Document:

Exhibit 10.17

 

RETROCESSION AGREEMENT

between

GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK

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

  

 

i

 

	
  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

  	
   

  	
   

  

 

ii

 

RETROCESSION AGREEMENT

This Retrocession Agreement,
dated as of April 15, 2004 (this “Agreement”), is made and entered into by and
between GE Capital Life Assurance 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 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.

“GECA” means General
Electric Capital Assurance Company, an insurance company organized under the
laws of the State of Delaware, and an affiliate of the Company.

“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 

3

 

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.

“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 New York.

“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.

4

 

“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 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 GECA 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 New York 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 New York 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.

5

 

“Travelers Side Letter”
means the letter agreement, dated April 14, 2000, between Travelers and GECA
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 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 

6

 

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 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.

7

 

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 (90%) to one hundred percent (100%) of
the New York Reinsured Liabilities (as such term is defined in the Travelers
Reinsurance Agreement). Any such increased cession of the New York 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.

8

 

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 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 requested by the Reinsurer and approved by the
Company and (ii) shall be entitled to increase premium rates without the consent
of the Reinsurer.  In approving or
disapproving premium rate increases requested by the Reinsurer, the Company
agrees to not unreasonably withhold or delay its approval.  Notwithstanding the foregoing, with respect
to the Novated Policies, neither the Reinsurer nor the Company may request or
implement, as applicable, a premium rate increase unless such premium rate
increase would have been permitted under the terms of Section 4.2(i) of the
Travelers Servicing Agreement assuming such Novated Policies continued to be
“New York Reinsured Contracts” as defined under the Travelers Servicing
Agreement.  In addition, neither the
Reinsurer nor the Company may request 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. 

9

 

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 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 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 

10

 

an assumption of the
administration of the Novated Policies pursuant to this paragraph (a) of this
Section 3.9.

(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 and
Article VI  shall become inoperative
with respect to the Novated Policies.

11

 

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 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 $2.5
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. 

12

 

(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.

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

13

 

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 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, 

14

 

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 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

 

15

 

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, however
that if the cumulative amount of X during the calendar years 2004-2006 exceeds
$15 million, then Y shall be reduced to 50% for any amounts of X over $15
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 5.95%, 5.89% and
5.83% 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 

16

 

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 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.

 

17

 

ARTICLE X

INSOLVENCY

10.1.        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
policies 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 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.

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.

18

 

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.

(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 

19

 

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 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 

20

 

 

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 (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).

21

 

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 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

22

 

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-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 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 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

23

 

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
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 

24

 

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:

GE Capital Life Assurance Company of New York

6610 West Broad Street

Richmond, VA  23230

Facsimile: 
(804) 281-6165

Attention:  Chief Executive Officer

With a copy to:

GE Capital Life Assurance Company of New York

6610 West Broad Street

Richmond, VA 
23230

Facsimile:  (804) 281-6005

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.

25

 

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.

17.7.        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.

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.

26

 

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 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.

GE CAPITAL LIFE ASSURANCE COMPANY
  OF NEW YORK

 

By  /s/  Victor
C. Moses                                                                  

     Name: Victor C. Moses
     Title: Senior Vice President

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)

LTC3+ Qualified
Comprehensive (1993-2001)

LTC3+
Non-Qualified Comprehensive (1993-2001)

LTC3+ Non-Qualified Facility
(1993-1999)

LC3 Qualified (1993-99)

LC3 Non-Qualified (1993-99)

LTC4 Qualified Comprehensive
(1997-2001)

LTC4 Qualified Facility
(1997-1999)

LC4

 

 

SCHEDULE
B

FORM OF ADMINISTRATIVE
SERVICES AGREEMENT

 

 

 

LTC UFLIC/GECLANY

 

 

 

 

 

 

 

 

 

 

 

ADMINISTRATIVE SERVICES AGREEMENT

by and between

GE CAPITAL LIFE ASSURANCE 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 GE CAPITAL LIFE
ASSURANCE 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 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 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 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 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 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.  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
Policies 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 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, (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
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.

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

2

 

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”) in accordance 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.

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;

(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 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

3

 

 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; b

(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 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

4

 

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 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, reasonably acceptable to the Company and approved by 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 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.

5

 

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.

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

6

 

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.

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 

7

 

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:

(i)                 As soon as
practicable but not more than thirty (30) days after the end of each Accounting
Period (or more frequently as mutually agreed by the parties), the
Administrator shall timely provide to the Company the Monthly Settlement
Reports.  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 Settlement
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 Agreement is in effect (or more frequently as
mutually agree 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 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

8

 

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.

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.

9

 

(iv)          The
Administrator shall provide 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, 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 Novated
Policies 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 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.

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 

10

 

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.

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.

11

 

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;

(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-

12

 

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.

(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.

 

13

 

(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 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 

14

 

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.

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:

 

15

 

If to the Company:

GE Capital Life Assurance Company of New York

6610 West Broad Street

Richmond, VA 
23230

Facsimile:  (804) 281-6165

Attention:  Chief Executive Officer

With a copy to:

GE Capital Life Assurance Company of New York

6610 West Broad Street

Richmond, VA 
23230

Facsimile:  (804) 281-6005

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.

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 and without the
prior written consent of the New York Insurance Department and the Illinois
Insurance Department.  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.

16

 

19.5.        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.

19.6.        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.

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

19.8.        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.

19.9.        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, 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.

19.10.      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

 

19.11.          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.

19.12.          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.

19.13.          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.”

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

19.15.          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.

 

18

 

 

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

GE CAPITAL LIFE ASSURANCE
COMPANY

  OF NEW YORK

 

 

By:
______________________________

      Name:

      Title:

 

UNION FIDELITY LIFE
INSURANCE

  COMPANY

 

 

By:
______________________________

      Name:

      Title:

 

 

19

 

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 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.

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

  	
   

  
	
  GECLANY LTC Retrocession

  	
   

  	
  GECLANY

  	
   

  	
  UFLIC

  	
   

  	
  Treaty

  	
   

  	
  (89

  	
  )

  	
  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

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  360,525,356.37

  	
   

  	
  5,210,003.59

  	
   

  	
  365,735,359.96

  	
   

  	
  360,438,234.29

  	
   

  	
  5,210,003.59

  	
   

  	
  365,648,237.88

  	
   

  
	
   

  	
   

  	
  Cash

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  398,450.63

  	
   

  	
   

  	
   

  	
  398,450.63

  	
   

  
	
   

  	
   

  	
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  360,836,684.92

  	
   

  	
   

  	
   

  	
  366,046,688.51

  	
   

  

* 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

 

 

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LTC Experience Refund Sample Calculation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Scenario 1 — Base Case

  	
   

  	
  Net Yield

  	
  5.95

  	
  %

  	
  5.89

  	
  %

  	
  5.83

  	
  %

  	
  5.80

  	
  %

  	
  5.77

  	
  %

  	
  5.76

  	
  %

  	
  5.75

  	
  %

  	
  5.74

  	
  %

  	
  5.74

  	
  %

  	
  5.74

  	
  %

  	
  5.72

  	
  %

  	
  5.73

  	
  %

  	
  5.73

  	
  %

  	
  5.74

  	
  %

  	
  5.75

  	
  %

  	
   

  	
   

  
	
   

  	
   

  	
  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
  Projection

  	
   

  	
  (in $1,000’s)

  	
  2004

  	
   

  	
  2005

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  	
  2009

  	
   

  	
  2010

  	
   

  	
  2011

  	
   

  	
  2012

  	
   

  	
  2013

  	
   

  	
  2014

  	
   

  	
  2015

  	
   

  	
  2016

  	
   

  	
  2017

  	
   

  	
  2018

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Premium Income

  	
   

  	
   

  	
  64,078

  	
   

  	
  65,125

  	
   

  	
  62,117

  	
   

  	
  59,082

  	
   

  	
  56,030

  	
   

  	
  52,972

  	
   

  	
  49,871

  	
   

  	
  46,731

  	
   

  	
  43,566

  	
   

  	
  40,397

  	
   

  	
  37,243

  	
   

  	
  34,128

  	
   

  	
  31,071

  	
   

  	
  28,093

  	
   

  	
  25,214

  	
   

  	
   

  	
   

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

  	
  29,778

  	
   

  	
  34,124

  	
   

  	
  38,080

  	
   

  	
  41,730

  	
   

  	
  44,992

  	
   

  	
  47,989

  	
   

  	
  50,663

  	
   

  	
  53,132

  	
   

  	
  55,353

  	
   

  	
  57,291

  	
   

  	
  58,802

  	
   

  	
  60,252

  	
   

  	
  61,281

  	
   

  	
  62,078

  	
   

  	
  62,566

  	
   

  	
   

  	
   

  
	
  IMR Amortization for LTC Segment

  	
   

  	
   

  	
  255

  	
   

  	
  240

  	
   

  	
  229

  	
   

  	
  227

  	
   

  	
  231

  	
   

  	
  235

  	
   

  	
  245

  	
   

  	
  253

  	
   

  	
  263

  	
   

  	
  268

  	
   

  	
  282

  	
   

  	
  306

  	
   

  	
  330

  	
   

  	
  367

  	
   

  	
  393

  	
   

  	
   

  	
   

  
	
  TOTAL REVENUE:

  	
   

  	
   

  	
  94,111

  	
   

  	
  99,489

  	
   

  	
  100,426

  	
   

  	
  101,039

  	
   

  	
  101,252

  	
   

  	
  101,195

  	
   

  	
  100,779

  	
   

  	
  100,116

  	
   

  	
  99,182

  	
   

  	
  97,956

  	
   

  	
  96,328

  	
   

  	
  94,685

  	
   

  	
  92,682

  	
   

  	
  90,538

  	
   

  	
  88,173

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Paid Benefits

  	
   

  	
   

  	
  24,105

  	
   

  	
  31,590

  	
   

  	
  35,922

  	
   

  	
  39,479

  	
   

  	
  42,266

  	
   

  	
  44,330

  	
   

  	
  46,397

  	
   

  	
  48,606

  	
   

  	
  50,999

  	
   

  	
  53,518

  	
   

  	
  56,105

  	
   

  	
  58,705

  	
   

  	
  61,252

  	
   

  	
  63,691

  	
   

  	
  65,960

  	
   

  	
   

  	
   

  
	
  Increase in Active Life Reserves

  	
   

  	
   

  	
  57,269

  	
   

  	
  54,960

  	
   

  	
  52,141

  	
   

  	
  48,950

  	
   

  	
  45,466

  	
   

  	
  41,724

  	
   

  	
  37,642

  	
   

  	
  33,195

  	
   

  	
  28,428

  	
   

  	
  23,400

  	
   

  	
  18,191

  	
   

  	
  12,833

  	
   

  	
  7,450

  	
   

  	
  2,141

  	
   

  	
  (3,102

  	
  )

  	
   

  	
   

  
	
  Increase in Claim Reserves (incl IBNR)

  	
   

  	
   

  	
  22,728

  	
   

  	
  17,867

  	
   

  	
  15,240

  	
   

  	
  12,516

  	
   

  	
  9,806

  	
   

  	
  7,263

  	
   

  	
  7,273

  	
   

  	
  7,771

  	
   

  	
  8,419

  	
   

  	
  8,863

  	
   

  	
  9,104

  	
   

  	
  9,147

  	
   

  	
  8,963

  	
   

  	
  8,581

  	
   

  	
  7,982

  	
   

  	
   

  	
   

  
	
  Loss Exp (Incl Rsv Change & LAE)

  	
   

  	
   

  	
  1,599

  	
   

  	
  793

  	
   

  	
  753

  	
   

  	
  703

  	
   

  	
  648

  	
   

  	
  591

  	
   

  	
  608

  	
   

  	
  642

  	
   

  	
  681

  	
   

  	
  716

  	
   

  	
  745

  	
   

  	
  768

  	
   

  	
  784

  	
   

  	
  794

  	
   

  	
  796

  	
   

  	
   

  	
   

  
	
  Expense Allowances — Commissions

  	
   

  	
   

  	
  7,963

  	
   

  	
  8,096

  	
   

  	
  7,769

  	
   

  	
  7,431

  	
   

  	
  7,085

  	
   

  	
  6,732

  	
   

  	
  6,373

  	
   

  	
  6,012

  	
   

  	
  5,650

  	
   

  	
  5,289

  	
   

  	
  4,930

  	
   

  	
  4,577

  	
   

  	
  4,231

  	
   

  	
  3,894

  	
   

  	
  3,568

  	
   

  	
   

  	
   

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

  	
   

  	
   

  	
  3,244

  	
   

  	
  2,570

  	
   

  	
  2,644

  	
   

  	
  2,693

  	
   

  	
  2,717

  	
   

  	
  2,739

  	
   

  	
  2,759

  	
   

  	
  2,780

  	
   

  	
  2,804

  	
   

  	
  2,830

  	
   

  	
  2,855

  	
   

  	
  2,879

  	
   

  	
  2,899

  	
   

  	
  2,916

  	
   

  	
  2,927

  	
   

  	
   

  	
   

  
	
  Expense Allowances — BSA Expenses (COH)

  	
   

  	
   

  	
  1,090

  	
   

  	
  1,040

  	
   

  	
  1,004

  	
   

  	
  968

  	
   

  	
  930

  	
   

  	
  892

  	
   

  	
  853

  	
   

  	
  813

  	
   

  	
  772

  	
   

  	
  731

  	
   

  	
  690

  	
   

  	
  649

  	
   

  	
  608

  	
   

  	
  568

  	
   

  	
  528

  	
   

  	
   

  	
   

  
	
  Stop-loss & 10% Novation Costs

  	
   

  	
   

  	
  2,060

  	
   

  	
  1,440

  	
   

  	
  1,035

  	
   

  	
  537

  	
   

  	
  9,508

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Impairments — 15bps

  	
   

  	
   

  	
  680

  	
   

  	
  818

  	
   

  	
  943

  	
   

  	
  1,056

  	
   

  	
  1,159

  	
   

  	
  1,250

  	
   

  	
  1,327

  	
   

  	
  1,397

  	
   

  	
  1,464

  	
   

  	
  1,515

  	
   

  	
  1,558

  	
   

  	
  1,587

  	
   

  	
  1,619

  	
   

  	
  1,631

  	
   

  	
  1,639

  	
   

  	
   

  	
   

  
	
  TOTAL EXPENSES:

  	
   

  	
   

  	
  120,738

  	
   

  	
  119,173

  	
   

  	
  117,451

  	
   

  	
  114,333

  	
   

  	
  119,585

  	
   

  	
  105,521

  	
   

  	
  103,232

  	
   

  	
  101,216

  	
   

  	
  99,216

  	
   

  	
  96,861

  	
   

  	
  94,179

  	
   

  	
  91,145

  	
   

  	
  87,808

  	
   

  	
  84,217

  	
   

  	
  80,298

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pre-Tax Income 90% TLA

  	
   

  	
   

  	
  (26,627

  	
  )

  	
  (19,684

  	
  )

  	
  (17,025

  	
  )

  	
  (13,294

  	
  )

  	
  (18,334

  	
  )

  	
  (4,325

  	
  )

  	
  (2,454

  	
  )

  	
  (1,100

  	
  )

  	
  (34

  	
  )

  	
  1,094

  	
   

  	
  2,149

  	
   

  	
  3,540

  	
   

  	
  4,874

  	
   

  	
  6,322

  	
   

  	
  7,875

  	
   

  	
   

  	
   

  
	
  10% Novation Segment
  Pre-Tax Profits

  	
   

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (481

  	
  )

  	
  (273

  	
  )

  	
  (122

  	
  )

  	
  (4

  	
  )

  	
  122

  	
   

  	
  239

  	
   

  	
  393

  	
   

  	
  542

  	
   

  	
  702

  	
   

  	
  875

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Pre-Tax Income =
  Experience Refund Baseline

  	
   

  	
   

  	
  (26,627

  	
  )

  	
  (19,684

  	
  )

  	
  (17,025

  	
  )

  	
  (13,294

  	
  )

  	
  (18,334

  	
  )

  	
  (4,806

  	
  )

  	
  (2,726

  	
  )

  	
  (1,223

  	
  )

  	
  (38

  	
  )

  	
  1,216

  	
   

  	
  2,388

  	
   

  	
  3,934

  	
   

  	
  5,416

  	
   

  	
  7,024

  	
   

  	
  8,750

  	
   

  	
   

  	
   

  

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 Business Associate that relate to
Recipient’s or its Subsidiaries’ activities for purposes of 

2

 

“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.

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

3

 

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:

(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 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

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.Exhibiti 10.18

 

 

 

REINSURANCE AGREEMENT 

between

GE LIFE AND ANNUITY 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

  	
  GENERAL ACCOUNT ASSET TRANSFER; CEDING
  COMMISSION; INITIAL MODCO RESERVE ADJUSTMENT

  
	
   

  	
   

  
	
  ARTICLE V

  	
  EXPENSE ALLOWANCES

  
	
   

  	
   

  
	
  ARTICLE VI

  	
  ACCOUNTING AND SETTLEMENT; MODCO ADJUSTMENT

  
	
   

  	
   

  
	
  ARTICLE VII

  	
  DURATION AND TERMINATION

  
	
   

  	
   

  
	
  ARTICLE VIII

  	
  INSOLVENCY

  
	
   

  	
   

  
	
  ARTICLE IX

  	
  CREDIT FOR REINSURANCE

  
	
   

  	
   

  
	
  ARTICLE X

  	
  REINSURANCE SECURITY

  
	
   

  	
   

  
	
  ARTICLE XI

  	
  DEFERRED ACQUISITION COSTS

  
	
   

  	
   

  
	
  ARTICLE XII

  	
  DISPUTE RESOLUTION

  
	
   

  	
   

  
	
  ARTICLE XIII

  	
  MISCELLANEOUS PROVISIONS

  

 

 

SCHEDULES

	
  SCHEDULE A

  	
   

  	
  —

  	
   

  	
  POLICY FORMS

  
	
  SCHEDULE B

  	
   

  	
  —

  	
   

  	
  SEPARATE
  ACCOUNTS

  
	
  SCHEDULE C

  	
   

  	
  —

  	
   

  	
  FORM OF
  ADMINISTRATIVE SERVICES AGREEMENT

  
	
  SCHEDULE D

  	
   

  	
  —

  	
   

  	
  CEDING
  COMMISSION

  
	
  SCHEDULE E

  	
   

  	
  —

  	
   

  	
  ASSETS

  
	
  SCHEDULE F

  	
   

  	
  —

  	
   

  	
  EXPENSE
  ALLOWANCES

  
	
  SCHEDULE G

  	
   

  	
  —

  	
   

  	
  Part I -
  INITIAL REPORT

  
	
  SCHEDULE G

  	
   

  	
  —

  	
   

  	
  Part II -
  DAILY SETTLEMENT REPORT

  
	
  SCHEDULE G

  	
   

  	
  —

  	
   

  	
  Part III -
  MONTHLY SETTLEMENT REPORT

  
	
  SCHEDULE G

  	
   

  	
  —

  	
   

  	
  Part IV -
  QUARTERLY SETTLEMENT REPORT

  
	
  SCHEDULE G

  	
   

  	
  —

  	
   

  	
  Part V -
  ANNUAL REPORT

  
	
  SCHEDULE H

  	
   

  	
  —

  	
   

  	
  FORM OF
  TRUST AGREEMENT

  
	
  SCHEDULE I

  	
   

  	
  —

  	
   

  	
  ELIGIBLE
  SECURITIES

  
	
  SCHEDULE J

  	
   

  	
  —

  	
   

  	
  COMMISSIONS

  

 

i

 

 

REINSURANCE AGREEMENT

This
Reinsurance Agreement, dated as of April 15, 2004 (this “Agreement”), is made
and entered into by and between GE Life and Annuity Assurance Company, an
insurance company organized under the laws of the Commonwealth of Virginia (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
and modified 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, Contractholder,
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):

“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 6.6.

“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 4.4(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 the
New York Stock Exchange is closed for trading.

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

“Ceded
Reinsurance” means all reinsurance ceded by the Company pursuant to
contracts, binders, certificates, treaties or other evidence of reinsurance
relating to the Reinsured Risks in effect on or prior to the Inception Date,
except the reinsurance provided pursuant to this Agreement.

“Ceded
Reinsurance Agreements” means all of the contracts, binders, certificates,
treaties or other evidence for Ceded Reinsurance.

“Ceding
Commission” shall have the meaning specified in Section 4.2.

“Closing
Date” means April 15, 2004.

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

“Commutation”
means, with respect to any portion of the Ceded Reinsurance, a commutation or
other similar transaction that results in the termination of such Ceded
Reinsurance with respect to the Reinsured Contracts.

“Company
Account” shall have the meaning specified in Section 10.1(e).

“Contractholder”
shall mean the holder of any Reinsured Contract.

“CPR”
shall have the meaning specified in Section 12.3.

“CPR
Arbitration Rules” shall have the meaning specified in Section 12.4(a).

“Daily
Settlement Account” shall have the meaning specified in Section 6.2(a).

“Daily
Settlement Amount” means, with respect to a particular Business Day, the
results of the calculation set forth on Schedule G - Part II for such day.

“Daily
Settlement Report” shall have the meaning specified in Section 6.2(b).

“Dispute”
shall have the meaning specified in Section 12.1(a).

“Eligible
Securities” shall have the meaning specified in Section 10.1(c).

“Expense
Allowance” shall have the meaning specified in Section 5.1.

 

2

 

“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 (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 3.10(b)(iii).

“Funding
Requirement” shall have the meaning specified in Section 10.1(e).

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

“General
Account Liabilities” means all net retained general account insurance
liabilities and obligations arising under the Reinsured Contracts, including,
without limitation (i) benefits, surrender amounts and other amounts
payable to Contractholders under the terms of the Reinsured Contracts, (ii)
premium taxes due in respect of premiums and other consideration paid on or
after the Inception Date with respect to the Reinsured Contracts,
(iii) Insolvency Fund or other premium based assessments, net of any
premium tax credits of the Company arising out of any such assessments, based
on premiums and other consideration paid on or after the Inception Date with
respect to the Reinsured Contracts, (iv) all amounts payable on or after
the Inception Date for returns or refunds of premiums under the Reinsured
Contracts, (v) all liability for commission payments and other fees or
compensation payable with respect to the Reinsured Contracts in respect of
premiums and other consideration paid on or after the Inception Date and (vi)
all Extra Contractual Liabilities resulting from actions of the Company or its
agents to the extent reinsurance of such liabilities is permitted by state law;
but in all cases excluding: (w) the Separate Account Liabilities; (x)
Post-Inception Date Extra Contractual Liabilities; (y) any general account
liabilities which relate to (A) amounts transferred from the Separate Accounts
to the general account of the Company pending distribution to holders of the
Reinsured Contracts, and (B) amounts held in the general account of the Company
pending transfer to the Separate Accounts; and (z) compensation agreements,
arrangements and practices (A) that exceed the broker commission rates as shown
for each product on Schedule J, (B) that exceed the wholesale expense rates as
shown for each product on Schedule J, (C) that exceed the firm marketing related
expense reimbursement rates as shown for each firm on Schedule J, (D) that
exceed the marketing allowance as shown on Schedule J, or (E) that result from
changes to compensation plans for any sales organization on or after the
Inception Date, unless otherwise agreed to in writing by the Reinsurer or to
the extent such excess costs are offset by an increase in the fund company
administrative expense service share referred to in Schedule F.

“General
Account Reserves” means the general account statutory reserves of the
Company (without regard to the transactions contemplated by this Agreement)
with respect to the General Account Liabilities determined pursuant to SAP, as
such reserves would have been

 

3

 

included in lines 1 and 13 of the Liabilities, Surplus and Other Funds
page of the NAIC Annual Statement Blank (2003 Format).

“Governmental
Authority” means any foreign or national government, any state or other
political subdivision thereof or any self regulatory authority, 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(a).

“Initial
MODCO Reserve Adjustment” means the amount specified in Section 4.3.

“Initial
Notice” shall have the meaning specified in Section 12.2.

“Initial
Reinsurance Premium” shall have the meaning specified in
Section 4.1(a).

“Initial
Report” shall have the meaning specified in Section 6.1.

“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.

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

“Monthly
Settlement” shall have the meaning specified in Section 4.4(a).

“Monthly
Settlement Report” shall have the meaning specified in Section 6.3.

“NAIC”
means the National Association of Insurance Commissioners.

“Non-Guaranteed
Elements” shall have the meaning specified in Section 3.3.

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

“Post-Inception
Date Extra Contractual Liabilities” means Extra Contractual Liabilities
attributable to the conduct of the Company on or after the Inception Date in
connection with the Company’s administration of the Reinsured Contracts, other
than actions taken by the Company at the written request or direction of the
Reinsurer or in connection with the Company’s marketing activities with respect
to the Reinsured Contracts.

 

4

 

“Quarterly
Accounting Period” means each calendar quarter, except that the last
Quarterly 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.

“Quarterly
Accounting Period MODCO Adjustment” shall have the meaning set forth in
Section 6.7.

“Quarterly
Settlement” shall have the meaning specified in Section 4.4(a).

“Quarterly
Settlement Report” shall have the meaning specified in Section 6.4.

“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.

“Reinsurance
Recoverables” means the amount of reinsurance recoverables that are
actually collected under Ceded Reinsurance.

“Reinsured
Contracts” means the variable annuity contracts issued by the Company and
recorded in the Company’s administration system on or prior to December 4, 2003
and written on the policy forms described in Schedule A, including any contract
riders or endorsements issued with respect thereto after the Inception Date
with the prior written consent of the Reinsurer.

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

“Response”
shall have the meaning specified in Section 12.2.

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

“Separate
Account Charges” shall have the meaning specified in Section 4.1(b).

“Separate
Account Liabilities” means those insurance liabilities that are reflected
in the Separate Accounts and that relate to the Reinsured Contracts, including
(i) amounts transferred from the Separate Accounts to the general account of
the Company pending distribution to holders of the Reinsured Contracts, and
(ii) amounts held in the general account of the Company pending transfer to the
Separate Accounts.

“Separate
Account Reserves” means the separate account statutory reserves of the
Separate Accounts (without regard to the transactions contemplated by this
Agreement) with respect to the Reinsured Contracts determined pursuant to SAP,
as such reserves would have been included in line 27 of the Liabilities,
Surplus and Other Funds page of the NAIC Annual Statement Blank (2003 Format).

“Separate
Accounts” means the separate accounts of the Company described on Schedule
B hereto.

 

5

 

“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 VII.

“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.

“Trust
Account” shall have the meaning specified in Section 10.1(a).

“Trust
Agreement” shall have the meaning specified in Section 10.1(a).

“Trustee”
shall have the meaning specified in Section 10.1(a).

ARTICLE II

COVERAGE

2.1.          Coverage. 
(a)  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 (i) on a coinsurance basis,
for one hundred percent (100%) of the General Account Liabilities and (ii) on a
modified coinsurance basis, for 100% of the Separate Account Liabilities, in
each case, payable by the Company under the Reinsured Contracts on or after the
Inception Date (the “Reinsured Risks”).  For the avoidance of doubt, the Reinsurer shall assume the risk
for all uncollectible or uncollected reinsurance recoverables under the Ceded
Reinsurance.

(b)   Upon the annuitization of a
Reinsured Contract, such Reinsured Contract will be considered surrendered and
the Reinsurer will pay to the Company an amount equal to the general account
value applied to the annuitization. In such event, no further obligation or
liability will exist for the Reinsurer with respect to such annuitized
Reinsured Contract.

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 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 or contemplated herein, including 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 (including to any contract riders or
endorsements thereto) 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

 

6

 

modifications
are made in any Reinsured Contract without the prior written approval of the
Reinsurer, this Agreement will cover Reinsured Risks incurred by the Company
under such Reinsured Contract as if the non-approved changes, amendments or
modifications had not been made.

(c)   The Company will not change
fund options for the Separate Accounts from and after the Inception Date unless
such changes are made:  (a) with
the prior written consent of the Reinsurer, in its sole discretion, (b) in
fulfillment of the fiduciary obligations of the Company after consultation with
the Reinsurer or (c) by the Board of Trustees of an unaffiliated fund
(trust) to liquidate, merge or remove a fund pursuant to the terms of the then
existing fund participation agreements or through a regulatory process.

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

2.4.          Commutation of Ceded Reinsurance.  (a)  The
Company shall not, without the Reinsurer’s prior written approval in its sole
discretion, take any action to amend, waive or terminate, in whole or in part,
any Ceded Reinsurance under any Ceded Reinsurance Agreement or enter into any
Commutation of Ceded Reinsurance.

(b)   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 3.10, the Company shall provide
policyholder and claims servicing with respect to the Reinsured Contracts and
administer the Separate Accounts in accordance with the terms hereof including,
but not limited to, the collection of premiums and other amounts due from
Contractholders, the payment of all General Account Liabilities and Separate
Account Liabilities and the administration of claims and disbursements, which
disbursements shall be made (i) directly by the Company with respect to
such disbursements relating to the General Account Liabilities and (ii) from
the Separate Accounts with respect to such disbursements relating to the
Separate Account Liabilities.  The
Company shall provide policyholder and claims servicing with respect to the
Reinsured Contracts and administer the Separate Accounts in good faith and with
the care, skill, prudence and diligence of a person experienced in
administering variable annuity business. 
The Company shall provide policyholder and claims servicing with respect
to the Reinsured Contracts and administer the Separate Accounts, (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

 

7

 

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 and the Separate Accounts.

(b)   The Company may subcontract
for the performance of any policyholder or claims servicing service or services
with respect to the Reinsured Contracts or any services the Company is to
provide in the administration of the Separate Accounts 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 variable 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.          Ceded Reinsurance Agreements.  The Company shall manage and administer the
Ceded Reinsurance Agreements, including providing all reports and notices
required with regard to the Ceded Reinsurance Agreements to the reinsurers
within the time required by the applicable reinsurance agreement and doing all
other things necessary to comply with the terms and conditions of the Ceded
Reinsurance Agreements.  Without limiting
the foregoing, the Company shall timely pay all reinsurance premiums due to
reinsurers under the Ceded Reinsurance Agreements and diligently collect from
such reinsurers all reinsurance recoverables due thereunder.

3.3.          Non-Guaranteed Elements.  The Company shall set all rider charges, interest rates to be
credited on the Reinsured Contracts and other non-guaranteed elements of the
Reinsured Contracts (“Non-Guaranteed Elements”) from and after the Inception
Date.  The Company shall allow the
Reinsurer to participate in all decisions made by the Company with respect to
setting Non-Guaranteed Elements.

3.4.          Policy Exchanges. 
Unless otherwise agreed by the parties, the Company will not make any
targeted exchange offers with regards to the Reinsured Contracts or otherwise
target the Reinsured Contracts for replacement.

3.5.          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

 

8

 

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.

3.6.          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
Company’s 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 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 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.

3.7.          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.

3.8.          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.

3.9.          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.

3.10.        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)

 

9

 

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 3.10.

(b)   In addition to the
provisions of Section 3.10(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 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 XII 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
3.10(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 3.10(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 C and the provisions of Section 2.1(b),
Article V and Article VI shall become inoperative.

(e)   In the event that the
Reinsurer is not properly licensed to administer the Reinsured Contracts at the
time of a proposed transfer of administration under this Section 3.10, the
Reinsurer may designate a properly licensed entity that has appropriately
trained and licensed personnel reasonably acceptable to the Company to
administer the Reinsured Contracts

 

10

 

in its stead,
and the administrative services agreement referred to in paragraph (d) above
shall be executed by such properly licensed entity in lieu of the
Reinsurer.  The designation and
assumption of administration by such entity shall not relieve the Reinsurer
from any of its obligations or liabilities hereunder (except as set forth in
paragraph (d) above), and the Reinsurer shall remain responsible for all
obligations or liabilities of such entity with regards to the providing of such
administration as if provided by the Reinsurer.  The parties shall take all actions reasonably necessary to effect
the prompt transfer of administration provided in this Section 3.10.

(f)    In the event of the
assumption of the administration of the Reinsured Contracts under this Section
3.10, the Reinsurer and the Company shall take all actions necessary or
appropriate to transfer administration of the Separate Account Liabilities to
the Reinsurer or its permitted designee. 
Such actions shall include, without limitation, the establishment and
maintenance of a new separate account of the Company solely for the Reinsured
Contracts and the transfer of the assets of the Separate Account allocable to
the Reinsured Contracts to such new separate account.

ARTICLE IV

GENERAL ACCOUNT ASSET TRANSFER; CEDING
COMMISSION;

INITIAL MODCO RESERVE ADJUSTMENT

4.1.          Asset Transfer. 
(a)  As consideration for the reinsurance by the Reinsurer of
the General Account Liabilities under this Agreement, on the Closing Date, the
Reinsurer shall be entitled to an amount equal to one hundred percent (100%) of
the General Account Reserves as of the close of business on the day immediately
preceding the Inception Date (the “Initial Reinsurance Premium”).

(b)   As additional consideration
for the Reinsurer entering into this Agreement, the Reinsurer shall be entitled
to 100% of all premiums and other considerations to the extent received on or
after the Inception Date by the Company or the Reinsurer with respect to the
General Account Liabilities, less an amount equal to the reinsurance premium
due under the Ceded Reinsurance Agreements to the extent such premium relates
to coverage on or after the Inception Date with respect to the Reinsured
Contracts.  In addition, with respect to
the Separate Account Liabilities, the Reinsurer shall be entitled to 100% of
all (i) mortality and expense risk charges and administrative expense
charges (collectively, “asset charges”), any rider charges (to the extent the
riders are reinsured hereunder), and contract maintenance charges, back-end
sales loads and other considerations billed separately for the Reinsured
Contracts collected by the Company on or after the Inception Date, and (ii) any
other charges, fees and similar amounts received by the Company from the
Separate Accounts on or after the Inception Date (collectively, the “Separate
Account Charges”).  The Company hereby
assigns to the Reinsurer all of its rights to such premiums and other
considerations payable to the Company.  For
the avoidance of doubt, the Separate Account Charges shall not include any
distribution fees received from underlying mutual funds pursuant to a plan
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940.

 

11

 

4.2.          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 D.

4.3.          Initial MODCO Reserve Adjustment.  As additional consideration for the
reinsurance by the Reinsurer of the Separate Account Liabilities under this
Agreement, on the Closing Date, the Company shall transfer to the Reinsurer an
amount equal to the net of (a) minus (b) where (a) is an amount equal to the
Separate Account Liabilities as of the Inception Date and (b) is the Initial
MODCO Reserve Adjustment.  The “Initial
MODCO Reserve Adjustment” shall be an amount equal to the Separate Account
Liabilities as of the Inception Date.

4.4.          Amounts Due the Parties.  (a) Except as otherwise specifically provided herein, all amounts
due to be paid to the Company or the Reinsurer under this Agreement shall be
determined on a net basis, giving full effect to Section 3.9.  The net amount due the Reinsurer from the Company
on the Closing Date under Section 4.1(a) and Section 4.2 shall consist of (i)
the investment assets (the “Assets”) set forth on Schedule E, 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 the Company
or the Reinsurer with respect to each Monthly Accounting Period ending after
the Inception Date as reflected on a Monthly Settlement Report (the “Monthly
Settlement”) shall be paid in cash by the owing party no later than thirty (30)
days after delivery of the Monthly Settlement Report.  Each net amount subsequently due the Company or the Reinsurer
with respect to each Quarterly Accounting Period ending after the Inception
Date as reflected on a Quarterly Settlement Report (the “Quarterly Settlement”)
shall be paid in cash by the owing party no later than thirty (30) days after
delivery of the Quarterly Settlement Report. 
Each net amount subsequently due the Company or the Reinsurer with
respect to each calendar year ending after the Inception Date as reflected on an
Annual Report shall be paid in cash by the owing party 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.

 

12

 

ARTICLE V

EXPENSE ALLOWANCES

5.1.          Expense Allowance. 
As reimbursement for expenses incurred by the Company in the providing of
policyholder and claims servicing services with respect to the Reinsured
Contracts, the Reinsurer shall pay to the Company with respect to each Monthly
Accounting Period ending after the Inception Date, an expense allowance (each
an “Expense Allowance”) in an amount calculated in accordance with Schedule F,
as subsequently adjusted in accordance with the methodology and procedures set
forth on Schedule F; provided that if the amount calculated in
accordance with Schedule F with respect to any Monthly Accounting Period should
be negative, such negative amount shall be credited to the Reinsurer on the
Monthly Settlement Report for such period.

ARTICLE
VI

ACCOUNTING AND SETTLEMENT; MODCO ADJUSTMENT

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

6.2.          Daily Settlement Amounts.  (a)  On the Closing Date, the Reinsurer shall establish
a separate bank account (the “Daily Settlement Account”) in its own name for
the payment of Daily Settlement Amounts and shall authorize at least two
signatories who shall be representatives of the Company and approved by the
Reinsurer to make deposits to, and withdrawals from, the Daily Settlement
Account.

(b)   By 10:00 a.m. Eastern Time
each Business Day following the Closing Date during the term of this Agreement,
the Company shall calculate the Daily Settlement Amount for the prior Business
Day.  Promptly following such
calculation, the Company shall forward to the Reinsurer a report in the form of
Schedule G - Part II that shall provide the details of such calculation (the
“Daily Settlement Report”).  Prior to
6:00 p.m. of such Business Day, the Company or the Reinsurer, as appropriate,
shall deposit into the Daily Settlement Account an amount equal to such Daily
Settlement Amount owed by such party to the other.  The party to whom such Daily Settlement Amount is owed shall have
a right to withdraw such deposited amount at any time following such deposit.

(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 Daily 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

 

13

 

extraordinary
costs reasonably incurred by the Company in response to requests from the
Reinsurer shall be reimbursed by the Reinsurer.

(d)   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 Section 6.2.

(e)   Upon a termination of this
Agreement pursuant to Article VII, the Reinsurer shall close the Daily
Settlement Account and any closing balance therein shall be the property of the
Reinsurer.

6.3.          Monthly Settlement Reports.  As soon as practicable but not more than
thirty (30) days following the end of each Monthly 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 Monthly Accounting Period required in Schedule G -
Part III (the “Monthly Settlement Report”).

6.4.          Quarterly Settlement Reports.  As soon as practicable but not more than
forty (40) days following the end of each Quarterly 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 Quarterly Accounting Period required in
Schedule G - Part IV (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
Contracts occurring from the Inception Date through June 30, 2004.

6.5.          Quarterly Financial Reports.  As soon as practicable but not more than
forty (40) days following the end of each Quarterly 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.

6.6.          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 G - Part V
(the “Annual Report”).

6.7.          Accounting Period MODCO Reserve Adjustment.  At the end of each Quarterly Accounting
Period, the Company shall compute an amount equal to the absolute value of the
increase or decrease in the Separate Account Reserves due to subaccount
investment performance for the Quarterly Accounting Period just ended (the
“Quarterly Accounting Period

 

14

 

MODCO
Adjustment”).  The Quarterly Accounting
Period MODCO Adjustment for each Quarterly Accounting Period shall be reflected
in the Quarterly Settlement Report for such Quarterly Accounting Period.

6.8.          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.

6.9.          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 VII

DURATION AND TERMINATION

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

7.2.          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.

7.3.          Notice of Termination.  Upon the termination of the Reinsurer’s liability with respect to
the Reinsured Risks referred to in Section 7.2 above, the parties shall
mutually give the Trustee written notice of their intention to terminate the
Trust Account.

ARTICLE VIII

INSOLVENCY

8.1.          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 the 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 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

 

 

15

 

defenses which
it may deem available to the Company or its domiciliary liquidator, receiver or
statutory successor.

8.2.          Expenses.  It
is further understood that any expense thus incurred by the Reinsurer pursuant
to Section 8.1 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 IX

CREDIT FOR REINSURANCE

9.1.          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, any 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 X

REINSURANCE SECURITY

10.1.        Trust. 
(a)  On the Closing Date, the
Reinsurer shall enter into a trust agreement in the form attached as Schedule H
(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.

 

 

16

 

(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 I 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 General Account Reserves and any additional reserves attributable to
the Reinsured Risks that arise as a result of regulatory asset adequacy
analysis requirements of the Reinsurer; 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 10.1(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 10.1(e)(i).  In
the event that the Company withdraws assets from the Trust Account for the
purposes set forth in Section 10.1(e)(iii) above, (i) the Reinsurer shall be
relieved of its obligation to maintain assets in the Trust Account pursuant to
this Section 10.1 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

 

17

 

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 10.1(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 General
Account Reserves as of the close of business on the day immediately preceding
the Inception Date.

(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 XI

DEFERRED ACQUISITION COSTS

11.1.        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

 

18

 

receipt of the
alternative calculation to ensure consistent amounts are reported on the
respective tax returns for the preceding tax year.

ARTICLE XII

DISPUTE RESOLUTION

12.1.        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 XII, 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 12.2, 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 12.3, 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, 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 XII are pending.  The parties will take such action, if any,
required to effectuate such tolling.

12.2.        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.

12.3.        Mediation.  If
a Dispute is not resolved by negotiation as provided in Section 12.2 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

 

19

 

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.

12.4.        Arbitration. 
(a) If a Dispute is not resolved by mediation as provided in Section
12.3 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 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 Virginia, 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 12.4(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

 

20

 

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 XII.

ARTICLE XIII

MISCELLANEOUS PROVISIONS

13.1.        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.

13.2.        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:

GE Life and Annuity Assurance Company

6610 West Broad Street

Richmond, VA 23230

Facsimile: 
(804) 281-6165

Attention:  Chief Executive Officer

 

With a copy to:

GE Life and Annuity Assurance Company

6610 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 281-6005

Attention:  General Counsel

 

21

 

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.

13.3.        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
13.3 shall be void and shall have no force and effect.  Nothing in this Section 13.3 shall be
construed to prohibit the Reinsurer from retroceding all or any portion of the
business reinsured hereunder.

13.4.        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.

13.5.        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.

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

13.7.        Governing Law. 
This Agreement will be construed, performed and enforced in accordance
with the laws of the Commonwealth of Virginia 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.

13.8.        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,

 

22

 

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.

13.9.        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.

13.10.      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.

13.11.      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.

13.12.      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.

13.13.      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

 

23

 

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.

13.14.      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.”

13.15.      Survival. 
Article XII and Article XIII shall survive the termination of this
Agreement.

 

24

 

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

	
   

  	
  GE LIFE AND
  ANNUITY ASSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/  Victor
  C. Moses

  
	
   

  	
   

  	
  Name: Victor
  C. Moses

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  UNION
  FIDELITY LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/  Glenn
  Joppa

  
	
   

  	
   

  	
  Name: Glenn
  Joppa

  
	
   

  	
   

  	
  Title:
  Senior Vice President and Secretary

  

 

 

25

 

SCHEDULE A

POLICY FORMS

	
  P1098

  	
  Asset Allocation Annuity/Commonwealth
  Variable Annuity

  
	
  P1143

  	
  CVA Plus

  
	
  P1140

  	
  CVA 90

  
	
  P5166

  	
  —Partial Surrender Endorsement

  
	
  P4909

  	
  —Guarantee Acct. Rider

  
	
  P4910

  	
  —Death Provisions Endorsement

  
	
  P4911

  	
  —Surrender Charge Endorsement

  
	
  P5058

  	
  —Nursing Home Waiver

  
	
  P5077

  	
  —Joint Annuitant

  
	
  P5076

  	
  —Trust Endorsement

  
	
  P4912

  	
  —Deferred Premium Tax Endorsement

  
	
  P1142

  	
  CVA Mitchell

  
	
  P5166

  	
  —Partial Surrender Endorsement

  
	
  P4907

  	
  —Guarantee Acct. Rider

  
	
  P4910

  	
  —Death Provisions Endorsement

  
	
  P4911

  	
  —Surrender Charge Endorsement

  
	
  P5058

  	
  —Nursing Home Waiver

  
	
  P5077

  	
  —Joint Annuitant

  
	
  P5076

  	
  —Trust Endorsement

  
	
  P4912

  	
  —Deferred Premium Tax Endorsement

  
	
  P1150

  	
  CVA Plus

  
	
  P5158

  	
  —Ratchet

  
	
  P5166

  	
  —Partial Surrender Endorsement

  
	
  P4907

  	
  —Guarantee Acct. Rider (3%)

  
	
  P4909

  	
  —Guarantee Acct. Rider (4%)

  
	
  P4911

  	
  —Surrender Charge Endorsement

  
	
  P5058

  	
  —Nursing Home Waiver

  
	
  P5117

  	
  —Overage Issues (Death Benefit)

  
	
  P5137

  	
  —Immediate Allocation

  
	
  P5103

  	
  —Guaranteed Minimum Death Benefit

  
	
  P1152

  	
  Extra

  
	
  P5235

  	
  —Step-up or Roll-up Rider

  
	
  P5222

  	
  —Step-up

  
	
  P5240

  	
  —Estate Protector

  
	
  P5234

  	
  —Roll-up Rider

  
	
  P1151

  	
  Freedom*

  
	
  P5235

  	
  —Step-up or Roll-up Rider

  
	
  P5222

  	
  —Step-up

  
	
  P5240

  	
  —Estate Protector

  
	
  P5234

  	
  —Roll-up Rider

  
	
  P1153

  	
  Savvy

  

 

 

	
  P1154

  	
  Choice*

  
	
  P5234

  	
  —Step-up or Roll-up Rider

  
	
  P5233

  	
  —Step-up

  
	
  P5239

  	
  —Estate Protector

  
	
  P5223

  	
  —Roll-up Rider

  
	
  P1156

  	
  Selections

  
	
  P5234

  	
  —Step-up or Roll-up Rider

  
	
  P5233

  	
  —Step-up

  
	
  P5239

  	
  —Estate Protector

  
	
  P5223

  	
  —Roll-up Rider

  
	
  P1160

  	
  401k

  

 

*Excluding Cross Funding Policies with plan sequence numbers 261, 262
and 263 on Freedom and Choice products.

 

SCHEDULE B

SEPARATE ACCOUNTS

GE Life &
Annuity Separate Account 4

 

SCHEDULE C

FORM OF ADMINISTRATIVE SERVICES AGREEMENT

 

VA UFLIC/GELAAC

 

 

 

 

 

ADMINISTRATIVE
SERVICES AGREEMENT

by and between

GE LIFE AND
ANNUITY 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 GE LIFE AND ANNUITY ASSURANCE
COMPANY, an insurance company organized under the laws of the Commonwealth of
Virginia (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 Reinsurance Agreement dated
as of April 15, 2004 (the “Reinsurance Agreement”) which provides for the
parties to enter into this Agreement;

WHEREAS,
pursuant to the Reinsurance Agreement, the Administrator has agreed to
indemnify the Company for, among other things, (i) on a coinsurance basis, 100%
of the General Account Liabilities and (ii) on a modified coinsurance basis,
100% of the Separate Account Liabilities, in each case, payable by the Company
under the Reinsured Contracts (capitalized terms used herein and not defined
herein, unless otherwise indicated, have the respective meanings assigned to
them in the Reinsurance Agreement); and

WHEREAS, the
Company wishes to appoint the Administrator to provide contractholder and claim
servicing with respect to the Reinsured Contracts and the Separate Accounts,
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 contractholder and claim servicing
services necessary or appropriate with respect to the Reinsured Contracts and
the Separate Accounts, including those set forth in this Agreement and on
Schedule A hereto (the “Administrative Services”), all on the terms as set
forth in this Agreement.  In providing
the contractholder and claim servicing with respect to the Reinsured Contracts,
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 contractholder claims arising under the Reinsured Contracts,
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 Reinsured Contracts or the contractholder 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 the contractholder and claims
servicing with respect to the Reinsured Contracts and the Separate Accounts in
good faith and with the care, skill, prudence and diligence of a person
experienced in administering variable annuity business.  Without limiting the generality of the
foregoing, the Administrator shall provide contractholder and claims servicing
with respect to the Reinsured Contracts and the Separate Accounts (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 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
contractholder or claims servicing service or services with respect to the
Reinsured Contracts or any services the Administrator is to provide in the
administration of the Separate Accounts 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 and disbursements reported under each Reinsured Contract
(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 Reinsured Contract 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 Reinsured Contracts 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 PROCEEDINGS

4.1.          Regulatory Complaints and Proceedings.  The Administrator shall:

(i)                 to
the extent permitted by Applicable Law, 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,
to the extent permitted by Applicable Law, 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 Reinsured Contracts (“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 such Legal
Proceedings, the alleged actions or omissions giving rise to any 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 supervise and control the investigation,
contest, defense and/or settlement of all complaints, inquiries and proceedings
by Governmental Authorities to the extent required by Applicable Law.  In addition, the Company shall have the
right to engage in its own separate legal representation, at its own expense,
and to otherwise 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 the
Company waiving any right to indemnification it may have under Article XVII
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

 

4

 

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 CONTRACTHOLDERS

The
Administrator agrees to send to contractholders of the Reinsured Contracts 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 contractholders 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 3.10
of the Reinsurance Agreement) shall be a transition cost payable by the
Administrator or the Company in accordance with Section 3.10(a) or 3.10(c) of
the Reinsurance Agreement, as applicable.

ARTICLE
VI

BILLINGS AND COLLECTIONS

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 Reinsured Contracts, including Separate Account Charges,
from and after the Effective Date.  The
Company shall promptly remit to the Administrator any such amounts received by
it with respect to the Reinsured Contracts.

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

 

5

 

payable to the
extent that such assessments constitute Reinsured Risks with respect to the
Reinsured Contracts (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 Reinsured Contracts 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
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.  In order
to enable the Administrator to perform the requirements as set forth in Item
6(c) of Schedule A hereto attached, the Company shall make available to the
Administrator drafts of such documents sufficiently in advance of the proposed
filings thereof.

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

 

6

 

respect to the
Reinsured Contracts), 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 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 and certifications, 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.

9.2.          Reporting and Accountings.  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 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,

 

7

 

                              tax
returns and other required financial reports and to comply with the
requirements of the regulatory authorities having jurisdiction over the
Company, including all premiums received and all benefits paid.  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 Reinsured Contracts 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 Reinsured Contracts 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 Reinsured Contracts.

(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 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.

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.

ARTICLE
X

MISCELLANEOUS ADMINISTRATIVE SERVICES

The
Administrator shall assume the obligations set forth below:

(i)                 The
Administrator shall timely pay to the contractholders, including any
certificateholder thereunder, any refunds of any kind due under the Reinsured
Contracts.

 

8

 

(ii)              The
Administrator shall have the exclusive authority to manage and administer the
Ceded Reinsurance Agreements, including providing all reports and notices
required with regard to the Ceded Reinsurance Agreements to the reinsurers
within the time required by the applicable reinsurance agreement and doing all
other things necessary to comply with the terms and conditions of the Ceded
Reinsurance Agreements.  Without
limiting the foregoing, the Administrator shall timely pay all reinsurance
premiums due to reinsurers under the Ceded Reinsurance Agreements and shall use
commercially reasonably efforts to collect from such reinsurers all reinsurance
recoverables due thereunder.  The Administrator
shall forward to the Company upon receipt any such reinsurance recoverables
collected by the Administrator that are not the property of Administrator under
the terms of the Reinsurance Agreement.

(iii)           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 Reinsured Contracts and shall assume responsibility for providing
all other contractholder servicing in connection with the Reinsured Contracts.

(iv)          The
Administrator shall pay commissions due under the Reinsured Contracts.

(v)             The
Administrator shall provide such other Administrative Services as are necessary
or appropriate to fully effectuate the purpose of the Reinsurance 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  

SEPARATE ACCOUNT ADMINISTRATIVE SERVICES

Without
limiting the generality of any of the foregoing, in addition to the
Administrative Services described in any Article of this Agreement, the
contractholder and claim services with respect to, or as a result of, the
Separate Accounts shall include those services set forth on Schedule A hereto.

ARTICLE
XII  

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 and
its record management practices in effect from time to time

 

9

 

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 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
XIII

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
XIV

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 contractholders 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 contractholders 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 Reinsured Contracts is gathered, without the Company’s prior

 

10

 

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
XV

CONSIDERATION FOR ADMINISTRATIVE SERVICES

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

ARTICLE
XVI

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 XVI.

ARTICLE
XVII

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.

 

11

 

ARTICLE XVIII

DURATION; TERMINATION

18.1.        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 18.2.

18.2.        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 XIX
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
18.2(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 18.2(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

 

12

 

withheld or
delayed.  If the Administrator fails to
select an administrator pursuant to this 18.2(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 contractholder notices as
provided in Article V.

ARTICLE XIX

DISPUTE RESOLUTION

19.1.        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 XIX, 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 19.2, 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 19.3, 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 XIX are pending.  The parties will take such action, if any,
required to effectuate such tolling.

19.2.        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

 

19.3.        Mediation. If a Dispute is not resolved by negotiation
as provided in Section 19.2 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.

19.4.        Arbitration. (a) If a Dispute is not resolved by
mediation as provided in 19.3 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 Virginia, 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 19.4 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 19.4(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.

 

14

 

(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 XIX.

ARTICLE XX

MISCELLANEOUS PROVISIONS

20.1.        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.

20.2.        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:

GE Life and Annuity Assurance Company

6610 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 281-6165

Attention:  Chief Executive Officer

 

With a copy to: 

GE Life and Annuity Assurance Company

6620 West Broad Street

Richmond, VA 23230

Facsimile:  (804)
281-6005

Attention:  General Counsel

 

15

 

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.

20.3.        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 20.3
shall be void and shall have no force and effect.

20.4.        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.

20.5.        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.

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

20.7.        Governing Law. 
This Agreement will be construed, performed and enforced in accordance
with the laws of the Commonwealth of Virginia 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.

20.8.        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

 

16

 

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.

20.9.        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 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.

20.10.      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.

20.11.      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.

20.12.      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.”

20.13.      Survival. 
Article XIX and Article XX 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.

	
   

  	
   

  	
  GE LIFE AND ANNUITY ASSURANCE

  
	
   

  	
   

  	
   
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  UNION FIDELITY LIFE INSURANCE

  
	
   

  	
   

  	
   
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

18

 

SCHEDULE A

 

SEPARATE ACCOUNT SERVICES

 

The
Administrator shall provide the following additional services to the Company
relating to the Separate Accounts:

1.             Premium
Collection.  The
Administrator shall promptly invest in the Separate Accounts deposits collected
which relate to the Separate Account portions of Reinsured Contracts (including
transfers from fixed options under the Reinsured Contracts), and promptly
forward funds and required information to the underlying investment management
companies, in each case in accordance with the Reinsured Contracts and any
applicable agreements provided by the Company to the Administrator.

2.             Records
Maintenance.  The
Administrator shall maintain and preserve records with respect to the Separate
Accounts as required by Rules 31a-1 and 31a-2 under the Investment Company Act
of 1940, as amended, the Securities Exchange Act of 1934, as amended, and the
rules promulgated by the National Association of Securities Dealers (the “NASD”).  Upon request of the Company or any state or
federal regulatory authorities, the Administrator shall forward a complete copy
of any record promptly to the requesting party and in a format appropriate to
the request.  The Administrator shall
file with the Securities and Exchange Commission (“SEC”) the undertaking
required by Rule 17a-4(i) under the Exchange Act with respect to any
records that it maintains and that are required to be maintained under the
provisions of the Exchange Act by any broker-dealers that are authorized to
sell the Reinsured Contracts.

3.             Performance
of Obligations.  The
Administrator shall perform, in the name and on behalf of the Company, all of
the Company’s obligations under (i) the participation agreements between the
Company and the mutual fund organizations in which assets of the Separate
Accounts are invested (the “Participation Agreements”), (ii) the
underwriting agreements between the Company and the principal underwriters for
the Separate Account portions of the Reinsured
Contracts, and (iii) any other agreements related to the distribution of the
Separate Account portions of the Reinsured Contracts; provided in each
case that the Company has provided complete copies of such agreements
(including any amendments thereto) to the Administrator.

4.             Contractholder
Services.  The Administrator
shall provide the Company with the following additional contractholder
services:

(a)                                  Issuing
timely reports, statements, and confirmations as required by the Reinsured
Contracts or the Company’s practices in effect immediately prior to the
Effective Date and communicated by the Company to the Administrator in writing;

(b)                                 Issuing
tax reporting forms and other information as required by applicable regulatory
rules, including without limitation 1099-R, W-4P,

 

A-1

 

                                                and
5498 for contractholders and beneficiaries as required and distributing the
same to contractholders and beneficiaries and appropriate authorities;

(c)                                  Responding
to any requests from plan administrators or trustees for policy information
affecting the plan or participants for qualified plans;

(d)                                 Responding
to contractholder requests for calculations applicable to annuity payments
under the Reinsured Contracts as may be necessary for tax withholding calculations;

(e)                                  Processing
and recording transfer requests (i.e., from one subaccount to another) in all
cases within time intervals necessary to meet SEC, NASD and other legal and
regulatory requirements;

(f)                                    Calculating
(on a daily basis) the net asset value and the accumulation unit value of each
subaccount of the Separate Accounts that are funding options for the Reinsured
Contracts, in accordance with the provisions of the Reinsured Contracts, as
well as with the prospectus and statement of additional information disclosure
on any day when such calculation is required by the Investment Company Act of
1940, as amended, and the rules and regulations thereunder;

(g)                                 Calculating
(on a daily basis) the mortality and expense charges, and any administrative
charges in accordance with the provisions of the Reinsured Contracts, as well
as with the applicable prospectus and statement of additional information
disclosure; and

(h)                                 Transmitting
orders pursuant to the Participation Agreements for the purchase or redemption
of shares in the investment companies in which the assets of the Separate
Account are invested to such investment companies or their authorized agents
and paying and receiving funds in connection with such purchases or redemptions
as required by any applicable agreement.

5.             Actuarial
Services.  The Administrator
shall provide the formal actuarial opinions and related reports required by the
SEC and the NASD.

6.             Compliance
Services.  The Administrator
shall provide the Company with the following additional compliance services:

(a)                                  Preparation
and submission of (and provision of financial data required for) all reports
required by the SEC (including without limitation forms N-SAR, 485(b)
registration statement updates, fund and separate account annual reports and
24f-2 Notices), the NASD (including, without limitation, compilation of
information, if any, related to the Reinsured Policies that would be reflected
in any quarterly FOCUS II/IIA reports, annual FOCUS schedule 1 or Customer
Complaints Rule 3070 Report), and the states (in each case only after review
and approval thereof by the

 

A-2

 

                                                Company),
with all of the foregoing to be accomplished within such time periods as are
necessary to comply with Applicable Law after giving allowance, in the cases of
information relevant to reports of filings of the Company that are not specific
to the Reinsured Policies, for time periods reasonably specified by the Company
to permit integration of the subject information related to the Reinsured
Policies;

(b)                                 Notwithstanding
anything in this Agreement to the contrary, all complaints and other grievances
shall be handled by the Administrator in accordance with NASD requirements
(including any response time requirements applicable thereto);

(c)                                  Review
and comment on registration statements and other SEC related documents prepared
by the Company, and assist the Company in meeting SEC requirements with respect
to any of the Reinsured Contracts.  In
addition, the Administrator shall distribute at its expense to contractholders
all required information provided by the Company to the Administrator (which
the Company hereby agrees to provide on a timely basis), including
prospectuses, post-effective amendments or supplements to the
registration statements of the Separate Account or of any underlying funds as
well as annual and semi-annual reports;

(d)                                 Make
all filings and obtain all regulatory approvals required with regard to
advertising of the Reinsured Contracts, including without limitation all
filings and approvals required by Applicable Laws and NASD requirements (except
to the extent that such services are performed by other entities pursuant to
written agreements with the Company);

(e)                                  Ensure
SEC and NASD compliance for variable contracts, prospectuses, and registration
statements including the submission of any required information, conducting
annual compliance audits, quarterly complaint reporting, registering and
terminating representatives and monitoring continuing education requirements;

(f)                                    Monitor
the federal securities statutes and the rules, regulations, orders, and
interpretations thereunder and the securities statutes and rules, regulations,
orders, and interpretations thereunder of the various states in which contractholders
or Reinsured Contracts are located to ensure compliance therewith and to ensure
that any actions or communications required thereby are properly made;

(g)                                 Process
information relating to proxy voting, including receiving record date
information and proxy solicitation from underlying investment vehicle(s);
preparing proxy ballots; mailing solicitation and resolicitations, if
necessary; and maintaining all proxy registers and other required proxy
material;

 

A-3

 

(h)                                 Provide
the Company with all information reasonably requested and necessary for the
Company to meet any requirements arising out of the Sarbanes-Oxley Act of 2002, as amended; and

(i)                                     Ensure compliance with the Office of Foreign
Assets Control (“OFAC”) of the US Department of the Treasury and money
“laundering” restrictions, including but not limited to those adopted under the
Uniting and Strengthening America By Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001.

7.             General.
The Administrator agrees to comply with all applicable federal securities laws
and requirements of applicable self regulatory organization, including the
NASD, as they apply to the Separate Account portions of Reinsured Contracts in
connection with the performance of the Administrator’s obligations under this
Agreement.  The Administrator hereby
agrees to provide all necessary information to the Company in order to meet all
regulatory requirements as may be necessary for the Company to fulfill its
obligations under federal and state law as is deemed reasonably necessary by
the Company under applicable federal and state laws as they relate to the
Reinsured Contracts.

 

A-4

 

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

 

A-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

 

A-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.

 

A-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.

 

A-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

 

A-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.

 

A-6

 

SCHEDULE D

CEDING
COMMISSION

The Ceding
Commission shall be the sum of the following:

1.                                       an
amount equal to the excess of (i) the General Account Reserves as of the
Inception Date over (ii) the net reserves of the Company with respect to the
General Account Liabilities (net after deduction for Ceded Reinsurance) as of
the Inception Date, determined in accordance with GAAP (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).

 

A-1

 

SCHEDULE E

Assets

	
  Transfer Document

  	
   

  	
  From

  	
   

  	
  To

  	
   

  	
  Nature of Transfer

  	
   

  	
  Cash Map Cross-Reference

  	
   

  	
  Schedule

  	
   

  
	
  GELAAC VA Reinsurance

  	
   

  	
  GELAAC

  	
   

  	
  UFLIC

  	
   

  	
  Treaty

  	
   

  	
  (86)

  	
   

  	
  Schedule E

  	
   

  

 

	
  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

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  1,755,072,464.02

  	
   

  	
  12,907,831.78

  	
   

  	
  1,767,980,295.80

  	
   

  	
  1,757,659,006.58

  	
   

  	
  12,907,831.78

  	
   

  	
  1,770,566,838.36

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cash

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  2,626,251.98

  	
   

  	
   

  	
   

  	
  2,626,251.98

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  1,760,285,258.56

  	
   

  	
   

  	
   

  	
  1,773,193,090.34

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

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

 

 

SCHEDULE F

EXPENSE ALLOWANCES

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

Policy
Maintenance Factor $59.73 per Policy less $64.69 per Policy of fund company
administrative expense service shares.

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

 

A-2

 

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 credit for Fund Company Administrative Expense Service Shares will
be redetermined annually to reflect historical amounts of reimbursement relating
to Reinsured Contracts, current period number of units, and changes in
contractual arrangements with Fund Companies.

The combined prospective unit cost, additional adjustment and Fund
Company Administrative Expense Service Shares credit 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 G -
PART I

INITIAL REPORT

	
  1.  SAP General Account Reserves

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  2.  Ceding Commission:

  	
   

  	
   

  
	
  A.  Excess SAP General Account
  Reserves over GAAP net reserves for General Account Liabilities:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1)  Total SAP General Account
  Reserves

  	
  $

  	
   

  
	
  2)  Total GAAP net reserves
  for General Account Liabilities

  	
  $

  	
   

  
	
  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-+4)

  	
   

  	
  $

  

 

 

SCHEDULE G -
PART II

DAILY SETTLEMENT REPORT

Settlement Amount

 

	
   

  	
   

  	
   

  	
  Current Day

  	
   

  	
  Quarter-To-Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Premium/Deposits Received from Contractholders

  	
   

  	
  $

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Net Sales/Redemptions of UIT Shares

  	
   

  	
  $

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Net Purchases of UIT Shares

  	
   

  	
  $

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Payments to Contractholders from Policy
  Owner Services

  	
   

  	
  $

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Payment to Contractholder Beneficiaries for claims

  	
   

  	
  $

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  [1+2-3-4-5]

  	
   

  	
  $

  	
   

  	
  $

  

 

 

SCHEDULE G - PART III

MONTHLY
SETTLEMENT REPORT

	
  Settlement
  Amount

  	
   

  	
  Current
  Month

  Estimate

  	
   

  	
  Quarter-To-Date

  
	
  1.

  	
  Mortality and Expense Charges

  	
   

  	
  $

  	
   

  	
  $

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  2.

  	
  Premium Taxes

  	
   

  	
  $

  	
   

  	
  $

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  3.

  	
  Expense Factor

  	
   

  	
  $

  	
   

  	
  $

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  4.

  	
  Ceded Reinsurance Premiums

  	
   

  	
  $

  	
   

  	
  $

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  5.

  	
  Ceded Reinsurance Benefits/Recoverables

  	
   

  	
  $

  	
   

  	
  $

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  6.

  	
  Commissions and Other Fees or Compensation
  Paid: Trail and Add On (See Schedule J)

  	
   

  	
  $

  	
   

  	
  $

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Insolvency Fund or Similar Assessments Paid

  	
   

  	
  $

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Other

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [1-2-3-4+5-6-7-8]

  	
   

  	
  $

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  
											

 

 

SCHEDULE G -
PART IV

QUARTERLY SETTLEMENT REPORT

 

	
   

  	
   

  	
   

  	
   

  	
  Previously
  Reported

  	
   

  	
  Actual
  Quarter Results

  	
   

  	
  True  Up

  
	
  Daily Settlement Reconciliation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
  Premiums

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  UIT Sales and Purchases

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  Customer Transfers (Net)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  Redemption of Shares for Surrender Charges

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4

  	
   

  	
  Redemption of Shares for Rider Fees and Loads

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5

  	
   

  	
  Corrections and Gain/Loss

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Payments to Contractholders and Beneficiaries

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6

  	
   

  	
  Surrenders and Withdrawals

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7

  	
   

  	
  Return of Premium-Freelooks

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8

  	
   

  	
  Death Benefits (Standard and Enhanced)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9

  	
  Net (+1 +/-2 +3+4+/-5-6-7-8)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Monthly Settlement Reconciliation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10

  	
  Mortality & Expense Charges

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11

  	
  Premium Taxes

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12

  	
  Expense Factor

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13

  	
  Ceded Reinsurance Premium

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14

  	
  Ceded Reinsurance Benefits/Recoverables

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15

  	
  Commissions and other Fees or Compensation Paid

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16

  	
  Insolvency Fund or Similar Assessments Paid

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17

  	
  Extra Contractual Liabilities Paid

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18

  	
  Other

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19

  	
  Net (+10-11-12-13+14-15-16-17+/-18)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  20

  	
  Quarterly Settlement (9+19)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MODCO Adjustment Reconciliation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  21

  	
  Beginning Separate Account Reserves

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  22

  	
  UIT Sales and Purchases (+/—2 +3+4+/-5)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  23

  	
  Mortality & Expense Charges (10)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  24

  	
  UIT Appreciation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  25

  	
  Ending Separate Account Reserves (+21-22-23+/-24)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

SCHEDULE G -
PART V

ANNUAL REPORT

 

	
  The following in
  the same level of detail as the quarterly settlements:

  	
   

  	
   

  
	
  1.     Premiums

  	
   

  	
   

  
	
  2.     UIT Sales and Purchases

  	
   

  	
   

  
	
  3.     Payments to
  Contractholders and Beneficiaries

  	
   

  	
   

  
	
  4.     Premiums Taxes

  	
   

  	
   

  
	
  5.     Commissions and Other
  Fees or Compensation Paid

  	
   

  	
   

  
	
  Other information required to complete accounting and reporting:

  	
   

  	
   

  
	
  6.     6.Expense allowance
  accrual at year end

  	
   

  	
   

  
	
  7.     DAC and PVFP, as
  applicable

  	
   

  	
   

  
	
  8.     Modco reserve to support
  completion of Schedule S and RBC

  	
   

  	
   

  

 

 

 

 

SCHEDULE H

FORM OF TRUST AGREEMENT

 

 

SCHEDULE I

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 J

COMMISSIONS

	
  PRODUCT

  	
  MAXIMUM STANDARD COMMISSION*

  	
  MAXIMUM TRAIL COMMISSION**

  
	
  CVA 90

  	
  5%

  	
  0.020833%

  
	
  CVA Mitchell

  	
   

  	
   

  
	
  CVA Plus

  	
  6%

  	
  0.020833%

  
	
  Extra

  	
  5.5%

  	
  0.020833%

  
	
  Freedom

  	
  1.4%

  	
  0.08333%

  
	
  Savvy Investor

  	
  1.4%

  	
   

  
	
  Choice

  	
  7.0%

  	
  0.08333%

  
	
  Selections

  	
  6.0%

  	
  0.08333%

  

 

*Each
percentage listed is an aggregate percentage of purchase payments made by the
contract owner.

 

**Trail
commissions shown are monthly rates.

 

Wholesaling Variable Compensation

 

	
  PRODUCT

  	
   

  	
  RSG

  	
   

  	
  IAN

  	
   

  	
  GFA

  	
   

  	
  IBG

  	
   

  
	
  CVA 90

  	
   

  	
  60bps

  	
   

  	
  0

  	
   

  	
  390bps

  	
   

  	
  0

  	
   

  
	
  CVA Plus

  	
   

  	
  60bps

  	
   

  	
  0

  	
   

  	
  390bps

  	
   

  	
  0

  	
   

  
	
  Extra

  	
   

  	
  70bps

  	
   

  	
  120bps

  	
   

  	
  325bps

  	
   

  	
  50bps

  	
   

  
	
  Freedom

  	
   

  	
  45bps

  	
   

  	
  100bps

  	
   

  	
  70bps

  	
   

  	
  50bps

  	
   

  
	
  Savvy Investor

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  	
  0

  	
   

  
	
  Choice

  	
   

  	
  70bps

  	
   

  	
  130bps

  	
   

  	
  360bps

  	
   

  	
  50bps

  	
   

  
	
  Selections

  	
   

  	
  45bps

  	
   

  	
  130bps

  	
   

  	
  360bps

  	
   

  	
  50bps

  	
   

  

 

Firm Marketing Related Expense Reimbursements

 

	
  Firm

  	
  Expense
  Reimbursement for Add On Premium

  	
  Expense
  Reimbursement on Inforce (annual rates)

  
	
  ABN AMRO

  	
  25bps on Choice & Selections

  	
   

  
	
  AG EDWARDS

  	
  10bps 
  on VA’s > 1 year old

  	
   

  
	
  BANK OF AMERICA

  	
  25bps on Choice & Extra

  	
  0bps on VA’s — Yrs 0-2; 5bps on  Choice, Extra, Selections — Yrs 3-5; 10bps
  on Choice, Extra, Selections — Yrs 6+.

  

 

 

 

	
  CHASE

  	
  15bps on Foundation

  	
  5bps on Choice, Extra,  Selections > 2 Yrs old.

  
	
  FLEET QUICK &
  REILLY

  	
   

  	
  8bps on Choice, Choice NY,  Extra, Selections > 1 Yr old.

  
	
  RAYMOND JAMES

  	
  15bps on Choice & Extra

  	
   

  
	
  SALOMON SMITH
  BARNEY

  	
  50bps Excess Comp on Choice; 25bps Excess
  Comp on Extra & Selections

  	
  4bps on VA’s > 1 Yr old

  
	
  WACHOVIA SECURITIES
  LLC

  	
  20bps on Choice, Extra, & Selections;
  10bps on Freedom

  	
  5bps on Choice, Extra, Selections > 1 Yr
  old

  
	
  ESSEX

  	
  25bps on Choice, Extra, Freedom

  	
   

  
	
  COMERICA

  	
  5bps on Choice & Extra

  	
   

  
	
  FIRST ALLIED
  SECURITIES

  	
  15bps on Choice, Extra, Selections

  	
   

  
	
  FIRST TENNESSEE
  BANK

  	
  25bps on Choice & Extra

  	
   

  
	
  H&R BLOCK

  	
  5bps on Choice & Extra

  	
   

  
	
  HSBC

  	
  10bps on Choice, Extra, Freedom, Selections

  	
   

  
	
  LEGG MASON

  	
  25bps on Choice & Extra

  	
   

  
	
  LINSCO PRIVATE
  LEDGER

  	
  40bps on Choice, Extra, Freedom

  	
   

  
	
  MCDONALD/KEY

  	
  25bps on Choice & Extra

  	
   

  
	
  PRIMEVEST

  	
  20bps on Choice & Extra

  	
   

  
	
  RBC DAIN RAUSCHER
  INC

  	
  25bps on Choice & Extra

  	
   

  
	
  UBS PAINEWEBBER

  	
  20bps on Choice, Extra, Freedom

  	
  5bps on VA’s — 4/1/97 — 9/30/00 Block

  
	
  USB PIPER JAFFRAY

  	
  25bps on Choice, Extra, Selections

  	
   

  
	
  UVEST

  	
  25bps on Choice & Extra

  	
   

  
	
  FINTEGRA

  	
  15bps on Choice & Extra

  	
   

  
	
  IFMG

  	
  25bps on Choice, Extra, Selections

  	
   

  
	
  STANFORD GROUP

  	
  15bps on Choice & Extra

  	
   

  
	
  WASHINGTON MUTUAL

  	
  25bps on Choice

  	
   

  

 

Ceding Company Marketing Allowance on Add-On
Premiums: 78bps

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00065-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00065-of-00352.parquet"}]]