Document:

usallianceex103.htm

EXHIBIT 10.3

 

GROUP SHORT TERM AND LONG TERM DISABILITY

REINSURANCE AGREEMENT

 

EFFECTIVE JANUARY 1, 2015

 

BETWEEN

 

US ALLIANCE LIFE AND SECURITY COMPANY

 

AND

 

RELIANCE STANDARD LIFE INSURANCE COMPANY

DOING BUSINESS AS

CUSTOM DISABILITY SOLUTIONS

 

AS

 

MANAGING AGENT FOR EACH OF THE PARTICIPATING REINSURERS

COLLECTIVELY REFERRED TO IN THIS AGREEMENT AS THE

AMERICAN DISABILITY REINSURANCE UNDERWRITERS SYNDICATE

("ADRUS")

 

  

  

  

TABLE OF CONTENTS

 

ARTICLE 1. REINSURANCE COVERAGE

 

Section 1.01 — Scope of the Agreement

Section 1.02 — Reinsurance

Section 1.03 — Original Conditions

Section 1.04 — Retention Warranty

 

ARTICLE 2. UNDERWRITING PROCESS

 

Section 2.01 — Reinsurance Coverage

Section 2.02 — Exceptions to Reinsurance Coverage

Section 2.03 — Underwriting Services

 

ARTICLE 3. DEFINITIONS

 

ARTICLE 4. REINSURANCE PREMIUMS

 

Section 4.01 — Consideration

Section 4.02 — Reinsurance Premium Payment 

Section 4.03 — Non-Payment of Premium 

Section 4.04 — Reinstatement of Reinsurance

 

ARTICLE 5. CLAIMS

 

Section 5.01 — Reinsurer's Liability for Reinsured Claims 

Section 5.02 — Claims for Extra-Contractual Amounts 

Section 5.03 — Claims Administration Services

  

  

  

 

ARTICLE 6. COMMENCEMENT AND TERMINATION OF AGREEMENT

 

Section 6.01 — Commencement

Section 6.02 — Termination

 

ARTICLE 7. REINSURANCE INFORMATION AND ACCESS TO RECORDS

 

Section 7.01 — Reports

Section 7.02 — Reinsurance Information

 

Section 7.03 — Access to Records

Section 7.04 — Confidentiality

Section 7.05 — Proprietary Material

 

ARTICLE 8. ARBITRATION

 

Section 8.01 — Appointment of Arbitrators

Section 8.02 — Proceedings

Section 8.03 — Appeal

Section 8.04 — Conclusion

 

ARTICLE 9. INSOLVENCY

 

ARTICLE 10. MISCELLANEOUS PROVISIONS

 

Section 10.01 — Headings and Attachments

Section 10.02 — Notices

Section 10.03 — Execution in Counterparts

Section 10.04 — Entire Agreement and Amendments

Section 10.05 — Investigations

Section 10.06 — Governing Law

Section 10.07 — Waivers and Remedies

Section 10.08 — Severability

Section 10.09 — Mutual Negotiation

Section 10.10 — Mergers, Acquisitions or Changes

Section 10.11 — Currency

Section 10.12 — Interest on Overdue Payments

Section 10.13 — Errors and Omissions

Section 10.14 — Third Party Beneficiaries

 

  

  

  

 

Section 10.15 - Assignment 

 

APPENDIX A 

 

APPENDIX B 

 

APPENDIX C 

 

APPENDIX D

  

  

  

 

AGREEMENT

 

This Agreement is made by and between US Alliance Life and Security Company, Topeka, Kansas ("Company") and Reliance Standard Life Insurance Company, Chicago, Illinois doing business as Custom Disability Solutions ("CDS"), as Managing Agent ("Managing Agent") for each of the participating reinsurers collectively referred to in this Agreement as the American Disability Reinsurance Underwriters Syndicate ("ADRUS" or "Reinsurer").

 

The Managing Agent represents and warrants that the Reinsurer has authorized the Managing Agent to enter into, execute and deliver agreements of this sort on its behalf and to exercise all of its rights and perform all of its obligations under such agreements on its behalf, including but not limited to, underwriting of policies, collection of premiums, and management of claims in accordance with the terms of such agreements. All performances required by and for the Reinsurer under this Agreement shall be conducted through the Managing Agent.

 

This Agreement shall be construed as an honorable undertaking between the parties with mutual obligations of utmost good faith and fair dealing.

 

Company and Reinsurer mutually agree to reinsure as follows:

 

ARTICLE 1. REINSURANCE COVERAGE

 

Section 1.01 Scope of the Agreement

 

This Agreement applies to Company's portfolio of group Short Term and Long Term Disability business for which Managing Agent provides quotes (hereinafter referred to as the "Policies"), as more fully described in Section 1.02. This Agreement does not apply to any risk other than group Short Term and Long Term Disability underwritten under the direction of the Managing Agent, even if the policy provides other coverage, nor does it apply to any group business issued outside of the United States, unless approved in advance by the Managing Agent.

 

Section 1.02 Reinsurance

 

Company agrees to cede and Reinsurer agrees to accept quota share reinsurance of the Company's gross liability under the Policies. Reinsurance for the Policies shall become effective on the effective date of the Policies.

 

Section 1.03 Original Conditions

 

All reinsurance ceded hereunder shall be subject to the same clauses, terms, conditions and endorsements as Company's Policies, except as specifically stated herein.

 

Company shall take ordinary care and reasonable diligence in performing its administrative responsibilities under the Policies consistent with the care, skill, prudence, and diligence of a person

 

  

  

  

 

experienced in the group disability insurance industry, in accordance with customary group disability insurance practices and standards, and in compliance with all applicable laws, rules and regulations.

 

Delegation or assignment of administrative responsibilities for reinsured Policies by Company to a third party shall require approval by Managing Agent.

 

Company represents that it is licensed to write group disability business in the states, districts or territories of the United States where the reinsured Policies shall be issued. Company and Managing Agent mutually agree and acknowledge that the Policies and the rating practices associated with the Policies are in compliance with requirements of applicable state and federal laws, rules and regulations, including but not limited to state policy form and associated rating and rate filing requirements.

 

Once Company and Managing Agent have agreed on the risk and benefits for a Policy, any increase in benefit liability resulting from Company's divergence from such agreed upon risk and benefits shall be borne by the Company. The Reinsurer does not assume liability for any risk or benefits not previously agreed upon or which are incurred as a result of errors, intentional or otherwise, in the policy and/or certificate issued or in Company's administrative practices.

 

Section 1.04 Retention Warranty

 

The risk retained by Company on the business covered by this Agreement shall not be transferred or reinsured by Company elsewhere on any basis whatsoever without the agreement of Managing Agent.

 

ARTICLE 2. UNDERWRITING

 

Section 2.01 Reinsurance Coverage

 

Except as provided in Section 2.02, below, whenever the Company issues a Policy, Reinsurer shall accept the Reinsurance Percentage on said Policy.

 

Section 2.02 Exceptions to Reinsurance Coverage

 

Unless Managing Agent has specifically agreed to such reinsurance in writing, no reinsurance may be ceded where the Policy is not underwritten and claims managed by the Managing Agent.

 

Section 2.03 Underwriting Services

 

Managing Agent shall provide underwriting services as more fully described in Appendix B. Managing Agent shall perform underwriting services with the care, skill, prudence, and diligence of a person experienced in the group disability insurance underwriting industry, in accordance with customary group disability insurance underwriting practices and standards, and in compliance with all applicable laws, rules and regulations.

 

  

  

  

 

ARTICLE 3. 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):

 

	
a.  

	
"Anniversary Date" means the first day of January of each year following the Effective Date.

 

	
b.  

	
"Company Retention" means:

 

· 0% of gross weekly STD benefits; and

 

· 0% of gross monthly LTD benefits.

 

The parties may mutually agree upon a change in the Company Retention that shall take effect on or after the date the Agreement has been in force for 36 months.

	
c.  

	
"Reinsurance Percentage" means:

 

· 100% of gross weekly STD benefits; and

 

· 100% of gross monthly LTD benefits.

 

The parties may mutually agree upon a change in the Reinsurance Percentage that shall take effect on or after the date the Agreement has been in force for36 months.

 

	
d.  

	
"Effective Date" means January 1, 2015.

 

	
e.  

	
"Initiation Period" means the one-year period from the Effective Date to December 31, 2015, during which Company may, without cause, terminate this Agreement with ninety (90) days advance written notice to the other party.

 

	
f.  

	
"Policy(ies)" mean the group Short Term and Long Term Disability Policies referenced in Section 1.01, and all endorsements, riders attachments, and agreements thereto.

 

	
g.  

	
"Insolvent or Insolvency" means:

 

	
  

	
1.

	
The entry by a court of competent jurisdiction of

	
  

	
A. An order declaring the Company Insolvent, or

 

  

  

  

 

	
  

	
B. An order appointing a receiver or receivers, or trustee or trustees, or liquidators, of the Company or of all or any substantial part of its property; or

 

	
  

	
2.

	
The entry of an order or petition pertaining to the Company for relief under Title 11 of the United States Code or any similar order under any applicable law or statute of the United States or any state thereof

 

	
h.  

	
"Risk Premium" means the total premium received by the Company for the reinsured 

Policies, less:

	 	
1.

	
the amount of premium priced by the Managing Agent to cover: (1) premium tax, (2) commissions, (3) other acquisition expenses and (4) other expenses borne by the Company in the administration of such Policies, and

	 	
2.

	
Reinsurance Management Fees, not including the Initial Start Up Fee, as described in Appendix D.

 

	
i.  

	
"Loss Adjustment Expenses" means any third party claim expenses incurred in the investigating, settling, litigating, adjusting, auditing, managing and processing of claims, except for salaries of Company's and Managing Agent's employees, and other routine office and administrative expenses of the Company and the Managing Agent. Loss Adjustment Expenses include but are not limited to expenses for:

 

· obtaining medical records,

· independent medical examinations (IMEs),

· special investigation (e.g. home visits, surveillance, forensic accounting),

· vocational rehabilitation services or equipment,

· functional capacity exams or other clinical or vocational testing,

· labor market surveys,

· Social Security claim filing assistance,

· independent peer reviews,

· translation services,

· legal opinions,

· litigation management,

· day care,

· collections,

· retraining (including tuition, books, and other related expenses),

· prosthetics,

· eyeglasses,

· weight loss programs,

· adaptive equipment, or

· other expenses as mutually agreed upon by the parties.

 

Liability for Loss Adjustment Expenses incurred for a claim shall be apportioned between the Reinsurer and the Company in direct proportion to the risk each bears on such claim.

 

  

  

  

ARTICLE 4. REINSURANCE PREMIUMS 

 

Section 4.01 Consideration

 

The consideration due to the Managing Agent shall be the product of the Reinsurance Percentage multiplied by the Risk Premium, plus the agreed upon Management Fee as shown in Appendix D.

 

Section 4.02 Reinsurance Premium Payment

 

The Company shall remit to Managing Agent all consideration on premiums received for the Policies by the fifteenth (15th) day of the month following the Company's receipt of premium. The Company shall remit consideration to Managing Agent along with a monthly reinsurance premium statement that shall include the information described in Section 8.01.

 

Section 4.03 Non-Payment of Premium

 

Company shall take appropriate action to terminate all prospective liability in accordance with Company's standard termination practices (a copy of which has been provided to the Managing Agent) and the provisions of the Policies governing non-payment of premium, lapse and reinstatement, and shall institute collection procedures for past due premiums that remain unpaid.

 

If the Company fails to pay the reinsurance premium as described in this Article 4, the Managing Agent shall have the right to terminate reinsurance for any Policies for which reinsurance premium payment has not been made. Such termination shall be effective as of the last day of the period for which reinsurance premiums were paid.

 

Section 4.04 Reinstatement of Reinsurance

 

If reinsurance for any Policy or Policies has been terminated by Managing Agent due to non-payment of reinsurance premium or under any provision of this Article 4, any reinstatement of reinsurance for such terminated policy or policies shall be at Managing Agent's sole discretion and must be agreed to in writing by Managing Agent.

 

  

  

  

 

ARTICLE 5. CLAIMS

 

Section 5.01 Reinsurer's Liability for Reinsured Claims

 

The Reinsurer shall be liable to the Company for the Reinsurance Percentage of contractual benefits (i.e. benefits specified in the Policies) reinsured under this Agreement and paid to the extent of the liability of the Company for the underlying risk. All claim payments for reinsured claims made according to the terms and conditions of its Policies and this Agreement shall be binding upon Reinsurer. The Reinsurer shall have no liability beyond the original conditions of the Policies.

The Reinsurer shall also have liability for the Reinsurance Percentage of Loss Adjustment Expenses. Section 5.02 Claims for Extra-Contractual Amounts

 

"Extra-Contractual Amounts" are amounts outside of Policy benefits and may include, but are not necessarily limited to: punitive, exemplary, compensatory or consequential damages or plaintiffs litigation-related costs and fees.

 

	
a.  

	
If Extra-Contractual amounts are awarded against the Company solely as a result of the Managing Agent's decision, action, delay or failure to act, the Reinsurer shall pay one hundred percent (100%) of all such amounts.

 

	
b.  

	
If Extra-Contractual amounts are awarded against the Company solely as a result of Company's decision, action, delay, or failure to act, the Reinsurer shall pay zero percent (0%) of all such amounts.

 

	
c.  

	
When Extra-Contractual amounts are awarded against the Company as a result of both the Managing Agent's and the Company's decision, action, delay or failure to act, the parties agree to share proportionately, based on the allocation of responsibility to the respective parties, in the liability for all such amounts.

 

	
d.  

	
To expedite the resolution of certain claims, amounts other than Policy benefits may be added to a claim settlement. Where such amounts are added, which will be determined by mutual agreement by the parties, the additional amounts shall not be considered to be Extra-Contractual amounts and shall be allocated according to the respective liabilities of the parties under this Agreement. If the parties are unable to agree on either the feasibility or amount of such additional sums, the matter shall be settled by arbitration in accordance with the Arbitration section of this Agreement.

 

Allocation of responsibility for decisions, actions, delays, or failures to act shall be determined by mutual agreement of the parties subsequent to good faith negotiation. Said determination is solely for the purpose of efficient administration of this Agreement and for determining who shall assume the costs in certain instances. If agreement on such allocation cannot be reached, the matter shall be addressed in accordance with the Arbitration section of this Agreement.

 

  

  

  

 

If any portion of this subsection 5.02 is deemed to be illegal under any law (decisional or statutory) or regulation of any Federal, State or local government, insofar as it applies to that area's jurisdiction, then said portion is automatically terminated.

 

Section 5.03 Claim Administration Services

 

Managing Agent shall perform claim administration services as more fully described in Appendix C for all claims incurred under Policies.

 

Managing Agent shall perform claim administration services with the care, skill, prudence, and diligence of a person experienced in the group disability insurance claims administration industry, in accordance with customary group disability insurance claim administration practices and standards, and in compliance with all applicable laws, rules and regulations.

 

ARTICLE 6. COMMENCEMENT AND TERMINATION OF AGREEMENT

 

Section 6.01 Commencement

 

This Agreement shall become effective at 12:01 a.m. on the Effective Date with respect to all Policies:

 

	
a.  

	
Classified by the Company as group Short Term and Long Term Disability Insurance; and

 

	
b.  

	
Underwritten or renewed by or on behalf of the Company during the term of this Agreement, at the direction of the Managing Agent,

 

and shall continue in-force thereafter until terminated.

 

Except as stated in Section 6.02, the liability of Reinsurer for any reinsurance under this Agreement begins at the later of the Effective Date or the effective date of Policies issued by Company and ends at the earlier of the effective date of termination of this Agreement or the date Company's liability for the Policies terminates.

 

Section 6.02 Termination

 

No new business will be reinsured after the effective date of the termination of the Agreement. In no event shall termination of this Agreement result in termination of Reinsurer's liability for claims incurred prior to the termination date, regardless of whether they are reported prior to or following the date of termination of this Agreement.

 

Termination will occur at the earlier of any of the following:

 

  

  

  

 

	
a.  

	
Either party may, at its option, terminate this Agreement if the other party fails to pay when due any amounts due under this Agreement. The terminating party may exercise this right only after giving the other party written notice of delinquency, stating its intent to terminate this Agreement and providing 15 days from the date of written notification to cure the default by payment of all delinquent amounts. If the

terminating party does not then notify the other party in writing of such termination, then this Agreement shall remain in full force and effect, and each party shall remain obligated to pay amounts due under the Agreement until the Agreement is otherwise terminated.

 

	
b.  

	
This Agreement shall automatically terminate, with respect to reinsurance for new Policies, on the date of Company's insolvency or cessation of operations, if earlier. Reinsurance in-force on the date of Company's Insolvency or cessation of operations, if earlier, will be administered in accordance with the Insolvency section of this Agreement.

 

	
c.  

	
During the Initiation Period, either Party may terminate this Agreement without cause by providing ninety (90) days advance written notice to the other Party. In the event of such termination during the Initiation Period, the Company may immediately recapture any business reinsured under this Agreement.

 

	
d.  

	
In the event the Agreement is not terminated during the Initiation Period, then neither party may terminate this Agreement without cause until December 31, 2019, after which date either party may terminate this Agreement effective on an Anniversary Date by giving the other party one hundred twenty (120) days prior written notice.

 

	
e.  

	
Either party may terminate this Agreement effective on January 1, 2018 by giving the other party one hundred twenty (120) days prior written notice, in the event that the in force reinsured premium as of July 1, 2017 is less than S100,000.

 

If this Agreement terminates as described under Section 6.02a., b. or c. above, termination will be immediate.

 

If this Agreement terminates as described under Section 6.02d. or e. above, Reinsurer at its discretion will retain reinsurance with respect to Policies which were reinsured hereunder while the Agreement was in force for up to two (2) years from the effective date of termination of this Agreement. This deferment of termination of reinsurance on in-force Policies may be waived by the Reinsurer.

 

Upon termination of this Agreement, Managing Agent shall provide Company only with those claims, financial and reporting services necessary to manage the reinsured business.

 

  

  

  

 

ARTICLE 7. REINSURANCE INFORMATION AND ACCESS TO RECORDS

 

Section 7.01 Reports

 

The Company shall furnish to Managing Agent in a mutually agreed upon electronic format, by the fifteenth (15th) day of the month following the Company's receipt of premium, a report for the month containing industry standard premium information, as mutually agreed upon by the parties.

 

The Managing Agent agrees to provide reserve reports for business reinsured under this Agreement to the Company in a form mutually acceptable to the parties. Such reports shall be provided within five (5) working days after the end of the accounting period.

 

Section 7.02 Reinsurance Information

 

Company has disclosed and will continue to disclose to Managing Agent timely, accurate, and complete information concerning matters that may affect Managing Agent's judgment in entering into and/or continuing this Agreement, such as licensing, state regulatory actions and financial issues. Complete disclosure shall require the inclusion of any material fact required to be stated or necessary to make statements not misleading. If the reinsurance provided hereunder becomes effective prior to the date this Agreement is executed by Company, Company warrants that there are no known undisclosed material losses or claims that have arisen or become known during such period. Failure to provide such information could lead Managing Agent to contest the validity of the Agreement, refuse to pay claims hereunder, or require an adjustment of premium on a retrospective basis to reflect Reinsurer's risk based on the correct information.

 

Section 7.03 Access to Records

 

Upon request, each party shall provide the other party or the other party's designated representative with detailed information on the Policies, including, at the requesting party's expense, paper or electronic versions of the whole or part of any documents relating to the Policies. Such information includes, but is not limited to, underwriting files, claim files, files regarding the investigation of evidence of insurability, accounting files, correspondence with intermediaries, audit reports and actuarial studies relating to the reinsured risks. At the option of the requesting party, such information shall be made available via photocopy or fax, or at offices of the non-requesting party or its designated administrator during such office's normal hours to the requesting party's representative(s) who shall be named in advance. Notification of such visit shall normally be given two weeks in advance and, even in urgent cases, at least twenty-four hours in advance. A party shall have this right of inspection and information as long as such party has obligations under this Agreement.

 

Section 7.04 Confidentiality

 

Company and Managing Agent warrant that they will restrict written disclosures as to the terms, conditions, parties or extent of this Agreement, unless made to financial auditors, compelled by law, or required by an appropriate governing body, or in publications, such as annual statements.

 

  

  

  

 

Managing Agent will hold in strict confidence all the following documents and information (hereinafter referred to as "Confidential Information"): underwriting files, claim files, accounting files, correspondence with intermediaries, audit reports and actuarial studies, and any other information Company has identified . The terms of this section shall survive any termination or expiration of this Agreement. Upon termination of this Agreement, and to the extent the same is reasonably returnable, Managing Agent shall return all Confidential Information. Managing Agent shall hold in strict confidence all Confidential Information, and neither Managing Agent nor any of its affiliates, representatives or employees shall directly or indirectly:

 

	
a.  

	
use or permit the use of any of the Confidential Information for any purpose other than the performance of its duties under the terms of this Agreement, or

 

	
b.  

	
disclose or permit the disclosure of any of the Confidential Information to any person or entity other than the Company's representatives, or as required by law.

 

Section 7.05 Proprietary Material

 

During the course of this Agreement, Company and Managing Agent may make technical materials such as underwriting manuals, claims manuals and rating systems available to each other. Each party acknowledges that all such material is offered on a proprietary basis, for the sole purpose of enhancing this reinsurance arrangement. Further, each party agrees that the original owner of these materials is deemed to be the sole owner of these materials and that neither party will offer these materials to any person or persons who is (are) not a direct party (parties) to this Agreement unless compelled by law or required by an appropriate governing body.

 

ARTICLE 8. ARBITRATION

 

The parties explicitly agree that all differences, whether matters of fact, law or mixed fact and law, which arise out of the interpretation or execution of this Agreement, will be decided by arbitration except for those matters which are left to the sole discretion of the Managing Agent or the Company under the terms of this Agreement. The parties explicitly agree that arbitration shall be the sole and exclusive remedy for all such differences, and that the arbitrators will determine the interpretation of this Agreement in accordance with the usual business and reinsurance practices rather than strict technicalities. Three neutral arbitrators will decide any differences. They must be active or retired officers of life insurance companies other than the two parties to this Agreement or any of their subsidiaries. In addition, the officers may not be former employees of the parties to this Agreement or any of their subsidiaries. Each party to this agreement shall appoint, and pay for, one arbitrator, and the two arbitrators will select a third, whose cost will be split equally between the parties. If the two are not able to agree on a third, each party shall submit a list of three names from which the other party shall strike two. The third arbitrator shall be drawn by lot from the remaining two names. The three arbitrators so selected shall constitute the Court of Arbitrators.

 

  

  

  

 

The arbitration proceedings will be conducted in accordance with the rules and procedures of the AIDA Reinsurance and Insurance Arbitration Society (www.arias-us.org) which are in effect at the time the arbitration begins and will take place in New York, New York.

 

This Agreement shall be deemed binding upon the arbitrators for matters expressly agreed to herein. The arbitrators' decision shall be by majority vote, and no appeal shall be taken from it. The judgment rendered by the arbitrators may be entered in any court having proper jurisdiction.

Expenses and fees for the arbitrators shall be shared by the Company and the Reinsurer in equal portions.

 

The arbitrators may award only contractual damages to either party. In no event may extra-contractual damages, including amounts available under any state or federal Racketeer Influenced and Corrupt Organization Act (RICO), be awarded to either party under this Agreement for breach of said agreement. However, the arbitrators may allocate responsibility for 1) any extra-contractual amounts awarded against the Company, or 2) any amounts representing Extra-Contractual damages in a settlement, between the Company and the Reinsurer as set forth in the Claims Article of this Agreement.

 

The procedures specified in this Article shall be the sole and exclusive procedures for the resolution of disputes between the parties arising out of or relating to this Agreement; provided, however, that a party may seek a preliminary injunction or other preliminary judicial relief if in its judgment such action is necessary to avoid irreparable damage. Despite such action the parties will continue to participate in good faith in the procedures specified in this Article. All applicable statutes of limitation shall be tolled while the procedures specified in this Article are pending. The parties will take such action, if any, required to effectuate such tolling.

 

Notwithstanding any other provision of this Article, in the event that either party seeks, consents to, or acquiesces in the appointment of, or otherwise becomes subject to, any trustee, receiver, liquidator, or conservator (including any state insurance regulatory agency acting in such a capacity), the other party shall not be obligated to resolve any claim, dispute, or cause of action under this Agreement by arbitration and may elect to bring any action with respect to such claim, dispute or cause of action in any court of competent jurisdiction.

 

The provisions of this Article shall survive termination of this Agreement.

 

ARTICLE 9. INSOLVENCY

 

The Reinsurer agrees that all reinsurance under this Agreement shall be payable by the Reinsurer on the basis of the liability of the Company under each policy reinsured under this Agreement without diminution because of the Insolvency of the Company, and the Reinsurer assumes liability for such reinsurance as of the effective dates of such policies. Any such payments by the Reinsurer shall be made directly to the Company or to its liquidator, receiver, or statutory successor, or to another party as may be duly authorized by such liquidator, receiver or statutory successor. In the event of the Insolvency of the Company, the liquidator, receiver or statutory successor of the Company shall give written notice that a claim is pending against the Company with respect to the reinsured Policies

 

  

  

  

 

within a reasonable time after such claim is filed in the Insolvency proceedings. While the claim is pending, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator or receiver or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to court approval, against the Company as part of the expenses of liquidation to the extent of a proportionate share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

 

Where two or more reinsurers are involved and a majority of interest elects to defend a claim, the expense will be apportioned in accordance with the terms of this Agreement as if the expense had been incurred by the Company.

 

ARTICLE 10. MISCELLANEOUS PROVISIONS 

 

Section 10.01 Headings and Attachments

 

Headings used herein are not a part of this Agreement or related documents and shall not affect the terms hereof. All attachments hereto are a part of this Agreement.

 

Section 10.02 Notices

 

All notices and communications hereunder shall be in writing and shall become effective when received. Any written notice shall be by either certified or registered mail, return receipt requested, or overnight delivery service (providing for delivery receipt) or delivered by hand. All notices or communications under this agreement shall be addressed as follows:

 

	
If to Company:

US Alliance Life and Security Company 

4123 SW Gage Center Dr. Suite 240 

Topeka, KS 66604

 

Attn: Chief Operating Officer

	
If to Reinsurer or Managing Agent:

Custom Disability Solutions (CDS)

600 Sable Oaks Drive, Suite 200 

South Portland, ME 04106

 

Attn: Chief Financial Officer

 

Section 10.03 Execution in Counterparts

 

This Agreement and related documents 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.

 

  

  

  

 

Section 10.04 Entire Agreement and Amendments

 

This Agreement and related documents shall constitute the entire agreement between the parties with respect to the Policies. There are no understandings between the parties other than as expressed in this Agreement, and all other communications and representations of coverage, whether direct or through an intermediary, are expressly superseded. Any change or modification to this Agreement or related documents shall be null and void unless made by amendment to this Agreement or related documents and signed by both parties hereto. No agent has the authority to change this Agreement or waive any of its provisions.

 

  

  

  

 

Section 10.05 Investigations

 

Company shall notify Managing Agent immediately, in writing, of any and all investigations of Company or its directors, principal officers, or shareholders conducted by any federal, state or local regulatory authority other than routine state insurance department examinations or surveys.

 

Section 10.06 Governing Law

 

This Agreement and related documents shall be governed by and construed in accordance with the laws of the state of Maine, including its conflict of laws provisions.

 

Section 10.07 Waivers and Remedies

 

The waiver by any of the parties of any other party's prompt and complete performance or breach or violation, of any provision of this Agreement and related documents shall not operate nor be construed as a waiver of any subsequent breach or violation, and the waiver by any of the parties to exercise any right or remedy which it may possess hereunder shall not operate nor be construed as a bar to the exercise of such right or remedy by such party upon the occurrence of any subsequent breach or violation.

 

Section 10.08 Severability

 

In the event any section or provision of this Agreement or related documents is found to be void and unenforceable by an arbitrator or a court of competent jurisdiction, the remaining sections and provisions of this Agreement or related documents shall nevertheless be binding upon the parties with the same force and effect as though the void or unenforceable part had not been severed or deleted.

 

Section 10.09 Mutual Negotiation

 

This Agreement has been negotiated and prepared at the joint request and direction of the parties, and will be interpreted in accordance with its terms without favor to any party.

 

Section 10.10 Mergers, Acquisitions, or Changes

 

In the event that Company's portfolio of business increases or changes due to the purchase, assumption, or reinsurance of the portfolio of another company, or acquisition of or merger with another company, no reinsurance shall be provided for such portfolio of business under this Agreement unless Company notifies Managing Agent in writing and Managing Agent agrees in writing to reinsure the increased portfolio of business hereunder. In the event of merger, consolidation or reorganization of Company, this Agreement may be terminated by Managing Agent unless Managing Agent determines in its sole discretion that such event does not change the nature, quality or quantity of the business or risk reinsured and provides its written approval.

 

  

  

  

 

Section 10.11 Currency

 

Wherever the word "Dollars" and the sign "$" appear in this Agreement, they shall be construed to mean United States Dollars.

 

Section 10.12 Interest on Overdue Payments

 

The Managing Agent may assess interest on any reinsurance premiums that are unpaid and past due for more than 90 days after the due date for such payments as stated in the Agreement. The interest rate assessed for overdue premiums will equal the then-prevailing interest rate for 10-year U.S. Treasury bonds. A party's levying and collection of such charges for accrued interest shall not serve as a waiver of any of such party's rights as stated elsewhere in the Agreement.

 

Section 10.13 Errors and Omissions

 

Inadvertent and harmless delays, errors or omissions made in connection with this Agreement or any transaction hereunder, except as otherwise stated in this Agreement, shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided that the fault is rectified as soon as possible after discovery.

 

Section 10.14 No Third Party Beneficiaries

 

This is an agreement solely between the Company and the Managing Agent. The acceptance of reinsurance hereunder shall not create any right or legal relation whatever between the Managing Agent or the Reinsurer and any of the Company's policyholders, insureds, claimants, beneficiaries, representatives, sales representatives, employees or shareholders.

 

Section 10.15 Assignment

 

Neither the Company nor the Managing Agent shall, without prior consent of the other, which shall not be unreasonably withheld, sell, assign, transfer, or otherwise dispose of its obligations under this Agreement, the Policies or liabilities reinsured under this Agreement, or any right, title or interest in this Agreement, by voluntary or involuntary act, by assumption agreement or otherwise, and any attempt to dispose of said right, title and interests, without the other party's consent, shall be null and void.

 

In witness of the above, the parties hereto have caused this Agreement to be executed, in duplicate, as of the dates indicated.

 

  

  

  

 

At Topeka, KS this 6th day of February, 2015

 

US Alliance Life and Security Company

By:        Jeff Brown         

Name:   Jeff Brown         

Title:     EP & COO         

Date:    February 6, 2015      

And at South Portal, ME this 6th day of February, 2015

Custom Disability Solutions

By:         /s/ Paul K.  Fields      

Name:    Paul K. Fields      

Title:      CFO            

Date:     February 6, 2015      

  

  

  

 

APPENDIX A

 

Reinsurer, who has authorized CDS to act as Managing Agent of ADRUS, and its level of participation, is as follows:

 

 

	
 

PARTICIPATING REINSURERE[S]

	
 DOLLAR 

PARTICIPATION

	
 PERCENTAGE 

PARTICIPATION

	
 

Reliance Standard Life Insurance Company

	
 

$15,000

	
 

100%

	
 

TOTAL AUTHROIZED PARTICIPATION

	
 

$15,000

	
 

100%

  

  

  

 

APPENDIX B

MANAGING AGENT UNDERWRITING SERVICES

 

Managing Agent shall provide the following services:

 

1. Managing Agent will provide a Policy rate which will include the reinsurance Management Fee shown in Appendix E. Managing Agent will provide Company with supporting underwriting information used to arrive at the rate.

 

2. Unless agreed otherwise, rates will be established according to the set formulas maintained by Managing Agent.

 

3. Underwriting prospects will be assigned to a Managing Agent underwriter, who will obtain and analyze all of the necessary data and communicate with the Company's field sales representatives to facilitate the underwriting process. A risk analysis summary will be communicated to the Company at Managing Agent's direction, along with rate and plan design recommendations as appropriate.

 

4. Pricing for all groups will be developed using the Managing Agent's manual rate systems and the Managing Agent's experience rating system.

 

5. Upon request, Managing Agent shall assist with non-routine underwriting and actuarial matters in questionnaires and proposals for prospective policyholders of Company and in renewals of in force Policies.

 

6. Upon request, Managing Agent shall assist with preparation and development of employee enrollment materials, and the Company shall bear the entire cost of producing such materials.

 

  

  

  

APPENDIX C

 

CLAIMS ADMINISTRATION SERVICES

 

Managing Agent shall provide the following services for claims that are reinsured under this Agreement, and for other claims as may be agreed upon by the parties.

 

Managing Agent shall administer each claim until the claim is closed.

 

1. Claims Investigation/Preparation

 

a. Acknowledge the receipt of each notice of claim, identifying each with a unique claim number. Investigate and document information for the purpose of determining coverage, liability and the extent of benefits for each claim. All claims shall be adjudicated in conformance with the Policy language and applicable state and federal laws, statutes, rules and regulations, including but not limited to the Employee Retirement Income Security Act of 1974 (ERISA), as amended. If Managing Agent needs additional information to determine whether to approve or deny a claim, Managing Agent shall notify the claimant of the request for additional information within twenty (20) days after Managing Agent received the claim.

 

b. Managing Agent will use outside experts as it deems necessary in the examination and evaluation of a claim or defense. Fees for such experts will be charged as Loss Adjustment Expenses.

 

c. Managing Agent will investigate and evaluate subrogation, offset or benefit recovery opportunities consistent with terms of the Policy(ies). Managing Agent will supervise subrogation or recovery of amounts that it believes are recoverable.

 

2. Benefits and Loss Adjustment Expenses

 

a. Managing Agent will issue checks for benefits in amounts consistent with the investigation and evaluation of the claims in accordance with the terms of the Policies.

 

b. A bank account will be established and maintained by Managing Agent for payment of benefits and expenses.

 

c. Managing Agent will be responsible for sending claim determination letters to claimants, with notification to policyholders stating the reasons for STD claim denials.

 

d. Benefit payments will be made on behalf of the Company in accordance with the provisions of each Policy.

 

e. Liability for Loss Adjustment Expenses associated with a reinsured claim shall be apportioned between the Managing Agent and the Company in direct proportion to the risk each bears on such claim.

 

  

  

  

3. Litigation Assistance

 

a. Managing Agent will, as the need arises, arrange for attorneys to be retained on Company's behalf with Company's approval.

 

b. For attorneys retained pursuant to paragraph (a), Managing Agent, in cooperation with Company, will direct attorney activity and assist with discovery as well as pre-trial preparation of each case, including continued negotiations and settlement where warranted. The Company will have final authority with respect to the prosecution, defense or settlement of any litigation arising under the Policies.

 

c. Managing Agent will coordinate and attempt to facilitate the exchange of information between Company and attorneys.

 

4. Claim Reporting

 

a. Managing Agent will provide its standard forms for reporting and providing proof of loss for claims, and will accept completed forms via fax.

 

b. Upon receipt of claims, Managing Agent will set up claims in its claim system and send an acknowledgement letter to the claimant.

 

c. Each month, Managing Agent shall send Company a listing of all benefit payments issued during the preceding calendar month.

 

5. Case Management

 

a. Managing Agent will provide for access to on-site "case managers", as described below, as Managing Agent deems necessary and appropriate.

 

"Case Managers" shall mean nurses or vocational rehabilitation consultants who operate locally (on-site) to coordinate and facilitate services to claimant. On-site Case Management shall be provided at the discretion of the Managing Agent. Case Managers shall coordinate disability and rehabilitation services provided to the claimant in a timely manner. Case Managers shall maintain contact with treating provider(s), claimants and employers, as appropriate. Case Management may include medical, vocational and/or serious injury/catastrophic care management services.

 

b. Telephonic Case Management

 

Managing Agent shall provide telephonic case management which shall include coordinating disability and rehabilitation services to the claimants, monitoring claimants' recovery, providing health education to claimants, and following up with providers regarding services, length of disability and physical abilities of the claimants.

 

  

  

  

 

Case Managers shall coordinate and manage disability and rehabilitation services provided to the claimants in a timely manner. Case Managers shall maintain contact with treating provider(s), the claimant and employers, as appropriate. Case Managers shall coordinate all services telephonically.

 

"Case Managers", for purposes of this sub-section, shall mean the nurses, occupational therapists, physical therapists, or vocational rehabilitation consultants who coordinate and facilitate services to the claimants.

 

The parties agree Managing Agent is not responsible for the provision or omission of health care by any provider to claimant. Furthermore, the parties agree Managing Agent's provision of Case Management services does not in any manner interfere with the relationship between the medical providers and a claimant and all health care decisions are between the medical providers and claimants.

 

6. Tax Reporting

 

The Managing Agent will perform the following tax withholding, remittance and reporting services with respect to employee taxes and for the employer portion of Federal Insurance Compensation Act ("FICA") taxes that may apply to disability benefits paid by Managing Agent, as described more fully below.

 

The Managing Agent will not be responsible for providing tax computation, remittance and reporting services with respect to employer taxes (other than FICA taxes as described herein), except as may be otherwise agreed upon in writing by the parties.

 

Depending on the tax services applicable for each Policy, Managing Agent will make available to policyholders:

 

	
·  

	
A periodic STD Claim Payment Register Report and a periodic LTD Claim Payment Register Report, indicating the amount of Federal Income Tax ("FIT"), State Income Tax ("SIT") and FICA tax withheld from benefit amounts paid for each claimant;

 

	
·  

	
An Annual Report capturing forms "W-2" and "1099 Misc" data reported to LTD claimants, providers and the IRS if requested.

 

Managing Agent will provide Company's employer accounts, upon request, with an Explanation of Benefits (EOB) for claim payments.

 

Based on the information provided by Company's employer accounts and claimants, the Managing Agent will withhold the claimant's portion of any applicable FIT and FICA taxes from STD benefit payments and the claimant's portion of any applicable SIT, FIT and FICA taxes from LTD benefit payments.

 

The Managing Agent will make timely deposits to the appropriate governmental agencies of the claimant's portion of any applicable SIT, FIT and FICA taxes withheld from benefit payments based

 

  

  

  

 

upon Managing Agent's tax requirements. For LTD claims, the Managing Agent will make timely deposits to the appropriate governmental agencies of the employer matching portion of FICA taxes associated with employee FICA taxes that are withheld from benefits paid by Managing Agent.

 

Managing Agent will provide Company's LTD accounts with information each quarter regarding the amount of the employer matching portion of FICA taxes that the Managing Agent has deposited.

 

Managing Agent will make such deposits under a federal tax identification number of Reinsurer's and, as appropriate, the applicable tax identification number for state income taxes.

 

For LTD benefits, Managing Agent will process and file forms W-2 with the appropriate state and federal governmental agencies when required for claimants, using the tax identification numbers described in the preceding paragraph.

 

The LTD claimants' copies of such Forms W-2 will be sent directly to claimants by prepaid first class mail by January 31 of each year, or such other date as required by the IRS. Managing Agent will also send Form W-2 information for LTD claimants to the IRS in accordance with Internal Revenue Code requirements. For STD, Managing Agent will provide employer accounts with an annual report capturing claim payment and "1099 Misc" data applicable for STD claimants, for employer accounts to use in preparing W-2's.

 

For claims under insured plans where the cost of coverage is borne by the employer or borne by the employee on a pre-tax basis, the Managing Agent will withhold the claimant portion of any applicable FICA tax, SIT and FIT if requested to do so by the claimant.

 

7. General Provisions

 

a. All data storage facilities, media and data systems, etc. used by Managing Agent remain the property of the Managing Agent.

 

b. Upon termination of the Agreement, all services provided under this Agreement will be discontinued except for the handling of claims that occurred prior to termination.

 

c. Files of claims will be maintained for a period of seven years from the termination of a claim under the Policies.

 

d. Managing Agent shall make full payment on any claim that has been approved and is fully payable.

 

e. Managing Agent shall not request a claimant to resubmit information that the claimant has already provided to Managing Agent, unless Managing Agent provides a legitimate reason for the request and the purpose of the request is not to delay the payment of the claim, harass the claimant, or discourage the filing of the claim.

 

  

  

  

 

8. Claim Settlement Services

 

Managing Agent will identify appropriate claims for lump sum settlement offers and will co-ordinate and facilitate claim settlement services for such claims.

 

9. Delegation of Discretionary Authority

 

In contracting with the Managing Agent to perform certain claim administration services as described in this Appendix C, the Company hereby delegates to the Managing Agent any discretionary authority the Company may have under employer plans or the terms and conditions of plan documents (including, but not limited to, the reinsured Policies, Summary Plan Descriptions and/or other plan documents read separately or together with other Plan documents) with respect to interpreting the provisions of the plan and the reinsured Policies and determining eligibility for benefits.

 

  

  

  

APPENDIX D

 

MANAGEMENT FEE

 

	
1.  

	
13.5% of earned STD and LTD premium due from the policyholder ("street premium").

 

	
2.  

	
Loss Adjustment Expenses are not included in the Management Fees. Liability for Loss Adjustment Expenses incurred for a claim shall be apportioned between the Reinsurer and the Company in direct proportion to the risk each bears on such claim

 

	
3.  

	
An Initial Start Up Fee of $30,000 ("Accumulated Fee") will be due from the Company on the Effective Date of the Agreement and shall be held by the Managing Agent in an escrow account. The Accumulated Fee will offset 50% of the Management Fees due to the Managing Agent as described in Section 1 of this Appendix D for the first thirty (30) months the Agreement is in force.

 

CDS will retain any balance in the Accumulated Fee account in the event:

	
·  

	
The Agreement terminates after having been in force for less than thirty (30) months; or

	
·  

	
The Accumulated Fee is greater than zero after the Agreement has been in force for thirty (30) months or more.usallianceex104.htm

EXHIBIT 10.4

 

AUTOMATIC REINSURANCE AGREEMENT

 

NUMBER : 2541-13AY14

 

between

 

US ALLIANCE LIFE AND SECURITY COMPANY

 

4123 SW Gage Center Drive, Suite 240

 

Topeka, KS 66604

 

(The Ceding Company)

 

and

 

OPTIMUM RE INSURANCE COMPANY

 

1345 River Bend Drive, Suite 100

Dallas, TX 75247

(The Reinsurer)

 

Respecting policies described in SCHEDULE B, issued by US ALLIANCE LIFE

 

AND SECURITY COMPANY and reinsured on an Automatic and Facultative YRT

 

basis from April 1, 2013.

  

  

  

 

TABLE OF CONTENTS

 

	 ARTICLE 1	 REINSURANCE CEDED AND ACCEPTED
	 	 
	 	 1.1.  Automatic Reinsurance
	 	 1.2.  Facultative Reinsurance
	 	 1.3.  Currency
	 	 1.4.  Capacity of Agreement
	 	 
	 ARTICLE 2	 PROCEDURES TO EFFECT REINSURANCE
	 	 

	 	 2.1.  Automatic Reinsurance
	 	 2.2.  Facultative Application For Reinsurance
	 	 
	 ARTICLE 3	 LIABILITY
	 	 
	 	 3.1.  Automatic Reinsurance
	 	 3.2.  Facultative Reinsurance on Policies Otherwise Subject to Automatic Reinsurance
	 	 3.3.  All Other Facultative Reinsurance
	 	 3.4.  Liability Limitations
	 	 
	 ARTICLE 4	 REINSURANCE AMOUNT OF RISK
	 	 
	 	 4.1.  Face Amount Basis
	 	 4.2.  Net Amount at Risk Basis
	 	 4.3.  Supplementary Benefits
	 	 4.4.  Minimum Reinsured Risk Amount
	 	 
	 ARTICLE 5	 REINSURANCE PREMIUMS
	 	 
	 	 5.1.  Life Premiums
	 	 5.2.  Standard Risks
	 	 5.3.  Substandard Risks
	 	 5.4.  Term Riders
	 	 
	 ARTICLE 6	 ALLOWANCES
	 	 
	 	 6.1.  Allowances
	 	 6.2.  Premium Taxes
	 	 
	 ARTICLE 7	 GENERAL PROCEDURES

	 	 
	 	 7.1. The Company's Forms, Rates and Procedures
	 	 7.2.  Inspection of Records
	 	 7.3.  Errors and Omissions
	 	 7.4.  Reserves
	 	 7.5.  Reporting
	 	 7.6.  Confidentiality

 

  

  

  

Table of Contents (Continued)

 

	 ARTICLE 8	 ACCOUNTING AND BILLING
	 	 
	 	 8.1.   Reinsurance Premiums
	 	 8.2.   Billing
	 	 8.3.   Late Payment
	 	 
	 ARTICLE 9	 CHANGES AND ADJUSTMENTS
	 	 
	 	 9.1.   Change Information
	 	 9.2.   Reductions
	 	 9.3.   Increases
	 	 9.4.   Reinstatements
	 	 9.5.   Conversions
	 	 9.6.   Underwriting Reassessment
	 	 9.7.   Terminations
	 	 9.8.   Policy Replacement
	 	 9.9.   Cash Values
	 	 9.10. Policy Loans and Dividends
	 	 9.11. Reduced Paid Up and Extended Term
	 	 9.12. Recapture
	 	 
	 ARTICLE 10	 CLAIMS
	 	 
	 	 10.1. Claims Liability
	 	 10.2. Notice
	 	 10.3. Authorization for Payment
	 	 10.4. Adjusted Amounts
	 	 10.5. Payment
	 	 10.6. Contest
	 	 10.7. Punitive Damages
	 	 
	 ARTICLE 11	 ARBITRATION
	 	 
	 	 11.1. Principle
	 	 11.2. Arbitrators
	 	 11.3. Matters in Dispute
	 	 11.4. Procedures
	 	 11.5. Decision
	 	 11.6. Applicable Laws
	 	 
	 ARTICLE 12	 INSOLVENCY
	 	 
	 	 12.1. Payment of Claims 
	 	 12.2. Notice to OPTIMUM RE 
	 	 12.3. Expenses
	 	 12.4. Right to Offset
	 	 
	 ARTICLE 13	 DEFERRED ACQUISITION COST TAX

 

  

  

  

Table of Contents (Continued)

 

	 ARTICLE 14	 EXECUTION
	 	 
	 	 14.1. Duration
	 	 14.2. Parties to the Agreement
	 	 14.3. Written Agreement
	 	 14.4. Change of Control/Assignment
	 	 14.5. Compliance
	 	 14.6. Signatures

 

SCHEDULES

 

	 SCHEDULE A	 RETENTION AND REINSURANCE LIMITS
	 	 
	 SCHEDULE B	 PLANS AND RIDERS REINSURED
	 	 
	 SCHEDULE C	 YRT PREMIUM RATES
	 	 
	 	 PART 1 - MALE RATES 619.00
	 	 PART 2 - FEMALE RATES 620.00
	 	 
	 SCHEDULE D	 LIFE APPLICATION (LIFE-APP 3/13)
	 	 
	 SCHEDULE E	 UNDERWRITING REQUIREMENTS
	 	 
	 SCHEDULE F	 PART 1 - REINSURANCE APPLICATION 
	 	 PART 2 - REINSURANCE ADVICE NOTICE 
	 	 PART 3 - REINSURANCE CESSION FORM

 

  

  

  

By this Agreement, US ALLIANCE LIFE AND SECURITY COMPANY, a corporation organized under the laws of the State of Kansas, hereinafter referred to as "THE COMPANY", and OPTIMUM RE INSURANCE COMPANY, a corporation organized under the laws of the State of Texas, hereinafter referred to as "OPTIMUM RE", mutually agree to reinsure on the following terms and conditions.

 

  

  

  

DEFINITION OF TERMS USED IN THIS AGREEMENT

 

 

	 Automatic Reinsurance	Shall mean reinsurance which must be ceded by THE COMPANY in accordance with the terms of this Reinsurance Agreement, and must be accepted by OPTIMUM RE.
	 	 
	 
Compensatory Damages

	Shall mean the amounts awarded to compensate for the actual damages sustained, and not awarded as a penalty, nor fixed in amount by statute.
	 	 
	 Facultative Reinsurance 	Shall mean reinsurance which THE COMPANY has the option to cede and OPTIMUM RE has the option to accept or decline.
	 	 
	 
Insolvency

	Shall mean the legal incapacity of a company to operate as declared by a court of competent jurisdiction.
	 	 
	Jumbo Risk	A jumbo risk is one where:
	 	 
	 	 
a.  the amount of Life insurance inforce, including any amounts to be replaced, as stated on the application or signed amendment, if any;

	 PLUS	 
	 	b.  the new amount of Life insurance applied for in all companies
	 	 
	
 

 

	exceeds the Jumbo Limit specified in Schedule A.  Amounts to be replaced cannot be deducted from the amount of Life insurance inforce.  Amount of Life insurance is defined as a sum of the highest amounts of death benefit over the duration of each individual and group policy for this insured.
	 	 
	 
Policy

	Shall mean the contract(s) of insurance issued by THE COMPANY in respect of which reinsurance is applied for and/or placed in whole or in part.

 

 

  

  

  

DEFINITION OF TERMS USED IN THIS AGREEMENT (Continued)

 

	 
Punitive Damages

	Shall mean the damages awarded as a penalty, the amount of which is not governed, nor fixed by statute.
	 	 
	Reinsurance Cession	Shall mean the insurance transferred to OPTIMUM RE by THE COMPANY on a policy.
	 	 
	Reinsurance Cession Form 	Shall mean the document outlining the particulars of the Reinsurance Cession such as name, date of birth, date of policy, plan, amount of policy, risk class, and reinsurance premium amount.
	 	 
	Statutory Penalties	Shall mean the amounts which are awarded as a penalty, but fixed in amount by statute.

 

  

  

  

ARTICLE 1 - REINSURANCE CEDED AND ACCEPTED

 

1.1. Automatic Reinsurance

 

On policies or riders covering U.S. residents on plan(s) indicated in SCHEDULE B, when THE COMPANY retains its maximum retention as outlined in SCHEDULE A, THE COMPANY will automatically cede to OPTIMUM RE excess coverages on Life, and OPTIMUM RE will automatically accept these cessions up to the automatic reinsurance limits specified in SCHEDULE A for the portion of the alphabet covered by OPTIMUM RE. Acceptance of policies over the automatic reinsurance limit are subject to Article 1.2.

 

The following risks are not eligible for automatic coverage:

 

	
A.  

	
A risk exceeding the automatic reinsurance limit, as specified in SCHEDULE A;

 

	
B.  

	
A jumbo risk, as defined in the Definition of Terms;

 

	
C.  

	
A risk where the complete underwriting evidence according to THE COMPANY's published requirements, as specified in SCHEDULE E, has not been obtained;

 

	
D.  

	
A risk where THE COMPANY's normal underwriting standards were not applied;

 

	
E.  

	
A policy not containing both a standard contestable period and a standard suicide exclusion;

 

	
F.  

	
A risk where the substandard rating assessed by THE COMPANY exceeds Table 8 (300%), or its equivalent on any flat extra premium basis;

 

	
G.  

	
A risk exceeding age 70;

 

	
H.  

	
Any cession to be ceded to OPTIMUM RE at an effective date different from the original issue date of the policy;

 

	
I.  

	
Conversion or replacement of policies where OPTIMUM RE is not the original reinsurer;

 

	
J.  

	
A risk which has been currently or previously submitted to any reinsurer for underwriting assessment by THE COMPANY;

 

	
K.  

	
A risk in which an MIB was not run on the application.

 

  

  

  

 

1.2. Facultative Reinsurance

 

All cases not eligible for automatic coverage may be submitted to OPTIMUM RE facultatively.

 

1.3. Currency

 

Reinsurance will be in U.S. dollars. Any other currency requires specific agreement between THE COMPANY and OPTIMUM RE.

 

1.4 . Capacity of Agreement

 

The maximum amount of reinsurance OPTIMUM RE will accept on a YRT basis under this Agreement is $4,000,000 per Life.

 

This amount will be reduced by any amount already ceded to OPTIMUM RE under this or any other Agreement.

 

  

  

  

ARTICLE 2 - PROCEDURES TO EY&1,CT REINSURANCE

 

2.1. Automatic Reinsurance

 

When the initial premium on a policy eligible for automatic reinsurance has been received by THE COMPANY, THE COMPANY shall, without delay, complete and send a Reinsurance Cession Form (SCHEDULE F, PART 3) to OPTIMUM RE.

 

2.2. Facultative Application For Reinsurance

 

When facultative reinsurance is being applied for, THE COMPANY shall complete a Reinsurance Application Form provided by OPTIMUM RE (SCHEDULE F, PART 1) and send it along with any and all information it has on the risk; including specifically but not limited to, copies of the physicians' statements, inspection reports, and other papers bearing on the insurability of the risk, even if this information is received after the final assessment of the risk. THE COMPANY shall clearly indicate the amount of risk it wishes to reinsure, including any benefit.

 

Upon completion of underwriting, OPTIMUM RE shall promptly notify

 

THE COMPANY of its decision and classification of the risk.

 

Any offer made by OPTIMUM RE will be valid for 90 days unless OPTIMUM RE accepts, in writing, a request to extend this period.

 

	
A.  

	
Upon acceptance of OPTIMUM RE's offer of facultative Reinsurance, THE COMPANY shall complete and send to OPTIMUM RE a Reinsurance Advice Notice (SCHEDULE F, PART 2).

 

	
B.  

	
When the initial premium on a policy that involves facultative reinsurance is received by THE COMPANY, THE COMPANY will complete the same procedure as for Automatic Reinsurance in Article 2.1.

 

	
C.  

	
If THE COMPANY does not accept OPTIMUM RE's offer for reinsurance, THE COMPANY shall complete and send to OPTIMUM RE a Reinsurance Advice Notice (SCHEDULE F, PART 2).

 

  

  

  

ARTICLE 3 - LIABILITY

 

3.1. Automatic Reinsurance

 

For automatic reinsurance under this Agreement, the liability of OPTIMUM RE shall commence and end simultaneously with that of THE COMPANY.

 

Prior to placement of the Policy with the insured, the liability of OPTIMUM RE is limited to:

 

A. The lesser of:

 

	
i)  

	
THE COMPANY's liability under the Policy or Conditional Receipt, whichever applies, minus:

 

The COMPANY's full normal retention for a standard risk at the Life insured's age, less the total of all amounts currently retained by THE COMPANY on the Life insured under other policies.

 

	
ii)  

	
The automatic reinsurance limit in this Agreement as described in SCHEDULE A.

 

B. In no case shall OPTIMUM RE's liability on that Life exceed $100,000.

 

3.2. Facultative Reinsurance on Policies Otherwise Subject to Automatic Reinsurance

 

When an underwriting assessment is requested, on policies otherwise subject to automatic reinsurance, OPTIMUM RE's automatic liability, as specified in Article 3.1., is extended without charge until the first of the following dates:

 

	
A.  

	
Another reinsurer's offer is accepted;

 

	
B.  

	
48 hours (2 working days) after OPTIMUM RE has declined the case;

 

	
C.  

	
7 working days after OPTIMUM RE's final assessment of the case; if not a decline;

 

	
D.  

	
60 days after the application date.

 

Under facultative reinsurance, OPTIMUM RE's liability will begin when OPTIMUM RE has been advised that its offer is accepted and the case has been placed unless the offer is standard in which event OPTIMUM RE's liability will be the same as on automatic business. For cases ceded to OPTIMUM RE, OPTIMUM RE's liability shall end with that of THE COMPANY.

 

  

  

  

 

3.3. All Other Facultative Reinsurance

 

When an underwriting assessment is requested on a policy not otherwise reinsured automatically by OPTIMUM RE, OPTIMUM RE's liability will begin when the following conditions have been met:

 

	
A.  

	
OPTIMUM RE's unconditional underwriting offer has been accepted;

 

	
B.  

	
Such acceptance has been communicated to OPTIMUM RE in accordance with Article 2.2.A., in the time frame designated by OPTIMUM RE, during which such offer is valid; and

 

	
C.  

	
The policy has been placed.

 

For cases ceded to OPTIMUM RE, OPTIMUM RE's liability shall end with that of THE COMPANY.

 

3.4. Liability Limitations

 

OPTIMUM RE's liability may be more limited than described in this Article 3, as provided in specific Articles of this Agreement.

 

  

  

  

ARTICLE 4 - REINSURANCE AMOUNT AT RISK

 

4.1. Face Amount Basis

 

When the reinsurer is participating in the accumulation of surrender values on a policy, or when there are no surrender values on a policy, the reinsurance amount shall be based on the face amount of the policy.

 

The overriding principle involved is that OPTIMUM RE and THE COMPANY will each continue to insure their original proportionate share of the initial face amount.

 

4.2. Net Amount at Risk Basis

 

When the reinsurer does not participate in the surrender values on a policy, as in reinsurance based on YRT or cost of insurance rates, the reinsurance amount at risk shall be based on the death benefit less a fund which represents the savings element in the policies.

 

The overriding principle involved is that OPTIMUM RE and THE COMPANY will each continue to insure their original proportionate share of the net amount at risk.

 

Net Amounts at Risk will be defined as follows:

 

A. Insurance with Cash Values

 

1.        Scheduled Face Amount and Cash Value

 

Amounts at risk will be projected for 10 year intervals (or until there is a scheduled change in face amount if less than 10 years). Cash values will be used to represent the fund at the end of an interval, and amounts at risk for each intervening year will be interpolated on a straight line basis.

 

2.        Variable Face Amount or Variable Cash Value

 

The amount at risk applicable to each policy year will be the projected amount at risk at the beginning of that policy year. Amounts at risk will be projected for five year intervals. Where an actual amount at risk diverges from an originally projected amount at risk by more than 10%, THE COMPANY may re-establish the projected schedule at the next policy anniversary for future amounts at risk. If the schedule is not amended, the existing established schedule will be used for determining premium and claims liabilities.

 

  

  

  

 

B. Insurance without Cash Values

 

This category should include policies where the cash values never exceed 10% of the face amount.

 

1.        Scheduled Face Amount

 

The amount at risk applicable to each policy year will be the face amount applicable at the beginning of the policy year.

 

2.        Variable Face Amount

 

The amount at risk applicable to each policy year will be the face amount projected to be applicable at the beginning of that policy year. Face amounts will be projected for five year intervals. Where actual face amounts diverge from the originally projected face amounts by more than 10%, THE COMPANY may re-establish the projected schedule at the next policy anniversary for future face amounts. If the schedule is not amended, the existing established schedule will be used for determining premium and claims liabilities.

 

4.3. Supplementary Benefits

 

	
  

	
Accidental Death Benefit

 

The Accidental Death Benefit shall be reinsured on a bulk basis under Reinsurance Agreement #2541-13AB15.

 

Other Supplementary Benefits

 

No other supplementary benefits, such as but not limited to the Waiver of Premium Benefit, shall be reinsured under this Agreement.

 

4.4. Minimum Reinsured Risk Amount

 

The minimum reinsured risk amount shall be $1,000. In the event that the reinsured risk amount reduces below the minimum, THE COMPANY will automatically recapture the risk on that policy anniversary.

 

  

  

  

ARTICLE 5 - REINSURANCE PREMIUMS

 

 

5.1. Life Premiums

 

Until further notice, the reinsurance premiums based on the applicable reinsurance amount at risk as described in Article 4, shall be at the rates described in Articles 5.2. and 5.3.

 

OPTIMUM RE reserves the right to review and modify these reinsurance premiums.

 

5.2. Standard Risks

 

Reinsurance premiums for standard risks are calculated using the rates specified in SCHEDULE C.

 

5.3. Substandard Risks

 

The substandard extra reinsurance premium rate per $1,000 for one table (25% mortality) is 25% of the standard rate. The extra reinsurance premium for additional tables is the corresponding multiple of the extra reinsurance premium for one table.

 

When a flat extra premium is charged by THE COMPANY, a flat extra reinsurance premium is paid at the same rate and for the same period.

 

5.4. Term Riders

 

If applicable, Term Riders may be reinsured by OPTIMUM RE on the same terms and conditions as the base plan, subject to Article 7.1. For riders where OPTIMUM RE reinsures the base policy, the cession fee, if any, will be waived; otherwise the appropriate fee will apply.

 

Substandard Spouse or Child Term Riders may not be reinsured under this Agreement.

 

  

  

  

 

ARTICLE 6 — ALLOWANCES

 

6.1. Allowances

 

There are no allowances payable on the standard and substandard Life reinsurance premiums based on the YRT rates in SCHEDULE C.

 

Allowances on Flat Extra Premiums

 

On permanent (6 years or more) flat extra premiums:

 

1st year              75%

Renewals           10%

 

On other flat extra premiums : 10% each year

 

6.2. Premium Taxes

 

OPTIMUM RE shall not reimburse THE COMPANY for state premium tax or any other tax levied on THE COMPANY.

 

 

  

  

  

ARTICLE 7 - GENERAL PROCEDURES

 

7.1. The Company's Forms, Rates, and Procedures

 

THE COMPANY will furnish OPTIMUM RE with at least two copies of its application forms, policy and rider forms, contingent insurance receipt, premium scales and any other document that can affect OPTIMUM RE's liability and will keep OPTIMUM RE informed of any changes therein.

 

In addition, THE COMPANY will advise OPTIMUM RE of any changes to its procedures and rules that may affect OPTIMUM RE's liability such as, but not limited to, age and amount underwriting requirements, policy settlement and reinstatement rules.

 

Compliance with this Article shall be a condition precedent to the liability of OPTIMUM RE.

 

7.2. Inspection of Records

 

OPTIMUM RE shall have the right to inspect, make copies of, or reproduce, at any reasonable time, at the office of THE COMPANY, all books and documents relating to reinsurance under this Agreement.

 

7.3. Errors and Omissions

 

It is expressly understood and agreed that if failure to comply with any terms of this Agreement is shown to be unintentional and the result of administrative errors or omissions on the part of either THE COMPANY or OPTIMUM RE, both THE COMPANY and OPTIMUM RE shall be restored to the position they would have occupied had no such error or omission occurred. It is understood, however, that THE COMPANY shall be liable for amounts not reported for reinsurance due to the practice of consciously performing a limited alpha index search on their applications. This article shall not be construed to initiate OPTIMUM RE's liability if any conditions of Article 3.2., 3.3., and 7.5. are not met.

 

This provision shall apply only to oversights, misunderstandings or clerical errors relating to the administration of reinsurance covered by this Agreement and not to the administration of the insurance provided by THE COMPANY to its insured. Any negligent or deliberate acts or omissions by THE COMPANY regarding the insurance provided are the responsibility of THE COMPANY and its liability insurer, if any, but not that of OPTIMUM RE.

 

  

  

  

 

Furthermore, the deviating party will undertake to identify, through a prudent review of its records all other errors and omissions of the same or similar category and correct them within a mutually negotiated time frame.

 

If seven (7) years have elapsed since the error or oversight occurred, there will not be rectification as above, unless both OPTIMUM RE and THE COMPANY agree to such rectification.

 

7.4. Reserves

 

OPTIMUM RE will establish appropriate reserves in accordance with the Standard Valuation Law in effect in Texas, on the portion of policies reinsured, and in force, as reported to OPTIMUM RE under this Agreement.

 

7.5. Reporting

 

THE COMPANY shall promptly report all transactions to OPTIMUM RE. In particular, but not limited to, new business and terminations.

 

Should THE COMPANY encounter, or expect to encounter, delays in reporting its business; it shall promptly:

 

	
1.  

	
Notify OPTIMUM RE of the situation; and

	
2.  

	
Present OPTIMUM RE with a plan of action to correct the situation, including a time frame to solve the problem.

 

OPTIMUM RE, upon receipt of the above, may request that THE COMPANY:

 

	
1.  

	
Make modifications to the plan;

	
2.  

	
Pay estimated premiums for the duration of the reporting problem; and/or

	
3.  

	
Report larger individual exposures manually, until the situation is resolved.

 

In any case where the above is not met, or if the plan is not accepted by both OPTIMUM RE and THE COMPANY, or when the plan is not adhered to; OPTIMUM RE reserves the right to deny liability on claims or limit refunds of reinsurance premiums.

 

  

  

  

7.6. Confidentiality

 

THE COMPANY and OPTIMUM RE agree that Customer and Proprietary Information will be treated as confidential. Customer Information includes, but is not limited to, medical, financial, and other personal information about proposed, current, and former policyowners, insureds, applicants, and beneficiaries of policies issued by THE COMPANY. Proprietary Information includes, but is not limited to, business plans, mortality and lapse studies, underwriting manuals and guidelines, applications and contract forms. Furthermore, the specific terms and conditions of this Agreement, cannot be disclosed to any other party for competitive use, unless prior written approval is obtained.

 

Customer and Proprietary Information will not include information that:

 

	
a.  

	
is or becomes available to the general public through no fault of the party receiving the Customer or Proprietary Information (the "Recipient");

	
b.  

	
is independently developed by the Recipient;

	
c.  

	
is acquired by the Recipient from a third party not covered by a confidentiality agreement; or

	
d.  

	
is disclosed under a court order, law or regulation.

 

The parties will not disclose such information to any other parties unless agreed to in writing, except as necessary for retrocession purposes, as requested by external auditors, as required by court order, or as required or allowed by law or regulation.

 

THE COMPANY acknowledges that OPTIMUM RE can aggregate data with other companies reinsured with OPTIMUM RE as long as the data cannot be identified as belonging to THE COMPANY.

 

  

  

  

ARTICLE 8 - ACCOUNTING AND BILLING 

 

8.1. Reinsurance Premiums

 

The reinsurance premiums are due on the policy issue date and every subsequent anniversary date of the policy and payable to OPTIMUM RE on an annual basis regardless of how premiums are paid to THE COMPANY.

 

8.2. Individual Cession Billing

 

OPTIMUM RE will submit every month, to THE COMPANY, a listing of

new business, changes and terminations, and a statement of amounts payable.

 

The net balance is due to OPTIMUM RE within 30 days of receiving the statement. If a balance is due to THE COMPANY, OPTIMUM RE will remit its payment with the statement.

 

8.3. Late Payment

 

Any overdue balance bears interest from the end of a 30-day period following receipt of the monthly billing.

 

The interest for the period from 30 to 60 days will be the then current annual prime interest rate of the JP Morgan Chase Bank, Dallas, Texas calculated on a monthly basis.

 

For each additional month, after 60 days that a balance remains unpaid, interest will be calculated using the above annual rate plus 2%.

 

The payment of reinsurance premiums shall be a condition

precedent to the liability of OPTIMUM RE under this Agreement. If any premium remains unpaid for more than 60 days after the due date, OPTIMUM RE may send to THE COMPANY a formal demand for immediate payment. If THE COMPANY does not comply with this demand within 30 days, then OPTIMUM RE may cancel any unpaid reinsurance cessions for nonpayment of premium; however, any unpaid premiums to the time of cancellation would be due with interest.

 

THE COMPANY will not force cancellation under the provisions of this Article solely to circumvent the provisions regarding recapture in Article 9.12., or to transfer the reinsured policies to another reinsurer.

 

  

  

  

ARTICLE 9 - CHANGES AND ADJUSTMENTS

 

9.1. Change Information

 

THE COMPANY will keep OPTIMUM RE informed of any changes or adjustments affecting a reinsured case. If a change affects either premiums or allowances, or amount at risk, THE COMPANY will provide OPTIMUM RE with the necessary information to complete a modified Reinsurance Cession Form.

 

9.2. Reductions

 

If a policy is changed in any way that results in a reduction in the amount of insurance on any policy, the amount of reinsurance on that policy will be reduced proportionately.

 

If a Life has multiple policies and one or more are terminated or reduced, the reinsurance on remaining policies for that same Life that are reinsured under this Agreement will not be reduced to allow THE COMPANY to fill its retention.

 

If more than one reinsurer has a cession on that policy, each reinsurer's cession will be reduced proportionately.

 

9.3. Increases

If an increase in insurance is requested on an existing policy that is reinsured with OPTIMUM RE, underwriting evidence, satisfactory to OPTIMUM RE, will be obtained for OPTIMUM RE's approval. This does not apply to increases on automatic cessions where all automatic conditions specified in Article 1.1. are met.

 

Any such increase shall be subject to the same contestable period and suicide clause that a newly issued policy contains.

 

9.4. Reinstatements

 

If a policy automatically reinsured with OPTIMUM RE lapses and is subsequently reinstated under THE COMPANY's regular rules, the reinsurance will be automatically reinstated for the same amount, subject to all automatic conditions specified in Article 1.1., upon receipt by OPTIMUM RE of written notice of the reinstatement. All other reinstatement requests shall be submitted to OPTIMUM RE for its approval before THE COMPANY can reinstate such policy.

 

THE COMPANY shall pay all reinsurance premiums in arrears for the same period THE COMPANY received premiums in arrears under its policy, including interest, if any.

 

  

  

  

 

9.5. Conversions

 

Policy conversions are not applicable to the terms of this Agreement and shall not be reinsured hereunder.

 

9.6. Underwriting Reassessment

 

If, on facultative cases, following the consideration of new underwriting evidence, THE COMPANY agrees to reassess the risk, then THE COMPANY shall request a new underwriting assessment from OPTIMUM RE.

 

9.7. Terminations

 

At termination of a policy, other than death, all premiums and allowances, excluding cession fees, are adjusted pro rata for the period of coverage.

 

In the event of termination by death, there will be no adjustment of premiums.

 

9.8. Policy Replacement

 

If a policy replacement results in new reinsurance with OPTIMUM RE, then OPTIMUM RE will benefit from a full contestable period and suicide exclusion starting from the new policy commencement date as provided by the law of the state in which the policy is issued.

 

If a policy reinsured with OPTIMUM RE is replaced by a policy on

 

a plan reinsured with another reinsurer, THE COMPANY shall maintain the coverage with OPTIMUM RE up to the existing amount.

 

Policy replacement to an Annual Renewable Term product will not be reinsured under this Agreement unless specifically agreed to by OPTIMUM RE.

 

9.9. Cash Values

 

OPTIMUM RE will not participate in the payment of cash values.

 

9.10. Policy Loans and Dividends

 

OPTIMUM RE will not participate in policy loans or dividends.

 

  

  

  

9.11. Reduced Paid Up and Extended Term

 

If a Reduced Paid Up or Extended Term option is selected by the policyholder, OPTIMUM RE will continue to reinsure its proportionate share of the policy.

 

For policies where OPTIMUM RE does not participate in surrender value accumulation, reinsurance premiums will be calculated on a point in scale basis using the YRT rates in SCHEDULE C and the calculation of net amount at risk according to Article 4.

 

9.12. Recapture

 

Recapture will not be permitted under this Agreement unless explicitly approved by OPTIMUM RE, except as stated in Article 4.4.

 

  

  

  

 

ARTICLE 10 — CLAIMS

 

10.1. Claims Liability

 

OPTIMUM RE will be liable to THE COMPANY for the benefits reinsured hereunder to the same extent as THE COMPANY is liable to the insured for such benefits, and all reinsurance will be subject to the terms and conditions of the policy under which THE COMPANY is liable. OPTIMUM RE will also be liable for its proportionate share of interest on payment of the claim at the usual interest rate allowed by THE COMPANY.

 

10.2. Notice

 

THE COMPANY will give OPTIMUM RE prompt notice of any claim. Copies of notification, claim papers and proofs will be furnished to OPTIMUM RE within ten (10) working days of having been received by THE COMPANY.

 

For risks where OPTIMUM RE reinsures the Life portion, but not the Waiver of Premium, THE COMPANY will notify OPTIMUM RE of any Waiver of Premium Disability claim that occurs within the two (2) year contestability period. The intent of the notification is to allow OPTIMUM RE the opportunity to review the Life risk to ensure that the contestability feature of the policy is not jeopardized.

 

10.3. Authorization for Payment

 

On automatic Life cases, except when the claim occurs in the contestable period, OPTIMUM RE will accept THE COMPANY's decision on claim payment of amounts up to THE COMPANY's automatic reinsurance limit as specified in SCHEDULE A.

 

On all claims which occur in the contestable period, on facultative cases, or when the amount exceeds the automatic reinsurance limits specified in SCHEDULE A, THE COMPANY must obtain OPTIMUM RE's non-binding opinion regarding the reinsurance liability prior to acknowledgment of its liability to the claimant.

 

10.4. Adjusted Amounts

 

In the event the amount of insurance provided by a policy reinsured hereunder is increased or reduced because of a misstatement of age or sex established after the death of the insured, OPTIMUM RE will share in the increase or reduction in the proportion that the liability of OPTIMUM RE bore to the total liability under the policy immediately prior to such increase or reduction.

 

  

  

  

 

10.5. Payment

 

On death claims, OPTIMUM RE will pay its share in a lump sum to THE COMPANY without regard to the form of claim settlement. OPTIMUM RE is not responsible for usual claim expenses that THE COMPANY incurs in claim settlement such as compensation of employees and routine investigative expenses.

 

10.6. Contest

 

THE COMPANY will advise OPTIMUM RE of its intention to contest, compromise or litigate a claim or rescind a contract involving reinsurance. If, after reviewing the complete file, OPTIMUM RE agrees in writing with THE COMPANY's intention, then OPTIMUM RE agrees to pay a share of the expenses incurred by THE COMPANY in contesting or investigating a claim on a reinsured policy or in rescinding a reinsured policy, in proportion to the respective liabilities of OPTIMUM RE and THE COMPANY. Compensation of officers and employees of THE COMPANY is not deemed a claim expense.

 

If OPTIMUM RE declines to be a party to a claim contest, OPTIMUM RE will discharge any and all liability by payment of its full share of the claim to THE COMPANY according to the terms and conditions of this Agreement.

 

10.7. Punitive Damages

 

OPTIMUM RE will not participate in punitive, compensatory or statutory damages or penalties which are awarded against THE COMPANY as a result of an act, omission or course of conduct committed solely by THE COMPANY in connection with the insurance reinsured under this Agreement.

 

  

  

  

ARTICLE 11 — ARBITRATION

 

11.1. Principle

 

The parties express their formal intention to resolve any differences arising from the interpretation or execution of this Agreement in accordance with equity and usage rather than according to strict legal rules. Any difference that cannot be resolved by the parties shall be submitted to arbitration by written notice sent by one party to the other. The location for arbitration shall be Dallas, Texas.

 

11.2. Arbitrators

 

There shall be three disinterested arbitrators who shall be officers or retired officers of Life insurance or reinsurance companies other than the parties to the Agreement or their subsidiaries. The arbitrators shall be disinterested parties and cannot be jurists, present or former employees of one of the parties or their affiliate or therefore related to the management of one of the parties or their affiliates. Each of the parties shall appoint one of the arbitrators and these two arbitrators shall select the third. In the event that either party should fail to choose an arbitrator within thirty days after the other party has given notice of its arbitrator appointment, that party may choose two arbitrators who shall in turn choose a third arbitrator before entering arbitration.

 

Any arbitrator who does not perform his duties, or resigns, will be replaced by the party who originally selected that arbitrator.

 

11.3. Matters In Dispute

 

The parties will state together or separately the subjects in dispute and submit them in writing to the arbitrators along with the necessary documents.

 

11.4. Procedures

 

The arbitrators must themselves establish the procedure to be followed: they are exempt from any judicial formality or rule. They can adjudicate and are empowered to act as mediators. They shall decide how the arbitration costs are apportioned.

 

  

  

  

 

11.5. Decision

 

The award rendered by the majority, must be in writing, give the reasons for the decision and be signed by each arbitrator. The parties agree to abide by the decision rendered and to consider the award as final and binding on both parties.

 

11.6. Applicable Laws

 

Should there be improprieties in the arbitration process or if one of the parties objects to the implementation of the arbitration process, the laws of the State of Texas shall then apply.

 

  

  

  

ARTICLE 12 - INSOLVENCY

12.1. Payment of Claims

 

In the event of insolvency of THE COMPANY, all claims under this Agreement will be paid by OPTIMUM RE directly to THE COMPANY, its liquidator, receiver or statutory successor. OPTIMUM RE's share of claims will be paid without diminution because of the insolvency of THE COMPANY, provided that all reinsurance premiums have been duly paid and subject to Article 12.4.

 

OPTIMUM RE shall be liable only for the claims actually paid by THE COMPANY to the insured or its beneficiary on amounts reinsured and shall not be or become liable for any amounts or reserves to be held by THE COMPANY on policies reinsured under this Agreement.

 

12.2. Notice to OPTIMUM RE

 

In the event of the insolvency of THE COMPANY, the liquidator, receiver, or statutory successor of THE COMPANY will give written notice of a pending claim against THE COMPANY on any policy reinsured, within a reasonable time after the claim is filed in the insolvency proceedings. While the claim is pending, OPTIMUM RE may investigate and interpose, at its own expense, in the proceedings where the claim is to be adjudicated, any defenses which it may deem available to THE COMPANY or its liquidator, receiver, or statutory successor.

 

12.3. Expenses

 

The expenses incurred by OPTIMUM RE will be charged, subject to court approval, against THE COMPANY as expenses of liquidation to the extent of a proportionate share of the benefit which accrues to THE COMPANY as a result of the defenses undertaken by OPTIMUM RE. Where two or more reinsurers are involved and a majority in interest elects to defend a claim, the expenses will be apportioned in accordance with the terms of the reinsurance agreements as if the expenses had been incurred by THE COMPANY.

 

12.4. Right to Offset

 

In the event of the insolvency of either OPTIMUM RE or THE COMPANY, any amounts owed by OPTIMUM RE to THE COMPANY and by THE COMPANY to OPTIMUM RE with respect to this and all other Reinsurance Agreements between OPTIMUM RE and THE COMPANY, shall be offset against each other with the balance to be paid by the appropriate party.

 

  

  

  

ARTICLE 13 - DEFERRED ACQUISITION COST TAX

 

THE COMPANY and OPTIMUM RE mutually agree to the following pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations issued December 29, 1992 of the Internal Revenue Code of 1986.

 

	
1.  

	
The Party with net positive consideration for the Agreement(s) for each taxable year shall compute specified policy acquisition expenses without regard to the general deductions limitation of Section 848(c)(1).

 

	
2.  

	
THE COMPANY and OPTIMUM RE agree to exchange information pertaining to the amount of net consideration as determined for all reinsurance agreements in force between them to ensure consistency or as may otherwise be required by the Internal Revenue Service.

 

	
3.  

	
THE COMPANY will submit a schedule to OPTIMUM RE by May 1st of its calculation of the net consideration for the preceding calendar year. This calculation shall be accompanied by a statement signed by an officer of THE COMPANY stating that THE COMPANY will report such net consideration in its tax return for the preceding calendar year.

 

	
4.  

	
OPTIMUM RE shall advise THE COMPANY if it disagrees with the amounts provided and OPTIMUM RE and THE COMPANY agree to amicably resolve any difference. The amounts provided by THE COMPANY shall be presumed correct if it does not receive a response from OPTIMUM RE at the latest 30 days after receipt by OPTIMUM RE of these amounts or by May 30th of the current year.

 

  

  

  

ARTICLE 14 — EXECUTION

 

14.1. Duration

 

This Agreement will be effective on and after April 1, 2013. It is unlimited in duration but may be amended by mutual consent of THE COMPANY and OPTIMUM RE. It may be terminated as to new reinsurance by either party giving a 90-day written notice to the other. Termination as to new reinsurance does not affect existing reinsurance that will remain in force until termination of THE COMPANY's policy.

 

14.2. Parties to the Agreement

 

This is an agreement solely between THE COMPANY and OPTIMUM RE. There will be no legal relationship between OPTIMUM RE and any person having an interest of any kind in any of THE COMPANY's insurance, or between OPTIMUM RE and any other reinsurer, or between OPTIMUM RE and any other third party.

 

14.3. Written Agreement

 

A.       Entirety

 

This Agreement shall constitute the entire agreement between THE COMPANY and OPTIMUM RE with respect to the business reinsured hereunder. There are no understandings between THE COMPANY and OPTIMUM RE other than as expressed in this Agreement.

 

B.       Amendments

 

Any change or modification to the Agreement shall be null and void unless made by amendment to the Agreement and signed by both parties.

 

C.       Waiver

 

A waiver of any provision(s) of this Agreement shall constitute a waiver only with respect to the particular circumstance for which it is given and not a waiver for any future circumstances.

 

D.       Severability

 

If any section or provision of this Agreement is determined to be invalid or unenforceable, such determination will not impact or affect the validity or the enforceability of the remaining sections or provisions of this Agreement.

 

  

  

  

 

14.4. Change of Control/Assignment

 

Neither THE COMPANY nor its liquidator, receiver, or statutory successor will, without the prior written consent of OPTIMUM RE, sell, assign, transfer, or otherwise dispose of this Agreement, or any interest in this Agreement, by voluntary or involuntary act.

 

14.5. Compliance

 

THE COMPANY represents that to the best of its knowledge and belief it is, and shall use its best efforts to continue to be, in substantial compliance in all material respects with all laws, regulations, and judicial and administrative orders applicable to the business reinsured under this Agreement, including but not limited to, privacy laws and the maintenance of an effective anti-money laundering policy, (collectively, the "Law"). Neither THE COMPANY nor OPTIMUM RE shall be required to take any action under this Agreement that would result in it being in violation of the Law, which shall include requirements enforced by the U.S. Treasury Department Office of Foreign Assets Control and Terrorist Financing Act. THE COMPANY and OPTIMUM RE acknowledge and agree that a claim under this Agreement is not payable if payment would cause OPTIMUM RE to be in violation of the Law. Should either party discover a reinsurance payment has been made in violation of the Law, it shall notify the other party and the parties shall cooperate in order to take all necessary corrective actions.

 

  

  

  

 

14.6. Signatures

 

In witness of the above, this Amendment is signed in duplicate on the dates indicated.

 

In witness of the above, this Amendment is signed in duplicate

 

 

FOR:           US ALLIANCE LIFE AND SECURITY COMPANY

 

 

BY: /s/ Jack H. Brier                                                                DATE: 12/23/2013

 

Name: Jack H. Brier                                                                 TITLE: President

 

 

BY: /s/ Jeff Brown                                                                   DATE: 12/23/2013

 

Name: Jeff Brown                                                                   TITLE: EVP & COO

 

 

FOR:           OPTIMUM RE INSURANCE COMPANY

 

 

BY: /s/ Sebastien Blondeau                                                   DATE: 9/27/2013

 

Name: Sebastien Blondeau                                                    TITLE: President & CEO

 

 

BY: /s/ Serge Goulet                                                                DATE: 9/27/2013

 

Name: Serge Goulet                                                                TITLE: Managing Director

 

 

[Schedules omitted]

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