section
3.7(a), the Reinsurer shall have the right, upon written notice to the Company
to assume from the Company the administration of the Reinsured Contracts upon
the occurrence of any of the following events:

(i)                 A voluntary or
involuntary proceeding is commenced in any jurisdiction by or against the
Company for the purpose of conserving, rehabilitating or liquidating the
Company;

(ii)              There is a
material breach by the Company of any material term or condition of this Article III  that is not cured by the Company within
thirty (30) days after receipt of written notice from the Reinsurer of such
breach or act (provided that the Reinsurer shall not have the right to assume
such administration (A) for so long as the Company is making a good faith 

 

7

 

effort
to cure such a breach, not to exceed an additional one hundred eighty (180)
days or (B) during the pendency of any dispute resolution proceedings as set
forth in Article XIII regarding an alleged material breach); or

(iii)           The Company is
unable to perform the services required under this Article III for a period of
thirty (30) consecutive days for any reason, other than as a result of a Force
Majeure, it being understood that nothing in this Section 3.7(b)(iii) shall
relieve the Company from its administrative responsibilities under this
Agreement.  For purposes of this
Agreement “Force Majeure” means any acts or omissions of any civil or military
authority, acts of God, acts or omissions of the Reinsurer, fires, strikes or
other labor disturbances, equipment failures, fluctuations or non-availability
of electrical power, heat, light, air conditioning or telecommunications
equipment, or any other act, omission or occurrence beyond the Company’s
reasonable control, irrespective of whether similar to the foregoing enumerated
acts, omissions or occurrences.

(c)   The Company shall bear all transition costs
associated with an assumption of the administration of the Reinsured Contracts
pursuant to Section 3.7(b).

(d)   In the event of the Reinsurer’s assumption of
the administration of the Reinsured Contracts, the Reinsurer and the Company
shall enter into an administrative services agreement in the form attached
hereto as Schedule B and the provisions of Article VI shall become inoperative.

ARTICLE IV

 

CLAIMS SETTLEMENT ACCOUNT; CLAIMS

 

4.1.          Claims Settlement Account.  (a)  On the Closing Date,
the Reinsurer shall establish a separate bank account (the “Claims Settlement
Account”) in its own name for the payment of Benefits and shall authorize two
signatories who shall be representatives of the Company and approved by the
Reinsurer in writing to issue drafts in the name of the Reinsurer and showing
the identity of the Company.  The
Reinsurer shall fund such account for payment of Benefits in accordance with
the provisions of Section 4.1(b).  Any
interest earned on the Claims Settlement Account shall belong to the
Reinsurer.  The Claims Settlement
Account shall be administered by the Company in a fiduciary capacity and shall
be used solely by the Company to make payments of Benefits in accordance with
the terms of this Agreement.

(b)   The Reinsurer shall deposit $2 million in the
Claims Settlement Account on the Closing Date and shall thereafter fund the
Claims Settlement Account on or before the fifth (5th) day of each month in
amounts agreed by the Company and the Reinsurer from time to time in amounts
sufficient to provide funds to the Company for the payment of Benefits during
the next thirty (30) days, or such other amount as may be mutually agreed by
the parties (such initial deposit amount and each minimum funding amount as
agreed from time to time shall be 

 

8

 

referred
to as a “Minimum Claims Settlement Amount”). 
In addition, the Reinsurer shall deposit to the Claims Settlement
Account such additional amounts as may be required to keep the balance of such
account above zero at all times.  In
consideration of the Reinsurer providing the Claims Settlement Account
arrangement, the Company agrees that it shall apply funds in the Claims
Settlement Account against the Reinsurer’s liability under this Agreement until
such funds are exhausted.

(c)   The Company shall keep true and complete
records, in accordance with Applicable Law and its record management practices
in effect from time to time for the Company’s insurance business not covered by
this Agreement, clearly recording the deposits in and withdrawals from the
Claims Settlement Account, including records relating to the payment of
Benefits from the Claim Settlement Account. 
The Company will make available to the Reinsurer or its designated
representative, or shall furnish to the Reinsurer or its designated
representative, upon request of the Reinsurer or its designated representative,
copies of all such records.  All copies
furnished in the ordinary course of business shall be furnished by the Company
at the Company’s cost, which shall be included in the Expense Allowance.  Any extraordinary costs reasonably incurred
by the Company in response to requests from the Reinsurer shall be reimbursed
by the Reinsurer.

(d)   Within thirty (30) days after each calendar
month (or more frequently as mutually agreed by the parties), the Company shall
render a complete accounting to the Reinsurer detailing all transactions with
respect to the Claims Settlement Account, in such form as agreed by the
parties.

(e)   The parties agree to deliver to the depository
bank such depository resolutions, signature cards,
and other documents as may be requested of them in order to use such
accounts at the depository bank in accordance with the provisions of this
Article IV.

(f)    Upon a termination of this Agreement pursuant
to Article VIII, the Reinsurer shall close the Claims Settlement Account and
any closing balance therein shall be the property of the Reinsurer.  The Company’s claims payment authority under
this Agreement with respect to the Claims Settlement Account shall terminate
immediately upon termination of this Agreement pursuant to Article VIII or the
assumption by the Reinsurer of the administration of the Reinsured Contracts
pursuant to Section 3.7.  Upon
termination of its authority to pay claims, the Company shall promptly return
to the Reinsurer all unused check stock held by it in connection with this
Agreement.

ARTICLE V

 

REINSURANCE ASSET TRANSFER; CEDING COMMISSION

 

5.1.          Initial Reinsurance Premium.  As consideration for the reinsurance by the
Reinsurer of the Reinsured Risks under this Agreement, on the Closing Date the
Reinsurer shall be entitled to an amount equal to one hundred percent (100%) of
the Total SAP Ceded Reserves as of the close of business on the day immediately
preceding the Inception Date (the “Initial Reinsurance Premium”).

 

9

 

5.2.          Ceding Commission. 
On the Closing Date, the Company shall be entitled to a ceding
commission (the “Ceding Commission”) in an amount determined in accordance with
Schedule C.

5.3.          Amounts Due the Parties.  (a)  Except as otherwise
specifically provided herein, all amounts due to be paid to the Company under
this Agreement shall be determined on a net basis, giving full effect to
Section 3.6.  The net amount due
the Reinsurer from the Company on the Closing Date under Section 5.1 and
Section 5.2 shall consist of (i) the investment assets (the “Assets”) set forth
on Schedule D, which assets have a statutory book value as of the close of
business on the day immediately preceding the Inception Date equal to (A) the
Initial Reinsurance Premium, less (B) the Ceding Commission, less (C) an amount
equal to accrued but unpaid interest on the Assets as of the close of business
on the day immediately preceding the Inception Date, plus (ii) an amount equal
to the investment cash flows received on the Assets between the Inception Date
and the Closing Date.  The Company shall
pay such net amount concurrent with its delivery of the Initial Report.  Each net amount subsequently due with
respect to each Accounting Period ending after the Inception Date (the
“Quarterly Settlement”) shall be paid in cash by the Reinsurer to the Company
no later than thirty (30) days after delivery of the Quarterly Report, as
applicable.  Each net amount
subsequently due with respect to each calendar year ending after the Inception
Date as reflected on an Annual Report shall be paid in cash by the Reinsurer to
the Company no later than thirty (30) days after delivery of the Annual Report.

(b)   The Company shall deliver to the Reinsurer
possession of the Assets and such bills of sale, endorsements, assignments and
other good and sufficient instruments of conveyance and transfer in form and
substance reasonably acceptable to the parties as shall be effective to vest in
the Reinsurer all of the right, title and interest of the Company in and to the
Assets.  Delivery of the Assets shall be
a condition precedent of reinsurance coverage hereunder.

ARTICLE VI

 

EXPENSE ALLOWANCES

 

6.1.          Expense Allowance. 
As reimbursement for expenses incurred by the Company in the providing
of policyholder and Benefit payment services with respect to the Reinsured
Contracts, the Reinsurer shall pay to the Company with respect to each calendar
month ending after the Inception Date, an expense allowance (each an “Expense
Allowance”) in an amount calculated in accordance with Schedule E, as
subsequently adjusted in accordance with the methodology and procedures set
forth on Schedule E.

 

10

 

ARTICLE VII

 

ACCOUNTING AND SETTLEMENT

 

7.1.          Initial Report. 
A report shall be provided by the Company to the Reinsurer on the
Closing Date providing the data required in Schedule F - Part I
(the “Initial Report”).

7.2.          Quarterly Settlement Reports.  As soon as practicable but not more than
forty (40) days following each Accounting Period ending after the Closing Date
(or more frequently as mutually agreed by the parties), the Company shall
supply the Reinsurer with a report that shall provide the financial data for
such Accounting Period required in Schedule F - Part II (the
“Quarterly Report”).  For the avoidance
of doubt, the first Quarterly Report will include all transactions with respect
to the Reinsured Contracts occurring from the Inception Date through June 30,
2004.

7.3.          Quarterly Financial Reports.  As soon as practicable but not more than
forty (40) days following the end of each Accounting Period ending after the
Closing Date (or more frequently as mutually agreed by the parties), the Company
shall supply the Reinsurer with reports related to the Reinsured Contracts as
may be reasonably requested for use in connection with the preparation of the
Reinsurer’s SAP financial statements or other reports prepared by the Reinsurer
in compliance with its internal reporting requirements.  The parties shall cooperate in good faith to
establish the form for the providing of such reports.

7.4.          Annual Reports. 
Within forty-five (45) days after the end of each calendar year during
the term of this Agreement (or more frequently as mutually agreed by the
parties), the Company shall supply the Reinsurer with a report that shall
provide the financial data for such year required in Schedule F -
Part III (the “Annual Report”).

7.5.          Additional Reports and Updates.  For so long as this Agreement remains in
effect, each of the parties shall periodically furnish to the other such other
reports and information as may be reasonably requested by such other party for
regulatory, tax or similar purposes and reasonably available to it.

7.6.          Delayed Payments. 
In the event that all or any portion of any payment due either party
pursuant to this Agreement becomes overdue, the portion of the amount overdue
shall bear interest at an annual rate equal to the then current thirty (30) day
U.S. Treasury Bill discount rate on the date that the payment becomes overdue
plus 200 basis points, for the period that the amount is overdue.

ARTICLE VIII

 

DURATION AND TERMINATION

 

8.1.          Duration. 
Except as otherwise provided herein, this Agreement shall be unlimited
in duration.

 

11

 

8.2.          Reinsurer’s Liability.  The Reinsurer’s liability with respect to the Reinsured Risks
will terminate on the earliest of: 
(i) the date the Company’s liability with respect to the Reinsured
Risks is terminated and all amounts due the Company from the Reinsurer with
respect to such Reinsured Risks are paid to the Company by or on behalf of the
Reinsurer; and (ii)  the date this Agreement is terminated upon the written
agreement of the parties.

8.3.          Notice of Termination.  Upon the termination of the Reinsurer’s liability with respect to
the Reinsured Risks referred to in Section 8.2 above, the parties shall
mutually give the Trustee written notice of their intention to terminate the
Trust Account.

ARTICLE IX

 

INSOLVENCY

 

9.1.          Payments.  In
the event of the insolvency of the Company, all reinsurance made, ceded,
renewed or otherwise becoming effective under this Agreement shall be payable
by the Reinsurer directly to the Company or to its liquidator, receiver, or
statutory successor on the basis of the liability of the Company under the
contracts reinsured, without diminution because of the insolvency of the
Company.  It is agreed and understood,
however, that (i) in the event of the insolvency of the Company, the Reinsurer
shall be given written notice of the pendency of a claim against the insolvent
Company on a Reinsured Contract within a reasonable time after such claim is
filed in the insolvency proceeding and (ii) during the pendency of such claim
the Reinsurer may investigate such claim and interpose, at its own expense, in
the proceeding where such claim is to be adjudicated any defenses which it may
deem available to the Company or its liquidator, receiver or statutory
successor.

9.2.          Expenses.  It
is further understood that any expense thus incurred by the Reinsurer pursuant
to Section 9.1 shall be chargeable, subject to court approval, against the
insolvent Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the Company solely as a
result of the defense undertaken by the Reinsurer.  Where two or more assuming reinsurers are involved in the same
claim and a majority in interest elect to interpose defenses to such claim, the
expense shall be apportioned in accordance with the terms of this Agreement as
though such expense had been incurred by the Company.

ARTICLE X

 

CREDIT FOR REINSURANCE

 

10.1.        Reinsurance Credit. 
Notwithstanding any other provision of this Agreement to the contrary,
if the Reinsurer becomes unauthorized or otherwise unaccredited as an insurer
or reinsurer in any U.S. jurisdiction to which the Company must provide
statutory statements of financial condition such that the Company will not
obtain full statutory financial statement credit for reinsurance in such state
for the reinsurance provided under this Agreement, the Reinsurer, upon the
request of the Company, will establish, at the Reinsurer’s sole cost and 

 

12

 

option, trust accounts for
the benefit of the Company, letters of credit, or other acceptable alternatives
necessary to permit the Company to obtain such full statutory financial
statement credit for such reinsurance in all applicable jurisdictions.  The Company shall cooperate with the
Reinsurer to take such steps.  In
addition, in such event, the Reinsurer agrees to amend this Agreement and the
Trust Agreement to the extent required under Applicable Law in order to provide
the Company with such full statutory financial statement credit.

ARTICLE XI

 

REINSURANCE SECURITY

 

11.1.        Trust. 
(a)  On the Closing Date, the
Reinsurer shall enter into a trust agreement in the form attached as Schedule G
(the “Trust Agreement”) and establish a trust account (the “Trust Account”) for
the benefit of the Company with respect to the Reinsured Risks with a bank (the
“Trustee”) designated as a Qualified United States Financial Institution by the
Securities Valuation Office of the National Association of Insurance
Commissioners or any successor organization or regulatory agency having similar
duties.

(b)   The Reinsurer agrees to deposit, and maintain
in the Trust Account with respect to this Agreement, assets to be held in trust
by the Trustee for the benefit of the Company as security for the payment of
the Reinsurer’s obligations to the Company under this Agreement.

(c)   The parties agree that the assets so
deposited with respect to this Agreement shall be valued according to their
current statutory book value on the books of the Reinsurer and shall consist
only of cash (United States legal tender), certificates of deposit (issued by a
United States bank and payable in United States legal tender), and other assets
of the type specified on Schedule H attached hereto (“Eligible Securities”).

(d)   The Reinsurer, prior to depositing assets
with the Trustee, shall execute all assignments and endorsements in blank, or
transfer legal title to the Trustee of all shares, obligations or any other
assets requiring assignments, in order that, to the extent practicable, the
Company, or the Trustee upon direction of the Company, may whenever necessary
negotiate any such assets without consent or signature from the Reinsurer or
any other entity.  The Company recognizes
that certain assets in the Trust Account will not be readily negotiable and
that certain notices, opinions of counsel, representations and/or consents will
be required for the Company to obtain good and marketable title to such assets.

(e)   The Reinsurer and the Company agree that the
assets in the Trust Account with respect to this Agreement may be withdrawn for
the following purposes only:

(i)                 to pay or
reimburse the Company for any amount due the Company pursuant to this Agreement
to the extent not so paid or reimbursed by the Reinsurer;

(ii)              to pay to the
Reinsurer, in accordance with paragraph (h) below, any amounts held in the
Trust Account that exceed an amount (the “Funding 

 

13

 

Requirement”)
equal to the sum of Total SAP Ceded Reserves and any additional reserves
attributable to the Reinsured Risks that arise as a result of regulatory asset
adequacy analysis requirements of the Reinsurer, less, prior to the date on
which the Claims Settlement Account is closed, the Minimum Claims Settlement
Amount then in effect; and

(iii)           in the event
that General Electric Capital Corporation breaches its obligations under the
Capital Maintenance Agreement, to fund an account with the Company (the
“Company Account”) in an amount at least equal to the deduction, for
reinsurance ceded, from the Company’s liabilities ceded under this
Agreement.  Such amount shall include,
but not be limited to, amounts for policy reserves, reserves for claims and
losses incurred (including losses incurred but not reported), loss and loss
adjustment expenses, and unearned premiums.

(f)    In the event that the Company withdraws
assets from the Trust Account for the purposes set forth in Section 11.1(e)(i)
above in excess of actual amounts required to meet the Reinsurer’s obligations
to the Company, the Company will promptly return such excess to the Reinsurer,
plus interest at an annual rate equal to the then current thirty (30) day U.S.
Treasury Bill discount rate on the date of withdrawal plus 200 basis points for
the period during which the amounts were held pursuant to Section
11.1(e)(i).  In the event that the
Company withdraws assets from the Trust Account for the purposes set forth in
Section 11.1(e)(iii) above, (i) the Reinsurer shall be relieved of its
obligation to maintain assets in the Trust Account pursuant to this Section
11.1 to the extent of the amount of funds held in the Company Account and (ii)
the Company shall first apply the funds in the Company Account in satisfaction
of the Reinsurer’s liability under this Agreement until the funds in the
Company Account are exhausted.  In the
event that the Company withdraws assets from the Trust Account for the purposes
set forth in Section 11.1(e)(iii) above, promptly following the date the
Reinsurer’s liability with respect to the Reinsured Risks is terminated, the
Company shall return to the Reinsurer any assets so withdrawn that, together
with any and all interest, dividends and other earnings thereon from the date
of withdrawal to the date of return, are in excess of actual amounts required
to meet the Reinsurer’s obligations to the Company under this Agreement.

(g)   The initial deposit to the Trust Account with
respect to this Agreement shall be made on the Closing Date and shall consist
of assets with a statutory book value equal to the Total SAP Ceded Reserves as
of the close of business on the day immediately preceding the Inception Date,
less an amount of assets with a statutory book value equal to the initial
Minimum Claims Settlement Amount.

(h)   The aggregate statutory book value of the
assets held in the Trust Account with respect to this Agreement, shall at all
times be at least equal to the Funding Requirement, and shall be adjusted on a
quarterly basis so as to equal the Funding Requirement.  On a quarterly basis, the Company shall
promptly prepare and deliver to the Reinsurer a specific statement of the
Funding Requirement and the Reinsurer shall promptly prepare and deliver to the
Company a specific statement of the statutory book value of the assets in the
Trust Account, in each case as of the end of the quarter.  If the statement shows that the Funding
Requirement exceeds 100% of the balance of the Trust Account with respect to
this Agreement as of the statement date, the Reinsurer shall, within ten (10)
Business Days after receipt of such notice of excess, secure delivery to the
Trustee of additional cash or Eligible Securities having a current statutory
book value equal to such difference.  If
the statement shows that the Funding Requirement is less than 100% of the
balance of the Trust Account with respect to this Agreement as of the 

 

14

 

statement
date, the Company shall, within ten (10) Business Days after delivery of such
statement to the Reinsurer, deliver a notice of withdrawal to the Trustee
directing the Trustee to withdraw from the Trust Account and deliver to the
Reinsurer assets from the Trust Account having a current statutory book value
equal to such excess amount.  In
addition to the foregoing, the Reinsurer shall prepare and deliver to the
Company on a quarterly basis a specific statement of the market value of the
assets in the Trust Account as of the end of the quarter.

ARTICLE XII

 

DEFERRED ACQUISITION COSTS

 

12.1.        Tax DAC Information Sharing.  To ensure consistency in their respective Tax DAC calculations
for tax purposes, the Company and the Reinsurer will exchange information
pertaining to the amount of net consideration under this Agreement each year.  The Company will submit a schedule to the
Reinsurer by February 28 of each year presenting its calculation of the net
consideration for the preceding taxable year. 
The Reinsurer may contest the calculation by providing to the Company an
alternative calculation in writing within thirty (30) days of receipt of the
Company’s schedule.  The Company and the
Reinsurer will act in good faith to resolve any differences in the schedule of
calculations within thirty (30) days of receipt of the alternative calculation
to ensure consistent amounts are reported on the respective tax returns for the
preceding tax year.

ARTICLE XIII

 

DISPUTE RESOLUTION

 

13.1.        General
Provisions.  (a)  Any dispute,
controversy or claim arising out of or relating to this Agreement or the
validity, interpretation, breach or termination thereof (a “Dispute”), shall be
resolved in accordance with the procedures set forth in this Article XIII,
which shall be the sole and exclusive procedures for the resolution of any such
Dispute unless otherwise specified below.

(b)   Commencing with the request contemplated by
Section 13.2, all communications between the parties or their representatives
in connection with the attempted resolution of any Dispute, including any
mediator’s evaluation referred to in Section 13.3, shall be deemed to have been
delivered in furtherance of a Dispute settlement and shall be exempt from
discovery and production, and shall not be admissible in evidence for any
reason (whether as an admission or otherwise), in any arbitral or other
proceeding for the resolution of the Dispute.

 

15

 

(c)   In connection with any Dispute, the parties
expressly waive and forego any right to (i) punitive, exemplary,
statutorily-enhanced or similar damages in excess of compensatory damages, and
(ii) trial by jury.

(d)   The specific procedures set forth below,
including but not limited to the time limits referenced therein, may be
modified by agreement of the parties in writing.

(e)   All applicable statutes of limitations and
defenses based upon the passage of time shall be tolled while the procedures
specified in this Article XIII are pending. 
The parties will take such action, if any, required to effectuate such
tolling.

13.2.        Consideration by Senior Executives.  If a Dispute is not resolved in the normal
course of business at the operational level, the parties shall attempt in good
faith to resolve such Dispute by negotiation between executives who hold, at a
minimum, the office of President and CEO of the respective business entities
involved in such Dispute.  Either party
may initiate the executive negotiation process by providing a written notice to
the other (the “Initial Notice”). 
Fifteen (15) days after delivery of the Initial Notice, the receiving
party shall submit to the other a written response (the “Response”). The
Initial Notice and the Response shall include (i) a statement of the Dispute
and of each party’s position, and (ii) the name and title of the executive who
will represent that party and of any other person who will accompany the
executive. Such executives will meet in person or by telephone within thirty
(30) days of the date of the Initial Notice to seek a resolution of the
Dispute.

13.3.        Mediation.  If a Dispute is not resolved by negotiation
as provided in Section 13.2 within forty-five (45) days from the delivery of
the Initial Notice, then either party may submit the Dispute for resolution by
mediation pursuant to the CPR Institute for Dispute Resolution (the “CPR”)
Model Mediation Procedure as then in effect. 
The parties will select a mediator from the CPR Panels of Distinguished
Neutrals, but such mediator must have prior U.S. reinsurance experience
either as a lawyer or as a present or former officer or management employee of
a reinsurance company, but not of the Company, or the Reinsurer, or any of
their respective affiliates.  Either party at commencement of the
mediation may ask the mediator to provide an evaluation of the Dispute and the
parties’ relative positions.

13.4.        Arbitration.  (a)  If a Dispute is not resolved
by mediation as provided in Section 13.3 within thirty (30) days of the
selection of a mediator (unless the mediator chooses to withdraw sooner),
either party may submit the Dispute to be finally resolved by arbitration
pursuant to the CPR Rules for Non-Administered Arbitration as then in effect
(the “CPR Arbitration Rules”).  The
parties consent to a single, consolidated arbitration for all known Disputes
existing at the time of the arbitration and for which arbitration is permitted.

(b)   The neutral organization for purposes of the
CPR Arbitration Rules will be the CPR. 
The arbitral tribunal shall be composed of three arbitrators who are
each experienced in the U.S. reinsurance business, of whom each party shall
appoint one in accordance with the “screened” appointment procedure provided in
Rule 5.4 of the CPR Arbitration Rules. 
The non-party appointed arbitrator must have prior U.S. reinsurance
experience as a present or former officer or management employee of a
reinsurance company, but not of the Company, or the Reinsurer, or any of their
respective affiliates.  The arbitration
shall be conducted in New York 

 

16

 

City.  Each party shall be permitted to present its
case, witnesses and evidence, if any, in the presence of the other party.  A written transcript of the proceedings
shall be made and furnished to the parties. 
The arbitrators shall determine the Dispute in accordance with the law
of New York, without giving effect to any conflict of law rules or other rules
that might render such law inapplicable or unavailable, and shall apply this
Agreement according to its terms, provided that the provisions relating to
arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et
seq.  The arbitral tribunal shall
endeavor to render its award or order resulting from any arbitration within
forty-five (45) days following the termination of the arbitration proceedings.

(c)   The parties agree to be bound by any award or
order resulting from any arbitration conducted hereunder and further agree that
judgment on any award or order resulting from an arbitration conducted under
this Section may be entered and enforced in any court having jurisdiction thereof.

(d)   Except as expressly permitted by this
Agreement, no party will commence or voluntarily participate in any court
action or proceeding concerning a Dispute, except (i) for enforcement as
contemplated by Section 13.4(c) above, (ii) to restrict or vacate an arbitral
decision based on the grounds specified under applicable law, or (iii) for
interim relief as provided in paragraph (e) below.  For purposes of the foregoing the parties hereto submit to the
non-exclusive jurisdiction of the courts of the State of New York.

(e)   In addition to the authority otherwise
conferred on the arbitral tribunal, the tribunal shall have the authority to
make such orders for interim relief, including injunctive relief, as it may
deem just and equitable. 
Notwithstanding paragraph (d) above, each party acknowledges that in the
event of any actual or threatened breach of certain of the provisions of this
Agreement, the remedy at law would not be adequate, and therefore injunctive or
other interim relief may be sought immediately to restrain such breach.  If the tribunal shall not have been
appointed, either party may seek interim relief from a court having
jurisdiction if the award to which the applicant may be entitled may be
rendered ineffectual without such interim relief.  Upon appointment of the tribunal following any grant of interim
relief by a court, the tribunal may affirm or disaffirm such relief, and the
parties will seek modification or rescission of the court action as necessary
to accord with the tribunal’s decision.

(f)    Each party will bear its own attorneys’ fees
and costs incurred in connection with the resolution of any Dispute in
accordance with this Article XIII.

ARTICLE XIV

 

MISCELLANEOUS PROVISIONS

 

14.1.        Headings and Schedules.  Headings used herein are not a part of this Agreement and shall
not affect the terms hereof.  The
attached Schedules are a part of this Agreement.

14.2.        Notices.  All
notices, requests, demands and other communications under this Agreement must
be in writing and will be deemed to have been duly given or made as
follows:  (a) if sent by registered or
certified mail in the United States return receipt requested, 

 

17

 

upon
receipt; (b) if sent by reputable overnight air courier, two business days
after mailing; (c) if sent by facsimile transmission, with a copy mailed on the
same day in the manner provided in (a) or (b) above, when transmitted and
receipt is confirmed by telephone; or (d) if otherwise actually personally
delivered, when delivered, and shall be delivered as follows:

If to the Company:

American Mayflower Life Insurance Company of New York

700 Main Street

Lynchburg, VA 24504

Facsimile:  (434) 948-5064

Attention:  Chief Executive Officer

With a copy to:

American Mayflower Life Insurance Company of New York

700 Main Street

Lynchburg, VA 24504

Facsimile:  (434) 948-5819

Attention:  General Counsel

If to the Reinsurer:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL  60173-2096

Facsimile: (847 330-3404

Attention: Chief Financial Officer

With a copy to:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL  60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

or
to such other address or to such other Person as either party may have last
designated by notice to the other party.

14.3.        Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, permitted assigns and legal
representatives.  Neither this
Agreement, nor any right or obligation hereunder, may be assigned by any party
without the prior written consent of the other party hereto.  Any
assignment in violation of this Section 14.3 shall be void and shall have no
force and effect.  Nothing in this
Section 14.3 shall be construed to prohibit the Reinsurer from retroceding all
or any portion of the business reinsured hereunder.

 

18

 

14.4.        Execution in Counterpart.  This Agreement may be executed by the parties hereto in any
number of counterparts, and by each of the parties hereto in separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, but all such counterparts shall together
constitute but one and the same instrument.

14.5.        Currency. 
Whenever the word “Dollars” or the “$” sign appear in this Agreement,
they shall be construed to mean United States Dollars, and all transactions
under this Agreement shall be in United States Dollars.

14.6.        Amendments. 
This Agreement may not be changed, altered or modified unless the same
shall be in writing executed by the Company and the Reinsurer.

14.7.        Governing Law. 
This Agreement will be
construed, performed and enforced in accordance with the laws of the State of
New York without giving effect to its principles or rules of conflict of laws
thereof to the extent such principles or rules would require or permit the
application of the laws of another jurisdiction.

14.8.        Entire Agreement; Severability.  (a) 
This Agreement and the Termination Letter Agreement constitute the
entire agreement between the parties hereto relating to the subject matter
hereof and supersede all prior and contemporaneous agreements, understandings,
statements, representations and warranties, negotiations and discussions,
whether oral or written, of the parties and there are no general or specific
warranties, representations or other agreements by or among the parties in
connection with the entering into of this Agreement or the subject matter
hereof except as specifically set forth or contemplated herein or in the
Termination Letter Agreement.

(b)   If any provision of this Agreement is held to
be void or unenforceable, in whole or in part, (i) such holding shall not
affect the validity and enforceability of the remainder of this Agreement,
including any other provision, paragraph or subparagraph, and (ii) the
parties agree to attempt in good faith to reform such void or unenforceable
provision to the extent necessary to render such provision enforceable and to
carry out its original intent.

14.9.        Contemporaneous Agreements.  Concurrent with the execution of this Agreement, the parties
and/or their Affiliates are also entering into the Capital Maintenance
Agreement, the RBC Reporting Letter Agreement and the Assignment Letter
Agreement.

14.10.      No Waiver; Preservation of
Remedies.  No consent
or waiver, express or implied, by any party to or of any breach or default by
any other party in the performance by such other party of its obligations
hereunder shall be deemed or construed to be a consent or waiver to or of any
other breach or default in the performance of obligations hereunder by such
other party hereunder.  Failure on the
part of any party to complain of any act or failure to act of any other party
or to declare any other party in default, irrespective of how long such failure
continues, shall not constitute a waiver by such first party of any of its
rights hereunder.  The rights and remedies provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
equity.

14.11.      Cooperation.  Each party hereto shall cooperate fully with
the other in all reasonable respects in order to accomplish the objectives of
this Agreement including making 

 

19

 

available to each their
respective officers and employees for interviews and meetings with Governmental
Authorities and furnishing any additional assistance, information and documents
as may be reasonably requested by a party from time to time.

14.12.      Third Party Beneficiary.  Nothing in this Agreement will confer any
rights upon any Person that is not a party or a successor or permitted assignee
of a party to this Agreement.

14.13.      Tax Exception to Any Confidentiality.  Notwithstanding anything to the contrary set
forth herein or in any other agreement to which the parties hereto are parties
or by which they are bound, any obligations of confidentiality contained herein
and therein, as they relate to the transactions, shall not apply to the federal
tax structure or federal tax treatment of the transactions, and each party
hereto (and any employee, representative, or agent of any party hereto) may
disclose to any and all persons, without limitation of any kind, the federal
tax structure and federal tax treatment of the transactions.  The preceding sentence is intended to cause
the transactions to be treated as not having been offered under conditions of
confidentiality for purposes of Section 1.6011-4(b)(3) (or any successor
provision) of the Treasury Regulations promulgated under Section 6011 of the
Internal Revenue Code of 1986, as amended, and shall be construed in a manner
consistent with such purpose.  In
addition, each party hereto acknowledges that it has no proprietary or
exclusive rights to the federal tax structure of the transactions or any
federal tax matter or federal tax idea related to the transactions.

14.14.      Interpretation.  Wherever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by
the words “without limitation.”

14.15.      Survival.  Article XIII and Article XIV shall survive the termination of
this Agreement.

 

20

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives.

	
  AMERICAN
  MAYFLOWER LIFE INSURANCE COMPANY OF NEW YORK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/
  Victor C. Moses

  
	
   

  	
  Name:
  Victor C. Moses

  
	
   

  	
  Title:
  Senior Vice President and Chief Actuary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  UNION
  FIDELITY LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/
  Glenn Joppa

  
	
   

  	
  Name:
  Glenn Joppa

  
	
   

  	
  Title:
  Senior Vice President and Secretary

  

 

 

 

21

 

SCHEDULE A

POLICY FORMS

8001

8101

8201

8401

1700

AM-ANN-PPR

AM-ANN-PPR-Q

AML RA&Q

 

SCHEDULE B

FORM OF ADMINISTRATIVE
SERVICES AGREEMENT

 

 

SSA UFLIC/AML

 

 

 

 

 

 

 

 

 

 

ADMINISTRATIVE SERVICES AGREEMENT

by and between

AMERICAN MAYFLOWER LIFE INSURANCE COMPANY OF
NEW YORK

and

UNION FIDELITY LIFE INSURANCE COMPANY

 

Effective as of
[          ]

 

 

 

 

 

 

 

 

ADMINISTRATIVE SERVICES AGREEMENT

 

This ADMINISTRATIVE SERVICES
AGREEMENT (this “Agreement”), effective as of
[                     ]
(the “Effective Date”), is entered into by and between AMERICAN MAYFLOWER LIFE
INSURANCE COMPANY OF NEW YORK, an insurance company organized under the laws of
the State of New York (the “Company”), and UNION FIDELITY LIFE INSURANCE
COMPANY, an insurance company organized under the laws of the State of Illinois
(the “Administrator”).

RECITALS:

WHEREAS, the Company and the
Administrator have entered into a Coinsurance Agreement dated as of April 15,
2004 (the “Coinsurance Agreement”) which provides for the parties to enter into
this Agreement;

WHEREAS, pursuant to the
Coinsurance Agreement, the Administrator has agreed to indemnify the Company
for, among other things, 100% of the liability of the Company for Benefits
payable on or after the Inception Date with respect to the Reinsured Contracts
(capitalized terms used herein and not defined herein, unless otherwise
indicated, have the respective meanings assigned to them in the Coinsurance
Agreement); and

WHEREAS, the Company wishes
to appoint the Administrator to provide policyholder and claim servicing with
respect to the Reinsured Contracts as set forth herein, and the Administrator
desires to provide such administrative services;

NOW, THEREFORE, in
consideration of the covenants and agreements set forth herein, the parties
hereto agree as follows:

ARTICLE I

 

AUTHORITY

 

As between the Company and
the Administrator, the Company hereby appoints the Administrator, and the
Administrator hereby accepts appointment, to provide as an independent
contractor of the Company, from and after the Effective Date, all of the
policyholder and claim servicing services necessary or appropriate with respect
to the Reinsured Contracts including those set forth in this Agreement (the
“Administrative Services”), all on the terms as set forth in this Agreement.  Notwithstanding any other provision of this
Agreement to the contrary, the Company shall have the final right to direct the
Administrator in the performance of the Administrative Services in accordance
with the standards for services set forth in Section 2.1, including the right
to direct the Administrator to perform any action necessary for the Reinsured
Contracts or the policyholder and claim servicing thereof to comply with
Applicable Law, or to cease performing any action that constitutes a violation
of Applicable Law.  All services
hereunder shall be performed by the Administrator in the name of and on behalf
of the Company.  The Administrator shall
maintain a toll-free number for use by policyholders, certificateholders and

 

 

 

beneficiaries.  Any and all correspondence with
policyholders, certificateholders and beneficiaries and check stock utilized by
the Administrator for payments under the Reinsured Contracts shall be in the
name of the Company or in the name of the Administrator and disclosing that the
Administrator is acting as the administrative agent of the Company.

ARTICLE II

 

STANDARD FOR SERVICES; FACILITIES; SUBCONTRACTING;

POLICYHOLDER SERVICING

2.1.          Standard for Services.  The Administrator shall provide policyholder and claims servicing
with respect to the Reinsured Contracts in good faith and with the care, skill,
prudence and diligence of a person experienced in administering structured
settlement business.  Without limiting
the generality of the foregoing, the Administrator shall provide policyholder
and claims servicing with respect to the Reinsured Contracts (i) in accordance
with the terms of the Reinsured Contracts, (ii) in accordance with the
applicable terms of this Agreement, (iii) 
in compliance with Applicable Law, (iv) in accordance with industry
standards, (v)  in accordance with
standards of service as agreed to by the Administrator and the Company and,
subject to the foregoing, (vi) to the extent applicable, in the same manner as
it conducts its own business not subject to this Agreement.

2.2.          Facilities and Personnel.  To the extent not sub-contracted to a Subcontractor, the
Administrator shall at all times maintain sufficient facilities and trained
personnel of the kind necessary to perform its obligations under this Agreement
in accordance with the performance standards set forth herein.

2.3.          Subcontracting. 
The Administrator may subcontract for the performance of any
policyholder or claims servicing service or services with respect to the
Reinsured Contracts to (i) an Affiliate or (ii) any other Person with the prior
written consent of the Company, such consent not to be unreasonably withheld
(in each case, the “Subcontractor”); provided, that, no such
subcontracting shall relieve the Administrator from any of its obligations or
liabilities hereunder, and the Administrator shall remain responsible for all
obligations or liabilities of such Subcontractor with regards to the providing
of such service or services as if provided by the Administrator.

2.4.          Policyholder Servicing.  The Administrator shall provide policyholder servicing with
regards to the Reinsured Contracts, including changes of address, responding to
policyholder inquiries and similar services.

ARTICLE III

 

CLAIMS HANDLING

 

The Administrator shall pay
all Benefits payable on or after the Inception Date with respect to the
Reinsured Contracts (each, a “Claim” and collectively the “Claims”) in
accordance

 

2

 

with
procedures and guidelines established by the Company, such procedures and
guidelines to be in accordance with the standards of service set forth in
Section 2.1.

ARTICLE IV

 

REGULATORY AND LEGAL PROCEEDINGS

 

4.1.          Regulatory Complaints and Proceedings.  The Administrator shall:

(i)                 respond to any
Claims payment related complaints or inquiries made by any Governmental Authority,
within the Governmental Authority’s requested time frame for response or, if no
such time frame is provided, within the time frame as allowed by Applicable
Law; and promptly provide a copy of such response to the Company;

(ii)              promptly notify
the Company of any non-Claims payment related complaints or inquiries initiated
by a Governmental Authority, and of any proceedings (either Claims or
non-Claims related) initiated by a Governmental Authority, and, in either case,
prepare and send to the Governmental Authority, with a copy to the Company, a
response within the Governmental Authority’s requested time frame for response
or, if no such time frame is provided, within the time frame as allowed by
Applicable Law; provided, that, subject to meeting such time frames, the
Administrator shall provide such response to the Company for its prior review
and comment;

(iii)           subject to
Section 4.4, supervise and control the investigation, contest, defense
and/or settlement of all complaints, inquiries and proceedings by Governmental
Authorities at its own cost and expense, and in the name of the Company when
necessary; and

(iv)          at the
Company’s request, provide to the Company a report in a form mutually agreed by
the parties summarizing the nature of any complaints, inquiries or proceedings
by Governmental Authorities, the alleged actions or omissions giving rise to
such complaints, inquiries or proceedings and copies of any files or other
documents that the Company may reasonably request in connection with its review
of these matters.

                Notwithstanding the foregoing, the Company
shall retain final authority for the resolution of inquiries by Governmental
Authorities and consumer complaints; provided, however, the Company
agrees to act reasonably in the exercise of such authority.

 

4.2.          Legal Proceedings.  The Administrator shall:

(i)                 notify the
Company promptly of any lawsuit, action, arbitration or other dispute
resolution proceedings that are instituted or threatened with respect to any
matter relating to the Reinsured Contracts (“Legal

 

3

 

Proceeding(s)”),
and in no event more than five (5) Business Days after receipt of notice
thereof;

(ii)              subject to
Section 4.4, supervise and control the investigation, contest, defense
and/or settlement of all Legal Proceedings at its own cost and expense, and in
the name of the Company when necessary; and

(iii)           keep the
Company fully informed of the progress of all Legal Proceedings handled by the
Administrator in which the Company is named a party and, at the Company’s
request, provide to the Company a report summarizing the nature of any Legal
Proceedings, the alleged actions or omissions giving rise to such Legal
Proceedings and copies of any files or other documents that the Company may
reasonably request in connection with its review of these matters in each case
other than such files, documents and other information as would, in the
judgment of counsel to the Administrator, lead to the loss or waiver of legal
privilege.

4.3.          Notice to Administrator.  The Company shall give prompt notice to the Administrator of any
Legal Proceeding made or brought against the Company after the Inception Date
arising under or in connection with the Reinsured Contracts to the extent known
to it and not made against or served on the Administrator or a Subcontractor as
administrator hereunder, and in no event more than five (5) Business Days after
receipt of notice thereof, and shall promptly furnish to the Administrator
copies of all pleadings in connection therewith.  The Administrator shall assume the defense of the Company.

4.4.          Defense of Regulatory and Legal Proceedings.  Notwithstanding anything in this Agreement
to the contrary, the Company shall have the right to engage in its own separate
legal representation, at its own expense, and to participate fully in the
defense of any Legal Proceedings or complaints, inquiries or proceedings by
Governmental Authorities with respect to the Reinsured Contracts in which the
Company is a named party without waiving any right to indemnification it may
have under Article XV hereof.  The
Administrator and the Company shall cooperate with each other with respect to
the administration of any Legal Proceeding and any complaint, inquiry or
proceeding by Governmental Authorities. 
The Administrator shall not settle any Legal Proceeding or any
complaint, inquiry or proceeding by Governmental Authorities without the
Company’s prior written consent (which consent shall not be unreasonably
withheld or delayed) unless (i) there is no finding or admission of any
violation of law or any violation of the rights of any Person, (ii) such
settlement would not reasonably be expected to have material adverse
precedential consequences to the Company and (iii) the sole relief provided is
monetary damages that are paid in full by the Administrator.

ARTICLE V

 

NOTIFICATION TO POLICYHOLDERS

 

The Administrator agrees to
send to policyholders of the Reinsured Contracts a written notice prepared by
the Administrator, reasonably acceptable to the Company and approved by

 

4

 

the
New York Insurance Department to the effect that the Administrator, or such
other Person designated by the Administrator in accordance with the terms of
this Agreement, has been appointed by the Company to provide Administrative
Services.  The Administrator shall send
such notice by first class U.S. mail at a time reasonably acceptable to the
Company and the Administrator and in all events in accordance with Applicable
Law.  The parties intend to minimize the
cost associated with any notification under this Article V, including by means
of inclusion of the notice in a regularly scheduled mailing to policyholders in
lieu of a separate mailing.  The cost
associated with such notification under this Article V (upon the initial
assumption of the administration of the Reinsured Contracts under Section 3.7
of the Coinsurance Agreement) shall be a transition cost payable by the
Administrator or the Company in accordance with Section 3.7(a) or 3.7(c) of the
Coinsurance Agreement, as applicable.

ARTICLE VI

INSOLVENCY FUND ACCOUNTINGS

6.1.            Quarterly Accountings.  Within thirty (30) days after the end of each calendar quarter
that this Agreement is in effect (or more frequently as mutually agreed by the
parties), the Company shall submit to the Administrator a written statement of
accounting in a form and containing such information to be agreed upon by the
parties hereto (each, an “Insolvency Fund Quarterly Accounting”) setting forth
the Insolvency Fund amounts assessed or payable to the extent that such
assessments constitute Reinsured Risks with respect to the Reinsured Contracts
(collectively, the “Post-Effective Date Assessments”).  The Administrator shall remit to the Company
an amount equal to the Post-Effective Date Assessments set forth in an
Insolvency Fund Quarterly Accounting received by the Administrator within ten
(10) Business Days of receipt by the Administrator of such Insolvency Fund
Quarterly Accounting.

6.2.          Adjustments Regarding Insolvency Fund Accountings.  In the event that subsequent data or calculations
require revision of any of the Insolvency Fund Quarterly Accountings, the
required revision and appropriate payments thereunder shall be made within ten
(10) Business Days after the parties hereto mutually agree as to the
appropriate revision.

ARTICLE VII

CERTAIN ACTIONS BY COMPANY

7.1.          Filings.  The
Company shall prepare and timely file any filings required to be made with any
Governmental Authority that relate to the Company generally and not just to the
Reinsured Contracts, including filings with guaranty associations and filings
and premium tax returns with taxing authorities.  The Administrator shall, in a timely fashion in light of the
dates such filings by the Company are required, provide to the Company all
information in the possession of the Administrator with respect to the
Reinsured Contracts that may be reasonably required for the Company to prepare
such filings and tax returns.

7.2.          Annual Adjustment. 
The Company shall pay or provide to the Administrator the benefit of any
Post-Effective Date Assessments which have been or can be

 

5

 

applied to reduce the
Company’s premium tax liability (“Premium Tax Credits”).  The Company shall provide to the
Administrator by March 15 of each year a statement of the amount of Premium Tax
Credits for the prior calendar year and the Company will pay or credit to the
Administrator an amount equal to such Premium Tax Credits.

ARTICLE VIII

 

REGULATORY MATTERS AND AUDIT REPORTING

 

8.1.          Regulatory Compliance and Reporting.  The Administrator shall provide to the
Company such information with respect to the Reinsured Contracts as is required
to satisfy all current and future informational reporting, prior approval and
any other requirements imposed by any Governmental Authority.  Upon the reasonable request of the Company,
the Administrator shall timely prepare such reports and summaries, including
statistical summaries, as are necessary or reasonably required to satisfy any
requirements imposed by a Governmental Authority upon the Company with respect
to the Reinsured Contracts.  In
addition, the Administrator, upon the reasonable request of the Company, shall
promptly provide to the Company copies of all existing records relating to the
Reinsured Contracts (including, with respect to records maintained in machine
readable form, hard copies) that are necessary to satisfy such
requirements.  All copies of records
furnished in the ordinary course of business shall be furnished by the
Administrator at the Administrator’s cost. 
Any extraordinary costs reasonably incurred by the Administrator in
response to requests from the Company shall be reimbursed by the Company.  Among other responsibilities:

(i)                 The
Administrator shall promptly prepare and furnish to Governmental Authorities
all reports and related summaries (including, without limitation, statistical
summaries), certificates of compliance and other reports required or requested
by a Governmental Authority.

(ii)              The
Administrator shall assist the Company and cooperate with the Company in doing
all things necessary, proper or advisable, in the most expeditious manner
practicable in connection with any and all market conduct or other Governmental
Authority examinations relating to the Reinsured Contracts.

8.2.          Reporting and Accounting.  The Administrator shall assume the reporting and accounting
obligations set forth below:

(i)                 As soon as
practicable but not more than forty (40) days after the end of each calendar
quarter that this Agreement is in effect (or more frequently as mutually agreed
by the parties), the Administrator shall timely provide to the Company the
Quarterly Reports.  As soon as
practicable but not more than forty-five (45) days after the end of each
calendar year that this Agreement is in effect, the Administrator shall timely
provide to the Company the Annual Reports. 
In addition, as soon as practicable but not more than forty (40) days
after the end of each calendar quarter that this 

 

6

 

Agreement
is in effect (or more frequently as mutually agreed by the parties), the
Administrator shall timely provide to the Company such other reports and
summaries of transactions (and, upon request of the Company, detailed
supporting records) related to the Reinsured Contracts as may be reasonably
required for use in connection with the preparation of the Company’s statutory
and GAAP financial statements, tax returns and other required financial reports
and to comply with the requirements of the regulatory authorities having
jurisdiction over the Company.  The parties
shall cooperate in good faith to establish the manner for the providing of such
reports.

(ii)              As soon as
practicable but not more than forty (40) days after the end of each calendar
quarter that this Agreement is in effect (or more frequently as mutually agreed
by the parties), the Administrator shall report to the Company the amount of
statutory reserves that the Company is required to maintain in connection with
the Reinsured Risks with respect to the Reinsured Contracts as of the quarter
end.

(iii)           The
Administrator shall promptly provide notice to the Company of any changes in
the reserve methodology used by the Administrator in calculating statutory
reserves for the Reinsured Contracts.

(iv)          Within
forty-five (45) days after each calendar year end (or such longer time as may
be agreed by the parties) that this Agreement is in effect, the Administrator
shall provide to the Company (a) an opinion of an actuary reasonably acceptable
to the Company as to the adequacy of statutory reserves for the Reinsured
Contracts, prepared according to accepted actuarial standards of practice, and
as otherwise required for regulatory reporting purposes and (b) an analysis
which reasonably supports such opinion.

8.3.          Additional Reports and Updates.  For so long as this Agreement remains in
effect, each party shall periodically furnish to the other such other reports
and information as may be reasonably required by such other party for
regulatory, tax or similar purposes and reasonably available to it.

ARTICLE IX

 

MISCELLANEOUS ADMINISTRATIVE SERVICES

 

The Administrator shall
provide such Administrative Services as are not performed by or on behalf of
the Company on the date hereof but the need for which may arise due to changes
or developments in Applicable Law.

 

7

 

ARTICLE X

 

BOOKS AND RECORDS

 

The Administrator shall keep
accurate and complete records, files and accounts of all transactions and
matters with respect to the Reinsured Contracts and the administration thereof
in accordance with Applicable Law, including New York Regulation 152, and its record
management practices in effect from time to time for the Administrator’s
insurance business not covered by this Agreement, if any.  All such records pertaining to the Reinsured
Contracts shall be the property of the Company, provided that the Administrator
shall at all times have the right to retain a copy of such books and records.
The parties to this Agreement and their designated representatives may upon
reasonable notice inspect, at the offices of the Administrator or the Company
where such records are located, the papers and any and all other books or
documents of the Administrator or the Company reasonably relating to this
Agreement, including the Reinsured Contracts, and shall have access to
appropriate employees and representatives of the other party, in each case
during normal business hours for such period as  this Agreement is in effect or for as long thereafter as any
rights or obligations of any party survives or the Administrator or the Company
reasonably need access to such records for regulatory, tax or similar purposes.
The information obtained shall be used only for purposes relating to the
transactions contemplated under this Agreement.

ARTICLE XI

 

COOPERATION

 

Each party hereto shall
cooperate fully with the other in all reasonable respects in order to
accomplish the objectives of this Agreement including making available to each
their respective officers and employees for interviews and meetings with
Governmental Authorities and furnishing any additional assistance, information
and documents as may be reasonably requested by a party from time to time.

ARTICLE XII

 

PRIVACY REQUIREMENTS

 

In providing the
Administrative Services provided for under this Agreement, and in connection
with maintaining, administering, handling and transferring the data of the
policyholders and other recipients of benefits under the Reinsured Contracts,
the Administrator shall, and shall cause its Affiliates and any permitted
Subcontractors to, comply with all confidentiality and security obligations
applicable to them in connection with the collection, use, disclosure,
maintenance and transmission of personal, private, health or financial
information about individual policyholders or benefit recipients, including the
provisions of privacy policies under which such information was gathered, those
laws currently in place and which may become effective during the term of this
Agreement, including the Gramm-Leach-Bliley Act, the Health Insurance
Portability and Accountability Act of 1996 and any other Applicable Laws.

 

8

 

The
Administrator shall entitle the Company and its agents and representatives, the
Commissioner of Health and Human Services and such other Governmental
Authorities, to the extent required by Applicable Law, to audit the
Administrator’s compliance herewith. 
The Administrator shall also enable individual subjects of personally
identifiable information, upon request from such individuals, to review and
correct information maintained by the Administrator about them, and to restrict
use of such information.  The
Administrator shall promptly report to the Company any violation of this
provision of which the Administrator becomes aware.  Unless required by Applicable Law, the Administrator shall not
during the term of this Agreement, modify the privacy policies under which
information utilized by the Administrator in administering the Reinsured
Contracts is gathered, without the Company’s prior written consent, which
consent shall not be unreasonably withheld. 
The parties agree to comply with the terms of the Business Associate
Addendum attached hereto, if applicable, or such other written agreement as may
be required by Applicable Law on the date hereof.

ARTICLE XIII

 

CONSIDERATION FOR ADMINISTRATIVE SERVICES

 

Apart from the performance
by the Company of its obligations under the Coinsurance Agreement, there shall
be no fee or other consideration due to the Administrator for performance of
the Administrative Services under this Agreement.

ARTICLE XIV

 

BANK ACCOUNT; USE OF COMPANY LETTERHEAD

 

When and on terms reasonably
requested by the Administrator, the Company shall open, modify or close, and
make available for use by the Administrator for the payment of amounts to be
paid by the Administrator hereunder one or more bank accounts of the Company
and check stock of the Company.  The
Administrator shall maintain such account(s) and pay all applicable bank fees
and check stock costs.  The Company
shall adopt such resolutions and execute such documents as required to
designate senior officers of the Administrator (by title) as signatories on
such account(s) and authorize the Administrator to certify to such bank(s),
from time to time, the names of such officers. 
The Company shall also make available to the Administrator, at the sole
expense of the Administrator, such letterhead, printed forms and other
documents of the Company as may be reasonably required by the Administrator in
performing services hereunder.  Upon
termination of this Agreement, the Administrator shall promptly return to the
Company all such unused check stock, letterhead, printed forms and other
documents held by it in connection with this Agreement as provided under this
Article XIV.

 

9

 

ARTICLE XV

 

INDEMNIFICATION

 

Any claim for or with
respect to indemnification arising out of, or relating to, this Agreement or
the Administrative Services hereunder shall be permitted under and governed by
the provisions of Article V of the Master Agreement, dated as of [             ], 2004, among General Electric
Company, General Electric Capital Corporation, GEI, Inc., GE Financial
Assurance Holdings, Inc. and Genworth Financial, Inc (the “Master Agreement”),
to the extent such provisions are applicable, as if this Agreement were a
Transaction Document under the Master Agreement.

ARTICLE XVI

 

DURATION; TERMINATION

 

16.1.        Duration.  This
Agreement shall commence on the Effective Date and continue with respect to
each Reinsured Contract until no further Administrative Services in respect of
such Reinsured Contract is required, unless this Agreement is earlier terminated
under Section 16.2.

16.2.        Termination. 
(a)  This Agreement is subject to
immediate termination at the option of the Company, upon written notice to the
Administrator, on the occurrence of any of the following events:

(i)                 A voluntary or
involuntary proceeding is commenced in any jurisdiction by or against the
Administrator for the purpose of conserving, rehabilitating or liquidating the
Administrator;

(ii)              There is a
material breach by the Administrator of any material term or condition of this
Agreement that is not cured by the Administrator within thirty (30) days after
receipt of written notice from the Company of such breach or act (provided that
the Company shall not have the right to terminate this Agreement (A) for so
long as the Administrator is making a good faith effort to cure such breach,
not to exceed an additional one hundred eighty (180) days or (B) during the
pendency of any dispute resolution proceedings as set forth in Article XVII
regarding an alleged material breach); or

(iii)           The Administrator
is unable to perform the services required under this Agreement for a period of
thirty (30) consecutive days for any reason other than as a result of a Force
Majeure, it being understood that nothing in this Section 16.2(a)(iii) shall
relieve the Administrator from its administrative responsibilities under this
Agreement.  For purposes of this
Agreement, “Force Majeure” means any acts or omissions of any civil or military
authority, acts of God, acts or omissions of the Company, fires, strikes or
other labor disturbances, equipment failures, fluctuations or non-

 

10

 

availability
of electrical power, heat, light, air conditioning or telecommunications
equipment, or any other act, omission or occurrence beyond the Administrator’s
reasonable control, irrespective of whether similar to the foregoing enumerated
acts, omissions or occurrences.

(b)   This Agreement may be terminated at any time
upon the mutual written consent of the parties hereto, which writing shall
state the effective date of termination.

(c)   In the event that this Agreement is
terminated under any of the provisions of Section 16.2(a), the
Administrator shall select a third-party administrator to perform the services
required by this Agreement.  The Company
shall have the right to approve any such administrator selected by the
Administrator, but such approval will not unreasonably be withheld or
delayed.  If the Administrator fails to
select an administrator pursuant to this Section 16.2(c), the Company
shall select such an administrator.  In
either case, the Administrator shall pay all fees and charges imposed by the
selected administrator and shall bear all transition costs associated with the
transition of the performance of the services required under this Agreement to
such administrator, including the expense of sending policyholder notices as
provided in Article V.

ARTICLE XVII

 

DISPUTE RESOLUTION

 

17.1.        General
Provisions.  (a) Any dispute, controversy or
claim arising out of or relating to this Agreement or the validity, interpretation,
breach or termination thereof (a “Dispute”), shall be resolved in accordance
with the procedures set forth in this Article XVII, which shall be the sole and
exclusive procedures for the resolution of any such Dispute unless otherwise
specified below.

(b)   Commencing with the request contemplated by
Section 17.2, all communications between the parties or their
representatives in connection with the attempted resolution of any Dispute,
including any mediator’s evaluation referred to in Section 17.3, shall be
deemed to have been delivered in furtherance of a Dispute settlement and shall
be exempt from discovery and production, and shall not be admissible in
evidence for any reason (whether as an admission or otherwise), in any arbitral
or other proceeding for the resolution of the Dispute.

(c)   In connection with any Dispute, the parties
expressly waive and forego any right to (i) punitive, exemplary,
statutorily-enhanced or similar damages in excess of compensatory damages
(provided that any such liability with respect to a Third Party Claim (as
defined in the Master Agreement) shall be considered direct damages), and (ii)
trial by jury.

(d)   The specific procedures set forth below,
including but not limited to the time limits referenced therein, may be modified
by agreement of the parties in writing.

 

11

 

(e)   All applicable statutes of limitations and
defenses based upon the passage of time shall be tolled while the procedures
specified in this Article XVII are pending. 
The parties will take such action, if any, required to effectuate such
tolling.

17.2.        Consideration by Senior Executives.  If a Dispute is not resolved in the normal
course of business at the operational level, the parties shall attempt in good
faith to resolve such Dispute by negotiation between executives who hold, at a
minimum, the office of President and CEO of the respective business entities
involved in such Dispute.  Either party
may initiate the executive negotiation process by providing a written notice to
the other (the “Initial Notice”). 
Fifteen (15) days after delivery of the Initial Notice, the receiving
party shall submit to the other a written response (the “Response”). The
Initial Notice and the Response shall include (i) a statement of the Dispute
and of each party’s position, and (ii) the name and title of the executive who
will represent that party and of any other person who will accompany the
executive. Such executives will meet in person or by telephone within thirty
(30) days of the date of the Initial Notice to seek a resolution of the
Dispute.

17.3.        Mediation. If a Dispute is not
resolved by negotiation as provided in Section 17.2 within forty-five (45)
days from the delivery of the Initial Notice, then either party may submit the
Dispute for resolution by mediation pursuant to the CPR Institute for Dispute
Resolution (the “CPR”) Model Mediation Procedure as then in effect. The parties
will select a mediator from the CPR Panels of Distinguished Neutrals, but such
mediator must have prior U.S. reinsurance experience either as a lawyer or as a
present or former officer or management employee of a reinsurance company, but
not of the Company, or the Administrator, or any of their respective
affiliates.  Either party at
commencement of the mediation may ask the mediator to provide an evaluation of
the Dispute and the parties’ relative positions.

17.4.        Arbitration. (a) If a Dispute is not resolved by mediation as
provided in Section 17.3 within thirty (30) days of the selection of a
mediator (unless the mediator chooses to withdraw sooner), either party may
submit the Dispute to be finally resolved by arbitration pursuant to the CPR
Rules for Non-Administered Arbitration as then in effect (the “CPR Arbitration Rules”). The parties consent to a
single, consolidated arbitration for all known Disputes existing at the time of
the arbitration and for which arbitration is permitted.

(b)   The neutral organization for purposes of the
CPR Arbitration Rules will be the CPR. The arbitral tribunal shall be composed
of three arbitrators who are each experienced in the U.S. reinsurance business,
of whom each party shall appoint one in accordance with the “screened”
appointment procedure provided in Rule 5.4 of the CPR Arbitration Rules.  The non-party appointed arbitrator must have
prior U.S. reinsurance experience as a present or former officer or management
employee of a reinsurance company, but not of the Company, or the
Administrator, or any of their respective affiliates.  The arbitration shall be conducted in New York City.  Each party shall be permitted to present its
case, witnesses and evidence, if any, in the presence of the other party. A
written transcript of the proceedings shall be made and furnished to the
parties. The arbitrators shall determine the Dispute in accordance with the law
of New York, without giving effect to any conflict of law rules or other rules
that might render such law inapplicable or unavailable, and shall apply this
Agreement according to its terms, provided that the provisions relating to
arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
§§ 1 et seq.  The arbitral tribunal
shall endeavor to render its award or order 

 

12

 

resulting
from any arbitration within forty-five (45) days following the termination of
the arbitration proceedings.

(c)   The parties agree to be bound by any award or
order resulting from any arbitration conducted hereunder and further agree that
judgment on any award or order resulting from an arbitration conducted under
this Section 17.4 may be entered and enforced in any court having
jurisdiction thereof.

(d)   Except as expressly permitted by this
Agreement, no party will commence or voluntarily participate in any court
action or proceeding concerning a Dispute, except (i) for enforcement as
contemplated by Section 17.4(c) above, (ii) to restrict or vacate an
arbitral decision based on the grounds specified under applicable law, or (iii)
for interim relief as provided in paragraph (e) below. For purposes of the
foregoing the parties hereto submit to the non-exclusive jurisdiction of the
courts of  the State of New York.

(e)   In addition to the authority otherwise
conferred on the arbitral tribunal, the tribunal shall have the authority to
make such orders for interim relief, including injunctive relief, as it may
deem just and equitable. Notwithstanding paragraph (d) above, each party
acknowledges that in the event of any actual or threatened breach of certain of
the provisions of this Agreement, the remedy at law would not be adequate, and
therefore injunctive or other interim relief may be sought immediately to
restrain such breach.  If the tribunal
shall not have been appointed, either party may seek interim relief from a
court having jurisdiction if the award to which the applicant may be entitled
may be rendered ineffectual without such interim relief. Upon appointment of
the tribunal following any grant of interim relief by a court, the tribunal may
affirm or disaffirm such relief, and the parties will seek modification or
rescission of the court action as necessary to accord with the tribunal’s
decision.

(f)    Each party will bear its own attorneys’ fees
and costs incurred in connection with the resolution of any Dispute in
accordance with this Article XVII.

ARTICLE XVIII

 

MISCELLANEOUS PROVISIONS

 

18.1.        Headings and Schedules.  Headings used herein are not a part of this Agreement and shall
not affect the terms hereof.  The
attached Schedules are a part of this Agreement.

18.2.        Notices.  All
notices, requests, demands and other communications under this Agreement must
be in writing and will be deemed to have been duly given or made as
follows:  (a) if sent by registered or
certified mail in the United States return receipt requested, upon receipt; (b)
if sent by reputable overnight air courier, two business days after mailing;
(c) if sent by facsimile transmission, with a copy mailed on the same day in
the manner provided in (a) or (b) above, when transmitted and receipt is
confirmed by telephone; or (d) if otherwise actually personally delivered, when
delivered, and shall be delivered as follows:

If to the Company:

 

 

13

	
   

  	
  American
  Mayflower Life Insurance Company of New York

  
	
   

  	
  700
  Main Street

  
	
   

  	
  Lynchburg,
  VA 24504

  
	
   

  	
  Facsimile:  (434) 948-5064

  
	
   

  	
  Attention:  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  With
  a copy to:

  
	
   

  	
   

  
	
   

  	
  American
  Mayflower Life Insurance Company of New York

  
	
   

  	
  700
  Main Street

  
	
   

  	
  Lynchburg,
  VA 24504

  
	
   

  	
  Facsimile:
   (434)
  948-5819

  
	
   

  	
  Attention:  General Counsel

  
	
   

  	
  If
  to the Administrator:

  
	
   

  	
   

  
	
   

  	
  Union
  Fidelity Life Insurance Company

  
	
   

  	
  200
  North Martingale Road

  
	
   

  	
  Schaumburg,
  IL 60173-2096

  
	
   

  	
  Facsimile:
   (847)
  330-3404

  
	
   

  	
  Attention:  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  With
  a copy to:

  
	
   

  	
   

  
	
   

  	
  Union
  Fidelity Life Insurance Company

  
	
   

  	
  200
  North Martingale Road

  
	
   

  	
  Schaumburg,
  IL 60173-2096

  
	
   

  	
  Facsimile:  (847) 605-3044

  
	
   

  	
  Attention:  General Counsel

  

 

or to such other address or
to such other Person as either party may have last designated by notice to the
other party.

18.3.        Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, permitted assigns and legal
representatives.  Neither this
Agreement, nor any right or obligation hereunder, may be assigned by any party
without the prior written consent of the other party hereto and without the
prior written consent of the New York Insurance Department and the Illinois
Insurance Department.  Any assignment in violation of this Section 18.3 shall
be void and shall have no force and effect.

18.4.        Execution in Counterpart.  This Agreement may be executed by the parties hereto in any
number of counterparts, and by each of the parties hereto in separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, but all such counterparts shall together
constitute but one and the same instrument.

 

14

 

18.5.        Safeguarding Customer Information.  The Administrator shall implement and
maintain appropriate measures designed to meet the objectives of New York
Insurance Department Regulation No. 173, with respect to safeguarding the Company’s
customer information and customer information systems.  The Administrator shall adjust its
information security program at the reasonable request of the Company for any
relevant changes indicated by the Company’s assessment of risk around its
customer information and customer information systems.  Confirming evidence that the Administrator
has satisfied its obligations under this Agreement shall be made available,
during normal business hours, for inspection by the Company, representatives of
the Company, and any governmental agency that has regulatory authority over the
Company’s business activities.

18.6.        Currency. 
Whenever the word “Dollars” or the “$” sign appear in this Agreement,
they shall be construed to mean United States Dollars, and all transactions
under this Agreement shall be in United States Dollars.

18.7.        Amendments. 
This Agreement may not be changed, altered or modified unless the same
shall be in writing executed by the Company and the Administrator.

18.8.        Governing Law. 
This Agreement will be
construed, performed and enforced in accordance with the laws of the State of
New York without giving effect to its principles or rules of conflict of laws
thereof to the extent such principles or rules would require or permit the
application of the laws of another jurisdiction.

18.9.        Entire Agreement; Severability.  (a) 
This Agreement constitutes the entire agreement between the parties
hereto relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, statements, representations and
warranties, negotiations and discussions, whether oral or written, of the
parties and there are no general or specific warranties, representations or
other agreements by or among the parties in connection with the entering into
of this Agreement or the subject matter hereof except as specifically set forth
or contemplated herein.

(b)   If any provision of this Agreement is held to
be void or unenforceable, in whole or in part, (i) such holding or
provision shall not affect the validity and enforceability of the remainder of
this Agreement, including any other provision, paragraph or subparagraph, and
(ii) the parties agree to attempt in good faith to reform such void,
unenforceable or violative provision to the extent necessary to render such
provision enforceable and to carry out its original intent.

18.10.      No Waiver; Preservation of Remedies.  No consent or waiver, express or implied, by
any party to or of any breach or default by any other party in the performance
by such other party of its obligations hereunder shall be deemed or construed
to be a consent or waiver to or of any other breach or default in the
performance of obligations hereunder by such other party hereunder.  Failure on the part of any party to complain
of any act or failure to act of any other party or to declare any other party
in default, irrespective of how long such failure continues, shall not
constitute a waiver by such first party of any of its rights hereunder.  The
rights and remedies provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or equity.

 

15

 

18.11.          Third Party Beneficiary.  Nothing in this Agreement will confer any
rights upon any Person that is not a party or a successor or permitted assignee
of a party to this Agreement.

18.12.          Tax Exception to Any
Confidentiality.  Notwithstanding
anything to the contrary set forth herein or in any other agreement to which
the parties hereto are parties or by which they are bound, any obligations of
confidentiality contained herein and therein, as they relate to the
transactions, shall not apply to the federal tax structure or federal tax
treatment of the transactions, and each party hereto (and any employee,
representative, or agent of any party hereto) may disclose to any and all
persons, without limitation of any kind, the federal tax structure and federal
tax treatment of the transactions.  The
preceding sentence is intended to cause the transactions to be treated as not
having been offered under conditions of confidentiality for purposes of Section
1.6011-4(b)(3) (or any successor provision) of the Treasury Regulations
promulgated under Section 6011 of the Internal Revenue Code of 1986, as
amended, and shall be construed in a manner consistent with such purpose.  In addition, each party hereto acknowledges
that it has no proprietary or exclusive rights to the federal tax structure of
the transactions or any federal tax matter or federal tax idea related to the
transactions.

18.13.          Interpretation.  Wherever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by
the words “without limitation.”

18.14.          Survival.  Article XVII and Article XVIII shall survive
the termination of this Agreement.

18.15.          Licensing.  At all times during the term of this
Agreement, the Administrator shall maintain in full force and effect all
licenses required to be maintained by it under Applicable Law with respect to
this Agreement, including, if applicable, an independent claims adjuster
license.

 

16

 

IN WITNESS WHEREOF, the
Company and the Administrator have executed this Agreement as of the date first
above written.

	
   

  	
  AMERICAN
  MAYFLOWER LIFE INSURANCE COMPANY OF NEW YORK

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  	
  :

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  UNION
  FIDELITY LIFE INSURANCE COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 

17

 

BUSINESS ASSOCIATE ADDENDUM

 

I.              Purpose.  

In order to disclose certain
information to the party providing a service under this Agreement (“Provider”)
under this Addendum, some of which may constitute Protected Health Information
(defined below), the party to whom a service under this Agreement is being
provided (“Recipient”) and Provider mutually agree to comply with the terms of
this Addendum for the purpose of satisfying the requirements of the Health
Insurance Portability and Accountability Act of 1996 (“HIPAA”) and its
implementing privacy regulations at 45 C.F.R. Parts 160-164 (“HIPAA Privacy
Rule”).  These provisions shall apply to
Provider to the extent that Provider is considered a “Business Associate” under
the HIPAA Privacy Rule and all references in this section to Business
Associates shall refer to Provider. 
Capitalized terms not otherwise defined herein shall have the meaning
assigned in the Agreement. 
Notwithstanding anything else to the contrary in the Agreement, in the
event of a conflict between this Addendum and the Agreement, the terms of this
Addendum shall prevail.

II.            Permitted Uses and Disclosures.

A.    Business Associate agrees to use or disclose
Protected Health Information (“PHI”) that it creates for or receives from
Recipient or its Subsidiaries only as follows. 
The capitalized term “Protected Health Information or PHI” has the
meaning set forth in 45 Code of Federal Regulations Section 164.501, as amended
from time to time.  Generally, this term
means individually identifiable health information including, without
limitation, all information, data and materials, including without limitation, demographic,
medical and financial information, that relates to the past, present, or future
physical or mental health or condition of an individual; the provision of
health care to an individual; or the past present, or future payment for the
provision of health care to an individual; and that identifies the individual
or with respect to which there is a reasonable basis to believe the information
can be used to identify the individual. 
This definition shall include any demographic information concerning members
and participants in, and applicants for, Recipient’s or its Subsidiaries’
health benefit plans.  All other terms
used in this Addendum shall have the meanings set forth in the applicable
definitions under the HIPAA Privacy Rule.

B.    Functions and Activities on Company’s Behalf. 
Business Associate is permitted to use and disclose PHI it creates for
or receives from Recipient or its Subsidiaries only for the purposes described
in this Addendum or the Agreement that are not inconsistent with the provisions
of this Addendum, or as required by law, or following receipt of prior written
approval from whichever of the Recipient or its Subsidiary for which the
relevant PHI was created or from which the relevant PHI was received.  In addition to these specific requirements
below, Business Associate may use or disclose PHI only in a manner that would
not violate the HIPAA Privacy Rule if done by the Recipient or its
Subsidiaries.  

C.    Business Associate’s Operations.  Business Associate is permitted by this
Agreement to use PHI it creates for or receives from Recipient or its
Subsidiaries: (i) if such use is reasonably necessary for Business Associate’s
proper management and administration; and (ii) as reasonably necessary to carry
out Business Associate’s legal responsibilities.

 

 

 

Business Associate
is permitted to disclose PHI it creates for or receives from Recipient or its
Subsidiaries for the purposes identified in this Section only if the following
conditions are met:

                                (1) The disclosure is required by law;
or

(2)   The disclosure is reasonably necessary to
Business Associate’s proper management and administration, and Business
Associate obtains reasonable assurances in writing from any person or
organization to which Business Associate will disclose such PHI that the person
or organization will:

 

                                                a. Hold
such PHI as confidential and use or further disclose it only for the purpose
for which Business Associate disclosed it to the person or organization or as
required by law; and

b. Notify Business Associate (who will in turn promptly notify whichever of the
Recipient or its Subsidiary for which the relevant PHI was created or from
which the relevant PHI was received) of any instance of which the person or
organization becomes aware in which the confidentiality of such PHI was
breached.

D.    Minimum Necessary Standard.  In performing the functions and activities
on Recipient’s or its Subsidiaries’ behalf pursuant to the Agreement, Business
Associate agrees to use, disclose or request only the minimum necessary PHI to
accomplish the purpose of the use, disclosure or request.  Business Associate must have in place
policies and procedures that limit the PHI disclosed to meet this minimum
necessary standard.

E.     Prohibition
on Unauthorized Use or Disclosure.  Business Associate will
neither use nor disclose PHI it creates or receives for or from Recipient, its
Subsidiaries, or from another business associate of Recipient or its
Subsidiaries, except as permitted or required by this Addendum or the Agreement
that are not inconsistent with the provisions of this Addendum, or as required
by law, or following receipt of prior written approval from whichever of the
Recipient or its Subsidiary for which the relevant PHI was created or from
which the relevant PHI was received.

F.     De-identification
of Information.  Business Associate agrees neither to
de-identify PHI it creates for or receives from Recipient or its Subsidiaries
or from another business associate of Recipient or its Subsidiaries, nor use or
disclose such de-identified PHI, unless such de-identification is expressly
permitted under the terms and conditions of this Addendum or the Agreement and
related to Recipient’s or its Subsidiaries’ activities for purposes of
“treatment”, “payment” or “health care operations”, as those terms are defined
under the HIPAA Privacy Rule. 
De-identification of PHI, other than as expressly permitted under the
terms and conditions of the Addendum for Business Associate to perform services
for Recipient or its Subsidiaries, is not a permitted use of PHI under this
Addendum.  Business Associate further
agrees that it will not create a “Limited Data Set” as defined by the HIPAA
Privacy Rule using PHI it creates or receives, or receives from another
business associate of Recipient or its Subsidiaries, nor use or disclose such
Limited Data Set unless: (i) such creation, use or disclosure is expressly
permitted under the terms and conditions of 

 

2

 

 

this Addendum or
the Agreement that are not inconsistent with the provisions of this Addendum;
and such creation, use or disclosure is for services provided by Business
Associate that relate to Recipient’s or its Subsidiaries’ activities for
purposes of “treatment”, “payment” or “health care operations”, as those terms
are defined under the HIPAA Privacy Rule.

G.    Information
Safeguards.  Business Associate will develop,
document, implement, maintain and use appropriate administrative, technical and
physical safeguards to preserve the integrity and confidentiality of and to
prevent non-permitted use or disclosure of PHI created for or received from
Recipient or its Subsidiaries.  These
safeguards must be appropriate to the size and complexity of Business
Associate’s operations and the nature and scope of its activities.  Business Associate agrees that these
safeguards will meet any applicable requirements set forth by the U.S.
Department of Health and Human Services, including (as of the effective date or
as of the compliance date, whichever is applicable) any requirements set forth
in the final HIPAA security regulations. 
Business Associate agrees to mitigate, to the extent practicable, any
harmful effect that is known to Business Associate resulting from a use or
disclosure of PHI by Business Associate in violation of the requirements of
this Addendum.

III.           Conducting Standard Transactions.  In the course of performing services for
Recipient or its Subsidiaries, to the extent that Business Associate will
conduct Standard Transactions for or on behalf of Recipient or its
Subsidiaries, Business Associate will comply, and will require any subcontractor
or agent involved with the conduct of such Standard Transactions to comply,
with each applicable requirement of 45 C.F.R. Part 162.  “Standard Transaction(s)” shall mean a
transaction that complies with the standards set forth at 45 C.F.R. parts 160
and 162.  Further, Business Associate
will not enter into, or permit its subcontractors or agents to enter into, any
trading partner agreement in connection with the conduct of Standard
Transactions for or on behalf of the Recipient or its Subsidiaries that:

a.               Changes the
definition, data condition, or use of a data element or segment in a Standard
Transaction;

b.              Adds any data
element or segment to the maximum defined data set;

c.               Uses any code
or data element that is marked “not used” in the Standard Transaction’s
implementation specification or is not in the Standard Transaction’s
implementation specification; or

d.              Changes the
meaning or intent of the Standard Transaction’s implementation specification.

IV.           Sub-Contractors, Agents or Other Representatives.   Business Associate will require any of its subcontractors, agents
or other representatives to which Business Associate is permitted by this
Addendum or the Agreement (or is otherwise given Recipient’s or the relevant
Subsidiary’s prior written approval) to disclose any of the PHI Business
Associate creates or receives for or from Recipient or its Subsidiaries, to
provide reasonable assurances in writing that subcontractor

 

3

 

or agent will comply with
the same restrictions and conditions that apply to the Business Associate under
the terms and conditions of this Addendum with respect to such PHI.

V.            Protected Health Information Access,
Amendment and Disclosure Accounting.

A.    Access.  Business
Associate will promptly upon Recipient’s or its Subsidiary’s request make
available to Recipient, its Subsidiary, or, at Recipient’s or such Subsidiary’s
direction, to the individual (or the individual’s personal representative) for
inspection and obtaining copies any PHI about the individual which Business
Associate created for or received from Recipient or its Subsidiary and that is
in Business Associate’s custody or control, so that Recipient or its Subsidiary
may meet its access obligations under 45 Code of Federal Regulations
§ 164.524.

B.    Amendment. 
Upon Recipient’s or its Subsidiary’s request Business Associate will
promptly amend or permit Recipient or its Subsidiary access to amend any
portion of the PHI which Business Associate created for or received from
Recipient or its Subsidiary, and incorporate any amendments to such PHI, so
that Recipient or its Subsidiary may meet its amendment obligations under 45
Code of Federal Regulations § 164.526.

C.    Disclosure
Accounting.  So that Recipient or its Subsidiaries may
meet their disclosure accounting obligations under 45 Code of Federal
Regulations § 164.528:

1.             Disclosure Tracking.  Business Associate will record for each
disclosure, not excepted from disclosure accounting under Section V.C.2 below,
that Business Associate makes to Recipient or its Subsidiaries of PHI that
Business Associate creates for or receives from Recipient or its Subsidiaries,
(i) the disclosure date, (ii) the name and member or other policy
identification number of the person about whom the disclosure is made, (iii)
the name and (if known) address of the person or entity to whom Business
Associate made the disclosure, (iv) a brief description of the PHI disclosed,
and (v) a brief statement of the purpose of the disclosure (items i-v,
collectively, the “disclosure information”). 
For repetitive disclosures Business Associate makes to the same person
or entity (including Recipient or its Subsidiaries) for a single purpose,
Business Associate may provide a) the disclosure information for the first of
these repetitive disclosures, (b) the frequency, periodicity or number of these
repetitive disclosures and (c) the date of the last of these repetitive
disclosures.  Business Associate will
make this disclosure information available to Recipient or its Subsidiaries
promptly upon Recipient’s or its Subsidiaries’ request.

2.             Exceptions from Disclosure
Tracking.  Business Associate need
not record disclosure information or otherwise account for disclosures of PHI
that this Addendum or Recipient or the relevant Subsidiary in writing permits
or requires (i) for the purpose of Recipient’s or its Subsidiaries’ treatment
activities, payment activities, or health care operations, (ii) to the
individual who is the subject of the PHI disclosed or to that individual’s
personal representative; (iii) to persons involved in that individual’s health
care or payment for health care; (iv) for notification for disaster relief
purposes, (v) for national security or intelligence purposes, (vi) to law
enforcement officials or correctional institutions regarding inmates; or (vii)
pursuant to an authorization; (viii) for disclosures

 

4

 

 

of certain PHI
made as part of a Limited Data Set; (ix) for certain incidental disclosures
that may occur where reasonable safeguards have been implemented; and (x) for
disclosures prior to April 14, 2003.

3.             Disclosure Tracking Time Periods.  Business Associate must have available for
Recipient and its Subsidiaries the disclosure information required by this
section for the 6 years preceding Recipient’s or its Subsidiaries’ request for
the disclosure information (except Business Associate need have no disclosure
information for disclosures occurring before April 14, 2003).

VI.           Additional Business Associate
Provisions

A.    Reporting of Breach of Privacy Obligations. 
Business Associate will provide written notice to whichever of the
Recipient or its Subsidiary for which the relevant PHI was created or from
which the relevant PHI was received of any use or disclosure of PHI that is
neither permitted by this Addendum nor given prior written approval by
Recipient or the relevant Subsidiary promptly after Business Associate learns
of such non-permitted
use or disclosure.  Business Associate’s
report will at least:

(i)                         Identify the
nature of the non-permitted use or disclosure;

(ii)                      Identify the
PHI used or disclosed;

(iii)                   Identify who
made the non-permitted use or received the non-permitted disclosure;

(iv)                  Identify what
corrective action Business Associate took or will take to prevent further
non-permitted uses or disclosures;

(v)                     Identify what
Business Associate did or will do to mitigate any deleterious effect of the
non-permitted use or disclosure; and

(vi)                  Provide such
other information, including a written report, as Recipient or the relevant
Subsidiary may reasonably request.

B.    Amendment. 
Upon the effective date of any final regulation or amendment to
final regulations promulgated by the U.S. Department of Health and Human
Services with respect to PHI, including, but not limited to the HIPAA privacy
and security regulations, this Addendum and the Agreement will automatically be
amended so that the obligations they impose on Business Associate remain in
compliance with these regulations.

In addition, to the extent
that new state or federal law requires changes to Business Associate’s obligations
under this Addendum, this Addendum shall automatically be amended to include
such additional obligations, upon notice by Recipient or its Subsidiaries to
Business Associate of such obligations. 
Business Associate’s continued performance of services under the
Agreement shall be deemed acceptance of these additional obligations.

 

5

 

C.    Audit
and Review of Policies and Procedures.  Business Associate
agrees to provide, upon Recipient request, access to and copies of any policies
and procedures developed or utilized by Business Associate regarding the
protection of PHI.  Business Associate
agrees to provide, upon Recipient’s request, access to Business Associate’s
internal practices, books, and records, as they relate to Business Associate’s
services, duties and obligations set forth in this Addendum and the
Agreement(s) under which Business Associate provides services and / or products
to or on behalf of Recipient or its Subsidiaries, for purposes of Recipient’s
or its Subsidiaries’ review of such internal practices, books, and records.

 

6

 

 

SCHEDULE C

 

CEDING COMMISSION

 

The Ceding Commission shall
be the sum of the following:

1.                                       an amount equal
to the excess of the Total SAP Ceded Reserves over Total GAAP Ceded Reserves
measured as of the close of business on the day immediately preceding the
Inception Date (which amount may be negative);

2.                                       an amount equal
to the unamortized PVFP intangible asset balance of the Company (excluding any
related mark to market adjustments for SFAS 115 requirement) with respect to
the Reinsured Contracts as measured as of the close of business on the day
immediately preceding the Inception Date, determined in accordance with GAAP;

3.                                       an amount equal
to the unamortized deferred acquisition costs of the Company (excluding any
related mark to market adjustments for SFAS 115 requirement) with respect to
the Reinsured Contracts as measured as of the close of business on the day
immediately preceding the Inception Date, determined in accordance with GAAP;
and

4.                                       an amount equal
to the excess of the GAAP book value of the Assets (excluding any related mark
to market adjustments for SFAS 115 requirement) over the SAP book value of the
Assets measured as of the close of business on the day immediately preceding
the Inception Date (which amount may be negative).

 

 

SCHEDULE D

 

ASSETS

 

	
   

  	
   

  	
  Transfer
  Document

  	
   

  	
  From

  	
   

  	
  To

  	
   

  	
  Nature of
  Transfer

  	
   

  	
  Cash Map
  Cross-Reference

  	
   

  	
  Schedule

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  AML
  SSA Coinsurance

  	
   

  	
  AML

  	
   

  	
  UFLIC

  	
   

  	
  Treaty

  	
   

  	
  (81)

  	
   

  	
  Schedule
  D

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Called Securities *

  	
   

  	
  Parent
  Name

  	
   

  	
  Issuer
  Name

  	
   

  	
  1Q04 Cusip

  	
   

  	
  1Q04 Tax
  lot

  	
   

  	
  12/31/03
  Local Par

  	
   

  	
  12/31/03
  GAAP BV (incl attached derivative)

  	
   

  	
  12/31/03
  Accrued Interest

  	
   

  	
  12/31/03
  GAAP BV + Accrued Interest

  	
   

  	
  12/31/03
  STAT BV (incl attached derivative)

  	
   

  	
  12/31/03
  Accrued Interest

  	
   

  	
  12/31/03
  STAT BV + Accrued Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Individual
  Asset Details Omitted]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Asset Sub Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  306,876,291.67

  	
   

  	
  5,242,943.17

  	
   

  	
  312,119,234.84

  	
   

  	
  303,388,501.92

  	
   

  	
  5,242,943.17

  	
   

  	
  308,631,445.09

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cash

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  24,390.39

  	
   

  	
   

  	
   

  	
  24,390.39

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  303,412,892.31

  	
   

  	
   

  	
   

  	
  308,655,835.48

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

* These Securities will not be transferred. The “Call
Amount” will be settled in cash

 

 

SCHEDULE E

EXPENSE ALLOWANCES

The “Annual Expense
Reimbursement Factor” used to calculate the Expense Allowance is as follows:

Policy Maintenance Factor                $23.84 per Policy

Such Annual Expense
Reimbursement Factor will be adjusted (i) for the year beginning
January 1, 2005 and, thereafter, every three (3) years during the term of
this Agreement  based on a triennial
cost/time study prepared in accordance with the methodology set forth below
(the “Triennial Study”) and (ii) for the years between the Triennial Studies
based on a report setting forth the Annual Expense Reimbursement Factor
prepared in accordance with the methodology set forth below (the “Annual
Expense Reimbursement Factor Report”).

(a)           Triennial Study. 
As soon as practicable (and in any event within sixty (60) days) prior
to January 1, 2005 and prior to the beginning of every third calendar year
thereafter during the term of this Agreement, the Company shall cause to be
prepared and delivered to the Reinsurer the Triennial Study which sets forth
the Annual Expense Reimbursement Factor for the next calendar year, together
with all supporting data used in preparing the Triennial Study and work papers,
in reasonable detail, setting forth the determination of such Annual Expense
Reimbursement Factors based on such Triennial Study (such documents, together
with the Triennial Study, the “Triennial Study Documents”).

(b)           Annual Expense Reimbursement Factor Report.  As soon as practicable (and in any event
within thirty (30) days) prior to January 1, 2006 and prior to the beginning of
each calendar year thereafter in which no Triennial Study is prepared, the
Company shall cause to be prepared and delivered to the Reinsurer the Annual
Expense Reimbursement Factor Report, together with all supporting data used in
preparing the Annual Expense Reimbursement Factor Report and work papers, in
reasonable detail, setting forth the determination of such Annual Expense
Reimbursement Factor for the next calendar year (such documents, together with
the Annual Expense Reimbursement Factor Report, the “Annual Expense
Reimbursement Factor Documents”).

(c)           Methodology. 
At the time of the Triennial Study, historical costs (to include costs
directly related to maintaining and administering policies, processing claims
and reporting results) will be determined for the Policy Maintenance Factor
identified above.  For a given Annual Expense
Reimbursement Factor the identified costs will be divided by the total
historical number of units of measure for both the Reinsured Contracts and the
retained block of business to derive an historical cost per unit.  The historical cost per unit will be used as
a prospective cost per unit for the next calendar year.

For
the two succeeding years in the period between the Triennial Studies the
historical dollar amounts by Policy Maintenance Factor will be adjusted (rolled
forward) for current year cost changes agreed to by the Reinsurer and the
Company (in accordance with the procedures set forth below).  This rolled forward historical cost will
then be divided by the total historical

 

 

number
of units for the current period to determine a prospective cost per unit for
the next calendar year.

An
additional adjustment, positive or negative, to the prospective cost per unit
determined by either the Triennial Study or the two succeeding years may be
negotiated between the parties.  The
additional adjustment is for special projected costs or benefits of
productivity, process improvements, inflation, loss of scale, and any other
cost variation which was not included in the prior Triennial Study or the
succeeding roll forward.

The
combined prospective unit cost and additional adjustment is the Annual Expense
Reimbursement Factor.  The Expense
Allowance will be determined quarterly and billed to the Reinsurer in three
equal installments during the quarter at the end of the month.  Each installment will be determined by
multiplying the actual number of units at the beginning of the quarter covered
by this Agreement times the Annual Expense Reimbursement Factor (divided by
twelve).

(d)           Review of Documents.  Following the delivery of the Annual Expense Reimbursement Factor
Documents or the Triennial Study Documents, as applicable, the Company shall
(i) provide to the Reinsurer or its designated representative copies of such
additional work papers and other documents relating to its preparation of the
Annual Expense Reimbursement Factor Report or Triennial Study, as applicable,
as the Reinsurer or its designated representative may reasonably request,
including, without limitation, claims files and practices and (ii) cooperate
with, and make its personnel and facilities reasonably available to, the
Reinsurer and the Reinsurer’s designated representative for the purpose of
providing such other information as the Reinsurer or the Reinsurer’s designated
representative may reasonably request concerning Annual Expense Reimbursement
Factor Documents or the Triennial Study Documents, as applicable, and the
calculation of the Annual Expense Reimbursement Factor.

(e)           Notice of Disagreement.  In the event that the Reinsurer has any disagreement with any of
the Annual Expense Reimbursement Factor Documents or the Triennial Study
Documents, as applicable, the Reinsurer shall give written notice of all such
disagreements (a “Notice of Disagreement”) to the Company within thirty (30)
days after the Annual Expense Reimbursement Factor Documents or the Triennial
Study Documents, as applicable, are delivered to the Reinsurer.  Any Notice of Disagreement shall set forth
each item in disagreement and shall provide reasonable specificity as to the
basis for each disagreement and shall specify the total adjustment to the
Annual Expense Reimbursement Factor, as proposed by the Company as a result of
such items in disagreement.

(f)            Dispute Resolution.  If the Reinsurer does not deliver a Notice of Disagreement to the
Company within such thirty (30) day period, the Annual Expense Reimbursement
Factor Documents and the Triennial Study Documents, as applicable, shall be
final and binding upon the parties hereto and shall constitute the final
calculation of the Annual Expense Reimbursement Factor for the next calendar
year.  If the Reinsurer delivers a
Notice of Disagreement to the Company within such thirty (30) day period, the
parties shall (and shall cause their respective designated representatives to)
negotiate in good faith to resolve all disagreements as promptly as
practicable.  Any changes in the Annual
Expense Reimbursement Factor, if any, that are agreed to by the Company and the
Reinsurer within sixty (60) days of the 

 

 

 

aforementioned delivery of
the Annual Expense Reimbursement Factor Documents or the Triennial Study
Documents, as applicable, shall be incorporated into a final calculation of the
Annual Expense Reimbursement Factor.  If
the parties and their respective designated representatives are unable to
resolve all disagreements within sixty (60) days of delivery of the Annual
Expense Reimbursement Factor Documents or the Triennial Study Documents, as
applicable, then all unresolved disagreements will be submitted within ten (10)
days after the end of such sixty (60) day period for resolution in accordance
herewith to an independent certified public accounting firm of national
standing and reputation (the “Accounting Firm”) mutually acceptable to the
Company and the Reinsurer.  The parties
shall cooperate in good faith with the Accounting Firm and shall give the
Accounting Firm access to all data and other information requested by the
Accounting Firm for purposes of such resolution.  The Accounting Firm shall, within thirty (30) days after its
engagement, deliver to the Company and the Reinsurer a definitive calculation
of the Annual Expense Reimbursement Factor, which shall be final and binding
upon the parties hereto and shall be so reflected in the calculation of the
Annual Expense Reimbursement Factor. 
The Company and the Reinsurer shall each pay one-half of the fees and
expenses of the Accounting Firm.

(g)           Expense Allowance Pending Resolution.  In the event of a dispute with respect to
any Annual Expense Reimbursement Factor for the next succeeding Calendar year,
the Company and the Reinsurer agree that the Annual Expense Reimbursement
Factor then in effect under this Agreement shall remain in effect pending
resolution of such dispute and adjustment, if any, in accordance with the
dispute resolution procedure set forth in paragraph (f) above.

 

 

SCHEDULE F - PART I

INITIAL REPORT

	
  1.

  	
  Total SAP
  Ceded Reserves Gross Policy Reserves calculated in accordance with SAP with
  respect to the reinsured risks.

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Ceding
  Commission:

  	
   

  	
   

  
	
   

  	
  A.

  	
  Excess SAP
  Ceded Reserves over GAAP Ceded Reserves:

  	
   

  	
   

  
	
   

  	
   

  	
       1)Total
  SAP Ceded Reserves

  	
  $

  	
   

  
	
   

  	
   

  	
       2)Total
  GAAP Ceded Reserves: 

       Gross
  Policy Reserves calculated in accordance with GAAP with respect to the
  reinsured risks.

  	
  $

  	
   

  
	
   

  	
   

  	
  Excess SAP
  Reserves over GAAP Reserves (A1-A2)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Present
  Value of Future Profits (PVFP)

  	
   

  	
  $

  
	
   

  	
  C.

  	
  Deferred
  Acquisition Costs (DAC)

  	
   

  	
  $

  
	
   

  	
  D.

  	
  Asset Book
  Value Difference —Measured as of close of business the day preceding the
  Inception Date

  	
   

  	
   

  
	
   

  	
   

  	
  1)Asset Book
  Value (GAAP basis)

  	
  $

  	
   

  
	
   

  	
   

  	
  2)Asset Book
  Value (SAP basis)

  	
  $

  	
   

  
	
   

  	
   

  	
       Excess
  Asset Book Value (D1-D2)

  	
   

  	
  $

  
	
   

  	
   

  	
       Total
  Ceding Commission (A+B+C+D)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Accrued
  Interest on Assets as of the day before Inception Date

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Investment
  Cash Flows on the Assets from the Inception Date through the Closing Date

  	
   

  	
  $

  
	
   

  	
   

  	
       Net
  Due Reinsurer (1-2-3+4)

  	
   

  	
  $

  

 

 

 

SCHEDULE F -
PART II

QUARTERLY
REPORT

 

	
   

  	
   

  	
   

  
	
  1.     Benefits

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  2.     Withdrawals
  from Claims Settlement Account

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  3.     Expense
  Allowance

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
             I.     Quarterly
  Settlement Amount (-1+2-3)

  	
   

  	
  $

  
	
                    Net
  Due to (from) Reinsurer 

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

 

SCHEDULE F - PART III

ANNUAL REPORT

	
   

  	
   

  	
   

  
	
  1.             Benefits

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  2.             Withdrawals from Claims
  Settlement Account

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  3.             Expense Allowance

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  I.              Quarterly Settlement Amount
  (-1+2-3)

  	
   

  	
  $

  
	
  Net
  Due to (from) Reinsurer (I-II)

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

 

SCHEDULE G

FORM OF TRUST
AGREEMENT

 

 

 

SCHEDULE H

ELIGIBLE
SECURITIES

 

Assets of the types for
which an Illinois-domiciled life insurance company could obtain full statutory
reserve credit under statutory accounting practices prescribed or permitted by
the Director of Insurance of the State of Illinois.Exhibit 10.16

RETROCESSION
AGREEMENT

between

GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY

and

UNION FIDELITY LIFE INSURANCE COMPANY

Dated as of April 15, 2004

TABLE OF CONTENTS

	
  ARTICLE
  I

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II

  	
  COVERAGE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  	
  ADMINISTRATION;
  GENERAL PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV

  	
  CLAIMS
  SETTLEMENT ACCOUNT; CLAIMS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  V

  	
  REINSURANCE
  ASSET TRANSFER; CEDING COMMISSION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI

  	
  EXPENSE
  ALLOWANCES

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII

  	
  ACCOUNTING
  AND SETTLEMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  	
  EXPERIENCE
  REFUND

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IX

  	
  DURATION
  AND TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  X

  	
  INSOLVENCY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XI

  	
  CREDIT
  FOR REINSURANCE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
  REINSURANCE SECURITY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XIII

  	
  DEFERRED
  ACQUISITION COSTS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XIV

  	
  INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XV

  	
  DISPUTE
  RESOLUTION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XVI

  	
  PRIVACY
  REQUIREMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XVII

  	
  MISCELLANEOUS
  PROVISIONS

  	
   

  

 

	
  SCHEDULES

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE A

  	
   

  	
   

  	
  —

  	
  POLICY FORMS

  
	
  SCHEDULE
  B

  	
   

  	
   

  	
  —

  	
  FORM
  OF ADMINISTRATIVE SERVICES AGREEMENT

  
	
  SCHEDULE C

  	
   

  	
   

  	
  —

  	
  CEDING COMMISSION

  
	
  SCHEDULE D

  	
   

  	
   

  	
  —

  	
  ASSETS

  
	
  SCHEDULE E

  	
   

  	
   

  	
  —

  	
  EXPENSE ALLOWANCES

  
	
  SCHEDULE
  E-1

  	
   

  	
   

  	
  —

  	
  BUSINESS
  OVERHEAD SERVICES

  
	
  SCHEDULE F

  	
  —

  	
  PART I

  	
  —

  	
  INITIAL REPORT

  
	
  SCHEDULE F

  	
  —

  	
  PART II

  	
  —

  	
  MONTHLY SETTLEMENT REPORT

  
	
  SCHEDULE F

  	
  —

  	
  PART III

  	
  —

  	
  QUARTERLY SETTLEMENT REPORT

  
	
  SCHEDULE F

  	
  —

  	
  PART IV

  	
  —

  	
  ANNUAL REPORT

  
	
  SCHEDULE G

  	
   

  	
   

  	
  —

  	
  FORM OF TRUST AGREEMENT

  
	
  SCHEDULE H

  	
   

  	
   

  	
  —

  	
  ELIGIBLE SECURITIES

  
	
  SCHEDULE I

  	
   

  	
   

  	
  —

  	
  EXPERIENCE REFUND

  

 

i

 

RETROCESSION
AGREEMENT

This
Retrocession Agreement, dated as of April 15, 2004 (this “Agreement”), is made
and entered into by and between General Electric Capital Assurance Company, an
insurance company organized under the laws of the State of Delaware (the
“Company”), and Union Fidelity Life Insurance Company, an insurance company
organized under the laws of the State of Illinois (the “Reinsurer”).  Defined terms used herein are defined below.

The Company
and the Reinsurer mutually agree to reinsure the risks described in this
Agreement under the terms and conditions stated herein.  This Agreement is an indemnity retrocession
agreement solely between the Company and the Reinsurer, and the performance of
the obligations of each party under this Agreement shall be rendered solely to
the other party.  In no instance shall
anyone other than the Company or the Reinsurer have any rights under this
Agreement.  The Company shall be and
shall remain the only party hereunder that is liable to Travelers under the
Travelers Reinsurance Agreement or to any insured, contract holder,
policyholder, claimant or beneficiary under any Novated Policy.

This Agreement
is entered into in connection with an intercompany reorganization among the
Company, the Reinsurer and certain of their Affiliates.

Nothing in
this Agreement, express or implied, is intended to or shall assign, delegate,
sublicense or transfer, in whole or in part, any rights, interests or
obligations under the Travelers Agreements.

ARTICLE I

DEFINITIONS

1.1.          Definitions.  As used in this Agreement, the following
terms shall have the following meanings (definitions are applicable to both the
singular and the plural forms of each term defined in this Article):

“Accounting
Period” means each calendar month, except that the last Accounting Period
shall be the period commencing with the first day of the month in which the
Termination Date falls and ending with the Termination Date.

“Affiliate”
means any other Person that directly or indirectly controls, is controlled by,
or is under common control with, the first Person.  “Control” (including the terms, “controlled by” and
“under common control with”) means the possession, directly or
indirectly, 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 or credit arrangement, as trustee or executor, or otherwise.

“Agreement”
shall have the meaning specified in the first paragraph of this Agreement.

 

 

“Allocated
Loss Adjustment Expenses” means all costs, fees and expenses incurred by
the Company or its Affiliates in the investigation, adjustment, settlement or
defense of all claims or the monitoring, preservation or enforcement of rights,
interests or benefits arising out of or relating to the Reinsured Policies
(excluding office expenses and salaries of officials of the Company or its
Affiliates or any other administrative or overhead expenses of the Company or
of its Affiliates), and court costs, and interest on any judgment or
award.  Allocated Loss Adjustment
Expenses shall also include expenses associated with an action by any entity
for declaratory judgment filed in connection with the Reinsured Policies.

“Annual
Report” shall have the meaning specified in Section 7.5.

“Applicable
Law” means any federal, state, local or foreign law (including common law),
statute, ordinance, rule, regulation, order, writ, injunction, judgment, permit
governmental agreement or decree applicable to a Person or any of such Person’s
subsidiaries, properties, assets, or to such Person’s officers, directors,
managing directors, employees or agents in their capacity as such.

“Assets”
shall have the meaning specified in Section 5.4(a).

“Assignment
Letter Agreement” means the letter agreement dated the date hereof among
General Electric Capital Corporation, a Delaware corporation, the Reinsurer,
the Company and certain affiliates of the Company relating to the assignment by
General Electric Capital Corporation of the Capital Maintenance Agreement.

“Business
Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in the States of Illinois or Virginia are required or
authorized by law to be closed.

“Business
Overhead Services” shall have the meaning specified in Schedule E-1 hereto.

“Capital
Maintenance Agreement” means the Capital Maintenance Agreement between
General Electric Capital Corporation, a Delaware corporation, and the
Reinsurer.

“Ceding
Commission” shall have the meaning specified in Section 5.3.

“Claims
Settlement Account” shall have the meaning specified in Section 4.1(a).

“Closing
Date” means April 15, 2004.

“Code”
means the Internal Revenue Code of 1986, as amended.

“Company
Account” shall have the meaning specified in Section 12.1(e).

“CPR”
shall have the meaning specified in Section 15.3.

“CPR
Arbitration Rules” shall have the meaning specified in Section 15.4(a).

2

 

“Dispute”
shall have the meaning specified in Section 15.1(a).

“Eligible
Securities” shall have the meaning specified in Section 12.1(c).

“Expense
Allowance” shall have the meaning specified in Section 6.1.

“Experience
Account” has the meaning set forth in Section 8.1(a)

“Experience
Refund” has the meaning set forth in Section 8.1(c)

“Experience
Refund Baseline” has the meaning set forth in Section 8.1(a)

“Extra
Contractual Liabilities” means all liabilities for damages (including
compensatory, consequential, exemplary, punitive, bad faith or similar or other
damages) which (i) arise out of the conduct of the Company on or prior to the
Inception Date in seeking premium rate increases pursuant to the terms of the
Travelers Reinsurance Agreement or the Travelers Servicing Agreement or (ii)
relate to the marketing, sale, underwriting, issuance, delivery, cancellation
or administration of the Reinsured Policies, including liability arising out of
or relating to any alleged or actual acts, errors or omissions by the Company
or its agents, whether intentional or otherwise, with respect to any of the
Reinsured Policies, including (A) any alleged or actual reckless conduct or bad
faith in connection with the handling of any claim arising out of or under
Reinsured Policies, or (B) the marketing, sale, underwriting, issuance, delivery,
cancellation or administration of any of the Reinsured Policies.

“Force
Majeure” shall have the meaning specified in Section 3.9(b)(iii).

“Funding
Requirement” shall have the meaning specified in Section 12.1(e).

“GAAP”
means U.S. generally accepted accounting principles consistently applied.

“Governmental
Authority” means any foreign or national government, any state or other
political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.

“Inception
Date” shall have the meaning specified in Section 2.1.

“Initial
Notice” shall have the meaning specified in Section 15.2.

“Initial
Reinsurance Premium” shall have the meaning specified in Section 5.1.

“Initial
Report” shall have the meaning specified in Section 7.1.

“Insolvency
Fund” means any guarantee fund, insolvency fund, plan, pool, association,
fund or other arrangement, however denominated, established or governed, which
provides for any assessment of or payment or assumption by the Company of part
or all of any claim, debt, charge, fee or other obligation of an insurer or
reinsurer, or its successors or assigns,

3

 

which has been declared by any competent authority to be insolvent, or
which is otherwise deemed unable to meet any claim, debt, charge, fee or other
obligation in whole or in part.

“Loss”
or “Losses” means the amount of liability paid or payable by the Company
with respect to claims, losses, liabilities, damages, deficiencies, costs or
expenses, including without limitation, any settlements or compromises or
disputed claims, arising under the Reinsured Policies.

“Loss Carry
Forward Amount” shall have the meaning specified in the Travelers Reinsurance
Agreement.

“Minimum
Claims Settlement Amount” shall have the meaning specified in Section
4.1(b).

“Monthly
Settlement” shall have the meaning specified in Section 5.4(a).

“Monthly
Settlement Report” shall have the meaning specified in Section 7.2.

“Novated
Policies” shall have the meaning specified in Section 2.6.

“Person”
means any natural person, firm, limited liability company, general partnership,
limited partnership, joint venture, association, corporation, trust,
Governmental Authority or other entity.

“Quarterly
Settlement” shall have the meaning specified in Section 5.4(a).

“Quarterly
Settlement Report” shall have the meaning specified in Section 7.3.

“RBC
Reporting Letter Agreement” means the letter agreement dated the date
hereof among the Company, the Reinsurer and certain affiliates of the Company
relating to the Reinsurer’s requirement to provide periodic certifications and
reports regarding the Reinsurer’s risk based capital ratio.

“Reinsured
Policies” means the long term care insurance policies issued by or on
behalf of Travelers prior to January 1, 2004 and written on the policy forms
described in Schedule A and reinsured by the Company pursuant to the Travelers
Reinsurance Agreement.

“Reinsured
Risks” shall have the meaning specified in Section 2.1.

“Response”
shall have the meaning specified in Section 15.2.

“SAP”
means statutory accounting practices prescribed or permitted by the Insurance
Department of the State of Delaware.

“Stop-Loss
Payments” means the payments required by the Company or Travelers, as the
case may be, pursuant to Section 2.5 of the Travelers Reinsurance Agreement.

“Tax DAC”
means specified policy acquisition expenses capitalized and amortized under
section 848 of the Code.

4

 

“Termination
Date” means the effective date of any termination of this Agreement as
provided in Article IX.

“Termination
Letter Agreement” means the letter agreement dated the date hereof among
the Company, the Reinsurer and certain affiliates of the Company relating to
the rescission of this Agreement upon the failure of certain events to occur
after the date hereof.

“Total
Annual Contribution” has the meaning set forth in Section 8.1(b).

“Total SAP
Ceded Reserves” means, as of any given date, the gross reserves of the
Company calculated in accordance with SAP with respect to the Reinsured Risks,
which shall consist of the sum of (A) (i) active life reserves, (ii) claim
reserves (both case and incurred but not reported), (iii) unearned premium reserves,
and (iv) advance premiums, less (B) due and unpaid premium receivable balances.

“Total GAAP
Ceded Reserves” means, as of any given date, the gross reserves of the
Company calculated in accordance with GAAP with respect to the Reinsured Risks,
which shall consist of the sum of (A) (i) active life reserves (including
related maintenance and loss expense reserves), (ii) claim reserves (both case
and incurred but not reported), (iii) unearned premium reserves, and (iv)
advance premiums, less (B) due and unpaid premium receivable balances.

“Travelers”
means The Travelers Insurance Company, a Connecticut insurance company.

“Travelers
Agreements” means, collectively, the Travelers Acquisition Agreement, the
Travelers Reinsurance Agreement, the Travelers Servicing Agreement and the
Travelers Side Letter.

“Travelers
Acquisition Agreement” means the Acquisition Agreement dated as of April
14, 2000 between the Company and Travelers, including all amendments,
modifications and supplements thereto made prior to January 1, 2004 or on or
after January 1, 2004 with the consent of the Reinsurer.

“Travelers
Reinsurance Agreement” means the Indemnity Reinsurance Agreement dated as
of July 1, 2000 between the Company and Travelers, including all amendments,
modifications and supplements thereto made prior to January 1, 2004, or on or
after January 1, 2004 with the consent of the Reinsurer, and as contemplated in
Section 2.7.

“Travelers
Servicing Agreement” means the Administrative Services Agreement dated as
of July 1, 2000 between Travelers and the Company, including all amendments,
modifications and supplements thereto made prior to January 1, 2004 or on or
after January 1, 2004 with the consent of the Reinsurer.

“Travelers
Side Letter” means the letter agreement, dated April 14, 2000, between
Travelers and the Company relating to or governing the novation of the
Reinsured Policies reinsured by the Company pursuant to the Travelers
Reinsurance Agreement, including all amendments, modifications and supplements
thereto made prior to January 1, 2004 (including

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without limitation the amendment thereto dated July 31, 2000) or on or
after January 1, 2004 with the consent of the Reinsurer.

“Trust
Account” shall have the meaning set forth in Section 12.1(a).

“Trust
Agreement” shall have the meaning set forth in Section 12.1(a).

“Trustee”
shall have the meaning set forth in Section 12.1(a).

“Ultimate
Net Loss” shall have the meaning specified in Section 2.3(a).

ARTICLE II

COVERAGE

2.1.          Coverage.  Upon the terms and subject to the conditions
and other provisions of this Agreement, as of 12:01 a.m. Eastern Time on
January 1, 2004 (the “Inception Date”), the Company hereby retrocedes to the
Reinsurer, and the Reinsurer hereby agrees to indemnify the Company for, one
hundred percent (100%) of Ultimate Net Loss incurred by the Company and unpaid
as of the Inception Date (the “Reinsured Risks”).

2.2.          Conditions.  (a) 
If the Company’s liability under any of the Reinsured Policies is
changed because of changes made on or after the Inception Date in the terms and
conditions of the Reinsured Policies (including to any contract riders or
endorsements thereto) that are required due to changes in Applicable Law, the
Reinsurer will share in the change proportionately to the coinsurance share
hereunder and the Company and the Reinsurer will make all appropriate
adjustments to amounts due each other under this Agreement.

(b)           Except as otherwise
set forth in paragraph (a) above, no changes, amendments or modifications made
by the Company on or after the Inception Date in the terms and conditions of
the Reinsured Policies which adversely affect the liability of the Reinsurer
hereunder shall be covered hereunder without the prior written approval of such
changes, amendments or modifications by the Reinsurer, which approval shall not
be unreasonably withheld or delayed.  In
the event that any such changes, amendments or modifications are made by the
Company in any Reinsured Policy without the prior written approval of the
Reinsurer, this Agreement will cover Ultimate Net Loss incurred by the Company
as if the non-approved changes, amendments or modifications had not been made.

2.3.          Ultimate Net Loss.  (a)  Subject to the provisions of
Sections 2.2, 2.3(b) and (c) and the terms and conditions of this
Agreement, “Ultimate Net Loss” shall mean (i) in the case of all
Reinsured Policies other then the Novated Policies, one hundred percent (100%)
of the Company’s liability arising under the Travelers Reinsurance Agreement
(including without limitation Stop-Loss Payments due by the Company to
Travelers under the Travelers Reinsurance Agreement) after making deductions
for all recoveries, salvage and subrogations actually recovered, and
(ii) in the case of Novated Policies (A) the actual
Losses and Allocated Loss Adjustment Expenses payable by the Company after
making deductions for all recoveries, salvage and subrogations actually
recovered, (B) premium taxes due in respect of premiums and

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other amounts paid on or after the Inception Date with respect to the
Novated Policies, (C) Insolvency Fund assessments, net of any premium tax
credits of the Company arising out of any such assessments, in respect of
premiums and other amounts paid on or after the Inception Date with respect to
the Novated Policies, (D) all amounts payable on or after the Inception Date
for returns or refunds of premiums under the Novated Policies, (E) all
liability for commission payments and other fees or compensation payable with
respect to the Reinsured Policies in respect of premiums and other amounts paid
on or after the Inception Date and (F) unclaimed property liabilities and
obligations arising under or related to the Reinsured Policies and payable on
or after the Inception Date.

(b)           Any Extra
Contractual Liabilities resulting from actions of the Company or its agents or
reinsured by the Company under the Travelers Reinsurance Agreement shall be
treated as a Loss for the purposes of this Agreement to the extent permitted by
state law, except to the extent that any such Extra Contractual Liabilities are
attributable to the conduct of the Company in its administration of the
Reinsured Policies on or after the Inception Date, other than actions taken by
the Company at the written request or direction of the Reinsurer.

(c)           All recoveries or
payments received by the Company subsequent to a loss settlement under this
Agreement shall be applied as if recovered or received prior to the aforesaid
settlement and all necessary adjustments shall be made by the parties
hereto;  provided, that nothing
in this Section 2.3(c) shall be construed to mean that the Reinsurer’s share of
the Losses and Allocated Loss Adjustment Expenses under this Agreement are not
recoverable until the Company’s Ultimate Net Loss has been ascertained.

2.4.          Territory.  The territorial limits of this Agreement
shall be identical with those of the Reinsured Policies.

2.5.          Ceded Reinsurance.  Subsequent to the Inception Date, the
Company will not enter into any reinsurance arrangements with respect to the
Reinsured Policies without the prior written consent of the Reinsurer, in its
sole discretion.

2.6.          Novation of Reinsured Policies.  The Reinsurer acknowledges that the Company
is obligated under the terms of the Travelers Agreements to use its reasonable
best efforts to assume and effect the novation of each of the Reinsured
Policies from Travelers to the Company, so as to substitute the Company, in
lieu of Travelers, as the insurer directly liable to the underlying insureds
under the Reinsured Policies.  Any
Reinsured Policy that has been novated to the Company is referred to in this
Agreement as a “Novated Policy”.  In the
event that a Reinsured Policy is novated from Travelers to the Company, such
Reinsured Policy shall continue for all purposes of this Agreement to be a
Reinsured Policy hereunder.  The
Reinsurer shall reimburse the Company for all costs reasonably incurred by the
Company in seeking to so novate the Reinsured Policies, which, for the
avoidance of doubt, are not included in the Expense Allowance.

2.7.          Travelers Reinsurance Agreement.  The Reinsurer acknowledges that the Company
is obligated under the terms of the Travelers Side Letter to amend the
Travelers Reinsurance Agreement not later than July 31, 2008, to increase the
portion of the underlying business that Travelers has ceded to the Company on a
coinsurance basis from ninety percent

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(90%) to one
hundred percent (100%) of the Reinsured Liabilities (as such term is defined in
the Travelers Reinsurance Agreement). Any such increased cession of the
Reinsured Liabilities (as such term is defined in the Travelers Reinsurance
Agreement) shall be reinsured under this Agreement.

ARTICLE III

ADMINISTRATION; GENERAL PROVISIONS

3.1.          Contract Administration.  (a) 
Subject to Section 3.9, the Company shall provide policyholder and
claims servicing and Business Overhead Services identified on Schedule E-1
hereto with respect to the Reinsured Policies in accordance with the terms
hereof.  All claims paid by the Company
shall be binding upon the Reinsurer; provided, however, that such
claims are within the terms, conditions and limitations of the Reinsured
Policies.  The Company shall administer
the Travelers Reinsurance Agreement and provide policyholder and claims
servicing and such Business Overhead Services with respect to the Reinsured
Policies in good faith and with the care, skill, prudence and diligence of a
person experienced in administering long term care insurance business.  The Company shall provide policyholder and
claims servicing and such Business Overhead Services with respect to the
Reinsured Policies, (i) in accordance with the terms of the Reinsured
Policies, (ii) in accordance with the terms of the Travelers Agreements,
(iii) in accordance with the applicable terms of this Agreement, (iv) in
compliance with Applicable Law and, subject to the foregoing, (v) in the same
manner as it conducts its own business not subject to this Agreement and (vi)
in accordance with the Company’s administrative performance standards in effect
on the date hereof, with such revisions to such standards as are no less
favorable to the Reinsurer than the Company’s standards in effect on the date
hereof.  Notwithstanding the foregoing,
the parties may, from time to time, mutually develop specific and/or different
standards for providing such services with respect to the Reinsured Policies, provided,
that such standards are not in conflict with the terms of the Travelers
Agreements.

(b)           The Company may
subcontract for the performance of any policyholder or claims servicing service
or services and such Business Overhead Services with respect to the Reinsured
Policies to (i) an Affiliate or (ii) any other Person with the prior
written consent of the Reinsurer, such consent not to be unreasonably withheld;
provided, that the Company also subcontracts for such service or
services for its own long term care insurance business not subject to this
Agreement to such subcontractor; provided, further, that such
subcontracting is permitted under the Travelers Servicing Agreement; and provided,
further, that no such subcontracting shall relieve the Company from any
of its obligations or liabilities hereunder, and the Company shall remain
responsible for all obligations or liabilities of such subcontractor with
regards to the providing of such service or services as if provided by the
Company.

3.2.          Claims Settlements.  (a) 
With respect to Reinsured Policies that are not Novated Policies, the
Company agrees that it will provide prompt notice to the Reinsurer of its
intention to litigate a claim with respect to such Reinsured Policy, along with
copies of all pleadings and reports of investigation with respect thereto.  The Reinsurer shall have the right, at

8

 

its own
expense, to participate jointly with the Company in the investigation,
adjustment or defense of such litigation.

(b)           With respect to
Novated Policies, the Company agrees that it will provide prompt notice to the
Reinsurer of its intention to contest, compromise or litigate a claim with
respect to a Novated Policy, along with copies of all pleadings and reports of
investigation with respect thereto.  The
Reinsurer shall have the right, at its own expense, to participate jointly with
the Company in the investigation, adjustment or defense of such claims with
respect to Novated Policies.  In
addition, in the event that litigation arises against the Company in connection
with a claim with respect to a Novated Policy which seeks damages in excess of
$1 million or other remedies deemed material to the Reinsurer, the Reinsurer
may, upon written notice to the Company, assume the defense thereof with
counsel selected by the Reinsurer and reasonably satisfactory to the
Company.  If the Reinsurer assumes such
defense, the Company shall have the right, at its own expense,  to participate jointly with the Reinsurer in
the defense thereof.  If the Reinsurer
assumes the defense of litigation, the Reinsurer shall not settle such
litigation without the Company’s prior written consent (which consent shall not
be unreasonably withheld or delayed) unless (i) there is no finding or
admission of any violation of law or any violation of the rights of any Person,
(ii) such settlement would not reasonably be expected to have material adverse
precedential consequences to the Company and (iii) the sole relief provided is
monetary damages that are paid in full by the Reinsurer.

3.3.          Re-rating of Novated Policies.  The Company (i) agrees to promptly seek to
increase or decrease the premium rates under the Novated Policies from and
after the Inception Date as directed by the Reinsurer and (ii) shall be
entitled to increase premium rates without the consent of the Reinsurer.  With respect to the Novated Policies,
neither the Reinsurer nor the Company may seek or implement, as applicable, a
premium rate increase unless such premium rate increase would have been
permitted under the terms of Section 3.2(i) of the Travelers Servicing
Agreement assuming such Novated Policies continued to be “Reinsured Contracts”
as defined under the Travelers Servicing Agreement.  Notwithstanding the foregoing, neither the Reinsurer nor the
Company may seek or implement, as applicable, more than one (1) premium rate
increase with respect to the Novated Policies in any state in any period of
three (3) calendar years.

Except as
required by Section 3.3(i) or by Applicable Law, the Company shall refrain from
seeking any decrease in the premium rates under the Novated Policies from and
after the Inception Date.

The Reinsurer
shall bear, and shall indemnify the Company for, all costs and liabilities
incurred in or arising out of seeking or effecting any premium rate changes at
the direction of the Reinsurer, which, for the avoidance of doubt, are not
included in the Expense Allowance.

3.4.          Inspection.  The Company shall keep accurate and complete
records, files and accounts of all transactions and matters with respect to the
Reinsured Policies and the administration thereof in accordance with Applicable
Law and its record management practices in effect from time to time for the
Company’s insurance business not covered by this Agreement.  The Reinsurer and its designated representatives
may upon reasonable notice inspect, at the

9

 

offices of the
Company where such records are located, the papers and any and all other books
or documents of the Company reasonably relating to this Agreement, including
the Reinsured Policies and the administration thereof by the Company (including
compliance with the provisions of Section 3.1), and shall have access to
appropriate employees and representatives of the Company, in each case during
normal business hours for such period as this Agreement is in effect or for as
long thereafter as the Company seeks performance by the Reinsurer pursuant to
the terms of this Agreement or the Reinsurer reasonably needs access to such
records for regulatory, tax or similar purposes.  The information obtained shall be used only for purposes relating
to the transactions contemplated under this Agreement.

3.5.          Errors and Omissions.  If any delay, omission, error or failure to
pay amounts due or to perform any other act required by this Agreement is
unintentional and caused by misunderstanding or oversight, the Company and the
Reinsurer will adjust the situation to what it would have been had the
misunderstanding or oversight not occurred. 
The party first discovering such misunderstanding or oversight, or an
act resulting from such misunderstanding or oversight, will notify the other
party in writing promptly upon discovery thereof, and the parties shall act to
correct such misunderstanding or oversight within twenty (20) Business Days of
such other party’s receipt of such notice. 
However, this Section shall not be construed as a waiver by either party
of its right to enforce strictly the terms of this Agreement.

3.6.          Age, Sex and Other Adjustments.  If the Company’s liability under any of the
Reinsured Policies is changed because of a misstatement of age or sex or any
other material fact, the Reinsurer will share in the change proportionately to
the coinsurance share hereunder and the Company and the Reinsurer will make all
appropriate adjustments to amounts due each other under this Agreement.

3.7.          Setoff.  Any debts or credits, matured or unmatured,
in favor of or against either the Company or the Reinsurer with respect to this
Agreement or any other reinsurance agreement between the Company and the
Reinsurer, are deemed mutual debts or credits, as the case may be, and shall be
setoff from any amounts due to the Company or the Reinsurer hereunder, as the
case may be, and only the net balance shall be allowed or paid.

3.8.          Salvage and Subrogation.  The Company shall use all commercially
reasonable efforts to fully obtain the benefit of any and all potential
recoveries, salvage and subrogations that would reasonably be expected to
reduce the amount of Ultimate Net Loss.

3.9.          Administration
by Reinsurer.  (a) At any time from
and after the fifteenth (15th) anniversary of the Inception Date,
the Reinsurer shall have the right to assume from the Company the
administration of the Novated Policies, provided that the Reinsurer provides
twelve (12) months prior written notice of such assumption, which notice may be
given as early as the fourteenth (14th) anniversary of the Inception Date to
take effect as of the fifteenth (15th) anniversary of the Inception Date.  The Reinsurer shall bear all transition
costs associated with an assumption of the administration of the Novated
Policies pursuant to this paragraph (a) of this Section 3.9.

10

 

(b)           In addition to the
provisions of Section 3.9(a), the Reinsurer shall have the right, upon written
notice to the Company to assume from the Company the administration of the
Novated Policies upon the occurrence of any of the following events:

(i)                 A voluntary or involuntary proceeding
is commenced in any jurisdiction by or against the Company for the purpose of
conserving, rehabilitating or liquidating the Company;

(ii)              There is a material breach by the Company
of any material term or condition of this Article III  that is not cured by the Company within thirty (30) days after
receipt of written notice from the Reinsurer of such breach or act (provided
that the Reinsurer shall not have the right to assume such administration (A)
for so long as the Company is making a good faith effort to cure such breach,
not to exceed an additional one hundred eighty (180) days or (B) during the
pendency of any dispute resolution proceedings as set forth in Article XV
regarding an alleged material breach); or

(iii)           The
Company is unable to perform the services required under this Article III for a
period of thirty (30) consecutive days for any reason, other than as a result
of a Force Majeure, it being understood that nothing in this Section
3.9(b)(iii) shall relieve the Company from its administrative responsibilities
under this Agreement.  For purposes of
this Agreement “Force Majeure” means any acts or omissions of any civil or
military authority, acts of God, acts or omissions of the Reinsurer, fires,
strikes or other labor disturbances, equipment failures, fluctuations or
non-availability of electrical power, heat, light, air conditioning or
telecommunications equipment, or any other act, omission or occurrence beyond
the Company’s reasonable control, irrespective of whether similar to the
foregoing enumerated acts, omissions or occurrences.

(c)           The
Company shall bear all transition costs associated with an assumption of the
administration of the Novated Policies pursuant to Section 3.9(b).

(d)           In
the event of the Reinsurer’s assumption of the administration of the Novated
Policies, the Reinsurer and the Company shall enter into an administrative
services agreement in the form attached hereto as Schedule B and the provisions
of Article IV, Article VI and Article VII shall become inoperative with respect
to the Novated Policies.

ARTICLE IV

CLAIMS SETTLEMENT ACCOUNT; CLAIMS

4.1.          Claims Settlement Account.  (a) On the Closing Date, the Reinsurer shall
establish a separate bank account (the “Claims Settlement Account”) in its own
name for the payment of Reinsured Risks and shall authorize two signatories who
shall be representatives of the Company and approved by the Reinsurer in
writing to issue drafts in the name of the

11

 

Reinsurer and
showing the identity of the Company. 
The Reinsurer shall fund such account for payment of claims in
accordance with the provisions of Section 4.1(b).  Any interest earned on the Claims Settlement Account shall belong
to the Reinsurer.  The Claims Settlement
Account shall be administered by the Company in a fiduciary capacity and shall
be used solely by the Company to make payments of claims in accordance with the
terms of this Agreement.

(b)           The Reinsurer shall
deposit $7.5 million in the Claims Settlement Account on the Closing Date and
shall thereafter fund the Claims Settlement Account on or before the fifth
(5th) day of each month in amounts agreed by the Company and the Reinsurer from
time to time in amounts sufficient to provide funds to the Company for the
payment of Reinsured Risks during the next thirty (30) days, or such other
amount as may be mutually agreed by the parties (such initial deposit amount
and each minimum funding amount as agreed from time to time shall be referred
to as a “Minimum Claims Settlement Amount”). 
In addition, the Reinsurer shall deposit to the Claims Settlement
Account such additional amounts as may be required to keep the balance of such
account above zero at all times.  In
consideration of the Reinsurer providing the Claims Settlement Account arrangement,
the Company agrees that it shall apply funds in the Claims Settlement Account
against the Reinsurer’s liability under this Agreement until such funds are
exhausted.

(c)           The Company shall
keep true and complete records, in accordance with Applicable Law and its
record management practices in effect from time to time for the Company’s
insurance business not covered by this Agreement, clearly recording the
deposits in and withdrawals from the Claims Settlement Account, including
records relating to the payment of Reinsured Risks from the Claim Settlement
Account.  The Company will make
available to the Reinsurer, or shall furnish to the Reinsurer or its designated
representative, upon request of the Reinsurer or its designated representative,
copies of all such records.  All copies
furnished in the ordinary course of business shall be furnished by the Company
at the Company’s cost, which shall be included in the Expense Allowance.  Any extraordinary costs reasonably incurred
by the Company in response to requests from the Reinsurer shall be reimbursed
by the Reinsurer.

(d)           Within thirty (30)
days after each Accounting Period (or more frequently as mutually agreed by the
parties), the Company shall render a complete accounting to the Reinsurer
detailing all transactions with respect to the Claims Settlement Account, in
such form as agreed by the parties.

(e)           The parties agree to
deliver to the depository bank such depository resolutions, signature cards, and other documents as may be
requested of them in order to use such accounts at the depository bank in
accordance with the provisions of this Article IV.

(f)            Upon
a termination of this Agreement pursuant to Article IX, the Reinsurer shall
close the Claims Settlement Account and any closing balance therein shall be
the property of the Reinsurer.  The
Company’s claims payment authority under this Agreement with respect to the
Claims Settlement Account shall terminate immediately upon termination of this
Agreement pursuant to Article IX.  Upon
termination of its authority to pay claims, the Company shall promptly return
to the Reinsurer all unused check stock held by it in connection with this
Agreement.

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ARTICLE V

REINSURANCE ASSET TRANSFER; CEDING COMMISSION

5.1.          Initial Reinsurance Premium.  As consideration for the reinsurance by the
Reinsurer of the Reinsured Risks under this Agreement, on the Closing Date the
Reinsurer shall be entitled to an amount equal to one hundred percent (100%) of
the Total SAP Ceded Reserves as of the close of business on the day immediately
preceding the Inception Date (the “Initial Reinsurance Premium”).

5.2.          Additional Reinsurance Premium.  As additional consideration for the
Reinsurer entering into this Agreement, Reinsurer shall be entitled to 100% of
all premiums and other considerations (including all reinsurance premium and
Stop-Loss Payments from Travelers to the Company under the Travelers
Reinsurance Agreement) to the extent received on or after the Inception Date by
the Company or the Reinsurer with respect to the Reinsured Policies, including
premium receivables that were due and unpaid as of the Inception Date that were
taken into account in the calculation of the Initial Reinsurance Premium.

5.3.          Ceding Commission.  On the Closing Date, the Company shall be
entitled to a ceding commission (the “Ceding Commission”) in an amount
determined in accordance with Schedule C. 
On the date of amendment of the Travelers Reinsurance Agreement as
described in Section 2.7, the Reinsurer shall pay to the Company an additional
ceding commission equal to the ceding commission payable by the Company to
Travelers at such time pursuant to such agreement.

5.4.          Amounts Due the Parties.  (a) Except as otherwise specifically
provided herein, all amounts due to be paid to the Company under this Agreement
shall be determined on a net basis, giving full effect to
Section 3.7.  The net amount due
the Reinsurer from the Company on the Closing Date under Section 5.1 and
Section 5.3 shall consist of (i) the investment assets (the “Assets”) set forth
on Schedule D, which assets have a statutory book value as of the close of
business on the day immediately preceding the Inception Date equal to (A) the
Initial Reinsurance Premium, less (B) the Ceding Commission, less (C) an amount
equal to accrued but unpaid interest on the Assets as of the close of business
on the day immediately preceding the Inception Date, plus (ii) an amount equal
to the investment cash flows received on the Assets between the Inception Date
and the Closing Date.  The Company shall
pay such net amount concurrent with its delivery of the Initial Report.  Each net amount subsequently due with
respect to each Accounting Period ending after the Inception Date (the “Monthly
Settlement”) shall be paid in cash by the Reinsurer to the Company no later
than thirty (30) days after delivery of the Monthly Settlement Report.  Each net amount subsequently due with
respect to each calendar quarter ending after the Inception Date (the
“Quarterly Settlement”) shall be paid in cash by the Reinsurer to the Company
no later than thirty (30) days after delivery of the Quarterly Settlement
Report.  Each net amount subsequently
due with respect to each calendar year ending after the Inception Date as
reflected on an Annual Report shall be paid in cash by the Reinsurer to the
Company no later than thirty (30) days after delivery of the Annual Report.

(b)           The Company shall
deliver to the Reinsurer possession of the Assets and such bills of sale,
endorsements, assignments and other good and sufficient instruments of

13

 

conveyance and
transfer in form and substance reasonably acceptable to the parties as shall be
effective to vest in the Reinsurer all of the right, title and interest of the
Company in and to the Assets.  Delivery
of the Assets shall be a condition precedent of reinsurance coverage hereunder.

ARTICLE VI

EXPENSE ALLOWANCES

6.1.          Expense Allowance.  As reimbursement for expenses incurred by
the Company in providing services with respect to the Reinsured Policies and
Travelers Agreements, the Reinsurer shall pay to the Company with respect to
each Accounting Period ending after the Inception Date, an expense allowance
(each an “Expense Allowance”) in an amount calculated in accordance with
Schedule E, as subsequently adjusted in accordance with the methodology and
procedures set forth in Schedule E.

ARTICLE VII

ACCOUNTING AND SETTLEMENT

7.1.          Initial Report.  A report shall be provided by the Company to
the Reinsurer on the Closing Date providing the data required in
Schedule F - Part I (the “Initial Report”).

7.2.          Monthly Settlement Reports.  As soon as practicable but not more than
thirty (30) days following the end of each Accounting Period ending after the
Closing Date (or more frequently as mutually agreed by the parties), the
Company shall supply the Reinsurer with a report that shall provide the
financial data for such Accounting Period required in Schedule F - Part II
(the “Monthly Settlement Report”).

7.3.          Quarterly Settlement Reports.  As soon as practicable but not more than
forty (40) days following the end of each calendar quarter ending after the
Closing Date (or more frequently as mutually agreed by the parties), the
Company shall supply the Reinsurer with a report that shall provide the
financial data for such quarter required in Schedule F - Part
III (the “Quarterly Settlement Report”). 
The Company and the Reinsurer agree that the financial data set forth on
the Monthly Settlement Reports used for purposes of the Monthly Settlements,
shall be trued-up to actual amounts in the next Quarterly Settlement Report and
the net amount, if any, subsequently due to the Company or the Reinsurer, as
the case may be, as a result of such adjustments shall be paid to the Company
or the Reinsurer, as applicable.  For
the avoidance of doubt, the first Quarterly Settlement Report will include all
transactions with respect to the Reinsured Policies occurring from the Inception
Date through June 30, 2004.

7.4.          Quarterly Financial Reports.  As soon as practicable but not more than
forty (40) days following the end of each calendar quarter ending after the
Closing Date (or more frequently as mutually agreed by the parties), the
Company shall supply the Reinsurer with reports related to the Reinsured
Policies as may be reasonably requested for use in connection

14

 

with the
preparation of the Reinsurer’s SAP financial statements or other reports
prepared by the Reinsurer in compliance with its internal reporting
requirements.  The parties shall
cooperate in good faith to establish the form for the providing of such
reports.

7.5.          Annual Reports.  Within forty-five (45) days after the end of
each calendar year during the term of this Agreement (or more frequently as
mutually agreed by the parties), the Company shall supply the Reinsurer with a
report that shall provide the financial data for such year required in
Schedule F - Part IV (the “Annual Report”).

7.6.          Additional Reports and Updates.  For so long as this Agreement remains in
effect, each of the parties shall periodically furnish to the other such other
reports and information as may be reasonably requested by such other party for
regulatory, tax or similar purposes and reasonably available to it.

7.7.          Delayed Payments.  In the event that all or any portion of any
payment due either party pursuant to this Agreement becomes overdue, the
portion of the amount overdue shall bear interest at an annual rate equal to
the then current thirty (30) day U.S. Treasury Bill discount rate on the date
that the payment becomes overdue plus 200 basis points, for the period that the
amount is overdue.

ARTICLE VIII

EXPERIENCE REFUND

8.1.          Experience Refund.  (a) The Reinsurer shall establish, and
maintain through December 31, 2018, a notional account known as the “Experience
Account” in connection with this Agreement, and record therein certain
cumulative experience on the Reinsured Policies as described below.  As of the Inception Date, the balance of the
Experience Account will equal zero. 
Within the first forty five (45) days of each calendar year beginning
January 1, 2005, through calendar year beginning January 1, 2019, the Company
shall make the following calculation regarding certain experience on the
Reinsured Policies during the preceding calendar year (which result may be a
positive or a negative number), and shall promptly thereafter deliver to the
Reinsurer the result of such calculation:

[X] x [Y],
where

 

X equals the excess of (i) over
(ii) (the result of which may be a positive number or a negative number), where
(i) is the actual statutory basis pre-tax income earned on the Reinsured
Policies for the calendar year for which the calculation is being made,
calculated consistent with projected statutory basis pre-tax income earned on
the Reinsured Policies (the “Experience Refund Baseline”) as calculated on
Schedule I hereto, but utilizing actual experience (e.g., actual premiums and
expenses will be used in place of the projected amounts shown on Schedule I),
except for investment income during the first three years (see below) and (ii)
is the Experience Refund Baseline for the calendar year for which the
calculation is being made as set forth on Schedule I hereto; and Y equals 90%
for calculations made with respect to calendar years 2004 through 2006 and 50%
for calculations made with respect to calendar years thereafter; provided,

 

15

 

however,
that if the cumulative amount of X during the calendar years 2004-2006 exceeds
$65 million, then Y shall be reduced to 50% for any amounts of X over $65
million.  The calculation of investment
income and the IMR income components of the actual pre-tax income for 2004-2006
shall be based on an assumed net annual yield of 6.19%, 6.08% and 6.02%
respectively.  To derive investment
income, the prior stated rates should be applied to a 2 point average of the
sum of Total SAP Ceded Reserves and statutory IMR liability.  The two points should be December 31st
for the applicable settlement year and December 31st for the
immediately prior year.  Surplus assets
and investment income thereon are excluded from the Experience Refund Baseline
calculation, and therefore should also be excluded from the Total Annual
Contribution calculation. Thereafter the investment income and IMR income shall
be similarly calculated using the actual net yield (net of investment expenses
and default costs) and allocated IMR from the Reinsurer’s LTC asset portfolio
backing the Total SAP Ceded Reserves.

 

(b)           The result of the
calculation in Section 8.1(a) for each calendar year shall be referred to in
this Agreement as the “Total Annual Contribution.”  Following each calculation of Total Annual Contribution, the
balance of the Experience Account will be adjusted as of the end of the
preceding calendar year as follows:

(i)                 The balance of the Experience Account
will be increased by: (A) the amount of the Total Annual Contribution for the
preceding calendar year, but only if such Total Annual Contribution is a
positive number and (B) interest credited in accordance with the terms of
Section 8.1(d) below on any positive balance of the Experience Account.

(ii)              The balance of the Experience Account will
be decreased by: (A) the amount of the Total Annual Contribution for the
preceding calendar year, but only if such Total Annual Contribution is a
negative number, (B) interest credited in accordance with the terms of Section
8.1(d) below on any negative balance of the Experience Account, and (C) the
amount, if any, paid by the Reinsurer to the Company in accordance with the
terms of Section 8.1(c) below.

(c)           Subject to Section
8.1(e), each calendar year that the balance of the Experience Account is a
positive number following the adjustments contemplated in Section 8.1(b) above
(other than the adjustment contemplated in Section 8.1(b)(ii)(C)), the
Reinsurer shall pay to the Company an “Experience Refund” as follows:  (i) For calendar years ending prior to
December 31, 2018, the Reinsurer shall pay to the Company the lesser of (A) the
balance of the Experience Account and (B) an amount equal to the sum of (x) 20%
of each positive Total Annual Contribution made with respect to the previous
five (5) calendar years (or shorter period in the event that this Agreement has
not been in effect for five (5) years) plus (y) interest credited to the
balance of the Experience Account during the previous calendar year in
accordance with Section 8.1(d) below if the balance of the Experience Account
was positive during such year; and (ii) For calendar year ending December 31,
2018, the Reinsurer shall pay to the Company the balance of the Experience
Account as of December 31, 2018 (if a positive number).  Any amounts due pursuant to this Section
8.1(c) shall be paid by the Reinsurer to the Company not later than thirty (30)
days following the Company’s delivery to the Reinsurer of the Company’s
calculation of the Total Annual Contribution for the preceding calendar
year.  In

16

 

no event shall
the Company be required to make any Experience Refund payments to the Reinsurer
or return any Experience Refund payments to the Reinsurer, including if the
balance of the Experience Account was, is or becomes a negative number.

(d)           Interest shall
accrue on the balance of the Experience Account (positive or negative) at an
annual rate equal to the one (1) year U.S. Treasury Bill discount rate in
effect on the close of business on July 1 or, if July 1 is not a Business Day,
on the next Business Day of the current calendar year plus 100 basis
points.  Interest shall be credited to
the balance of the Experience Account as of the end of each calendar year
immediately before making any adjustments for the Total Annual Contribution
with respect to such calendar year.

(e)           Notwithstanding
anything contained in this Section 8.1 to the contrary, no Experience Refund
payments shall be made to the Company on any Reinsured Policies with respect to
any period following the Reinsurer’s assumption of the administration of the
Novated Policies pursuant to Section 3.9.

ARTICLE IX

DURATION AND TERMINATION

9.1.          Duration.  Except as otherwise provided herein, this
Agreement shall be unlimited in duration.

9.2.          Reinsurer’s Liability.  The Reinsurer’s liability with respect to
the Reinsured Risks will terminate on the earliest of:  (i) the date the Company’s liability
with respect to the Reinsured Risks is terminated and all amounts due the
Company from the Reinsurer with respect to such Reinsured Risks are paid to the
Company by or on behalf of the Reinsurer; and (ii) the date this Agreement is
terminated upon the written agreement of the parties.

9.3.          Notice of Termination.  Upon the termination of the Reinsurer’s
liability with respect to the Reinsured Risks referred to in Section 9.2 above,
the parties shall mutually give the Trustee written notice of their intention
to terminate the Trust Account.

ARTICLE X

INSOLVENCY

10.1.        Payments.  In the event of the insolvency of the
Company, the reinsurance payable by the Reinsurer hereunder shall be payable
directly to the Company or to its domiciliary liquidator or receiver on the
basis of liability of the Reinsurer under the contract or contracts reinsured,
without diminution because of the insolvency of the Company.  It is agreed and understood, however, that
(i) in the event of the insolvency of the Company, the Reinsurer shall be given
written notice of the pendency of a claim against the insolvent Company on a
Reinsured Policy within a reasonable time after such claim is filed in the
insolvency proceeding and (ii) during the pendency of such claim the Reinsurer
may investigate such claim and

17

 

interpose, at
its own expense, in the proceeding where such claim is to be adjudicated any
defenses which it may deem available to the Company or its domiciliary
liquidator, receiver or statutory successor.

10.2.        Expenses.  It is further understood that any expense
thus incurred by the Reinsurer pursuant to Section 10.1 shall be
chargeable, subject to court approval, against the insolvent Company as part of
the expense of liquidation to the extent of a proportionate share of the
benefit which may accrue to the Company solely as a result of the defense undertaken
by the Reinsurer.  Where two or more
assuming reinsurers are involved in the same claim and a majority in interest
elect to interpose defenses to such claim, the expense shall be apportioned in
accordance with the terms of this Agreement as though such expense had been
incurred by the Company.

ARTICLE XI

CREDIT FOR REINSURANCE

11.1.        Reinsurance Credit.  Notwithstanding any other provision of this
Agreement to the contrary, if the Reinsurer becomes unauthorized or otherwise
unaccredited as an insurer or reinsurer in any U.S. jurisdiction to which the
Company must provide statutory statements of financial condition such that the
Company will not obtain full statutory financial statement credit for
reinsurance in such state for the reinsurance provided under this Agreement,
the Reinsurer, upon the request of the Company, will establish, at the
Reinsurer’s sole cost and option, trust accounts for the benefit of the
Company, letters of credit, or other acceptable alternatives necessary to
permit the Company to obtain such full statutory financial statement credit for
such reinsurance in all applicable jurisdictions.  The Company shall cooperate with the Reinsurer to take such
steps.  In addition, in such event, the
Reinsurer agrees to amend this Agreement and the Trust Agreement to the extent
required under Applicable Law in order to provide the Company with such full
statutory financial statement credit.

ARTICLE XII

REINSURANCE SECURITY

12.1.        Trust. 
(a)  On the Closing Date, the
Reinsurer shall enter into a trust agreement in the form attached as Schedule G
(the “Trust Agreement”) and establish a trust account (the “Trust Account”) for
the benefit of the Company with respect to the Reinsured Risks with a bank (the
“Trustee”) designated as a Qualified United States Financial Institution by the
Securities Valuation Office of the National Association of Insurance
Commissioners or any successor organization or regulatory agency having similar
duties.

(b)           The Reinsurer agrees
to deposit, and maintain in the Trust Account with respect to this Agreement,
assets to be held in trust by the Trustee for the benefit of the Company as
security for the payment of the Reinsurer’s obligations to the Company under
this Agreement.

18

 

(c)           The parties agree
that the assets so deposited with respect to this Agreement shall be valued
according to their current statutory book value on the books of the Reinsurer
and shall consist only of cash (United States legal tender), certificates of
deposit (issued by a United States bank and payable in United States legal
tender), and other assets of the type specified on Schedule H attached hereto
(“Eligible Securities”).

(d)           The Reinsurer, prior
to depositing assets with the Trustee, shall execute all assignments and
endorsements in blank, or transfer legal title to the Trustee of all shares,
obligations or any other assets requiring assignments, in order that, to the
extent practicable, the Company, or the Trustee upon direction of the Company,
may whenever necessary negotiate any such assets without consent or signature
from the Reinsurer or any other entity. 
The Company recognizes that certain assets in the Trust Account will not
be readily negotiable and that certain notices, opinions of counsel, representations
and/or consents will be required for the Company to obtain good and marketable
title to such assets.

(e)           The Reinsurer and
the Company agree that the assets in the Trust Account with respect to this
Agreement may be withdrawn for the following purposes only:

(i)                 to pay or reimburse the Company for any
amount due the Company pursuant to this Agreement to the extent not so paid or
reimbursed by the Reinsurer;

(ii)              to pay to the Reinsurer, in accordance
with paragraph (h) below, any amounts held in the Trust Account that exceed an
amount (the “Funding Requirement”) equal to the sum of Total SAP Ceded Reserves
and any additional reserves attributable to the Reinsured Risks that arise as a
result of regulatory asset adequacy analysis requirements of the Reinsurer,
less, prior to the date on which the Claims Settlement Account is closed, the
Minimum Claims Settlement Amount then in effect; and

(iii)           in the event that General Electric Capital
Corporation breaches its obligations under the Capital Maintenance Agreement,
to fund an account with the Company (the “Company Account”) in an amount at
least equal to the deduction, for reinsurance ceded, from the Company’s
liabilities ceded under this Agreement. 
Such amount shall include, but not be limited to, amounts for policy
reserves, reserves for claims and losses incurred (including losses incurred
but not reported), loss and loss adjustment expenses, and unearned premiums.

(f)            In the event that
the Company withdraws assets from the Trust Account for the purposes set forth
in Section 12.1(e)(i) above in excess of actual amounts required to meet the
Reinsurer’s obligations to the Company, the Company will promptly return such
excess to the Reinsurer, plus interest at an annual rate equal to the then current
thirty (30) day U.S. Treasury Bill discount rate on the date of withdrawal plus
200 basis points for the period during which the amounts were held pursuant to
Section 12.1(e)(i).  In the event that
the Company withdraws assets from the Trust Account for the purposes set forth
in Section 12.1(e)(iii) above, (i) the Reinsurer shall be relieved of its
obligation to maintain assets in the Trust Account 

19

 

pursuant to
this Section 12.1 to the extent of the amount of funds held in the Company
Account and (ii) the Company shall first apply the funds in the Company Account
in satisfaction of the Reinsurer’s liability under this Agreement until the
funds in the Company Account are exhausted. 
In the event that the Company withdraws assets from the Trust Account
for the purposes set forth in Section 12.1(e)(iii) above, promptly following
the date the Reinsurer’s liability with respect to the Reinsured Risks is
terminated, the Company shall return to the Reinsurer any assets so withdrawn
that, together with any and all interest, dividends and other earnings thereon
from the date of withdrawal to the date of return, are in excess of actual
amounts required to meet the Reinsurer’s obligations to the Company under this
Agreement.

(g)           The initial deposit
to the Trust Account with respect to this Agreement shall be made on the
Closing Date and shall consist of assets with a statutory book value equal to
the Total SAP Ceded Reserves as of the close of business on the day immediately
preceding the Inception Date, less an amount of assets with a statutory book
value equal to the initial Minimum Claims Settlement Amount.

(h)           The aggregate
statutory book value of the assets held in the Trust Account with respect to
this Agreement, shall at all times be at least equal to the Funding
Requirement, and shall be adjusted on a quarterly basis so as to equal the
Funding Requirement.   On a quarterly
basis, the Company shall promptly prepare and deliver to the Reinsurer a
specific statement of the Funding Requirement and the Reinsurer shall promptly
prepare and deliver to the Company a specific statement of the statutory book
value of the assets in the Trust Account, in each case as of the end of the
quarter.  If the statement shows that
the Funding Requirement exceeds 100% of the balance of the Trust Account with
respect to this Agreement as of the statement date, the Reinsurer shall, within
ten (10) Business Days after receipt of such notice of excess, secure delivery
to the Trustee of additional cash or Eligible Securities having a current
statutory book value equal to such difference. 
If the statement shows that the Funding Requirement is less than 100% of
the balance of the Trust Account with respect to this Agreement as of the statement
date, the Company shall, within ten (10) Business Days after delivery of such
statement to the Reinsurer, deliver a notice of withdrawal to the Trustee
directing the Trustee to withdraw from the Trust Account and deliver to the
Reinsurer assets from the Trust Account having a current statutory book value
equal to such excess amount.  In
addition to the foregoing, the Reinsurer shall prepare and deliver to the
Company on a quarterly basis a specific statement of the market value of the
assets in the Trust Account as of the end of the quarter.

ARTICLE XIII

DEFERRED ACQUISITION COSTS

13.1.        Tax DAC Information Sharing.  To ensure consistency in their respective
Tax DAC calculations for tax purposes, the Company and the Reinsurer will
exchange information pertaining to the amount of net consideration under this
Agreement each year.  The Company will
submit a schedule to the Reinsurer by February 28 of each year presenting its
calculation of the net consideration for the preceding taxable year.  The Reinsurer may contest the calculation by
providing to the Company and alternative calculation in writing within thirty

20

 

(30) days of
receipt of the Company’s schedule.  The
Company and the Reinsurer will act in good faith to resolve any differences in
the schedule of calculations within thirty (30) days of receipt of the
alternative calculation to ensure consistent amounts are reported on the
respective tax returns for the preceding tax year.

ARTICLE XIV

INDEMNIFICATION

14.1.        Indemnification.  (a) 
The Reinsurer agrees to indemnify and hold the Company harmless from any
and all Losses (as defined in the Travelers Reinsurance Agreement) paid by the
Company to any Cedent Indemnities (as defined in the Travelers Reinsurance
Agreement) pursuant to Section 16.1 of the Travelers Reinsurance Agreement.

(b)           The Company shall
provide to the Reinsurer the benefits of any of the Company’s indemnification
rights under Section 16.2 of the Travelers Reinsurance Agreement and under
Section 9.2 of the Travelers Acquisition Agreement.  Except as contemplated by Section 2.7, without the prior written
consent of the Reinsurer, which consent shall not be unreasonably withheld, the
Company shall not amend, modify, waive or fail to enforce any term or provision
of any of the Travelers Agreements, if such amendment, modification, waiver or
failure to enforce could reasonably be expected to increase the liability of
the Reinsurer hereunder.

(c)           The Company shall
use its commercially reasonable efforts to take, fully at the Reinsurer’s
expense, all actions necessary to maintain in full force and effect the
Company’s rights of indemnification under the Travelers Agreements.  The Company shall refrain from taking any
action that would reasonably be expected to limit or diminish Travelers’
obligations thereunder; provided, however, that this paragraph
shall not prohibit a Change of Control of the Reinsurer (as defined in the
Travelers Acquisition Agreement).

ARTICLE XV

DISPUTE RESOLUTION

15.1.        General Provisions.  (a)  Any dispute,
controversy or claim arising out of or relating to this Agreement or the
validity, interpretation, breach or termination thereof (a “Dispute”), shall be
resolved in accordance with the procedures set forth in this Article XV, which
shall be the sole and exclusive procedures for the resolution of any such
Dispute unless otherwise specified below.

(b)           Commencing with the
request contemplated by Section 15.2, all communications between the parties or
their representatives in connection with the attempted resolution of any
Dispute, including any mediator’s evaluation referred to in Section 15.3, shall
be deemed to have been delivered in furtherance of a Dispute settlement and
shall be exempt from discovery and production, and shall not be admissible in
evidence for any reason (whether

21

 

as an
admission or otherwise), in any arbitral or other proceeding for the resolution
of the Dispute.

(c)           In connection with
any Dispute, the parties expressly waive and forego any right to (i) punitive,
exemplary, statutorily-enhanced or similar damages in excess of compensatory
damages, and (ii) trial by jury.

(d)           The specific
procedures set forth below, including but not limited to the time limits
referenced therein, may be modified by agreement of the parties in writing.

(e)           All applicable
statutes of limitations and defenses based upon the passage of time shall be
tolled while the procedures specified in this Article XV are pending.  The parties will take such action, if any,
required to effectuate such tolling.

15.2.        Consideration by Senior Executives.  If a Dispute is not resolved in the normal
course of business at the operational level, the parties shall attempt in good
faith to resolve such Dispute by negotiation between executives who hold, at a
minimum, the office of President and CEO of the respective business entities
involved in such Dispute.  Either party
may initiate the executive negotiation process by providing a written notice to
the other (the “Initial Notice”). 
Fifteen (15) days after delivery of the Initial Notice, the receiving
party shall submit to the other a written response (the “Response”).  The Initial Notice and the Response shall
include (i) a statement of the Dispute and of each party’s position, and (ii)
the name and title of the executive who will represent that party and of any
other person who will accompany the executive. Such executives will meet in
person or by telephone within thirty (30) days of the date of the Initial
Notice to seek a resolution of the Dispute.

15.3.        Mediation.  If a Dispute is not resolved by negotiation
as provided in Section 15.2 within forty-five (45) days from the delivery of
the Initial Notice, then either party may submit the Dispute for resolution by
mediation pursuant to the CPR Institute for Dispute Resolution (the “CPR”)
Model Mediation Procedure as then in effect. The parties will select a mediator
from the CPR Panels of Distinguished Neutrals, but such mediator must have
prior U.S. reinsurance experience either as a lawyer or as a present or former
officer or management employee of a reinsurance company, but not of the
Company, or the Reinsurer, or any of their respective affiliates.  Either party at commencement of the
mediation may ask the mediator to provide an evaluation of the Dispute and the
parties’ relative positions.

15.4.        Arbitration.  (a)  If a Dispute
is not resolved by mediation as provided in Section 15.3 within thirty (30)
days of the selection of a mediator (unless the mediator chooses to withdraw
sooner), either party may submit the Dispute to be finally resolved by
arbitration pursuant to the CPR Rules for Non-Administered Arbitration as then
in effect (the “CPR Arbitration Rules”). The parties consent to a single,
consolidated arbitration for all known Disputes existing at the time of the
arbitration and for which arbitration is permitted.

(b)           The neutral
organization for purposes of the CPR Arbitration Rules will be the CPR. The
arbitral tribunal shall be composed of three arbitrators who are each
experienced in the U.S. reinsurance business, of whom each party shall appoint
one in accordance with the “screened” appointment procedure provided in Rule
5.4 of the CPR Arbitration Rules.  The
non-

22

 

party
appointed arbitrator must have prior U.S. reinsurance experience as a present
or former officer or management employee of a reinsurance company, but not of
the Company, or the Reinsurer, or any of their respective affiliates.  The arbitration shall be conducted in New
York City.  Each party shall be
permitted to present its case, witnesses and evidence, if any, in the presence
of the other party. A written transcript of the proceedings shall be made and
furnished to the parties. The arbitrators shall determine the Dispute in
accordance with the law of Delaware, without giving effect to any conflict of
law rules or other rules that might render such law inapplicable or
unavailable, and shall apply this Agreement according to its terms, provided
that the provisions relating to arbitration shall be governed by the Federal
Arbitration Act, 9 U.S.C. §§ 1 et seq. 
The arbitral tribunal shall endeavor to render its award or order
resulting from any arbitration within forty-five (45) days following the
termination of the arbitration proceedings.

(c)           The parties agree to
be bound by any award or order resulting from any arbitration conducted
hereunder and further agree that judgment on any award or order resulting from
an arbitration conducted under this Section may be entered and enforced in any
court having jurisdiction thereof.

(d)           Except as expressly
permitted by this Agreement, no party will commence or voluntarily participate
in any court action or proceeding concerning a Dispute, except (i) for
enforcement as contemplated by Section 15.4(c) above, (ii) to restrict or
vacate an arbitral decision based on the grounds specified under applicable
law, or (iii) for interim relief as provided in paragraph (e) below. For
purposes of the foregoing the parties hereto submit to the non-exclusive
jurisdiction of the courts of the State of New York.

(e)           In addition to the
authority otherwise conferred on the arbitral tribunal, the tribunal shall have
the authority to make such orders for interim relief, including injunctive
relief, as it may deem just and equitable. Notwithstanding paragraph (d) above,
each party acknowledges that in the event of any actual or threatened breach of
certain of the provisions of this Agreement, the remedy at law would not be
adequate, and therefore injunctive or other interim relief may be sought
immediately to restrain such breach.  If
the tribunal shall not have been appointed, either party may seek interim
relief from a court having jurisdiction if the award to which the applicant may
be entitled may be rendered ineffectual without such interim relief. Upon
appointment of the tribunal following any grant of interim relief by a court,
the tribunal may affirm or disaffirm such relief, and the parties will seek modification
or rescission of the court action as necessary to accord with the tribunal’s
decision.

(f)            Each party will
bear its own attorneys’ fees and costs incurred in connection with the
resolution of any Dispute in accordance with this Article XV.

ARTICLE XVI

PRIVACY REQUIREMENTS

16.1.        Privacy Requirements.  In providing the administrative services
provided for under this Agreement, and in connection with maintaining,
administering, handling and 

23

 

transferring
the data of the policyholders and other recipients of benefits under the
Reinsured Policies, the Company shall, and shall cause its Affiliates and any
permitted subcontractor to, comply with all confidentiality and security
obligations applicable to them in connection with the collection, use,
disclosure, maintenance and transmission of personal, private, health or
financial information about individual policyholders or benefit recipients,
including the provisions of privacy policies under which such information was
gathered, those laws currently in place and which may become effective during
the term of this Agreement, including the Gramm-Leach-Bliley Act, the Health
Insurance Portability and Accountability Act of 1996 and any other Applicable Laws.  The Company shall entitle the Reinsurer and
its agents and representatives, the Commissioner of Health and Human Services
and such other Governmental Authorities, to the extent required by Applicable
Law, to audit the Company’s compliance herewith.  The Company shall also enable individual subjects of personally
identifiable information, upon request from such individuals, to review and
correct information maintained by the Company about them, and to restrict use
of such information.  The Company shall promptly
report to the Reinsurer any violation of this provision of which the Company
becomes aware.  Unless required by
Applicable Law, the Company shall not during the term of this Agreement, modify
the privacy policies under which information utilized by the Company in
administering the Reinsured Policies is gathered, without the Reinsurer’s prior
written consent, which consent shall not be unreasonably withheld.  The parties hereto agree to comply with the
terms of the Business Associate Addendum attached hereto.

ARTICLE XVII

MISCELLANEOUS PROVISIONS

17.1.        Headings and Schedules.  Headings used herein are not a part of this
Agreement and shall not affect the terms hereof.  The attached Schedules are a part of this Agreement.

17.2.        Notices.  All notices, requests, demands and other
communications under this Agreement must be in writing and will be deemed to
have been duly given or made as follows: 
(a) if sent by registered or certified mail in the United States return
receipt requested, upon receipt; (b) if sent by reputable overnight air
courier, two business days after mailing; (c) if sent by facsimile
transmission, with a copy mailed on the same day in the manner provided in (a)
or (b) above, when transmitted and receipt is confirmed by telephone; or (d) if
otherwise actually personally delivered, when delivered, and shall be delivered
as follows:

If to the Company:

General Electric Capital Assurance Company

6610 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 281-6165

Attention:  Chief Executive Officer

 

24

 

With a copy to: 

General Electric Capital Assurance Company

6620 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 662-2414

Attention:  General Counsel

If to the Reinsurer:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile: (847) 330-3404         

Attention: Chief Financial Officer

With a copy to:

Union Fidelity Life Insurance
Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

or to such
other address or to such other Person as either party may have last designated
by notice to the other party.

17.3.        Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. 
Neither this Agreement, nor any right or obligation hereunder, may be
assigned by any party without the prior written consent of the other party hereto.  Any assignment in violation of this Section 17.3 shall be
void and shall have no force and effect. 
Nothing in this Section 17.3 shall be construed to prohibit the
Reinsurer from retroceding all or any portion of the business reinsured
hereunder.

17.4.        Execution in Counterpart.  This Agreement may be executed by the
parties hereto in any number of counterparts, and by each of the parties hereto
in separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.

17.5.        Currency.  Whenever the word “Dollars” or the “$” sign
appear in this Agreement, they shall be construed to mean United States
Dollars, and all transactions under this Agreement shall be in United States
Dollars.

17.6.        Amendments.  This Agreement may not be changed, altered
or modified unless the same shall be in writing executed by the Company and the
Reinsurer.

25

 

17.7.        Governing Law.  This Agreement will be construed, performed
and enforced in accordance with the laws of the State of Delaware, without
giving effect to its principles or rules of conflict of laws thereof to the
extent such principles or rules would require or permit the application of the
laws of another jurisdiction.

17.8.        Entire Agreement; Severability.  (a) This Agreement and the Termination
Letter Agreement constitute the entire agreement between the parties hereto
relating to the subject matter hereof and supersede all prior and
contemporaneous agreements, understandings, statements, representations and
warranties, negotiations and discussions, whether oral or written, of the
parties and there are no general or specific warranties, representations or
other agreements by or among the parties in connection with the entering into
of this Agreement or the subject matter hereof except as specifically set forth
or contemplated herein or in the Termination Letter Agreement.

(b)           If any provision of
this Agreement is held to be void, unenforceable or in violation of any
provision of the Travelers Agreements, in whole or in part, (i) such
holding or provision shall not affect the validity and enforceability of the
remainder of this Agreement, including any other provision, paragraph or
subparagraph, and (ii) the parties agree to attempt in good faith to
reform such void, unenforceable or violative provision to the extent necessary
to render such provision enforceable and to carry out its original intent.

17.9.        Contemporaneous Agreements.  Concurrent with the execution of this
Agreement, the parties and/or their Affiliates are also entering into the
Capital Maintenance Agreement, the RBC Reporting Letter Agreement and the
Assignment Letter Agreement.

17.10.      No
Waiver; Preservation of Remedies. 
No consent or waiver, express or implied, by any party to or of any
breach or default by any other party in the performance by such other party of
its obligations hereunder shall be deemed or construed to be a consent or
waiver to or of any other breach or default in the performance of obligations
hereunder by such other party hereunder. 
Failure on the part of any party to complain of any act or failure to
act of any other party or to declare any other party in default, irrespective
of how long such failure continues, shall not constitute a waiver by such first
party of any of its rights hereunder.  The rights and remedies provided
are cumulative and are not exclusive of any rights or remedies that any party
may otherwise have at law or equity.

17.11.      Cooperation.  Each party hereto shall cooperate fully with
the other in all reasonable respects in order to accomplish the objectives of
this Agreement including making available to each their respective officers and
employees for interviews and meetings with Governmental Authorities and
furnishing any additional assistance, information and documents as may be
reasonably requested by a party from time to time

17.12.      Third Party Beneficiary.  Nothing in this Agreement will confer any
rights upon any Person that is not a party or a successor or permitted assignee
of a party to this Agreement.

17.13.      Tax Exception to Any Confidentiality.  Notwithstanding anything to the contrary set
forth herein or in any other agreement to which the parties hereto are parties
or by

26

 

which they are
bound, any obligations of confidentiality contained herein and therein, as they
relate to the transactions, shall not apply to the federal tax structure or
federal tax treatment of the transactions, and each party hereto (and any
employee, representative, or agent of any party hereto) may disclose to any and
all persons, without limitation of any kind, the federal tax structure and
federal tax treatment of the transactions. 
The preceding sentence is intended to cause the transactions to be
treated as not having been offered under conditions of confidentiality for
purposes of Section 1.6011-4(b)(3) (or any successor provision) of the Treasury
Regulations promulgated under Section 6011 of the Internal Revenue Code of
1986, as amended, and shall be construed in a manner consistent with such
purpose.  In addition, each party hereto
acknowledges that it has no proprietary or exclusive rights to the federal tax
structure of the transactions or any federal tax matter or federal tax idea
related to the transactions.

17.14.      Interpretation.  Wherever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by
the words “without limitation.”

17.15.      Survival.  Article XV and Article XVII shall survive the termination of this
Agreement.

27

 

IN WITNESS
WHEREOF, the parties hereto have caused this Agreement to be executed by their
duly authorized representatives.

	
   

  	
  GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
    

  	
  By

  	
    /s/  Victor C. Moses

  
	
   

  	
   

  	
  Name: Victor C. Moses

  
	
   

  	
   

  	
  Title: Senior Vice President and Chief Actuary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  UNION FIDELITY LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
    /s/  Glenn Joppa

  
	
   

  	
   

  	
  Name: Glenn Joppa

  
	
   

  	
   

  	
  Title: Senior Vice President and Secretary

  

 

28

 

SCHEDULE A

POLICY FORMS

LTC1 (1990-92)

LTC2 Qualified (1990-99)

LTC2 Non-Qualified (1990-99)

LC2

LTC3 (1993-95)

LTC3+ Qualified Comprehensive (1993-2001)

LTC3+ Non-Qualified Comprehensive (1993-2001)

LTC3+ Qualified Facility (1993-1999)

LTC3+ Non-Qualified Facility (1993-1999)

LC3 Non-Qualified (1993-99)

LC3+ Qualified (1996-97)

LC3+ Non-Qualified (1996-97)

LTC4 Qualified
Comprehensive (1997-2001)

LTC4 Non-Qualified Comprehensive (1998-2001)

LTC4 Qualified
Facility (1997-1999)

LTC4
Non-Qualified Facility (1998-2001)

LC4

 

 

 

SCHEDULE B

FORM OF
ADMINISTRATIVE SERVICES AGREEMENT

 

 

LTC UFLIC/GECA

 

 

ADMINISTRATIVE SERVICES
AGREEMENT

by and between

GENERAL ELECTRIC CAPITAL
ASSURANCE COMPANY

and

UNION FIDELITY LIFE INSURANCE
COMPANY

 

Effective as of
[          ]

 

 

 

ADMINISTRATIVE SERVICES AGREEMENT

This
ADMINISTRATIVE SERVICES AGREEMENT (this “Agreement”), effective as of
[                     ]
(the “Effective Date”), is entered into by and between GENERAL ELECTRIC CAPITAL
ASSURANCE COMPANY, an insurance company organized under the laws of the State
of Delaware (the “Company”), and UNION FIDELITY LIFE INSURANCE COMPANY, an
insurance company organized under the laws of the State of Illinois (the
“Administrator”).

RECITALS:

WHEREAS, the
Company and the Administrator have entered into a Retrocession Agreement dated
as of April 15, 2004 (the “Retrocession Agreement”) which provides for the
parties to enter into this Agreement;

WHEREAS,
pursuant to the Retrocession Agreement, the Administrator has agreed to
indemnify the Company for, among other things, 100% of Ultimate Net Loss
incurred by the Company and unpaid as of the Inception Date with respect to the
Novated Policies (capitalized terms used herein and not defined herein, unless
otherwise indicated, have the respective meanings assigned to them in the
Retrocession Agreement); and

WHEREAS, the
Company wishes to appoint the Administrator to provide policyholder and claim
servicing with respect to the Novated Policies, and the Administrator desires
to provide such administrative services;

NOW,
THEREFORE, in consideration of the covenants and agreements set forth herein,
the parties hereto agree as follows:

ARTICLE I

AUTHORITY

The Company
hereby appoints the Administrator, and the Administrator hereby accepts
appointment, to provide as an independent contractor of the Company, from and
after the Effective Date, all of the policyholder and claim servicing services
necessary or appropriate with respect to the Novated Policies including those
set forth in this Agreement (the “Administrative Services”), all on the terms
as set forth in this Agreement.  In
providing the policyholder and claim servicing with respect to the Novated
Policies, the Administrator shall handle all such matters, including but not
limited to the billing and collection of premiums and the defense, adjustment,
settlement and payment of all claims arising under the Novated Policies, as
more fully described below. 
Notwithstanding any other provision of this Agreement to the contrary,
the Company shall have the right to direct the Administrator to perform any
action necessary for the Novated Policies or the policyholder and claim
servicing thereof to comply with Applicable Law, or to cease performing any
action that constitutes a violation of Applicable Law.

 

 

ARTICLE II

 

STANDARD FOR
SERVICES; FACILITIES; SUBCONTRACTING

2.1.          Standard for Services.  The Administrator shall provide policyholder
and claims servicing with respect to the Novated Policies in good faith and
with the care, skill, prudence and diligence of a person experienced in
administering long term care insurance business.  Without limiting the generality of the foregoing, the
Administrator shall provide policyholder and claims servicing with respect to
the Novated Policies (i) in accordance with the terms of the Novated Policies,
(ii) in accordance with the applicable terms of this Agreement, (iii)  in compliance with Applicable Law, (iv) in
accordance with industry standards and, subject to the foregoing, (v) to the
extent applicable, in the same manner as it conducts its own business not subject
to this Agreement.

2.2.          Facilities and Personnel.  To the extent not sub-contracted to a
Subcontractor, the Administrator shall at all times maintain sufficient
facilities and trained personnel of the kind necessary to perform its
obligations under this Agreement in accordance with the performance standards
set forth herein.

2.3.          Subcontracting.  The Administrator may subcontract for the
performance of any policyholder or claims servicing service or services with
respect to the Novated Policies to (i) an Affiliate or (ii) any other Person
with the prior written consent of the Company, such consent not to be
unreasonably withheld (in each case, the “Subcontractor”); provided,
that, no such subcontracting shall relieve the Administrator from any of its
obligations or liabilities hereunder, and the Administrator shall remain
responsible for all obligations or liabilities of such Subcontractor with
regards to the providing of such service or services as if provided by the
Administrator.

ARTICLE III

 

CLAIMS
HANDLING

The
Administrative Services with respect to claims for benefits including claims
outstanding on the Effective Date, shall include the following:

3.1.          Claim Administration Services.  The Administrator shall acknowledge,
consider, review, investigate, deny, settle, pay or otherwise dispose of each
claim for benefits reported under each Novated Policy (each, a “Claim” and
collectively the “Claims”).

3.2.          Description of Claim Administration
Services.  Without limiting the
foregoing, the Administrator shall:

(i)                 provide claimants under the Novated
Policy and their authorized representatives (collectively, “Claimants”) with
Claim forms and provide reasonable explanatory guidance to Claimants in
connection therewith;

 

2

 

(ii)              establish, maintain and organize Claim
files and maintain and organize other Claims-related records;

(iii)           review all Claims and determine whether the
Claimant is eligible for benefits and if so, the nature and extent of such
benefits;

(iv)          prepare and distribute to the appropriate
recipients any reports required by Applicable Law;

(v)             respond to all written or oral
Claims-related communications that the Administrator reasonably believes to
require a response; and

(vi)          maintain a complaint log with respect to the
Novated Policies in accordance with applicable requirements of Governmental
Authorities and provide a copy of such log, continuously updated through the
last day of each calendar quarter during the term of this Agreement, to the
Company on or before the tenth Business Day of each calendar quarter covering
changes during the preceding calendar quarter.

ARTICLE IV

 

REGULATORY AND
LEGAL PROCEEDINiGS

4.1.          Regulatory Complaints and
Proceedings.  The Administrator
shall:

(i)                 respond to any Claims payment related
complaints or inquiries made by any Governmental Authority, within the
Governmental Authority’s requested time frame for response or, if no such time
frame is provided, within the time frame as allowed by Applicable Law; and
promptly provide a copy of such response to the Company;

(ii)              promptly notify the Company of any
non-Claims payment related complaints or inquiries initiated by a Governmental
Authority, and of any proceedings (either Claims or non-Claims related)
initiated by a Governmental Authority, and, in either case, prepare and send to
the Governmental Authority, with a copy to the Company, a response within the
Governmental Authority’s requested time frame for response or, if no such time
frame is provided, within the time frame as allowed by Applicable Law; provided,
that, subject to meeting such time frames, the Administrator shall provide such
response to the Company for its prior review and comment;

(iii)           subject to Section 4.4, supervise and control
the investigation, contest, defense and/or settlement of all complaints,
inquiries and proceedings by Governmental Authorities at its own cost and
expense, and in the name of the Company when necessary; and

 

3

 

(iv)          at the Company’s request, provide to the
Company a report in a form mutually agreed by the parties summarizing the
nature of any complaints, inquiries or proceedings by Governmental Authorities,
the alleged actions or omissions giving rise to such complaints, inquiries or
proceedings and copies of any files or other documents that the Company may
reasonably request in connection with its review of these matters.

4.2.          Legal
Proceedings.  The Administrator
shall:

(i)                 notify the Company promptly of any
lawsuit, action, arbitration or other dispute resolution proceedings that are
instituted or threatened with respect to any matter relating to the Novated
Policies (“Legal Proceeding(s)”), and in no event more than five (5) Business
Days after receipt of notice thereof;

(ii)              subject to Section 4.4, supervise and
control the investigation, contest, defense and/or settlement of all Legal
Proceedings at its own cost and expense, and in the name of the Company when
necessary; and

(iii)           keep the Company fully informed of the
progress of all Legal Proceedings handled by the Administrator in which the
Company is named a party and, at the Company’s request, provide to the Company
a report summarizing the nature of any Legal Proceedings, the alleged actions
or omissions giving rise to such Legal Proceedings and copies of any files or
other documents that the Company may reasonably request in connection with its
review of these matters in each case other than such files, documents and other
information as would, in the judgment of counsel to the Administrator, lead to
the loss or waiver of legal privilege.

4.3.          Notice to Administrator.  The Company shall give prompt notice to the
Administrator of any Legal Proceeding made or brought against the Company after
the Inception Date arising under or in connection with the Novated Policies to
the extent known to it and not made against or served on the Administrator or a
Subcontractor as administrator hereunder, and in no event more than five (5)
Business Days after receipt of notice thereof, and shall promptly furnish to
the Administrator copies of all pleadings in connection therewith.  The Administrator shall assume the defense
of the Company.

4.4.          Defense of Regulatory and Legal
Proceedings.  Notwithstanding
anything in this Agreement to the contrary, the Company shall have the right to
engage in its own separate legal representation, at its own expense, and to
participate fully in the defense of any Legal Proceedings or complaints,
inquiries or proceedings by Governmental Authorities with respect to the
Novated Policies in which the Company is a named party without waiving any
right to indemnification it may have under Article XVI hereof.  The Administrator and the Company shall
cooperate with each other with respect to the administration of any Legal
Proceeding and any complaint, inquiry or proceeding by Governmental
Authorities.  The Administrator shall
not settle any Legal Proceeding or any complaint, inquiry or proceeding by
Governmental Authorities without the Company’s prior written consent (which
consent shall not be 

 

 

4

 

unreasonably
withheld or delayed) unless (i) there is no finding or admission of any
violation of law or any violation of the rights of any Person, (ii) such
settlement would not reasonably be expected to have material adverse
precedential consequences to the Company and (iii) the sole relief provided is
monetary damages that are paid in full by the Administrator.

ARTICLE V

 

NOTIFICATION
TO POLICYHOLDERS

The
Administrator agrees to send to policyholders of the Novated Policies a written
notice prepared by the Administrator and reasonably acceptable to the Company
to the effect that the Administrator, or such other Person designated by the
Administrator in accordance with the terms of this Agreement, has been
appointed by the Company to provide Administrative Services.  The Administrator shall send such notice by
first class U.S. mail at a time reasonably acceptable to the Company and the
Administrator and in all events in accordance with Applicable Law.  The parties intend to minimize the cost
associated with any notification under this Article V, including by means of
inclusion of the notice in a regularly scheduled mailing to policyholders in
lieu of a separate mailing.  The cost
associated with such notification under this Article V (upon the initial
assumption of the administration of the Novated Policies under Section 3.9 of
the Retrocession Agreement) shall be a transition cost payable by the
Administrator or the Company in accordance with Section 3.9(a) or 3.9(c) of the
Retrocession Agreement, as applicable.

ARTICLE VI

 

BILLINGS AND
COLLECTIONS; RE-RATING OF NOVATED POLICIES

6.1.          Billing and Collection Services.  The Administrator shall assume all
responsibility for billing and collecting premiums and other amounts payable
with respect to the Novated Policies from and after the Effective Date.  The Company shall promptly remit to the
Administrator any such amounts received by it with respect to the Novated
Policies.

6.2.          Re-rating of Novated Policies.  Subject to compliance with Applicable Law
and this Section 6.2, the Administrator shall have the exclusive right, on
behalf of the Company, to increase or decrease the premium rates under the
Novated Policies from and after the Effective Date without the consent of the
Company.  The Administrator may not seek
or implement, as applicable, a premium rate increase unless such premium rate
increase would have been permitted under the terms of Section 3.2(i) of the
Travelers Servicing Agreement assuming such Novated Policies continued to be
“Reinsured Contracts” as defined under the Travelers Servicing Agreement.  Notwithstanding the foregoing, the
Administrator may not seek or implement, as applicable, more than one (1)
premium rate increase with respect to the Novated Policies in any state in any
period of three (3) calendar years.  The
Administrator shall bear, and shall indemnify the Company for, all costs and
liabilities incurred in or arising out of seeking or effecting any premium rate
changes at the direction of the Administrator.

 

5

 

ARTICLE VII

 

QUARTERLY
PREMIUM TAX AND INSOLVENCY FUND ACCOUNTINGS

7.1.            Quarterly Accountings.  Within thirty (30) days after the end of
each calendar quarter that this Agreement is in effect (or more frequently as
mutually agreed by the parties), the Company shall submit to the Administrator
a written statement of accounting in a form and containing such information to
be agreed upon by the parties hereto (each, an “Insolvency Fund Quarterly
Accounting”) setting forth the Insolvency Fund amounts assessed or payable to
the extent that such assessments constitute Reinsured Risks with respect to the
Novated Policies (collectively, the “Post-Effective Date Assessments”).  Within thirty (30) days after the last day
of each calendar quarter that this Agreement is in effect (or more frequently
as mutually agreed by the parties), the Administrator shall submit to the
Company a written statement of accounting in a form and containing such
information to be agreed upon by the parties hereto (each, a “Quarterly Premium
Tax Accounting”, and together with the Insolvency Fund Quarterly Accountings,
the “Quarterly Accountings”) setting forth the estimated premium taxes due with
respect to the Novated Policies as a result of premiums collected during such
quarter.  Concurrent with the delivery
of each Quarterly Premium Tax Accounting, the Administrator shall remit to the
Company the amount set forth on such Quarterly Premium Tax Accounting with
respect to such estimated premium taxes due and the amount set forth in such
Insolvency Fund Quarterly Accounting with respect to the Post-Effective Date
Assessments, and any other amounts owed to the Company pursuant to this
Agreement; provided, however, that any Post-Effective Date
Assessments set forth in an Insolvency Fund Quarterly Accounting received by
the Administrator less than five (5) Business Days prior to the Administrator’s
delivery of such Quarterly Premium Tax Accounting will be paid within ten (10)
Business Days of receipt by the Administrator of such Insolvency Fund Quarterly
Accounting.  Each of the parties agrees
to supply to the other a copy of all supporting data used in preparing the
Quarterly Accountings prepared by such party.

7.2.          Adjustments Regarding Quarterly
Accountings.  In the event that
subsequent data or calculations require revision of any of the Quarterly
Accountings, the required revision and appropriate payments thereunder shall be
made within ten (10) Business Days after the parties hereto mutually agree as
to the appropriate revision.

ARTICLE VIII

 

CERTAIN
ACTIONS BY COMPANY

8.1.          Filings.  The Company shall prepare and timely file
any filings required to be made with any Governmental Authority that relate to
the Company generally and not just to the Novated Policies, including filings
with guaranty associations and filings and premium tax returns with taxing
authorities.  The Administrator shall,
in a timely fashion in light of the dates such filings by the Company are
required, provide to the Company all information in the possession of the
Administrator with respect to the Novated Policies that may be reasonably
required for the Company to prepare such filings and tax returns.

 

6

 

 

8.2.          Annual Adjustment.  The Company shall pay or provide to the
Administrator the benefit of any Post-Effective Date Assessments which have
been or can be applied to reduce the Company’s premium tax liability (“Premium
Tax Credits”).  The Company shall
provide to the Administrator by March 15 of each year a statement of the amount
(the “Annual Adjustment”) of (i) premium taxes due with respect to premiums
collected during the prior calendar year (to the extent that such premium taxes
constitute Reinsured Risks with respect to the Novated Policies), less (ii)
estimated premium taxes paid by the Administrator to the Company with respect
to such premiums under the provisions of Article VII, less (iii) Premium Tax
Credits for the prior calendar year.  By
March 30 of each year the Administrator shall pay to the Company the Annual
Adjustment, if a positive amount, and the Company will pay or credit to the
Administrator the Annual Adjustment, if a negative amount.

ARTICLE IX

 

REGULATORY
MATTERS AND AUDIT REPORTING

9.1.          Regulatory Compliance and Reporting.  The Administrator shall provide to the
Company such information with respect to the Novated Policies as is required to
satisfy all current and future informational reporting, prior approval and any other
requirements imposed by any Governmental Authority.  Upon the reasonable request of the Company, the Administrator
shall timely prepare such reports and summaries, including statistical
summaries, as are necessary or reasonably required to satisfy any requirements
imposed by a Governmental Authority upon the Company with respect to the
Novated Policies.  In addition, the
Administrator, upon the reasonable request of the Company, shall promptly
provide to the Company copies of all existing records relating to the Novated
Policies (including, with respect to records maintained in machine readable
form, hard copies) that are necessary to satisfy such requirements.  All copies of records furnished in the
ordinary course of business shall be furnished by the Administrator at the
Administrator’s cost.  Any extraordinary
costs reasonably incurred by the Administrator in response to requests from the
Company shall be reimbursed by the Company. 
Among other responsibilities:

(i)                 The Administrator shall promptly
prepare and furnish to Governmental Authorities all reports and related
summaries (including, without limitation, statistical summaries), certificates
of compliance and other reports required or requested by a Governmental
Authority.

(ii)              The Administrator shall assist the Company
and cooperate with the Company in doing all things necessary, proper or
advisable, in the most expeditious manner practicable in connection with any
and all market conduct or other Governmental Authority examinations relating to
the Novated Policies.

9.2.          Reporting and Accounting.  The Administrator shall assume the reporting
and accounting obligations set forth below:

 

7

 

 

(i)                 As soon as practicable but not more
than forty (40) days after the end of each calendar quarter that this Agreement
is in effect (or more frequently as mutually agreed by the parties), the
Administrator shall timely provide to the Company reports and summaries of
transactions (and, upon request of the Company, detailed supporting records)
related to the Novated Policies as may be reasonably required for use in
connection with the preparation of the Company’s statutory and GAAP financial
statements, tax returns and other required financial reports and to comply with
the requirements of the regulatory authorities having jurisdiction over the
Company, including all premium written and earned and all Losses and Allocated
Loss Adjustment Expenses reserved, paid, and outstanding.  The parties shall cooperate in good faith to
establish the manner for the providing of such reports.

(ii)              The Administrator shall provide to the
Company such reports or summaries (and, upon the request of the Company,
detailed supporting records therefor) related to the payment of commissions
under the Novated Policies as agreed by the parties.

(iii)           As soon as practicable but not more than
forty (40) days after the end of each calendar quarter that this Agreement is
in effect (or more frequently as mutually agreed by the parties), the Administrator
shall report to the Company the amount of statutory reserves that the Company
is required to maintain in connection with the Reinsured Risks with respect to
the Novated Policies as of the quarter end.

(iv)          The Administrator shall promptly provide
notice to the Company of any changes in the reserve methodology used by the
Administrator in calculating statutory reserves for the Novated Policies.

(v)             Within forty-five (45) days after each
calendar year end (or such longer time as may be agreed by the parties) that
this Agreement is in effect, the Administrator shall provide to the Company (a)
an opinion of an actuary reasonably acceptable to the Company as to the
adequacy of statutory reserves for the Novated Policies, prepared according to
accepted actuarial standards of practice, and as otherwise required for
regulatory reporting purposes and (b) an analysis which reasonably supports
such opinion.

9.3.          Additional Reports and Updates.  For so long as this Agreement remains in
effect, each party shall periodically furnish to the other such other reports
and information as may be reasonably required by such other party for
regulatory, tax or similar purposes and reasonably available to it.

 

8

 

ARTICLE X

 

MISCELLANEOUS
ADMINISTRATIVE SERVICES

The
Administrator shall assume the obligations set forth below:

(i)                 The Administrator shall timely pay to
the policyholders, including any certificateholder thereunder, any refunds of
any kind due under the Novated Policies.

(ii)              The Administrator shall process all policy
changes, lapses, cancellations, and reinstatements in accordance with the terms
of this Agreement and the express terms of the Novated Policies and shall
assume responsibility for providing all other policyholder servicing in
connection with the Novated Policies.

(iii)           The Administrator shall pay commissions due
under the Novated Policies.

(iv)          The Administrator shall provide such other
Administrative Services as are necessary or appropriate to fully effectuate the
purpose of the Retrocession Agreement and this Agreement, including such
Administrative Services as are not performed by or on behalf of Company on the
date hereof but the need for which may arise due to changes or developments in
Applicable Law.

ARTICLE XI  

 

BOOKS AND RECORDS

The
Administrator shall keep accurate and complete records, files and accounts of
all transactions and matters with respect to the Novated Policies and the
administration thereof in accordance with Applicable Law and its record
management practices in effect from time to time for the Administrator’s
insurance business not covered by this Agreement, if any.  The parties to this Agreement and their
designated representatives may upon reasonable notice inspect, at the offices
of the Administrator or the Company where such records are located, the papers
and any and all other books or documents of the Administrator or the Company
reasonably relating to this Agreement, including the Novated Policies, and
shall have access to appropriate employees and representatives of the other
party, in each case during normal business hours for such period as  this Agreement is in effect or for as long
thereafter as any rights or obligations of any party survives or the
Administrator or the Company reasonably need access to such records for
regulatory, tax or similar purposes. The information obtained shall be used
only for purposes relating to the transactions contemplated under this
Agreement.

 

 

9

 

ARTICLE XII

 

COOPERATION

Each party
hereto shall cooperate fully with the other in all reasonable respects in order
to accomplish the objectives of this Agreement including making available to
each their respective officers and employees for interviews and meetings with
Governmental Authorities and furnishing any additional assistance, information
and documents as may be reasonably requested by a party from time to time.

ARTICLE XIII

 

PRIVACY
REQUIREMENTS

In providing
the Administrative Services provided for under this Agreement, and in
connection with maintaining, administering, handling and transferring the data
of the policyholders and other recipients of benefits under the Novated
Policies, the Administrator shall, and shall cause its Affiliates and any
permitted Subcontractors to, comply with all confidentiality and security
obligations applicable to them in connection with the collection, use,
disclosure, maintenance and transmission of personal, private, health or
financial information about individual policyholders or benefit recipients,
including the provisions of privacy policies under which such information was
gathered, those laws currently in place and which may become effective during
the term of this Agreement, including the Gramm-Leach-Bliley Act, the Health
Insurance Portability and Accountability Act of 1996 and any other Applicable
Laws.  The Administrator shall entitle
the Company and its agents and representatives, the Commissioner of Health and
Human Services and such other Governmental Authorities, to the extent required
by Applicable Law, to audit the Administrator’s compliance herewith.  The Administrator shall also enable
individual subjects of personally identifiable information, upon request from
such individuals, to review and correct information maintained by the
Administrator about them, and to restrict use of such information.  The Administrator shall promptly report to
the Company any violation of this provision of which the Administrator becomes
aware.  Unless required by Applicable
Law, the Administrator shall not during the term of this Agreement, modify the
privacy policies under which information utilized by the Administrator in
administering the Novated Policies is gathered, without the Company’s prior
written consent, which consent shall not be unreasonably withheld.  The parties agree to comply with the terms
of the Business Associate Addendum attached hereto or such other written
agreement as may be required by Applicable Law on the date hereof.

ARTICLE XIV

 

CONSIDERATION
FOR ADMINISTRATIVE SERVICES

Apart from the
performance by the Company of its obligations under the Retrocession Agreement,
there shall be no fee or other consideration due to the Administrator for
performance of the Administrative Services under this Agreement.

 

10

 

ARTICLE XV

 

BANK ACCOUNT;
USE OF COMPANY LETTERHEAD

When and on
terms reasonably requested by the Administrator, the Company shall open, modify
or close, and make available for use by the Administrator for the payment of
amounts to be paid by the Administrator hereunder one or more bank accounts of
the Company and check stock of the Company. 
The Administrator shall maintain such account(s) and pay all applicable
bank fees and check stock costs.  The
Company shall adopt such resolutions and execute such documents as required to
designate senior officers of the Administrator (by title) as signatories on
such account(s) and authorize the Administrator to certify to such bank(s),
from time to time, the names of such officers. 
The Company shall also make available to the Administrator, at the sole
expense of the Administrator, such letterhead, printed forms and other
documents of the Company as may be reasonably required by the Administrator in
performing services hereunder.  Upon
termination of this Agreement, the Administrator shall promptly return to the
Company all such unused check stock, letterhead, printed forms and other
documents held by it in connection with this Agreement as provided under this
Article XV.

ARTICLE XVI

 

INDEMNIFICATION

Any claim for
or with respect to indemnification arising out of, or relating to, this
Agreement or the Administrative Services hereunder shall be permitted under and
governed by the provisions of Article V of the Master Agreement, dated as of [             ], 2004, among General Electric
Company, General Electric Capital Corporation, GEI, Inc., GE Financial
Assurance Holdings, Inc. and Genworth Financial, Inc (the “Master Agreement”),
to the extent such provisions are applicable, as if this Agreement were a
Transaction Document under the Master Agreement.

ARTICLE XVII

 

DURATION;
TERMINATION

17.1.        Duration.  This Agreement shall commence on the
Effective Date and continue with respect to each Novated Policy until no further
Administrative Services in respect of such Novated Policy is required, unless
this Agreement is earlier terminated under Section 17.2.

17.2.        Termination.  (a) 
This Agreement is subject to immediate termination at the option of the
Company, upon written notice to the Administrator, on the occurrence of any of
the following events:

(i)                 A voluntary or involuntary proceeding
is commenced in any jurisdiction by or against the Administrator for the
purpose of conserving, rehabilitating or liquidating the Administrator;

 

11

 

(ii)              There is a material breach by the
Administrator of any material term or condition of this Agreement that is not
cured by the Administrator within thirty (30) days after receipt of written
notice from the Company of such breach or act (provided that the Company shall
not have the right to terminate this Agreement (A) for so long as the
Administrator is making a good faith effort to cure such breach, not to exceed
an additional one hundred eighty (180) days or (B) during the pendency of any
dispute resolution proceedings as set forth in Article XVIII regarding an
alleged material breach); or

(iii)           The Administrator is unable to perform the
services required under this Agreement for a period of thirty (30) consecutive
days for any reason other than as a result of a Force Majeure, it being
understood that nothing in this Section 17.2(a)(iii) shall relieve the
Administrator from its administrative responsibilities under this Agreement.  For purposes of this Agreement, “Force
Majeure” means any acts or omissions of any civil or military authority, acts
of God, acts or omissions of the Company, fires, strikes or other labor
disturbances, equipment failures, fluctuations or non-availability of
electrical power, heat, light, air conditioning or telecommunications
equipment, or any other act, omission or occurrence beyond the Administrator’s
reasonable control, irrespective of whether similar to the foregoing enumerated
acts, omissions or occurrences.

(b)           This Agreement may
be terminated at any time upon the mutual written consent of the parties
hereto, which writing shall state the effective date of termination.

(c)           In the event that
this Agreement is terminated under any of the provisions of Section 17.2(a),
the Administrator shall select a third-party administrator to perform the
services required by this Agreement. 
The Company shall have the right to approve any such administrator
selected by the Administrator, but such approval will not unreasonably be
withheld or delayed.  If the
Administrator fails to select an administrator pursuant to this Section
17.2(c), the Company shall select such an administrator.  In either case, the Administrator shall pay
all fees and charges imposed by the selected administrator and shall bear all
transition costs associated with the transition of the performance of the
services required under this Agreement to such administrator, including the
expense of sending policyholder notices as provided in Article V.

ARTICLE XVIII

 

DISPUTE
RESOLUTION

18.1.        General Provisions.  (a) Any dispute, controversy or claim arising out of or
relating to this Agreement or the validity, interpretation, breach or
termination thereof (a “Dispute”), shall be resolved in accordance with the
procedures set forth in this Article XVIII, which shall be the sole and
exclusive procedures for the resolution of any such Dispute unless otherwise
specified below.

 

12

 

(b)           Commencing with the
request contemplated by Section 18.2, all communications between the parties or
their representatives in connection with the attempted resolution of any
Dispute, including any mediator’s evaluation referred to in Section 18.3, shall
be deemed to have been delivered in furtherance of a Dispute settlement and
shall be exempt from discovery and production, and shall not be admissible in
evidence for any reason (whether as an admission or otherwise), in any arbitral
or other proceeding for the resolution of the Dispute.

(c)           In connection with
any Dispute, the parties expressly waive and forego any right to (i) punitive,
exemplary, statutorily-enhanced or similar damages in excess of compensatory
damages (provided that any such liability with respect to a Third Party Claim
(as defined in the Master Agreement) shall be considered direct damages), and
(ii) trial by jury.

(d)           The specific
procedures set forth below, including but not limited to the time limits
referenced therein, may be modified by agreement of the parties in writing.

(e)           All applicable
statutes of limitations and defenses based upon the passage of time shall be
tolled while the procedures specified in this Article XVIII are pending.  The parties will take such action, if any,
required to effectuate such tolling.

18.2.        Consideration by Senior Executives.  If a Dispute is not resolved in the normal
course of business at the operational level, the parties shall attempt in good
faith to resolve such Dispute by negotiation between executives who hold, at a
minimum, the office of President and CEO of the respective business entities
involved in such Dispute.  Either party
may initiate the executive negotiation process by providing a written notice to
the other (the “Initial Notice”). 
Fifteen (15) days after delivery of the Initial Notice, the receiving
party shall submit to the other a written response (the “Response”). The
Initial Notice and the Response shall include (i) a statement of the Dispute
and of each party’s position, and (ii) the name and title of the executive who
will represent that party and of any other person who will accompany the
executive. Such executives will meet in person or by telephone within thirty
(30) days of the date of the Initial Notice to seek a resolution of the
Dispute.

18.3.        Mediation.
If a Dispute is not resolved by negotiation as provided in Section 18.2 within
forty-five (45) days from the delivery of the Initial Notice, then either party
may submit the Dispute for resolution by mediation pursuant to the CPR
Institute for Dispute Resolution (the “CPR”) Model Mediation Procedure as then
in effect. The parties will select a mediator from the CPR Panels of
Distinguished Neutrals, but such mediator must have prior U.S. reinsurance
experience either as a lawyer or as a present or former officer or management
employee of a reinsurance company, but not of the Company, or the
Administrator, or any of their respective affiliates.  Either party at commencement of the mediation may ask the
mediator to provide an evaluation of the Dispute and the parties’ relative
positions.

18.4.        Arbitration. (a) If a Dispute is not
resolved by mediation as provided in Section 18.3 within thirty (30) days of
the selection of a mediator (unless the mediator chooses to withdraw sooner),
either party may submit the Dispute to be finally resolved by arbitration
pursuant to the CPR Rules for Non-Administered Arbitration as then in effect (the “CPR 

 

13

 

Arbitration Rules”). The
parties consent to a single, consolidated arbitration for all known Disputes
existing at the time of the arbitration and for which arbitration is permitted.

(b)           The neutral
organization for purposes of the CPR Arbitration Rules will be the CPR. The
arbitral tribunal shall be composed of three arbitrators who are each
experienced in the U.S. reinsurance business, of whom each party shall appoint
one in accordance with the “screened” appointment procedure provided in Rule
5.4 of the CPR Arbitration Rules.  The
non-party appointed arbitrator must have prior U.S. reinsurance experience as a
present or former officer or management employee of a reinsurance company, but
not of the Company, or the Administrator, or any of their respective
affiliates.  The arbitration shall be
conducted in New York City.  Each party
shall be permitted to present its case, witnesses and evidence, if any, in the
presence of the other party. A written transcript of the proceedings shall be
made and furnished to the parties. The arbitrators shall determine the Dispute
in accordance with the law of Delaware, without giving effect to any conflict
of law rules or other rules that might render such law inapplicable or
unavailable, and shall apply this Agreement according to its terms, provided
that the provisions relating to arbitration shall be governed by the Federal
Arbitration Act, 9 U.S.C. §§ 1 et seq.  
The arbitral tribunal shall endeavor to render its award or order
resulting from any arbitration within forty-five (45) days following the
termination of the arbitration proceedings.

(c)           The parties agree to
be bound by any award or order resulting from any arbitration conducted
hereunder and further agree that judgment on any award or order resulting from
an arbitration conducted under this Section 18.4 may be entered and enforced in
any court having jurisdiction thereof.

(d)           Except as expressly
permitted by this Agreement, no party will commence or voluntarily participate
in any court action or proceeding concerning a Dispute, except (i) for
enforcement as contemplated by Section 18.4(c) above, (ii) to restrict or
vacate an arbitral decision based on the grounds specified under applicable
law, or (iii) for interim relief as provided in paragraph (e) below. For
purposes of the foregoing the parties hereto submit to the non-exclusive
jurisdiction of the courts of  the State
of New York.

(e)           In addition to the
authority otherwise conferred on the arbitral tribunal, the tribunal shall have
the authority to make such orders for interim relief, including injunctive
relief, as it may deem just and equitable. Notwithstanding paragraph (d) above,
each party acknowledges that in the event of any actual or threatened breach of
certain of the provisions of this Agreement, the remedy at law would not be
adequate, and therefore injunctive or other interim relief may be sought
immediately to restrain such breach.  If
the tribunal shall not have been appointed, either party may seek interim
relief from a court having jurisdiction if the award to which the applicant may
be entitled may be rendered ineffectual without such interim relief. Upon
appointment of the tribunal following any grant of interim relief by a court,
the tribunal may affirm or disaffirm such relief, and the parties will seek
modification or rescission of the court action as necessary to accord with the
tribunal’s decision.

(f)            Each party will
bear its own attorneys’ fees and costs incurred in connection with the
resolution of any Dispute in accordance with this Article XVIII.

 

 

14

 

ARTICLE XIX

 

MISCELLANEOUS
PROVISIONS

19.1.        Headings and Schedules.  Headings used herein are not a part of this
Agreement and shall not affect the terms hereof.  The attached Schedules are a part of this Agreement.

19.2.        Notices.  All notices, requests, demands and other communications
under this Agreement must be in writing and will be deemed to have been duly
given or made as follows:  (a) if sent
by registered or certified mail in the United States return receipt requested,
upon receipt; (b) if sent by reputable overnight air courier, two business days
after mailing; (c) if sent by facsimile transmission, with a copy mailed on the
same day in the manner provided in (a) or (b) above, when transmitted and
receipt is confirmed by telephone; or (d) if otherwise actually personally
delivered, when delivered, and shall be delivered as follows:

If to the Company:

 

General Electric Capital Assurance Company

6610 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 281-6165

Attention:  Chief Executive Officer

 

With a copy to:

 

General Electric Capital Assurance Company

6620 West Broad Street

Richmond, VA 23230

Facsimile:  (804)
662-2414

Attention:  General Counsel

If to the Administrator:

Union Fidelity Life Insurance
Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 330-3404

Attention:  Chief Financial Officer

With a copy to:

Union Fidelity Life Insurance
Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

 

15

 

or to such
other address or to such other Person as either party may have last designated
by notice to the other party.

19.3.        Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. 
Neither this Agreement, nor any right or obligation hereunder, may be
assigned by any party without the prior written consent of the other party
hereto.  Any assignment in violation of
this Section 19.3 shall be void and shall have no force and effect.

19.4.        Execution in Counterpart.  This Agreement may be executed by the
parties hereto in any number of counterparts, and by each of the parties hereto
in separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.

19.5.        Currency.  Whenever the word “Dollars” or the “$” sign
appear in this Agreement, they shall be construed to mean United States
Dollars, and all transactions under this Agreement shall be in United States
Dollars.

19.6.        Amendments.  This Agreement may not be changed, altered
or modified unless the same shall be in writing executed by the Company and the
Administrator.

19.7.        Governing Law.  This Agreement will be construed, performed and enforced in
accordance with the laws of the State of Delaware without giving effect to its
principles or rules of conflict of laws thereof to the extent such principles
or rules would require or permit the application of the laws of another
jurisdiction.

19.8.        Entire Agreement; Severability.  (a) 
This Agreement constitutes the entire agreement between the parties
hereto relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, statements, representations and
warranties, negotiations and discussions, whether oral or written, of the
parties and there are no general or specific warranties, representations or
other agreements by or among the parties in connection with the entering into
of this Agreement or the subject matter hereof except as specifically set forth
or contemplated herein.

(b)           If any provision of
this Agreement is held to be void, unenforceable or in violation of any
provision of the Travelers Agreements, in whole or in part, (i) such
holding or provision shall not affect the validity and enforceability of the
remainder of this Agreement, including any other provision, paragraph or
subparagraph, and (ii) the parties agree to attempt in good faith to
reform such void, unenforceable or violative provision to the extent necessary
to render such provision enforceable and to carry out its original intent.

19.9.        No Waiver; Preservation of Remedies.  No consent or waiver, express or implied, by
any party to or of any breach or default by any other party in the performance
by such other party of its obligations hereunder shall be deemed or construed
to be a consent or waiver to or of any other breach or default in the
performance of obligations hereunder by such other party hereunder.  Failure on the part of any party to complain
of any act or failure to act of any other party or to declare any other party
in default, irrespective of how long such failure continues, shall not
constitute a waiver by such first party of any of its rights hereunder.  The 

16

 

rights and remedies provided are cumulative
and are not exclusive of any rights or remedies that any party may otherwise
have at law or equity.

19.10.          Third Party
Beneficiary.  Nothing in this
Agreement will confer any rights upon any Person that is not a party or a
successor or permitted assignee of a party to this Agreement.

19.11.          Tax Exception
to Any Confidentiality. 
Notwithstanding anything to the contrary set forth herein or in any
other agreement to which the parties hereto are parties or by which they are
bound, any obligations of confidentiality contained herein and therein, as they
relate to the transactions, shall not apply to the federal tax structure or
federal tax treatment of the transactions, and each party hereto (and any
employee, representative, or agent of any party hereto) may disclose to any and
all persons, without limitation of any kind, the federal tax structure and
federal tax treatment of the transactions. 
The preceding sentence is intended to cause the transactions to be
treated as not having been offered under conditions of confidentiality for
purposes of Section 1.6011-4(b)(3) (or any successor provision) of the Treasury
Regulations promulgated under Section 6011 of the Internal Revenue Code of
1986, as amended, and shall be construed in a manner consistent with such
purpose.  In addition, each party hereto
acknowledges that it has no proprietary or exclusive rights to the federal tax
structure of the transactions or any federal tax matter or federal tax idea
related to the transactions.

19.12.          Interpretation.  Wherever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by
the words “without limitation.”

19.13.          Survival.  Article XVIII and Article XIX shall survive
the termination of this Agreement.

 

17

 

IN WITNESS
WHEREOF, the Company and the Administrator have executed this Agreement as of
the date first above written.

	
   

  	
  GENERAL ELECTRIC CAPITAL ASSURANCE  
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  UNION FIDELITY LIFE INSURANCE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

18

 

BUSINESS ASSOCIATE ADDENDUM

 

I.              Purpose.

In order to
disclose certain information to the party providing a service under this
Agreement (“Provider”) under this Addendum, some of which may constitute
Protected Health Information (defined below), the party to whom a service under
this Agreement is being provided (“Recipient”) and Provider mutually agree to
comply with the terms of this Addendum for the purpose of satisfying the requirements
of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”)
and its implementing privacy regulations at 45 C.F.R. Parts 160-164 (“HIPAA
Privacy Rule”).   These provisions shall
apply to Provider to the extent that Provider is considered a “Business
Associate” under the HIPAA Privacy Rule and all references in this section to
Business Associates shall refer to Provider. 
Capitalized terms not otherwise defined herein shall have the meaning assigned
in the Agreement.  Notwithstanding
anything else to the contrary in the Agreement, in the event of a conflict
between this Addendum and the Agreement, the terms of this Addendum shall
prevail.

II.            Permitted
Uses and Disclosures.

A.            Business Associate
agrees to use or disclose Protected Health Information (“PHI”) that it creates
for or receives from Recipient or its Subsidiaries only as follows.  The capitalized term “Protected Health
Information or PHI” has the meaning set forth in 45 Code of Federal Regulations
Section 164.501, as amended from time to time. 
Generally, this term means individually identifiable health information
including, without limitation, all information, data and materials, including
without limitation, demographic, medical and financial information, that
relates to the past, present, or future physical or mental health or condition
of an individual; the provision of health care to an individual; or the past
present, or future payment for the provision of health care to an individual;
and that identifies the individual or with respect to which there is a
reasonable basis to believe the information can be used to identify the
individual.  This definition shall
include any demographic information concerning members and participants in, and
applicants for, Recipient’s or its Subsidiaries’ health benefit plans.  All other terms used in this Addendum shall
have the meanings set forth in the applicable definitions under the HIPAA
Privacy Rule.

B.            Functions
and Activities on Company’s Behalf. 
Business Associate is permitted to use and disclose PHI it creates for
or receives from Recipient or its Subsidiaries only for the purposes described
in this Addendum or the Agreement that are not inconsistent with the provisions
of this Addendum, or as required by law, or following receipt of prior written
approval from whichever of the Recipient or its Subsidiary for which the
relevant PHI was created or from which the relevant PHI was received.  In addition to these specific requirements
below, Business Associate may use or disclose PHI only in a manner that would
not violate the HIPAA Privacy Rule if done by the Recipient or its
Subsidiaries.  

C.            Business
Associate’s Operations.  Business
Associate is permitted by this Agreement to use PHI it creates for or receives
from Recipient or its Subsidiaries: (i) if such use is reasonably necessary for
Business Associate’s proper management and administration; and (ii) as
reasonably necessary to carry out Business Associate’s legal responsibilities.
Business 

 

Associate is permitted to disclose PHI it creates for or receives from
Recipient or its Subsidiaries for the purposes identified in this Section only
if the following conditions are met:

(1)   The disclosure is required by law; or

(2)   The disclosure is reasonably necessary to
Business Associate’s proper management and administration, and Business
Associate obtains reasonable assurances in writing from any person or
organization to which Business Associate will disclose such PHI that the person
or organization will:

a. Hold such PHI as confidential
and use or further disclose it only for the purpose for which Business
Associate disclosed it to the person or organization or as required by law; and

b. Notify Business
Associate (who will in turn promptly notify whichever of the Recipient or its
Subsidiary for which the relevant PHI was created or from which the relevant
PHI was received) of any instance of which the person or organization becomes
aware in which the confidentiality of such PHI was breached.

D.            Minimum Necessary
Standard.  In performing the
functions and activities on Recipient’s or its Subsidiaries’ behalf pursuant to
the Agreement, Business Associate agrees to use, disclose or request only the
minimum necessary PHI to accomplish the purpose of the use, disclosure or
request.  Business Associate must have
in place policies and procedures that limit the PHI disclosed to meet this
minimum necessary standard.

E.     Prohibition on Unauthorized Use or Disclosure. 
Business Associate will neither use nor disclose PHI it creates or
receives for or from Recipient, its Subsidiaries, or from another business
associate of Recipient or its Subsidiaries, except as permitted or required by
this Addendum or the Agreement that are not inconsistent with the provisions of
this Addendum, or as required by law, or following receipt of prior written
approval from whichever of the Recipient or its Subsidiary for which the
relevant PHI was created or from which the relevant PHI was received.

F.             De-identification of Information.  Business Associate agrees neither to de-identify PHI it creates
for or receives from Recipient or its Subsidiaries or from another business
associate of Recipient or its Subsidiaries, nor use or disclose such
de-identified PHI, unless such de-identification is expressly permitted under
the terms and conditions of this Addendum or the Agreement and related to
Recipient’s or its Subsidiaries’ activities for purposes of “treatment”,
“payment” or “health care operations”, as those terms are defined under the
HIPAA Privacy Rule.  De-identification
of PHI, other than as expressly permitted under the terms and conditions of the
Addendum for Business Associate to perform services for Recipient or its
Subsidiaries, is not a permitted use of PHI under this Addendum.  Business Associate further agrees that it
will not create a “Limited Data Set” as defined by the HIPAA Privacy Rule using
PHI it creates or receives, or receives from another business associate of
Recipient or its Subsidiaries, nor use or disclose such Limited Data Set
unless: (i) such creation, use or disclosure is expressly permitted under the
terms and conditions of this Addendum or the Agreement that are not
inconsistent with 

 

2

 

the provisions of this Addendum; and such creation, use or disclosure
is for services provided by Business Associate that relate to Recipient’s or
its Subsidiaries’ activities for purposes of “treatment”, “payment” or “health
care operations”, as those terms are defined under the HIPAA Privacy Rule.

 

G.            Information Safeguards.  Business
Associate will develop, document, implement, maintain and use appropriate
administrative, technical and physical safeguards to preserve the integrity and
confidentiality of and to prevent non-permitted use or disclosure of PHI
created for or received from Recipient or its Subsidiaries.  These safeguards must be appropriate to the
size and complexity of Business Associate’s operations and the nature and scope
of its activities.  Business Associate
agrees that these safeguards will meet any applicable requirements set forth by
the U.S. Department of Health and Human Services, including (as of the
effective date or as of the compliance date, whichever is applicable) any
requirements set forth in the final HIPAA security regulations.  Business Associate agrees to mitigate, to
the extent practicable, any harmful effect that is known to Business Associate
resulting from a use or disclosure of PHI by Business Associate in violation of
the requirements of this Addendum.

III.           Conducting
Standard Transactions.  In the
course of performing services for Recipient or its Subsidiaries, to the extent
that Business Associate will conduct Standard Transactions for or on behalf of
Recipient or its Subsidiaries, Business Associate will comply, and will require
any subcontractor or agent involved with the conduct of such Standard
Transactions to comply, with each applicable requirement of 45 C.F.R. Part
162.  “Standard Transaction(s)” shall
mean a transaction that complies with the standards set forth at 45 C.F.R.
parts 160 and 162.  Further, Business
Associate will not enter into, or permit its subcontractors or agents to enter
into, any trading partner agreement in connection with the conduct of Standard
Transactions for or on behalf of the Recipient or its Subsidiaries that:

a.               Changes the definition, data condition,
or use of a data element or segment in a Standard Transaction;

b.              Adds any data element or segment to the
maximum defined data set;

c.               Uses any code or data element that is
marked “not used” in the Standard Transaction’s implementation specification or
is not in the Standard Transaction’s implementation specification; or

d.              Changes the meaning or intent of the
Standard Transaction’s implementation specification.

IV.           Sub-Contractors, Agents or Other
Representatives.   Business Associate will require any of its
subcontractors, agents or other representatives to which Business Associate is
permitted by this Addendum or the Agreement (or is otherwise given Recipient’s
or the relevant Subsidiary’s prior written approval) to disclose any of the PHI
Business Associate creates or receives for or from Recipient or its
Subsidiaries, to provide reasonable assurances in writing that subcontractor or
agent will comply with the same restrictions and conditions that apply to the
Business Associate under the terms and conditions of this Addendum with respect
to such PHI.

 

3

 

V.            Protected Health Information Access, Amendment and
Disclosure Accounting.

A.            Access.  Business Associate
will promptly upon Recipient’s or its Subsidiary’s request make available to
Recipient, its Subsidiary, or, at Recipient’s or such Subsidiary’s direction,
to the individual (or the individual’s personal representative) for inspection
and obtaining copies any PHI about the individual which Business Associate
created for or received from Recipient or its Subsidiary and that is in
Business Associate’s custody or control, so that Recipient or its Subsidiary
may meet its access obligations under 45 Code of Federal Regulations
§ 164.524.

B.            Amendment.  Upon Recipient’s or its
Subsidiary’s request Business Associate will promptly amend or permit Recipient
or its Subsidiary access to amend any portion of the PHI which Business
Associate created for or received from Recipient or its Subsidiary, and
incorporate any amendments to such PHI, so that Recipient or its Subsidiary may
meet its amendment obligations under 45 Code of Federal Regulations § 164.526.

C.            Disclosure Accounting.  So that Recipient or its Subsidiaries may meet their disclosure
accounting obligations under 45 Code of Federal Regulations § 164.528:

1.                     Disclosure Tracking.  Business Associate will record for each
disclosure, not excepted from disclosure accounting under Section V.C.2 below,
that Business Associate makes to Recipient or its Subsidiaries of PHI that
Business Associate creates for or receives from Recipient or its Subsidiaries,
(i) the disclosure date, (ii) the name and member or other policy
identification number of the person about whom the disclosure is made, (iii)
the name and (if known) address of the person or entity to whom Business
Associate made the disclosure, (iv) a brief description of the PHI disclosed,
and (v) a brief statement of the purpose of the disclosure (items i-v,
collectively, the “disclosure information”). 
For repetitive disclosures Business Associate makes to the same person
or entity (including Recipient or its Subsidiaries) for a single purpose,
Business Associate may provide a) the disclosure information for the first of
these repetitive disclosures, (b) the frequency, periodicity or number of these
repetitive disclosures and (c) the date of the last of these repetitive
disclosures.  Business Associate will
make this disclosure information available to Recipient or its Subsidiaries
promptly upon Recipient’s or its Subsidiaries’ request.

2.                     Exceptions from Disclosure Tracking.  Business Associate need not record
disclosure information or otherwise account for disclosures of PHI that this
Addendum or Recipient or the relevant Subsidiary in writing permits or requires
(i) for the purpose of Recipient’s or its Subsidiaries’ treatment activities,
payment activities, or health care operations, (ii) to the individual who is
the subject of the PHI disclosed or to that individual’s personal
representative; (iii) to persons involved in that individual’s health care or
payment for health care; (iv) for notification for disaster relief purposes,
(v) for national security or intelligence purposes, (vi) to law enforcement
officials or correctional institutions regarding inmates; or   (vii)
pursuant to an authorization; (viii) for disclosures of certain PHI made as
part of a Limited Data Set; (ix) for certain incidental disclosures that may
occur where reasonable safeguards have been implemented; and (x) for
disclosures prior to April 14, 2003.

4

 

3.                     Disclosure Tracking Time Periods.  Business Associate must have available for
Recipient and its Subsidiaries the disclosure information required by this
section for the 6 years preceding Recipient’s or its Subsidiaries’ request for
the disclosure information (except Business Associate need have no disclosure
information for disclosures occurring before April 14, 2003).

VI.           Additional
Business Associate Provisions

A.            Reporting
of Breach of Privacy Obligations. 
Business Associate will provide written notice to whichever of the
Recipient or its Subsidiary for which the relevant PHI was created or from
which the relevant PHI was received of any use or disclosure of PHI that is
neither permitted by this Addendum nor given prior written approval by
Recipient or the relevant Subsidiary promptly after Business Associate learns
of such non-permitted
use or disclosure.  Business Associate’s
report will at least:

(i)                 Identify the nature of the
non-permitted use or disclosure;

(ii)              Identify the PHI used or disclosed;

(iii)           Identify who made the non-permitted use or
received the non-permitted disclosure;

(iv)          Identify what corrective action Business
Associate took or will take to prevent further non-permitted uses or
disclosures;

(v)             Identify what Business Associate did or
will do to mitigate any deleterious effect of the non-permitted use or
disclosure; and

(vi)          Provide
such other information, including a written report, as Recipient or the
relevant Subsidiary may reasonably request.

B.            Amendment.  Upon the effective date
of any final regulation or amendment to final regulations promulgated by the
U.S. Department of Health and Human Services with respect to PHI, including,
but not limited to the HIPAA privacy and security regulations, this Addendum
and the Agreement will automatically be amended so that the obligations they
impose on Business Associate remain in compliance with these regulations.

In addition,
to the extent that new state or federal law requires changes to Business
Associate’s obligations under this Addendum, this Addendum shall automatically
be amended to include such additional obligations, upon notice by Recipient or
its Subsidiaries to Business Associate of such obligations.  Business Associate’s continued performance
of services under the Agreement shall be deemed acceptance of these additional
obligations.

C.            Audit
and Review of Policies and Procedures. 
Business Associate agrees to provide, upon Recipient
request, access to and copies of any policies and procedures developed or
utilized by Business Associate regarding the protection of PHI.  Business Associate agrees to provide, upon
Recipient’s request, access to Business Associate’s internal practices, books,
and records, as they relate to Business Associate’s services, duties and
obligations set forth in this Addendum and the Agreement(s) under which
Business Associate provides services and / or 

 

5

 

products to or on behalf of Recipient or its Subsidiaries, for purposes
of Recipient’s or its Subsidiaries’ review of such internal practices, books,
and records.

 

6

 

SCHEDULE C

CEDING COMMISSION

The Ceding
Commission shall be the sum of the following:

1.               an amount equal to the excess of the
Total SAP Ceded Reserves over Total GAAP Ceded Reserves measured as of the
close of business on the day immediately preceding the Inception Date (which
amount may be negative);

2.               an amount equal to the unamortized PVFP
intangible asset balance of the Company with respect to the Reinsured Policies
as measured as of the close of business on the day immediately preceding the
Inception Date, determined in accordance with GAAP;

3.               an amount equal to the unamortized
deferred acquisition costs of the Company with respect to the Reinsured
Policies as measured as of the close of business on the day immediately
preceding the Inception Date, determined in accordance with GAAP;

4.               an amount equal to the balance of the
Loss Carry Forward Amount as of the close of business on the day immediately
preceding the Inception Date, determined in accordance with GAAP; and

5.               an amount equal to the excess of the
GAAP book value of the Assets (excluding any related mark to market adjustments
for SFAS 115 requirement) over the SAP book value of the Assets measured as of
the close of business on the day immediately preceding the Inception Date
(which amount may be negative). 

 

SCHEDULE D

 

ASSETS

 

	
  Transfer Document

  	
   

  	
  From

  	
   

  	
  To

  	
   

  	
  Nature of
  Transfer

  	
   

  	
  Cash Map
  Cross-Reference

  	
   

  	
  Schedule

  	
   

  
	
  GECALTC Retrocession

  	
   

  	
  GECA

  	
   

  	
  UFLIC

  	
   

  	
  Treaty

  	
   

  	
  (91

  	
  )

  	
  Schedule D

  	
   

  

 

	
  Called Securities*

  	
   

  	
  Parent
  Name

  	
   

  	
  Issuer
  Name

  	
   

  	
  1Q04 Cusip

  	
   

  	
  1Q04 Tax
  lot

  	
   

  	
  12/31/03
  Local Par

  	
   

  	
  12/31/03
  GAAP BV (incl attached derivative)

  	
   

  	
  12/31/03
  Accrued Interest

  	
   

  	
  12/31/03
  GAAP BV + Accrued Interest

  	
   

  	
  12/31/03
  STAT BV (incl attached derivative)

  	
   

  	
  12/31/03
  Account Interest

  	
   

  	
  12/31/03
  STAT BV + Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Individual Asset Details Omitted]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Asset Sub
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  763,710,320.40

  	
   

  	
  8,850,410.11

  	
   

  	
  772,560,730.51

  	
   

  	
  763,264,319.36

  	
   

  	
  8,850,410.11

  	
   

  	
  772,114,729.47

  	
   

  
	
   

  	
   

  	
  Cash

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  313,250.88

  	
   

  	
   

  	
   

  	
  313,250.68

  	
   

  
	
   

  	
   

  	
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  763,577,570.04

  	
   

  	
   

  	
   

  	
  772,427,980.15

  	
   

  

 

* These Securities will not be transferred. The “Call Amount” will be
settled in cash.

 

 

SCHEDULE E

 

EXPENSE ALLOWANCES

 

The “Annual
Expense Reimbursement Factors” used to calculate the Expense Allowance are as
follows:

	
  Policy Maintenance Factor

  	
   

  	
  $7.12 per
  Policy

  	
   

  
	
  Claims Factor

  	
   

  	
  $876.00 per
  Open and Pending Claim

  	
   

  
	
  Travelers Agreement Maintenance Factor

  	
   

  	
  $45.24 per
  Policy

  	
   

  

 

Such Annual
Expense Reimbursement Factors will be adjusted (i) for the year beginning
January 1, 2005 and, thereafter, every three (3) years during the term of this
Agreement  based on a triennial
cost/time study prepared in accordance with the methodology set forth below
(the “Triennial Study”) and (ii) for the years between the Triennial Studies
based on a report setting forth the Annual Expense Reimbursement Factors
prepared in accordance with the methodology set forth below (the “Annual
Expense Reimbursement Factor Report”).

(a) Triennial
Study.  As soon as practicable (and
in any event within sixty (60) days) prior to January 1, 2005 and prior to the
beginning of every third calendar year thereafter during the term of this
Agreement, the Company shall cause to be prepared and delivered to the
Reinsurer the Triennial Study which sets forth the Annual Expense Reimbursement
Factors for the next calendar year, together with all supporting data used in
preparing the Triennial Study and work papers, in reasonable detail, setting
forth the determination of such Annual Expense Reimbursement Factors based on
such Triennial Study (such documents, together with the Triennial Study, the
“Triennial Study Documents”).

(b) Annual
Expense Reimbursement Factor Report. 
As soon as practicable (and in any event within thirty (30) days) prior
to January 1, 2006 and prior to the beginning of each calendar year thereafter
in which no Triennial Study is prepared, the Company shall cause to be prepared
and delivered to the Reinsurer the Annual Expense Reimbursement Factor Report,
together with all supporting data used in preparing the Annual Expense
Reimbursement Factor Report and work papers, in reasonable detail, setting
forth the determination of such Annual Expense Reimbursement Factors for the
next calendar year (such documents, together with the Annual Expense
Reimbursement Factor Report, the “Annual Expense Reimbursement Factor
Documents”).

(c) Methodology.  At the time of the Triennial Study,
historical costs (to include costs (excluding costs identified as “Allocated
Loss Adjustment Expenses”) directly related to maintaining and administering
policies, processing claims and reporting results, including, without
limitation, for Business Overhead Services set forth on Schedule E-1
hereto) will be determined for the Policy Maintenance Factor, the Claims Factor
and the Travelers Agreement Maintenance Factor identified above.  For a given Annual Expense Reimbursement
Factor the identified costs will be divided by the total historical number of
units of measure for both the Reinsured Policies and the retained block of
business to derive an historical cost per unit.  The historical cost per unit will be used as a prospective cost
per unit for the next calendar year.

 

For the two succeeding years in the period between the Triennial
Studies the historical dollar amounts by Policy Maintenance Factor, Claims
Factor and Travelers Agreement Maintenance Factor will be adjusted (rolled
forward) for current year cost changes agreed to by the Reinsurer and the
Company (in accordance with the procedures set forth below).  This rolled forward historical cost will
then be divided by the total historical number of units for the current period
to determine a prospective cost per unit for the next calendar year.

An additional adjustment, positive or negative, to the prospective cost
per unit determined by either the Triennial Study or the two succeeding years
may be negotiated between the parties. The additional adjustment is for special
projected costs or benefits of productivity, process improvements, inflation,
loss of scale, and any other cost variation which was not included in the prior
Triennial Study or the succeeding roll forward.

The combined prospective unit cost and additional adjustment is the
Annual Expense Reimbursement Factor. The Expense Allowance will be determined
quarterly and billed to the Reinsurer in three equal installments during the
quarter at the end of the month.  Each
installment of the monthly amount billed will be determined by multiplying the
actual number of units at the beginning of the quarter covered by this
Agreement times the Annual Expense Reimbursement Factor (divided by twelve).

(d) Review
of Documents.  Following the
delivery of the Annual Expense Reimbursement Factor Documents or the Triennial
Study Documents, as applicable, the Company shall (i) provide to the Reinsurer
or its designated representative copies of such additional work papers and
other documents relating to its preparation of the Annual Expense Reimbursement
Factor Report or Triennial Study, as applicable, as the Reinsurer or its
designated representative may reasonably request, including, without
limitation, claims files and practices and (ii) cooperate with, and make its
personnel and facilities reasonably available to, the Reinsurer and the
Reinsurer’s designated representative for the purpose of providing such other
information as the Reinsurer or the Reinsurer’s designated representative may
reasonably request concerning Annual Expense Reimbursement Factor Documents or
the Triennial Study Documents, as applicable, and the calculation of the Annual
Expense Reimbursement Factors.

(e) Notice
of Disagreement.  In the event that
the Reinsurer has any disagreement with any of the Annual Expense Reimbursement
Factor Documents or the Triennial Study Documents, as applicable, the Reinsurer
shall give written notice of all such disagreements (a “Notice of
Disagreement”) to the Company within thirty (30) days after the Annual Expense
Reimbursement Factor Documents or the Triennial Study Documents, as applicable,
are delivered to the Reinsurer.  Any
Notice of Disagreement shall set forth each item in disagreement and shall
provide reasonable specificity as to the basis for each disagreement and shall
specify the total adjustment to the Annual Expense Reimbursement Factors as
proposed by the Company as a result of such items in disagreement.

(f) Dispute
Resolution.  If the Reinsurer does
not deliver a Notice of Disagreement to the Company within such thirty (30) day
period, the Annual Expense Reimbursement Factor Documents and the Triennial
Study Documents, as applicable, shall be final and binding upon the parties
hereto and shall constitute the final calculation of the Annual Expense
Reimbursement Factor for the next calendar year.  If the Reinsurer delivers a Notice of 

 

Disagreement to the Company within such thirty (30) day period, the
parties shall (and shall cause their respective designated representatives to)
negotiate in good faith to resolve all disagreements as promptly as practicable.  Any changes in the Annual Expense
Reimbursement Factors, if any, that are agreed to by the Company and the
Reinsurer within sixty (60) days of the aforementioned delivery of the Annual
Expense Reimbursement Factor Documents or the Triennial Study Documents, as
applicable, shall be incorporated into a final calculation of the Annual
Expense Reimbursement Factors.  If the
parties and their respective designated representatives are unable to resolve
all disagreements within sixty (60) days of delivery of the Annual Expense
Reimbursement Factor Documents or the Triennial Study Documents, as applicable,
then all unresolved disagreements will be submitted within ten (10) days after
the end of such sixty (60) day period for resolution in accordance herewith to an
independent certified public accounting firm of national standing and
reputation (the “Accounting Firm”) mutually acceptable to the Company and the
Reinsurer.  The parties shall cooperate
in good faith with the Accounting Firm and shall give the Accounting Firm
access to all data and other information requested by the Accounting Firm for
purposes of such resolution.  The
Accounting Firm shall, within thirty (30) days after its engagement, deliver to
the Company and the Reinsurer a definitive calculation of the Annual Expense
Reimbursement Factors, which shall be final and binding upon the parties hereto
and shall be so reflected in the calculation of the Annual Expense
Reimbursement Factors.  The Company and
the Reinsurer shall each pay one-half of the fees and expenses of the
Accounting Firm.

 

(g) Expense
Allowance Pending Resolution.  In
the event of a dispute with respect to any Annual Expense Reimbursement Factors
for the next succeeding Calendar year, the Company and the Reinsurer agree that
the Annual Expense Reimbursement Factors then in effect under this Agreement
shall remain in effect pending resolution of such dispute and adjustment, if
any, in accordance with the dispute resolution procedure set forth in paragraph
(f) above.

 

SCHEDULE E-1

 

BUSINESS OVERHEAD SERVICES

 

Business
Overhead Services

 

                The “Business
Overhead Services” are broadly defined as activities performed by the “LTC”
business unit of GNA Corporation (“GNA”) and its subsidiaries and Affiliates
that benefit the business reinsured under this Agreement.  GNA will provide, as a subcontractor, the
Business Overhead Services, which will include, without limitation, the
services described below.

 

Executive:

General support, counsel, strategy and leadership provided by LTC’s Chief Executive
Officer including managing existing business relationship with Travelers.

 

Human Resources:

General business level Human Resource related activities including but not
limited to leadership development, employee recruitment and staffing,
implementation of compensation policies and practices, payroll and benefit
administration, organizational communication, training, general security and
employee issue resolution and guidance.

 

Finance:

Cost of finance activities including but not limited to product financial
support and analysis, account reconciliations, state reporting, product
profitability analysis, investment income planning & analysis, expense
management, audit support, statutory & GAAP accounting, reporting &
analysis and ad hoc financial analysis. 
Finance supports the existing reinsurance treaty and all related
filings.

 

Legal/Compliance:

Cost of support and coordination of litigation, government relations, human
resource, intellectual property, insurance regulatory, consumer privacy,
contract, compliance, and public relations matters.  Additional relationships with the DOI and with Travelers are
managed within this group.

 

Risk:

Cost of Risk Management and reinsurance support---Monitor production vs.
authority limits, monitor and review key risk measures. General oversight of
inforce product performance analysis and reviews.  Reinsurance oversight and treaty management including settlement
with reinsurers.  Reserve analysis and
general risk management.

 

Sourcing / Facilities:

Campus expenses including building rent and maintenance, parking garage,
cafeteria, campus lawn care and utilities. 
Procurement of necessary business software, supplies, EDP.

 

 

Information Technology:

General business technology infrastructure costs including but not limited to
general management, help desk assistance, data center management, disaster
recovery plans and digitization of processes.

 

Six Sigma Quality:

Costs including business project management and process improvement coaching,
execution and leadership.

 

Actuarial:

Sets Reserving Levels, Provides analysis on in-force blocks, evaluates product
risk analysis, forecasting and planning for future periods.  Manages reinsurance analysis.

 

eQuTOps:

Project budget associated to large scale projects that impact the business via
digitization, streamlining of processes, system enhancements or regulatory
mandated projects (e.g., HIPAA).

 

Product Management:

Costs for product line managers to manage inforce policies and general product
line maintenance activities such as risk assessment, return on equity (“ROE”)  variance analysis and related ROE
improvement projects.

 

Operations:

Costs including management, project leadership and administrative support for
service operations supporting customers, policyholders, claims delivery and
other stakeholders.

 

Other:

Costs including corporate insurance allocation to product lines (e.g.,
cost of building insurance and other property, plant and equipment).

 

Retention:

Costs including monitoring of inforce policy retention levels, design and
execute programs to retain inforce business.

 

 

Changes in Services

 

The Business Overhead Services shall include such other comparable
and/or successor services implemented or maintained from time to time by GNA
and its subsidiaries and Affiliates.

 

 

SCHEDULE F - PART I

 

INITIAL REPORT

 

	
  1. Total SAP Ceded Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Active Life Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  B. Claim Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  C. Unearned Premium Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  D. Advanced Premium

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  E. Less: Due and Unpaid Premium

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total SAP Ceded Reserves (A+B+C+D-E)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2. Ceding Commission:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Excess SAP Ceded Reserves over GAAP
  Ceded Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1) Total SAP Ceded Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  2) Total GAAP Ceded Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  a. Active Life Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  b. Maintenance Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  c. Loss Expense Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  d. Claim Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  e. Unearned Premium Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  f. Advanced Premium

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  g. Less: Due and Unpaid Premium

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total GAAP Ceded Reserves (a+b+c+d+e+f-g)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Excess SAP Reserves over GAAP Reserves
  (A1-A2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B. Present Value of Future Profits (PVFP)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  C. Deferred Acquisition Costs (DAC)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  D. Loss Carry Forward Amount (Stop Loss
  Balance)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  E. Asset Book Value Difference

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1) Asset Book Value (GAAP basis)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  2) Asset Book Value (SAP basis)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Excess Asset Book Value (E1-E2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  Total Ceding Commission (A+B+C+D+E)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3. Accrued Interest on Assets as of the day
  before Inception Date

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4. Investment Cash Flows on the Assets from
  the Inception Date through the Closing Date

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  Net Due Reinsurer (1-2-3+4)

  	
   

  	
   

  	
   

  	
  $

  	
   

  

 

 

SCHEDULE F - PART II

 

MONTHLY SETTLEMENT REPORT

 

	
  1. Additional Premium Due:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Premiums Received:

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  1. Direct Premium Collected on Reinsured
  Policies

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2. Additional Reinsurance Premium Collected
  from Travelers

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  3. Less: Premiums Paid to Travelers on
  retained business

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Premiums Received (A1+A2-A3)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B. 12/31/03 Due and Unpaid Premium
  Receivable Collected

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  C. Stop Loss Payments Received from
  Travelers

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  Total Additional Premium Due (A+B+C)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2. Ultimate Net Loss Paid:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Losses (Claims Incurred)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1. Direct Losses Incurred

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  2. Less: Losses Reimbursed by Travelers on
  retained business

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Losses (Claims Incurred) (A1+A2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B. Stop Loss Payments to Travelers

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  C. Allocated Loss Adjustment Expense

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  D. Premium Taxes Due

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  E. Insolvency Fund Assessments, net

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  F. Returns or Refunds of Premiums

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  G. Commissions Paid

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  H. Unclaimed Property Liabilities

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Ultimate Net Loss Paid
  (A+B+C+D+E+F+G+H)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3. Withdrawals from Claims Settlement
  Account

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4. Expense Allowance:

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  A. Policy Maintenance

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  B. Claims

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  C. Traveler’s Agreement Maintenance

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Expense Commission (A+B+C)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5. Additional Expenses:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Novation Costs Incurred (pursuant to
  Section 2.6)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  B. Re-rating costs incurred (pursuant to
  Section 3.3)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Additional Expense (A+B)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6. Additional Ceding Commission Paid to
  Travelers

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Due Reinsurer (1-2+3-4-5-6)

  	
   

  	
   

  	
   

  	
  $

  	
   

  

 

 

SCHEDULE F - PART III

 

QUARTERLY SETTLEMENT REPORT

 

	
  1. Additional Premium Due:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Premiums Received:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1. Direct Premium Collected on Reinsured
  Policies

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  2. Additional Reinsurance Premium Collected
  from Travelers

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  3. Less: Premiums Paid to Travelers on
  retained business

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Premiums Received (A1+A2-A3)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B. 12/31/03 Due and Unpaid Premium
  Receivable Collected

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  C. Stop Loss Payments Received from
  Travelers

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  Total Additional Premium Due (A+B+C)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2. Ultimate Net Loss Paid:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Losses (Claims Incurred)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1. Direct Losses Incurred

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  2. Less: Losses Reimbursed by Travelers on
  retained business

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Losses (Claims Incurred) (A1+A2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B. Stop Loss Payments to Travelers

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  C. Allocated Loss Adjustment Expense

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  D. Premium Taxes Due

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  E. Insolvency Fund Assessments, net

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  F. Returns or Refunds of Premiums

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  G. Commissions Paid

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  H. Unclaimed Property Liabilities

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Ultimate Net Loss Paid
  (A+B+C+D+E+F+G+H)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3. Withdrawals from Claims Settlement
  Account

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4. Expense Allowance:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Policy Maintenance

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  B. Claims

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  C. Traveler’s Agreement Maintenance

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Expense Commission (A+B+C)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5. Additional Expenses:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Novation Costs Incurred (pursuant to
  Section 2.6)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  B. Re-rating costs incurred (pursuant to
  Section 3.3)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Additional Expense (A+B)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6. Additional Ceding Commission Paid to
  Travelers

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  I. Quarterly Settlement Amount
  (1-2+3-4-5-6)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  II. Sum of Monthly Settlements for Quarter
  Ended

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  Net Due to (from) Reinsurer (I-II)

  	
   

  	
   

  	
   

  	
  $

  	
   

  

 

 

SCHEDULE F - PART IV

 

ANNUAL REPORT

 

	
  1. Additional Premium Due:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Premiums Received:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1. Direct Premium Collected on Reinsured
  Policies

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  2. Additional Reinsurance Premium Collected
  from Travelers

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  3. Less: Premiums Paid to Travelers on
  retained business

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Premiums Received (A1+A2-A3)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B. 12/31/03 Due and Unpaid Premium
  Receivable Collected

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  C. Stop Loss Payments Received from
  Travelers

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  Total Additional Premium Due (A+B+C)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2. Ultimate Net Loss Paid:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Losses (Claims Incurred)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1. Direct Losses Incurred

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  2. Less: Losses Reimbursed by Travelers on
  retained business

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Losses (Claims Incurred) (A1+A2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B. Stop Loss Payments to Travelers

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  C. Allocated Loss Adjustment Expense

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  D. Premium Taxes Due

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  E. Insolvency Fund Assessments, net

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  F. Returns or Refunds of Premiums

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  G. Commissions Paid

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  H. Unclaimed Property Liabilities

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Ultimate Net Loss Paid
  (A+B+C+D+E+F+G+H)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3. Withdrawals from Claims Settlement
  Account

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4. Expense Allowance:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Policy Maintenance

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  B. Claims

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  C. Traveler’s Agreement Maintenance

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Expense Commission (A+B+C)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5. Additional Expenses:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A. Novation Costs Incurred (pursuant to
  Section 2.6)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  B. Re-rating costs incurred (pursuant to
  Section 3.3)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
  Total Additional Expense (A+B)

  	
   

  	
   

  	
   

  	
  $

  	
   

  

 

 

	
  6. Additional Ceding Commission Paid to
  Travelers

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7. Experience Refund Amounts Due to the
  Company Under Article VIII

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  I. Annual Settlement Amount (1-2+3-4-5-6-7)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  II. Sum of Monthly Settlements for Calendar
  Year

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
  Net Due to (from) Reinsurer (I-II)

  	
   

  	
   

  	
   

  	
  $

  	
   

  

 

 

SCHEDULE G

 

FORM OF TRUST AGREEMENT

 

 

 

 

SCHEDULE H

 

ELIGIBLE SECURITIES

 

 

Assets of the types for which
an Illinois-domiciled life insurance company could obtain full statutory
reserve credit under statutory accounting practices prescribed or permitted by
the Director of Insurance of the State of Illinois.

 

 

 

 

SCHEDULE I

 

EXPERIENCE REFUND1

 

 

	
  Scenario 1—Base Case

  	
  Net Yield

  	
   

  	
  6.19

  	
  %

  	
  6.08

  	
  %

  	
  6.02

  	
  %

  	
  5.93

  	
  %

  	
  5.90

  	
  %

  	
  5.87

  	
  %

  	
  5.85

  	
  %

  	
  5.82

  	
  %

  	
  5.81

  	
  %

  	
  5.78

  	
  %

  	
  5.74

  	
  %

  	
  5.73

  	
  %

  	
  5.71

  	
  %

  	
  5.70

  	
  %

  	
  5.70

  	
  %

  

 

Calculated By taking Investment Income Including IMR
amort and dividing by a 2 point avg of the sum of Total Ceded SAP Reserves plus
IMR

 

	
  LTC Reinsurance Segment Proje

  	
   

  	
  2004

  	
   

  	
  2005

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2010

  	
   

  	
  2011

  	
   

  	
  2012

  	
   

  	
  2013

  	
   

  	
  2014

  	
   

  	
  2015

  	
   

  	
  2016

  	
   

  	
  2017

  	
   

  	
  2018

  	
   

  
	
   

  	
   

  	
  (in $1,000's)

  	
   

  
	
  Premium Income

  	
   

  	
  149,771

  	
   

  	
  155,435

  	
   

  	
  148,086

  	
   

  	
  140,612

  	
   

  	
  133,047

  	
   

  	
  125,438

  	
   

  	
  117,799

  	
   

  	
  110,067

  	
   

  	
  102,297

  	
   

  	
  94,545

  	
   

  	
  86,865

  	
   

  	
  79,311

  	
   

  	
  71,937

  	
   

  	
  64,794

  	
   

  	
  57,924

  	
   

  
	
  Investment Inc on LTC Rsvs (Net of Defaults & Inv Exp)

  	
   

  	
  78,304

  	
   

  	
  87,570

  	
   

  	
  96,510

  	
   

  	
  104,068

  	
   

  	
  111,669

  	
   

  	
  118,543

  	
   

  	
  124,737

  	
   

  	
  130,152

  	
   

  	
  135,233

  	
   

  	
  139,341

  	
   

  	
  142,454

  	
   

  	
  145,636

  	
   

  	
  147,692

  	
   

  	
  149,124

  	
   

  	
  150,135

  	
   

  
	
  IMR Amortization for LTC Segment

  	
   

  	
  467

  	
   

  	
  469

  	
   

  	
  475

  	
   

  	
  481

  	
   

  	
  481

  	
   

  	
  494

  	
   

  	
  475

  	
   

  	
  453

  	
   

  	
  438

  	
   

  	
  415

  	
   

  	
  407

  	
   

  	
  397

  	
   

  	
  378

  	
   

  	
  356

  	
   

  	
  327

  	
   

  
	
  TOTAL REVENUE:

  	
   

  	
  228,542

  	
   

  	
  243,474

  	
   

  	
  245,071

  	
   

  	
  245,161

  	
   

  	
  245,197

  	
   

  	
  244,475

  	
   

  	
  243,011

  	
   

  	
  240,672

  	
   

  	
  237,967

  	
   

  	
  234,301

  	
   

  	
  229,726

  	
   

  	
  225,344

  	
   

  	
  220,008

  	
   

  	
  214,274

  	
   

  	
  208,386

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Paid Benefits

  	
   

  	
  69,640

  	
   

  	
  82,274

  	
   

  	
  89,969

  	
   

  	
  96,614

  	
   

  	
  102,100

  	
   

  	
  106,392

  	
   

  	
  109,895

  	
   

  	
  114,025

  	
   

  	
  118,659

  	
   

  	
  123,617

  	
   

  	
  128,753

  	
   

  	
  133,935

  	
   

  	
  138,995

  	
   

  	
  143,805

  	
   

  	
  148,266

  	
   

  
	
  Increase in Active Life Reserves

  	
   

  	
  140,189

  	
   

  	
  134,678

  	
   

  	
  127,692

  	
   

  	
  119,882

  	
   

  	
  111,585

  	
   

  	
  102,794

  	
   

  	
  93,175

  	
   

  	
  82,739

  	
   

  	
  71,708

  	
   

  	
  60,167

  	
   

  	
  48,189

  	
   

  	
  35,724

  	
   

  	
  23,161

  	
   

  	
  10,784

  	
   

  	
  (1,502

  	
   

  
	
  Increase in Claim Reserves (incl IBNR)

  	
   

  	
  32,842

  	
   

  	
  27,722

  	
   

  	
  24,569

  	
   

  	
  21,217

  	
   

  	
  17,519

  	
   

  	
  13,705

  	
   

  	
  11,187

  	
   

  	
  13,184

  	
   

  	
  14,799

  	
   

  	
  15,833

  	
   

  	
  16,399

  	
   

  	
  16,546

  	
   

  	
  16,157

  	
   

  	
  15,360

  	
   

  	
  14,245

  	
   

  
	
  Loss Exp (Incl Rsv Change & LAE)

  	
   

  	
  1,624

  	
   

  	
  1,594

  	
   

  	
  1,575

  	
   

  	
  1,540

  	
   

  	
  1,484

  	
   

  	
  1,413

  	
   

  	
  1,372

  	
   

  	
  1,470

  	
   

  	
  1,561

  	
   

  	
  1,639

  	
   

  	
  1,704

  	
   

  	
  1,758

  	
   

  	
  1,795

  	
   

  	
  1,817

  	
   

  	
  1,827

  	
   

  
	
  Expense Allowances - Commissions

  	
   

  	
  18,754

  	
   

  	
  19,382

  	
   

  	
  18,556

  	
   

  	
  17,706

  	
   

  	
  16,834

  	
   

  	
  15,947

  	
   

  	
  15,051

  	
   

  	
  14,149

  	
   

  	
  13,248

  	
   

  	
  12,354

  	
   

  	
  11,471

  	
   

  	
  10,604

  	
   

  	
  9,760

  	
   

  	
  8,942

  	
   

  	
  8,155

  	
   

  
	
  Expense Allowances - Treaty (Claims Dept, PHS, Blue Sky)

  	
   

  	
  9,365

  	
   

  	
  7,877

  	
   

  	
  7,956

  	
   

  	
  7,993

  	
   

  	
  7,987

  	
   

  	
  8,002

  	
   

  	
  7,982

  	
   

  	
  7,975

  	
   

  	
  7,976

  	
   

  	
  7,981

  	
   

  	
  7,986

  	
   

  	
  7,986

  	
   

  	
  7,979

  	
   

  	
  7,960

  	
   

  	
  7,927

  	
   

  
	
  Expense Allowances - BSA Expenses (COH)

  	
   

  	
  3,390

  	
   

  	
  3,230

  	
   

  	
  3,118

  	
   

  	
  3,003

  	
   

  	
  2,884

  	
   

  	
  2,762

  	
   

  	
  2,638

  	
   

  	
  2,512

  	
   

  	
  2,384

  	
   

  	
  2,255

  	
   

  	
  2,126

  	
   

  	
  1,998

  	
   

  	
  1,870

  	
   

  	
  1,743

  	
   

  	
  1,619

  	
   

  
	
  Stop-loss & 10% Novation Costs

  	
   

  	
  4,438

  	
   

  	
  2,817

  	
   

  	
  1,894

  	
   

  	
  838

  	
   

  	
  25,023

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Impairments - 15bps

  	
   

  	
  2,064

  	
   

  	
  2,368

  	
   

  	
  2,647

  	
   

  	
  2,905

  	
   

  	
  3,140

  	
   

  	
  3,349

  	
   

  	
  3,530

  	
   

  	
  3,684

  	
   

  	
  3,829

  	
   

  	
  3,939

  	
   

  	
  4,036

  	
   

  	
  4,111

  	
   

  	
  4,158

  	
   

  	
  4,186

  	
   

  	
  4,192

  	
   

  
	
  TOTAL EXPENSES:

  	
   

  	
  282,307

  	
   

  	
  281,942

  	
   

  	
  277,976

  	
   

  	
  271,697

  	
   

  	
  288,555

  	
   

  	
  254,364

  	
   

  	
  244,830

  	
   

  	
  239,738

  	
   

  	
  234,165

  	
   

  	
  227,786

  	
   

  	
  220,665

  	
   

  	
  212,662

  	
   

  	
  203,874

  	
   

  	
  194,597

  	
   

  	
  184,729

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pre-Tax Income 90% TLA

  	
   

  	
  (53,765

  	
  )

  	
  (38,469

  	
  )

  	
  (32,905

  	
  )

  	
  (26,536

  	
  )

  	
  (43,358

  	
  )

  	
  (9,889

  	
  )

  	
  (1,820

  	
  )

  	
  934

  	
   

  	
  3,802

  	
   

  	
  6,516

  	
   

  	
  9,061

  	
   

  	
  12,682

  	
   

  	
  16,135

  	
   

  	
  19,677

  	
   

  	
  23,658

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10% Novation Segment Pre-Tax Profits

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (1,099

  	
  )

  	
  (202

  	
  )

  	
  104

  	
   

  	
  422

  	
   

  	
  724

  	
   

  	
  1,007

  	
   

  	
  1,409

  	
   

  	
  1,793

  	
   

  	
  2,186

  	
   

  	
  2,629

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pre-Tax Income = Experience Refund Baseline

  	
   

  	
  (53,765

  	
  )

  	
  (38,469

  	
  )

  	
  (32,905

  	
  )

  	
  (26,536

  	
  )

  	
  (43,358

  	
  )

  	
  (10,988

  	
  )

  	
  (2,022

  	
  )

  	
  1,038

  	
   

  	
  4,225

  	
   

  	
  7,240

  	
   

  	
  10,068

  	
   

  	
  14,091

  	
   

  	
  17,927

  	
   

  	
  21,863

  	
   

  	
  26,286

  	
   

  

1  In recognition
of the limited amount of time available to the Reinsurer to verify the accuracy
of the calculation of the Experience Refund Baseline and the recent
availability of 2003 experience on the Reinsured Policies, the parties to this
Agreement agree to update the values set forth in the Experience Refund
Baseline on this Schedule I, at any time on or before June 30, 2004, (a) to
correct material errors or omissions in the models and workbooks used to derive
the Experience Refund Baseline and (b) to reflect adjustments to projected rate
increase filings resulting from further analysis of 2003 experience on the
Reinsured Policies.

 

 

BUSINESS ASSOCIATE ADDENDUM

 

I.              Purpose.

In order to
disclose certain information to the party providing a service under this
Agreement (“Provider”) under this Addendum, some of which may constitute
Protected Health Information (defined below), the party to whom a service under
this Agreement is being provided (“Recipient”) and Provider mutually agree to
comply with the terms of this Addendum for the purpose of satisfying the
requirements of the Health Insurance Portability and Accountability Act of 1996
(“HIPAA”) and its implementing privacy regulations at 45 C.F.R. Parts 160-164
(“HIPAA Privacy Rule”).   These
provisions shall apply to Provider to the extent that Provider is considered a
“Business Associate” under the HIPAA Privacy Rule and all references in this
section to Business Associates shall refer to Provider.  Capitalized terms not otherwise defined
herein shall have the meaning assigned in the Agreement.  Notwithstanding anything else to the
contrary in the Agreement, in the event of a conflict between this Addendum and
the Agreement, the terms of this Addendum shall prevail.

II.            Permitted
Uses and Disclosures.

A.            Business Associate
agrees to use or disclose Protected Health Information (“PHI”) that it creates
for or receives from Recipient or its Subsidiaries only as follows.  The capitalized term “Protected Health
Information or PHI” has the meaning set forth in 45 Code of Federal Regulations
Section 164.501, as amended from time to time. 
Generally, this term means individually identifiable health information
including, without limitation, all information, data and materials, including
without limitation, demographic, medical and financial information, that
relates to the past, present, or future physical or mental health or condition
of an individual; the provision of health care to an individual; or the past
present, or future payment for the provision of health care to an individual;
and that identifies the individual or with respect to which there is a
reasonable basis to believe the information can be used to identify the
individual.  This definition shall
include any demographic information concerning members and participants in, and
applicants for, Recipient’s or its Subsidiaries’ health benefit plans.  All other terms used in this Addendum shall
have the meanings set forth in the applicable definitions under the HIPAA
Privacy Rule.

B.            Functions
and Activities on Company’s Behalf. 
Business Associate is permitted to use and disclose PHI it creates for
or receives from Recipient or its Subsidiaries only for the purposes described
in this Addendum or the Agreement that are not inconsistent with the provisions
of this Addendum, or as required by law, or following receipt of prior written
approval from whichever of the Recipient or its Subsidiary for which the
relevant PHI was created or from which the relevant PHI was received.  In addition to these specific requirements
below, Business Associate may use or disclose PHI only in a manner that would
not violate the HIPAA Privacy Rule if done by the Recipient or its
Subsidiaries.  

C.            Business
Associate’s Operations.  Business
Associate is permitted by this Agreement to use PHI it creates for or receives
from Recipient or its Subsidiaries: (i) if such use is reasonably necessary for
Business Associate’s proper management and administration; and (ii) as
reasonably necessary to carry out Business Associate’s legal responsibilities.
Business 

 

1

 

Associate is permitted to
disclose PHI it creates for or receives from Recipient or its Subsidiaries for
the purposes identified in this Section only if the following conditions are
met:

 

(1)
The disclosure is required by law; or

(2)   The disclosure is reasonably necessary to
Business Associate’s proper management and administration, and Business
Associate obtains reasonable assurances in writing from any person or
organization to which Business Associate will disclose such PHI that the person
or organization will:

a. Hold such PHI as
confidential and use or further disclose it only for the purpose for which
Business Associate disclosed it to the person or organization or as required by
law; and

b. Notify Business
Associate (who will in turn promptly notify whichever of the Recipient or its
Subsidiary for which the relevant PHI was created or from which the relevant
PHI was received) of any instance of which the person or organization becomes
aware in which the confidentiality of such PHI was breached.

D.            Minimum Necessary
Standard.  In performing the functions
and activities on Recipient’s or its Subsidiaries’ behalf pursuant to the
Agreement, Business Associate agrees to use, disclose or request only the
minimum necessary PHI to accomplish the purpose of the use, disclosure or
request.  Business Associate must have
in place policies and procedures that limit the PHI disclosed to meet this
minimum necessary standard.

E.     Prohibition on Unauthorized Use or Disclosure. 
Business Associate will neither use nor disclose PHI it creates or
receives for or from Recipient, its Subsidiaries, or from another business
associate of Recipient or its Subsidiaries, except as permitted or required by
this Addendum or the Agreement that are not inconsistent with the provisions of
this Addendum, or as required by law, or following receipt of prior written
approval from whichever of the Recipient or its Subsidiary for which the
relevant PHI was created or from which the relevant PHI was received.

F.             De-identification of Information.  Business Associate agrees neither to de-identify PHI it creates
for or receives from Recipient or its Subsidiaries or from another business
associate of Recipient or its Subsidiaries, nor use or disclose such
de-identified PHI, unless such de-identification is expressly permitted under
the terms and conditions of this Addendum or the Agreement and related to
Recipient’s or its Subsidiaries’ activities for purposes of “treatment”,
“payment” or “health care operations”, as those terms are defined under the
HIPAA Privacy Rule.  De-identification
of PHI, other than as expressly permitted under the terms and conditions of the
Addendum for Business Associate to perform services for Recipient or its
Subsidiaries, is not a permitted use of PHI under this Addendum.  Business Associate further agrees that it will
not create a “Limited Data Set” as defined by the HIPAA Privacy Rule using PHI
it creates or receives, or receives from another business associate of
Recipient or its Subsidiaries, nor use or disclose such Limited Data Set
unless: (i) such creation, use or disclosure is expressly permitted under the
terms and conditions of this Addendum or the Agreement that are not
inconsistent with the provisions of this Addendum; and such creation, use or
disclosure is for services provided by 

2

 

Business Associate that relate
to Recipient’s or its Subsidiaries’ activities for purposes of “treatment”,
“payment” or “health care operations”, as those terms are defined under the
HIPAA Privacy Rule.

 

G.            Information Safeguards.  Business
Associate will develop, document, implement, maintain and use appropriate
administrative, technical and physical safeguards to preserve the integrity and
confidentiality of and to prevent non-permitted use or disclosure of PHI
created for or received from Recipient or its Subsidiaries.  These safeguards must be appropriate to the
size and complexity of Business Associate’s operations and the nature and scope
of its activities.  Business Associate
agrees that these safeguards will meet any applicable requirements set forth by
the U.S. Department of Health and Human Services, including (as of the
effective date or as of the compliance date, whichever is applicable) any
requirements set forth in the final HIPAA security regulations.  Business Associate agrees to mitigate, to
the extent practicable, any harmful effect that is known to Business Associate
resulting from a use or disclosure of PHI by Business Associate in violation of
the requirements of this Addendum.

III.           Conducting
Standard Transactions.  In the
course of performing services for Recipient or its Subsidiaries, to the extent
that Business Associate will conduct Standard Transactions for or on behalf of
Recipient or its Subsidiaries, Business Associate will comply, and will require
any subcontractor or agent involved with the conduct of such Standard
Transactions to comply, with each applicable requirement of 45 C.F.R. Part
162.  “Standard Transaction(s)” shall
mean a transaction that complies with the standards set forth at 45 C.F.R. parts
160 and 162.  Further, Business
Associate will not enter into, or permit its subcontractors or agents to enter
into, any trading partner agreement in connection with the conduct of Standard
Transactions for or on behalf of the Recipient or its Subsidiaries that:

a.               Changes the definition, data condition,
or use of a data element or segment in a Standard Transaction;

b.              Adds any data element or segment to the
maximum defined data set;

c.               Uses any code or data element that is
marked “not used” in the Standard Transaction’s implementation specification or
is not in the Standard Transaction’s implementation specification; or

d.              Changes the meaning or intent of the
Standard Transaction’s implementation specification.

IV.           Sub-Contractors, Agents or Other Representatives.   Business Associate will require any of its subcontractors, agents
or other representatives to which Business Associate is permitted by this
Addendum or the Agreement (or is otherwise given Recipient’s or the relevant
Subsidiary’s prior written approval) to disclose any of the PHI Business
Associate creates or receives for or from Recipient or its Subsidiaries, to
provide reasonable assurances in writing that subcontractor or agent will
comply with the same restrictions and conditions that apply to the Business
Associate under the terms and conditions of this Addendum with respect to such
PHI.

3

 

V.            Protected
Health Information Access, Amendment and Disclosure Accounting.

A.            Access.  Business Associate
will promptly upon Recipient’s or its Subsidiary’s request make available to
Recipient, its Subsidiary, or, at Recipient’s or such Subsidiary’s direction,
to the individual (or the individual’s personal representative) for inspection
and obtaining copies any PHI about the individual which Business Associate
created for or received from Recipient or its Subsidiary and that is in
Business Associate’s custody or control, so that Recipient or its Subsidiary
may meet its access obligations under 45 Code of Federal Regulations
§ 164.524.

B.            Amendment.  Upon Recipient’s or its
Subsidiary’s request Business Associate will promptly amend or permit Recipient
or its Subsidiary access to amend any portion of the PHI which Business
Associate created for or received from Recipient or its Subsidiary, and
incorporate any amendments to such PHI, so that Recipient or its Subsidiary may
meet its amendment obligations under 45 Code of Federal Regulations § 164.526.

C.            Disclosure Accounting.  So that Recipient or its Subsidiaries may meet their disclosure
accounting obligations under 45 Code of Federal Regulations § 164.528:

1.     Disclosure
Tracking.  Business Associate will
record for each disclosure, not excepted from disclosure accounting under
Section V.C.2 below, that Business Associate makes to Recipient or its
Subsidiaries of PHI that Business Associate creates for or receives from
Recipient or its Subsidiaries, (i) the disclosure date, (ii) the name and
member or other policy identification number of the person about whom the
disclosure is made, (iii) the name and (if known) address of the person or
entity to whom Business Associate made the disclosure, (iv) a brief description
of the PHI disclosed, and (v) a brief statement of the purpose of the
disclosure (items i-v, collectively, the “disclosure information”).  For repetitive disclosures Business
Associate makes to the same person or entity (including Recipient or its
Subsidiaries) for a single purpose, Business Associate may provide a) the
disclosure information for the first of these repetitive disclosures, (b) the
frequency, periodicity or number of these repetitive disclosures and (c) the
date of the last of these repetitive disclosures.  Business Associate will make this disclosure information
available to Recipient or its Subsidiaries promptly upon Recipient’s or its
Subsidiaries’ request.

2.     Exceptions
from Disclosure Tracking.  Business
Associate need not record disclosure information or otherwise account for
disclosures of PHI that this Addendum or Recipient or the relevant Subsidiary
in writing permits or requires (i) for the purpose of Recipient’s or its
Subsidiaries’ treatment activities, payment activities, or health care
operations, (ii) to the individual who is the subject of the PHI disclosed or
to that individual’s personal representative; (iii) to persons involved in that
individual’s health care or payment for health care; (iv) for notification for
disaster relief purposes, (v) for national security or intelligence purposes,
(vi) to law enforcement officials or correctional institutions regarding
inmates; or   (vii) pursuant to an authorization; (viii) for
disclosures of certain PHI made as part of a Limited Data Set; (ix) for certain
incidental disclosures that may occur where reasonable safeguards have been
implemented; and (x) for disclosures prior to April 14, 2003.

3.     Disclosure
Tracking Time Periods.  Business
Associate must have available for Recipient and its Subsidiaries the disclosure
information required by this section for the 6 years preceding Recipient’s or
its Subsidiaries’ request for the disclosure information (except Business
Associate need have no disclosure information for disclosures occurring before
April 14, 2003).

4

 

VI.           Additional Business Associate Provisions

A.            Reporting
of Breach of Privacy Obligations. 
Business Associate will provide written notice to whichever of the
Recipient or its Subsidiary for which the relevant PHI was created or from
which the relevant PHI was received of any use or disclosure of PHI that is
neither permitted by this Addendum nor given prior written approval by
Recipient or the relevant Subsidiary promptly after Business Associate learns
of such non-permitted
use or disclosure.  Business Associate’s
report will at least:

(vii)         Identify the nature of the non-permitted use or
disclosure;

(viii)      Identify the PHI used or disclosed;

(ix)              Identify who made the non-permitted use or
received the non-permitted disclosure;

(x)                 Identify what corrective action Business
Associate took or will take to prevent further non-permitted uses or
disclosures;

(xi)              Identify what Business Associate did or
will do to mitigate any deleterious effect of the non-permitted use or
disclosure; and

(xii)           Provide
such other information, including a written report, as Recipient or the
relevant Subsidiary may reasonably request.

B.            Amendment.  Upon the effective date
of any final regulation or amendment to final regulations promulgated by the
U.S. Department of Health and Human Services with respect to PHI, including,
but not limited to the HIPAA privacy and security regulations, this Addendum
and the Agreement will automatically be amended so that the obligations they
impose on Business Associate remain in compliance with these regulations.

In addition,
to the extent that new state or federal law requires changes to Business
Associate’s obligations under this Addendum, this Addendum shall automatically
be amended to include such additional obligations, upon notice by Recipient or
its Subsidiaries to Business Associate of such obligations.  Business Associate’s continued performance
of services under the Agreement shall be deemed acceptance of these additional
obligations.

C.            Audit
and Review of Policies and Procedures. 
Business Associate agrees to provide, upon Recipient
request, access to and copies of any policies and procedures developed or
utilized by Business Associate regarding the protection of PHI.  Business Associate agrees to provide, upon Recipient’s
request, access to Business Associate’s internal practices, books, and records,
as they relate to Business Associate’s services, duties and obligations set
forth in this Addendum and the Agreement(s) under which Business Associate
provides services and / or products to or on behalf of Recipient or its
Subsidiaries, for purposes of Recipient’s or its Subsidiaries’ review of such
internal practices, books, and records.

5

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