SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
September 24, 1997
KANSAS CITY LIFE INSURANCE COMPANY
(Exact Name of Registrant as Specified in its Charter)
Missouri
(State or Other Jurisdiction of Incorporation)
2-40764 44-0308260
(Commission File Number) (IRS Employer Identification Number)
3520 Broadway, Kansas City, Missouri 64111-2565
(Address of Principal Executive Office)
(816) 753-7000
(Registrant's Telephone Number, including Area Code)
Page 1 of 3
Item 2. Acquisition and Disposition of Assets.
On September 11, 1997, pursuant to a Coinsurance and Servicing
Agreement (the "Agreement") dated September 4, 1997 between Kansas
City Life Insurance Company (the "Company") and Security Benefit
Life Insurance Company ("Security Benefit"), the Company acquired
a block of approximately 100,000 traditional and interest sensitive
life insurance policies. Security Benefit transferred to the
Company approximately $300 million in cash, equal to the policy
reserves, less a ceding commission of $62.4 million representing
consideration paid by the Company for the acquired policies. Under
the terms of the Agreement, the Company assumed the policy
liabilities and also agreed to indemnify Security Benefit for the
"Extra Contractual Obligations", as such term is defined in the
Agreement.
The block of policies acquired, which represent approximately
$4.0 billion of insurance in force, generated approximately $30.1
million of statutory premiums in 1996. Investments equal to the
policy reserves are held in a trust to secure payment of the
estimated liabilities relating to the policies.
Security Benefit solicited indications of interest from a
selected group of companies. The Company submitted an offer using
financial and actuarial analyses, as well as other criteria. The
final terms and conditions of the Agreement, including the purchase
price, were determined following negotiations between the Company
and Security Benefit. Funds for the purchase were generated
internally.
The Company, founded in 1895, operates nationwide with head-
quarters in Kansas City, Missouri. The Company's major sales
emphasis is life insurance and annuities. Revenues in 1996 were
$422.0 million. Prior to this acquisition, life insurance in force
totaled $22.3 billion, assets equaled $3.0 billion and stock-
holder's equity totaled $0.5 billion. The Company operates in 48
states and the District of Columbia.
Security Benefit is a mutual life insurer headquartered in
Topeka, Kansas. At the end of its last fiscal year, it had assets
of $5.3 billion and stockholder's equity of $0.4 billion last year
end.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
10.1 Coinsurance and Servicing Agreement dated September 4,
1997 between Kansas City Life Insurance Company and Security
Benefit Life Insurance Company.
Page 2 of 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
KANSAS CITY LIFE INSURANCE COMPANY
(Registrant)
By: /s/ C. John Malacarne
C. John Malacarne, Vice President,
General Counsel and Secretary
September 24, 1997
(Date)
Page 3 of 3
Exhibit 10.1, Form 8-K
Kansas City Life
Insurance Company
COINSURANCE AND SERVICING AGREEMENT
between the
SECURITY BENEFIT LIFE INSURANCE COMPANY
TOPEKA, KANSAS
(referred to as the Company)
and
KANSAS CITY LIFE INSURANCE COMPANY
KANSAS CITY, MISSOURI
(referred to as the Reinsurer)
September 4, 1997
TABLE OF CONTENTS
ARTICLE 1 1
DEFINITIONS 1
1.1 ACCOUNTING 1
1.2 AFFILIATE AUTHORIZED INVESTMENTS 2 2
1.3 AUTHORIZED INVESTMENTS 2 2
1.4 CEDING COMMISSION 2 2
1.5 CLOSING 2 2
1.6 CLOSING DATE 2 2
1.7 EFFECTIVE DATE 2
1.8 EFFECTIVE DATE ACCOUNTING 2
1.9 ESTIMATED SETTLEMENT AMOUNT 2
1.10 EXTRA CONTRACTUAL OBLIGATIONS 2
1.11 INTERIM MONTHLY ACCOUNTING 3
1.12 QUARTERLY ACCOUNTING 3
1.13 PERSON 3
1.14 POLICIES 3
1.15 POLICY LIABILITIES 3
1.16 POLICYHOLDERS 4
1.17 REINSURANCE TRUST AGREEMENT 4
1.18 REQUIRED BALANCE 4
1.19 RESERVES 4
1.20 SECURITY TRUST 4
1.21 SERVICE TRANSFER DATE 4
1.22 TERMINAL ACCOUNTING 4
1.23 TERMINATION DATE 5
1.24 THIRD-PARTY REINSURANCE AGREEMENTS 5
1.25 TRUE-UP ACCOUNTING 5
1.26 SELLING AGREEMENTS 5
ARTICLE 2 5
BASIS OF COINSURANCE AND BUSINESS COINSURED 5
2.1 COINSURANCE 5
2.2 REINSTATEMENTS, CONVERSIONS AND EXCHANGES 5
2.3 DIVIDENDS AND NON-GUARANTEED POLICY PROVISIONS 5
2.4 RESERVES 6
2.5 RETROCESSIONS BY THE REINSURER 6
2.6 ASSESSMENTS 6
2.7 ASSIGNMENT OF SELLING AGREEMENTS 6
ARTICLE 3 6
ACCOUNTINGS AND TRANSFER OF ASSETS 6
3.1 EFFECTIVE DATE ACCOUNTING 6
3.2 TRANSFER OF ASSETS 7
3.3 CEDING COMMISSION 7
3.4 FUNDING OF SECURITY TRUST 7
3.5 TRUE-UP ACCOUNTING 7
3.6 POST-CLOSING TRANSFERS 7
3.7 INTERIM MONTHLY ACCOUNTINGS 7
3.8 QUARTERLY ACCOUNTINGS 7
3.9 QUARTERLY PAYMENTS 7
3.10 ADJUSTMENTS 8
3.11 DELAYED PAYMENTS 8
3.12 OFFSET OF PAYMENTS 8
3.13 THIRD-PARTY REINSURANCE 8
3.14 PREMIUM TAXES 8
ARTICLE 4 9
POLICY ADMINISTRATION 9
4.1 INTERIM SERVICING 9
4.2 COMPANY'S SERVICE FEES 9
4.3 TRANSFER OF SERVICING OBLIGATIONS 9
4.4 LEVEL OF PERFORMANCE 11
4.5 COMPLIANCE WITH LAW 11
4.6 REGULATORY MATTERS 11
4.7 TRANSMITTAL OF PREMIUM PAYMENTS AND NOTICES BY COMPANY 11
4.8 TRANSMITTAL OF NOTICES BY REINSURER 11
4.9 SETTLEMENT AND DEFENSE OF CLAIMS 11
4.10 BANK ACCOUNTS 12
4.11 CONVERSIONS AND EXCHANGES 12
4.12 THIRD-PARTY ADMINISTRATORS 12
4.13 POLICY CHANGES 12
ARTICLE 5 13
SECURITY TRUST 13
5.1 ESTABLISHMENT OF THE SECURITY TRUST 13
5.2 REQUIRED BALANCE 13
5.3 INVESTMENT OF TRUST ASSETS 13
5.4 WITHDRAWALS FROM THE SECURITY TRUST 13
ARTICLE 6 14
REPRESENTATIONS AND WARRANTIES OF THE COMPANY 14
6.1 ORGANIZATION AND STANDING 14
6.2 AUTHORIZATION AND VALIDITY 14
6.3 TITLE TO ANY CONSIDERATION OTHER THAN CASH 14
6.4 LITIGATION 14
6.5 COMPLETE AND ACCURATE DISCLOSE 15
6.6 INFORMATION PROVIDED TO ERNST & YOUNG 15
6.7 THIRD PARTY REINSURANCE 15
ARTICLE 7 15
REPRESENTATIONS AND WARRANTIES OF THE REINSURER 15
7.1 ORGANIZATION AND STANDING 15
7.2 AUTHORIZATION AND VALIDITY 15
7.3 PERFORMANCE UNDER SELLING AGREEMENTS 15
ARTICLE 8 16
RECORDS 16
8.1 RECORDS 16
8.2 AUDITS 16
8.3 MAILING LISTS 16
ARTICLE 9 16
OVERSIGHTS, ERRORS AND OMISSIONS 16
ARTICLE 10 17
CONDITION PRECEDENT 17
ARTICLE 11 17
DUTY OF COOPERATION 17
ARTICLE 12 17
DAC TAX 17
12.1 REIMBURSEMENT PAYMENTS 17
12.2 PROCEDURES 17
ARTICLE 13 18
INDEMNIFICATION 18
13.1 INDEMNIFICATION BY THE COMPANY 18
13.2 INDEMNIFICATION BY THE REINSURER 19
13.3 NOTICE OF CLAIM 19
13.4 OPPORTUNITY TO DEFEND 19
ARTICLE 14 20
DISPUTE RESOLUTION 20
14.1 ANY OTHER DISPUTES OVER CALCULATIONS 20
14.2 ARBITRATION 20
ARTICLE 15 21
INSOLVENCY 21
ARTICLE 16 22
DURATION AND RECAPTURE 22
16.1 DURATION 22
16.2 REINSURER'S LIABILITY 22
16.3 TERMINATION FOR NONPAYMENT OF AMOUNTS DUE 22
16.4 RECAPTURE 22
16.5 RBC CALCULATIONS 23
16.6 EXERCISE OF RECAPTURE RIGHTS 23
16.7 SURVIVAL 23
ARTICLE 17 23
PAYMENT UPON TERMINATION OR RECAPTURE 23
17.1 TERMINAL ACCOUNTING 23
17.2 SETTLEMENT OF ACCOUNTS 23
17.3 SUPPLEMENTARY ACCOUNTING AND SETTLEMENT 24
ARTICLE 18 24
MISCELLANEOUS 24
18.1 FINANCIAL STATEMENT CREDIT 24
18.2 ADMITTED ASSETS 24
18.3 NOTICES 24
18.4 CONFIDENTIALITY 25
18.5 ENTIRE AGREEMENT 25
18.6 WAIVERS AND AMENDMENTS 25
18.7 NO THIRD PARTY BENEFICIARIES 26
18.8 ASSIGNMENT 26
18.9 GOVERNING LAW 26
18.10 COUNTERPARTS 26
18.11 SEVERABILITY 26
18.12 SCHEDULES, EXHIBITS AND PARAGRAPH HEADINGS 26
18.13 EXPENSES 26
18.14 USE OF NAME 26
18.15 PRESERVATION OF BUSINESS 26
SCHEDULE 1.14 29
IDENTIFICATION OF POLICIES 29
SCHEDULE 1.15 30
BY-LAW PROVISIONS REGARDING FRATERNAL CERTIFICATES 30
ARTICLE VII - FRATERNAL CERTIFICATES 30
SCHEDULE 1.23 34
THIRD-PARTY REINSURANCE AGREEMENTS 34
SCHEDULE 3.1 36
FORM OF EFFECTIVE DATE ACCOUNTING 36
SCHEDULE 3.7 37
INTERIM MONTHLY ACCOUNTING 37
SCHEDULE 3.8 38
QUARTERLY ACCOUNTING 38
SCHEDULE 4.11 39
CONVERSION PLANS 39
SCHEDULE 6.4 40
DISCLOSURE OF LITIGATION AND COMPLAINTS 40
SCHEDULE 16.6 41
RECAPTURE FEE 41
THIS COINSURANCE AND SERVICING AGREEMENT (the "Agreement") is made by
and between Security Benefit Life Insurance Company, a Kansas-domiciled mutual
life insurance company (the "Company") and Kansas City Life Insurance Company,
a Missouri-domiciled stock life insurance company(the "Reinsurer").
WHEREAS, the Company has issued certain traditional and
interest-sensitive life insurance policies and fraternal certificates and has
coinsured or assumed certain other traditional and/or interest sensitive life
insurance policies from certain of its present and former affiliates;
WHEREAS, the Company has issued and will continue to issue certain group
life insurance policies which permit certificate holders to convert their group
coverage to individual life insurance policies subject to certain terms and
conditions;
WHEREAS, the Company has issued and will continue to issue certain
variable life insurance policies which permit policyholders to exchange their
policies for certain non-variable life insurance policies subject to certain
terms and conditions;
WHEREAS, the Company desires to sell, transfer and cede or retrocede on
an indemnity basis all of its obligations and risks in connection with its
traditional and interest-sensitive life insurance policies, fraternal
certificates, the conversion policies issued to certificate holders under its
group life insurance policies and the exchange policies issued to policyholders
under its variable life insurance policies (including conversion and exchange
policies that it may issue hereafter), and the Reinsurer desires to purchase,
acquire and reinsure such obligations and risks on an indemnity basis; and
WHEREAS, the Company will undertake to provide the Reinsurer with
certain administrative and support services with respect to the business
coinsured hereunder for a limited period of time following the closing under
this Agreement, and thereafter the Reinsurer will undertake and assume full
responsibility for such administrative and support services.
NOW, THEREFORE, in consideration of the mutual and several promises and
undertakings herein contained, and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the Company and the
Reinsurer agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement, but not defined in this
Article 1, shall have the meaning given them in the other provisions of this
Agreement. The following capitalized terms shall have the meanings set forth
below when used in this Agreement:
1.1 Accounting[mc2]. "Accounting" shall mean a True-Up Accounting,
an Interim Monthly Accounting or a Quarterly Accounting, as applicable.
1.2 Affiliate. "Affiliate" shall mean a Person controlling, controlled by
or under common control with another Person. The term "control" shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, the holding of proxies, by contract other than a commercial contract
for goods or non-management services, or otherwise. 1.3 Authorized Investments.
"Authorized Investments" shall mean those assets that may be held within the
Security Trust in accordance with the terms and conditions of Section 2.03(a) of
the Reinsurance Trust Agreement. 1.4 Ceding Commission. "Ceding Commission"
shall mean $ 62,400,000.
1.5 Closing. "Closing" shall mean the closing of the transactions
contemplated by this Agreement, including the payment of the Ceding Commission
and the transfer of the Estimated Settlement Amount.
1.6 Closing Date. "Closing Date" shall mean the date mutually agreed upon
by the parties upon which Closing occurs.
1.7 Effective Date. "Effective Date" shall mean the date upon which
thecoinsurance of the Policies by the Reinsurer under the terms of this
Agreement shall be effective, which shall be 12:01 a.m. Central time, on April
1, 1997.
1.8 Effective Date Accounting. "Effective Date Accounting" shall mean the
accounting delivered by the Company to the Reinsurer on or before the Closing
Date, which sets forth the Estimated Settlement Amount payable to the Reinsurer
on the Closing Date. Such accounting shall set forth all Policy Liabilities and
related assets, as estimated under statutory accounting principles as of the
Effective Date.
1.9 Estimated Settlement Amount. "Estimated Settlement Amount" shall mean
the amount of the cash payment to be made by the Company to the Reinsurer at
Closing, as calculated pursuant to Section 3.1.
1.10 Extra Contractual Obligations. "Extra Contractual Obligations" shall
mean all liabilities or obligations relating to the Policies, other than those
arising under the express terms and conditions of the Policies, including,
without limitation, any liability for punitive, exemplary, special or any other
form of extra contractual damages, relating to the Policies, which liability
arises from any act, error or omission, whether or not intentional, in bad faith
or otherwise, including, without limitation, any act, error or omission relating
to (a) the marketing, underwriting, production, issuance, cancellation or
administration of the Policies, (b) the investigation, defense, trial,
settlement or handling of claims, benefits, or payments under the Policies, (c)
the failure to pay or the delay in payment of benefits, claims or any other
amounts due or alleged to be due under or in connection with the Policies, or
(d) any advice given concerning tax or other matters relating to the Policies .
The definition of "Extra Contractual Obligations" includes fines, penalties and
other regulatory sanctions which may be imposed against the Company resulting
from the standards and practices employed by the Company or its agents in
connection with the marketing of the Policies; provided however, "Extra
Contractual Obligations" does not include fines, penalties and other regulatory
sanctions resulting solely and directly from the Company's failure, if any, to
comply with state law relating to the filing and approval of the policy forms on
which the Policies were issued.
1.11 Interim Monthly Accounting. "Interim Monthly Accounting" shall mean an
accounting prepared in accordance with statutory accounting principles and
delivered by the Company to the Reinsurer between the last Monthly Accounting
included in the Estimated Settlement Amount and the Service Transfer Date in
accordance with the provisions of Section 3.7.
1.12 Quarterly Accounting. "Quarterly Accounting" shall mean an accounting
prepared in accordance with statutory, accounting principles and delivered by
the Reinsurer to the Company between the Service Transfer Date and the
Termination Date in accordance with the provisions of Section 3.8.
1.13 Person. "Person" means an individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint-stock
company, unincorporated organization, governmental or regulatory authority or
other entity.
1.14 Policies. "Policies" shall mean the binders, endorsements, riders,
policies, certificates (including fraternal certificates) and contracts of
insurance issued through December 31, 1997, including all renewals, extensions
and conversions thereof, identified by a brief description of policy types and
the administrative plan codes for the Policies in Schedule 1.14 hereto, other
than any binder, endorsement, rider, policy, certificate or contract of
insurance that is the subject of litigation pending on the Closing Date. The
Company will provide an updated Schedule 1.14 within 30 days of the Closing Date
which identifies all of the Policies conveyed by policy form number. The
"Policies" shall include, regardless of when issued, (a) all individual life
insurance policies issued pursuant to the conversion provision of the Company's
group life insurance policies and (b) all non-variable life insurance policies
issued pursuant to the exchange provisions of the Company's variable life
insurance policies, which are listed in schedule 4.11 to this Agreement or to
which KCL may later agree may be issued as conversion or exchange policies.
1.15 Policy Liabilities. "Policy Liabilities" shall mean any and all of the
Company's gross risks, liabilities and obligations, based upon or arising out of
the Policies including, but not limited to, gross risks, liabilities and
obligations for (a) claims or losses in respect of the Policies, including Extra
Contractual Obligations, and any attorneys' fees related to such claims or
losses; (b) commissions, fees, other payments due to, or claims made by, any
agent, general agent, manager, broker, producer or any other person who marketed
or produced the Policies including claims made under the Selling Agreements
pursuant to which the Policies were sold; (c) any premiums or other amounts
payable under the Third-Party Reinsurance Agreements; (d) premium taxes or
assessments in connection with participation by the Company, whether involuntary
or voluntary, in any guaranty fund established or governed by any state or
jurisdiction arising on account of premiums paid at any time under the Policies;
(e) returns or refunds of premiums (irrespective of when due) under the
Policies; and (f) policyholder dividends declared at any time by the Company on
participating Policies. With respect to the fraternal certificates included
among the Policies, "Policy Liabilities" shall include, but not be limited to,
any and all of the Company's gross risks, liabilities and obligations, based
upon or arising out of the terms and conditions of coverage under such fraternal
certificates specified in Article VII of the Company's By-Laws and set forth in
Schedule 1.15 attached hereto.
1.16 Policyholders. "Policyholders" shall mean the individuals for whom
insurance coverage is provided under the Policies.
1.17 Reinsurance Trust Agreement. "Reinsurance Trust Agreement" shall mean
the trust agreement governing the Security Trust, entered into between the
parties on September 4, 1997.
1.18 Required Balance. "Required Balance" shall mean one hundred percent
(100%) of the amount equal to the Reserves on the Policies plus (a) gross
advance premiums, (b) the liability for cost of collection in excess of loading
and (c) the liability for unearned policy loan interest; less (w) the net due
and deferred premium assets, (x) policy loans, (y) the asset for agents'
balances and (z) the credit attributable to Third-Party Reinsurance. Amounts
(a), (b), (c), (w), (x), (y) and (z) in this calculation shall be determined in
accordance with the methodologies used by the Reinsurer to calculate such
amounts for purposes for its statutory financial statements in accordance with
prescribed or permitted statutory accounting principles.
1.19 Reserves. "Reserves" shall mean the sum of all the reserves and
liabilities required to be maintained by the Company for the Policies,
calculated consistent with (a) the reserve requirements, statutory accounting
rules and actuarial principles applicable to the Company under the law of each
state in which the Policies were issued or delivered, and (b) otherwise in
accordance with the methodologies used by the Reinsurer to calculate the
reserves and liabilities for the Policies in accordance with prescribed or
permitted statutory accounting principles and sound actuarial principles and any
valuation basis and methods of determining reserves as provided in the Policy
forms.
1.20 Security Trust. "Security Trust" shall mean the trust account
established with a United States financial institution acceptable to the Company
for the purpose of securing the Reinsurer's obligations to the Company with
respect to the Policy Liabilities reinsured hereunder.
1.21 Service Transfer Date. "Service Transfer Date" shall mean the date on
which the Reinsurer commences to administer the Policies (whether using the
Company's or the Reinsurer's computer systems) in accordance with the terms and
conditions of the Agreement. The Service Transfer Date shall be a date mutually
agreed upon by the parties, which shall be no later than six (6) months after
the Closing Date.
1.22 Terminal Accounting. "Terminal Accounting" shall mean the accounting
delivered by the Reinsurer to the Company, providing for the settlement between
the parties upon termination of this Agreement and/or recapture of the Policies
reinsured hereunder.
1.23 Termination Date. "Termination Date" shall mean the earlier of (a)
effective date of recapture pursuant to any notice of recapture given under this
Agreement and (b) the effective date of termination pursuant to any notice of
termination given under this Agreement, or such other date as the parties may
mutually agree in writing.
1.24 Third-Party Reinsurance Agreements. "Third-Party Reinsurance
Agreements" shall mean the reinsurance agreements listed on Schedule 1.24 hereto
under which the Company has ceded liabilities with respect to the Policies.
1.25 True-Up Accounting. "True-Up Accounting" shall mean the accounting
delivered by the Company to the Reinsurer within fifteen (15)business days
following the month end immediately after the Closing Date, reflecting
adjustments (if any) to the Estimated Settlement Amount paid to the Reinsurer on
the Closing Date.
1.26 Selling Agreements. "Selling Agreements" shall mean (a) any written
contract and commission schedules thereto, as amended, and (b) any and all
promotional programs offered by the Company as routinely administered by the
Company, pursuant to which the Company marketed and sold the Policies.
ARTICLE 2
BASIS OF COINSURANCE AND BUSINESS COINSURED
2.1 Coinsurance. Subject to the terms and conditions of this Agreement, the
Company hereby cedes or retrocedes, as the case may be, on a coinsurance basis
to the Reinsurer as of the Effective Date, and the Reinsurer hereby accepts and
agrees to reinsure as of the Effective Date, one hundred percent (100%) of all
Policy Liabilities arising under or relating to the Policies.
2.2 Reinstatements, Conversions and Exchanges. The Policies reinsured
shall include (a) all lapsed or surrendered Policies reinstated in accordance
with their terms on and after the Effective Date, and (b) all Policies issued on
and after the Effective Date, pursuant to (i) any conversion rights provided
under the terms of any group insurance contract issued at any time by the
Company or (ii) any option provided under the terms of any variable life
insurance contract issued at any time by the Company for the exchange of such
contract for a non-variable life insurance contract. Upon the reinstatement of
any lapsed or surrendered Policy or the issuance of any conversion or exchange
Policy, such Policy shall be automatically reinsured hereunder.
2.3 Dividends and Non-Guaranteed Policy Provisions. After the Effective
Date, the Reinsurer shall: (a) set policyholder dividends for the participating
Policies, and (b) establish nonguaranteed elements of the Policies, including
without limitation credited interest rates and cost of insurance. The Reinsurer
shall base its decisions with respect to policyholder dividends on its actual
experience with the Policies. Upon request of the Reinsurer, the Company shall
declare dividends and adopt nonguaranteed elements as recommended by the
Reinsurer, provided they are not unreasonable.
2.4 Reserves. On and after the Closing Date, the Reinsurer shall establish
and maintain a liability on its statutory financial statements not less than the
Reserves for the Policies maintained by the Company, from time to time, on the
Company's statutory financial statements.
2.5 Retrocessions by the Reinsurer. Without the prior written consent of
the Company, the Reinsurer shall not retrocede any portion of the Policy
Liabilities reinsured hereunder; provided, however, that nothing in this Section
2.5 shall be construed as a restriction on the assignment of the Third-Party
Reinsurance to the Reinsurer. Aside from the Third-Party Reinsurance, no
retrocession by the Reinsurer of any portion of the Policy Liabilities reinsured
hereunder shall be considered in the calculation of the Required Balance of the
Security Trust.
2.6 Assessments. In accordance with the provisions of Section 2.1, the
Reinsurer shall reimburse the Company for any assessments to the Company by
state guaranty or insolvency or similar funds to the extent that such
assessments are allocable to the Policies. If at any time the Company shall
subsequently recover any such assessment that has been reimbursed by the
Reinsurer (a "Subject Assessment") by means of tax credits or otherwise, the
portion of any such recovery received or otherwise realized by the Company that
is attributable to the Subject Assessments shall be promptly reimbursed by the
Company to the Reinsurer. In determining the amount of any recovery of
assessments that is attributable to a Subject Assessment, the Company shall
employ reasonable procedures for estimating the amount of any such recovery by
the Company that is allocable to each assessment previously paid by the Company.
2.7 Assignment and Assumptions of Selling Agreements. Effective on the
Closing Date, the Company hereby assigns, and the Reinsurer hereby accepts and
assumes, all of the Company's rights and liabilities under the Selling
Agreements relating to the Policies, regardless of when such rights or
obligations arose or might arise, including, but not limited to, the continued
obligation to pay any and all compensation due or to become due to agents in
connection with the sale, renewal and servicing of the Policies. "Reinsurer will
process agent licensing and appointments renewals if and as required in
connection with the payment of compensation under the Selling Agreements and to
bear the cost thereof."
ARTICLE 3
ACCOUNTINGS AND TRANSFER OF ASSETS
3.1 Effective Date Accounting. On the Closing Date, the Company shall
deliver to the Reinsurer the Effective Date Accounting, setting forth the
calculation of the Estimated Settlement Amount due Reinsurer at Closing in
substantially the form of Schedule 3.1 hereto.
3.2 Transfer of Assets. On the Closing Date, the Company shall pay the
Estimated Settlement Amount to the Reinsurer in cash.
3.3 Ceding Commission. On the Closing Date, the Reinsurer shall pay the
Company a Ceding Commission in the form of a credit against the Estimated
Settlement Amount, as set forth in Exhibit 3.1 hereto.
3.4 Funding of Security Trust. On the Closing Date, the Reinsurer shall
deposit in the Security Trust assets having an aggregate book value equal to or
greater that the Required Balance as of such date. All assets deposited in the
Security Trust by the Reinsurer shall qualify as Authorized Assets eligible for
deposit in the Security Trust under the terms and conditions of Section 2.03(a)
of the Reinsurance Trust Agreement.
3.5 True-Up Accounting. Within fifteen (15) business days following the
month end immediately after the Closing Date, the Company shall deliver to the
Reinsurer the True-Up Accounting, reflecting any adjustment to the Estimated
Settlement Amount appropriate in the light of data produced and calculations
made subsequent to the Closing Date.
3.6 Post-Closing Transfers. The Company shall promptly remit to the
Reinsurer the premiums and interest (if any) paid to the Company under the
reinstated, conversion and exchange Policies reinsured hereunder on or after the
Effective Date, as well as any reserves established by the Company for such
policies.
3.7 Interim Monthly Accountings. Between the Closing Date and the Service
Transfer Date, the Company shall provide the Reinsurer with an Interim Quarterly
Accounting as of the end of the applicable quarter, based on the information set
forth in Schedule 3.7 hereto, no later than fifteen (15) business days after the
end of such quarter.
3.8 Quarterly Accountings. Between the Service Transfer Date and the
Termination Date, the Reinsurer shall provide the Company with a Quarterly
Accounting as of the end of the applicable quarter, based on the information set
forth in Schedule 3.8 hereto, no later than fifteen (15) business days after the
end of such quarter.
3.9 Quarterly Payments. If the True-Up Accounting or an Interim
Quarterly Accounting reflects a balance due either party, that balance shall be
paid in cash to such party with the delivery of the Accounting if it is due the
Reinsurer and within five (5) business days of such delivery if it is due the
Company. If any True-Up Accounting, Interim Quarterly Accounting or Quarterly
Accounting reflects a deficit in the Required Balance of the Security Trust as
of the date of such Accounting, the Reinsurer shall make a cash deposit in the
Security Trust of no less than the amount of the deficit on or before the date
of delivery of any such Quarterly Accounting or within five (5) business days of
the delivery of any such True-Up Accounting or Interim Quarterly Accounting. If
any True-Up Accounting, Interim Quarterly Accounting or Quarterly Accounting
reflects an excess over the Required Balance of the Security Trust as of the
date of such Accounting, the Reinsurer may withdraw, subject to the terms and
conditions of the Reinsurance Trust Agreement, no more than the amount of the
excess upon receiving any such True-Up Accounting or Interim Quarterly
Accounting or no sooner than fifteen (15) business days after the date of
delivery of any such Quarterly Accounting; provided, however that if (a) the
Company provides written notice to the Reinsurer and the trustee of the Security
Trust of the Company's objection to the Reinsurer's calculation (as reflected in
any Quarterly Accounting) of an excess over the Required Balance of the Security
Trust and (b) such notice is delivered to the trustee prior to the withdrawal of
assets from the Security Trust by the Reinsurer in accordance with such
Quarterly Accounting, the trustee shall not permit the withdrawal by the
Reinsurer of any amount in dispute unless and until the Company advises the
trustee in writing of the amount of the trust assets that may be withdrawn by
the Reinsurer.
3.10 Adjustments. In the event that subsequent data or calculations require
revision of the Effective Date Accounting or any subsequent Accounting, the
required revision and any appropriate payments thereunder shall be made by the
applicable party within five (5) business days after the parties mutually agree
as to the appropriate revision.
3.11 Delayed Payments. If either party refuses to make any payment due
under this Agreement, or which may be found due after arbitration, interest will
accrue on such payment at the one month London Interbank Offering Rate (LIBOR)
plus 5%. Such interest amount may be included in any arbitration award. For
purposes of this Section 3.11, a payment will be considered overdue, and
interest will begin to accrue, on the date which is five (5) business days after
the date such payment is due or is found to have been due in an arbitration
judgment.
3.12 Offset of Payments. In addition to any other remedies provided under
this Agreement, and subject to the procedures contained in this Article 3, each
party shall have, and may exercise at any time and from time to time, the right
to offset any balance or balances, due from one party to the other party under
this Agreement, regardless of any insolvency of either party.
3.13 Third-Party Reinsurance. Subject to receipt of all necessary consents
from reinsurers and on terms mutually agreeable to the parties, the Company
shall assign to the Reinsurer all of its rights and interests under the
Third-Party Reinsurance Agreements, and the Reinsurer shall assume all of the
Company's liabilities and obligations under the Third-Party Reinsurance
Agreements. Such assignment shall become effective upon the Closing of the
transactions contemplated hereunder.
3.14 Premium Taxes. The Reinsurer shall pay the Company on a quarterly
basis an amount equal to two percent (2%) of the gross premiums on the Policies
collected by the Reinsurer, as an advance against the Reinsurer's liabilities
for premium taxes with respect to premiums paid on the Policies. Amounts payable
pursuant to this Section 3.14 shall be reflected on the Interim Quarterly
Accountings and Quarterly Accountings delivered hereunder and shall be paid
pursuant to the provisions of Sections 3.9 and 3. 10. After the end of each
calendar year falling within the term of this Agreement, the Company shall
provide the Reinsurer with an accounting of its actual premium tax liability
with respect to the Policies. If such accounting reflects a balance due the
Reinsurer, it shall be paid in cash with the accounting. If it reflects a
balance due the Company, the Reinsurer shall pay such balance in cash to the
Company within five (5) business days of receiving the accounting.
ARTICLE 4
POLICY ADMINISTRATION
4.1 Interim Servicing. During the period from the Effective Date to the
Service Transfer Date, the Company agrees to provide policyholder service for
the Policies in a manner that is consistent with its past practice, and to
supply to the Reinsurer on a timely basis copies of accounting and other records
pertaining to such service when requested by the Reinsurer or required under the
terms of this Agreement.
4.2 Company's Service Fees. In consideration of the Company's performance
of such policyholder services during the period from the Effective Date to the
Service Transfer Date, the Company shall be compensated by Reinsurer at the
following rates:
$340,000.00 per month for the period beginning on the Effective Date and
ending three (3) months after the Closing Date; $385,000.00 per month for the
fourth through sixth months following the Closing Date; and $425,000.00 per
month commencing with the seventh month following the Closing Date and for each
month thereafter.
On and after the Service Transfer Date, the Company will be compensated
by Reinsurer for use of the Company's computer system by Reinsurer, with the
consent of the software vendor, to administer the Policies, pending transfer of
the Policies to Reinsurer's own computer system, at the rate of four dollars
($4) per policy per year, payable on a monthly basis.
4.3 Transfer of Servicing Obligations. On and after the Service Transfer
Date, the Reinsurer agrees to provide policyholder service for the Policies and
to supply to the Company on a timely basis copies of accounting and other
records pertaining to such service when requested by the Company or required
under the terms of this Agreement. Such service shall include, but not be
limited to, the following.
(a) Preparing and mailing premium notices to Policyholders at a reasonable
time in advance of applicable due dates;
(b) Collecting premiums and other amounts due under the Policies;
(c) Providing usual and customary services for Policyholders, including,
without limitation, paying policyholder dividends declared by the Company,
handling policy loans and policy loan requests, providing information concerning
the Policies and handling surrenders, partial withdrawals, reinstatements,
cancellations and conversions or other changes provided for under the Policies;
(d) Handling policyholder tax reporting, collection and depositing in
connection with the Policies, including, without limitation, the preparation of
all Form 1099s and compliance with any and all withholding requirements of the
tax laws in connection with payments of benefits and any other amounts due under
the Policies. Reinsurance shall indemnify and hold Company harmless from all
costs incurred or penalties assessed that are directly caused by erroneous
information provided Company by
Reinsurer.
(e) Handling all matters related to the payment of claims on the Policies,
including, without limitation, receipt, processing, investigation, obtaining
medical and legal advice, defense and timely payment of death benefits,
surrenders and all other claims under the Policies; provided, however, that any
lawsuits filed between the Closing Date and the Service Transfer Date shall be
immediately transferred to the Reinsurer for defense under section 4.8 of this
agreement.
(f) Maintaining all files necessary or appropriate for administration of
the Policies, including, without limitations, system files, policy
administration files, financial data, agent and commission files and claims
files, all as the parties may from time to time agree;
(g) Calculating and paying all commissions to agents or brokers entitled
thereto(net of any applicable recoupment of debt related to the Policies from
such commissions), if any, and complying with any and all withholding
requirements of the tax laws in connection therewith;
(h) Preparation of quarterly and annual financial statement data, where
applicable, for inclusion in the Company's statutory financial statements and
delivery of such data in a form usable by the Company within twenty (20)
calendar days of the end of each quarter or year;
(i) Administering all Third-Party Reinsurance Agreements including, without
limitation, taking all steps necessary to maintain such reinsurance coverage,
paying all reinsurance premiums, collecting all reinsurance recoverables due the
Company and enforcing all of the Company's other rights under the Third-Party
Reinsurance Agreements;
(j) Providing accountings and information to the Company pursuant to
Article 3;
(k) At the written direction of Company, making any rate and form filings
required by regulatory authorities in connection with any changes in the
Company's policy forms made in accordance with Section 4.13, the issuance of
conversion or exchange Policies or otherwise, and using best efforts to obtain
necessary regulatory approvals therefor;
(l) Subject to the terms and conditions of Section 2.3, implementing any changes
to the non-guaranteed provisions of the Policies;
(m) Subject to the terms and provisions of Section 4.6, handling all regulatory
compliance matters in connection with the Policies; and
(n) Timely remittance to the Company of all the information regarding the
business ceded hereunder, which information is required in order for the Company
to comply with applicable state and federal regulatory requirements.
4.4 Level of Performance. The policyholder services provided pursuant to
Section 4.3 shall comply with the level of performance reasonably required of an
administrator of life insurance policies of the type reinsured hereunder;
provided, however, that in no event shall the Reinsurer provide services
hereunder which do not meet the standards applicable to the administration of
its own policies. The Reinsurer agrees to adhere to any written guidelines and
procedures regarding policyholder service as may be agreed by the parties from
time to time.
4.5 Compliance with Law. On and after the Service Transfer Date, the
Reinsurer shall be responsible for assuring that the Policies are at all times
administered in compliance with all applicable laws and regulations.
4.6 Regulatory Matters. If the Company or the Reinsurer receive notice
of, or otherwise become aware of any regulatory inquiry, investigation or
proceeding, relating to the Policies, the Company or the Reinsurer, as
applicable, shall promptly notify the other party thereof, whereupon the parties
shall cooperate in good faith to resolve such matter in a mutually satisfactory
manner; provided, however, that if the parties are unable to reach agreement on
the manner in which such a matter is to be resolved, the matter shall be
resolved in the manner determined by the Company, subject to the right of
Reinsurer to arbitrate any dispute. Nothing in this Section 4.6 will be
construed to give the Company authority to bind Reinsurer to any regulatory
fine, penalty or other sanction against Reinsurer.
4.7 Transmittal of Premium Payments and Notices by Company. On and after
the Service Transfer Date, the Company shall forward promptly to the Reinsurer
(a) all premium payments for the Policies received by it and (b) all written
notices and other written communications received by it relating to the Policies
(including, without limitation, all inquiries or complaints from state insurance
regulators, agents, brokers and Policyholders, and all notices of claims, suits
and actions for which it receives service of process), and shall promptly turn
over to the Reinsurer all information which the Company may have in its
possession or under its control in connection with such inquiry, complaint,
claim, suit, action or service of process.
4.8 Transmittal of Notices by Reinsurer. On and after the Service
Transfer Date, the Reinsurer shall (a) forward promptly to the Company copies of
(i) all written inquiries or complaints regarding the Policies received from
state insurance regulators, and (ii) all suits and actions involving the
Policies for which it receives service of process, and (b) provide promptly to
the Company copies of all information in the Reinsurer's possession or under its
control which the Company may request in connection with such inquiry,
complaint, service of process or suit.
4.9 Settlement and Defense of Claims. The Company may make recommendations
to the Reinsurer concerning negotiation or litigation strategy and settlement
plans. The Reinsurer agrees that it will consider such recommendations in good
faith, but the Reinsurer shall not be bound by such recommendations. The
Reinsurer shall defend, at its own expense and in the name of the Company when
necessary, any action brought on any Policy from and after the Closing Date. The
Company shall have the right, at its own expense, to engage its own separate
legal representation and to fully participate in the defense of any litigation
in which the Company is named as a party.
4.10 Bank Accounts. No later than the Service Transfer Date, the
Reinsurer shall establish and maintain one or more bank accounts (the "Bank
Accounts") in the Company's name at such bank as may be agreed by the parties,
to be used solely in connection with receipts and disbursements with respect to
the Policies. Notwithstanding the fact that the Bank Accounts are established
and maintained in the Company's name, all right, title and interest in the Bank
Accounts and all funds held therein shall remain vested in the Reinsurer, and
the Reinsurer shall be responsible for the payment of all taxes with respect to
any interest accruing on the funds held in the Bank Accounts. The Reinsurer
shall pay any banking fees in connection with the Bank Accounts and shall
reconcile the Bank Account balances on a timely basis. Any loss of funds on
deposit in the Bank Accounts shall be the responsibility of the Reinsurer.
4.11 Conversions and Exchanges. On and after the Service Transfer Date,
the Reinsurer shall issue under the Company's name (a) all conversion Policies
to which Policyholders are entitled upon the exercise of their conversion rights
under the terms and conditions of Policies reinsured hereunder and (b) at the
Company's written direction, any conversion and exchange Policy which the
Company is obligated to issue upon the exercise of conversion or exchange rights
under the terms and conditions of any insurance contract issued by the Company.
The conversion and exchange Policies issued pursuant to this Section 4.11 shall
be issued on the Company's policy forms then filed with and approved by the
applicable insurance regulatory authorities. The Company and Reinsurer agree
that unless changes are mandated by regulatory authorities, the conversion and
exchange policies which Reinsurer shall issue are those which are identified in
Schedule 4.11 to this Agreement, at the rates in effect on the Closing Date or
otherwise agreed to by Reinsurer. Aside from issuing conversion and exchange
Policies subject to the terms and conditions of this Section 4.11, the Reinsurer
shall not issue any insurance contracts under the Company's name. For any Group
policy conversion, the Company will pay the Reinsurer sixty-five dollars
($65.00)per $1000 of insurance volume converted.
4.12 Third-Party Administrators. Unless it obtains the prior written
consent of the Company, the Reinsurer shall not use the services of any
third-party administrators in connection with the administration and servicing
of the Policies.
4.13 Policy Changes. The Reinsurer shall not make any changes
to the Company's policy forms except at the express written direction of the
Company or if (a) the changes are required by applicable law, rule or regulation
or pursuant to the order of a court or governmental authority or agency and (b)
the Reinsurer gives the Company prior notice in writing of the nature of such
required changes.
ARTICLE 5
SECURITY TRUST
5.1 Establishment of the Security Trust. On the Closing Date, the
Reinsurer shall fund an account with a United States financial institution
acceptable to the Company (the "Security Trust"), naming the Company as the sole
beneficiary thereof, in an amount no less than the Required Balance as of the
Closing Date, for the purpose of securing the Reinsurer's obligations to the
Company with respect to the Policy Liabilities reinsured hereunder, and the
Reinsurer shall maintain the Security Trust for the duration of this agreement,
until the parties agree otherwise or upon termination of the trust Agreement
governing the Security Trust (the "Reinsurance Trust Agreement")
5.2 Required Balance. The amount of security provided by the Reinsurer
shall be adjusted upon the delivery of the True-Up Accounting and quarterly
thereafter so that the aggregate book value of the assets held in the Security
Trust as of the date of any Accounting will be no less than the Required Balance
as of the same date. The amount by which the aggregate book value of the assets
held in the Security Trust exceeds or is less than the Required Balance as of
the date of an Accounting shall be set forth in each Accounting prepared in
accordance with Article 3. In accordance with the provisions of Section 3.9, and
the Reinsurance Trust Agreement, the Reinsurer shall deposit sufficient assets
in the Security Trust in order to eliminate any deficit in the amount of the
assets held in the Security Trust. Subject to the terms and conditions of
Section 3.9, and the Reinsurance Trust Agreement, the Reinsurer may withdraw any
assets held in the Security Trust in excess of the Required Balance.
5.3 Investment of Trust Assets. At the direction of the Reinsurer, the
assets held in the Security Trust shall be held in the form of cash,
cash-equivalents or certificates of deposit or shall be invested in commercial
mortgage loans (up to 20%), publicly traded bonds with a weighted average
Standard and Poor's rating of A or better or preferred stocks with a weighted
average Standard and Poor's rating of A or better; (provided, however, that all
assets and investments held in the Security Trust shall qualify as Authorized
Investments under the terms and conditions of Section 2.03(a) of the Reinsurance
Trust Agreement. The form and duration of assets to be held in the Security
Trust shall be appropriate in light of the Policy Liabilities.
5.4 Withdrawals from the Security Trust. Upon default by the Reinsurer
in the payment of any amounts due with respect to the Policy Liabilities, the
Company may withdraw assets held in the Security Trust as necessary to eliminate
the default or to reimburse the Company for any Policy Liabilities paid by the
Company. The Company may, however, in its sole discretion, require payment by
the Reinsurer of any sum in default and it shall be no defense to any such claim
that the Company might have had recourse to the Security Trust. The Company may
also withdraw assets held in the Security Trust in the amount of any payment due
the Company pursuant to Section 17.2 in connection with the termination of this
Agreement and/or the recapture of the business reinsured hereunder. The
Reinsurer may withdraw assets held in the Security Trust in the amount of any
payment due the Reinsurer pursuant to Section 17.2. Disputes over withdrawals
from the Security Trust will be resolved pursuant to the provisions of Section
14.2. The parties further agree that the assets held in the Security Trust may
be withdrawn at any time in accordance with this Article and that the Security
Trust may be utilized by the Company or any successor by operation of law,
including without limitation, any liquidator, rehabilitator, receiver or
conservator of the Company, and such funds may be applied without diminution
because of the insolvency of the Company or the Reinsurer.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants that:
6.1 Organization and Standing. The Company is duly incorporated, validly
existing and in good standing under the laws of the State of Kansas and has the
corporate power and authority to own, lease and operate its assets and to carry
on its business as now being conducted. The Company is also duly licensed in
each state in which it does business, and it has received no notice of, or has
any knowledge of, any fact or condition that may result in the revocation,
suspension, limitation, cancellation, condition, or non-renewal of any of its
licenses.
6.2 Authorization and Validity. The Company has all requisite power,
authority and legal right necessary to enter into this Agreement and to perform
all of its obligations hereunder. The execution and delivery by the Company of
this Agreement and the performance by the Company of its obligations hereunder,
have been duly authorized, and, assuming the duly authorized execution and
delivery of this Agreement by the Reinsurer, this Agreement is the valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms; provided, however, that the enforceability of the rights and
remedies provided in this Agreement against the Company is subject to any
applicable bankruptcy, reorganization, insolvency, moratorium or other similar
laws affecting generally the enforcement of creditors' rights and to general
principles of equity.
6.3 Title to Any Consideration Other Than Cash. The Company will be at the
time of transfer the owner of any assets it will transfer to the Reinsurer
pursuant to this Agreement and will have good and marketable title thereto, free
of any circumstances of any nature whatsoever.
6.4 Litigation. The Company represents and warrants as of the execution
of this Agreement that, except as disclosed in Schedule 6.4, it is not aware of
any suit, action, or legal administrative, arbitration, or other proceeding,
pending or threatened, against it which relates to or arises out of the
Policies. At the Closing Date, the Company shall provide to Reinsurer an updated
Schedule 6.4. In the event of a material change in Schedule 6.4 between the
signing of this agreement and the Closing Date, the Reinsurer shall have the
option of rescinding this agreement, unless the Company elects to retain such
liability.
6.5 Complete and Accurate Disclose. To the best of the knowledge of the
Company's Officers, no representation or warranty by the Company in the
Agreement or in any written statement or document furnished or to be furnished
to the Reinsurer in connection with the transaction contemplated hereunder
contains or will contain any untrue statement of a material fact, or omits or
will omit a material fact necessary to make the representation, warranty,
statement, or document not misleading.
6.6 Information Provided to Ernst & Young. To the best of the knowledge of
the Company's Officers, all information provided by the Company to Ernst & Young
in connection with the valuation of the transactions contemplated hereunder,
whether financial, actuarial, or otherwise, is complete and accurate.
6.7 Third Party Reinsurance. The Third-Party Reinsurance listed in Schedule
1.24 is in place and not in default, and the Company will use its best efforts
to effect the transfer of such reinsurance to the Reinsurer.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE REINSURER
The Reinsurer represents and warrants that:
7.1 Organization and Standing. The Reinsurer is duly incorporated,
validly existing and in good standing under the laws of the State of Missouri
and has the corporate power and authority to own, lease and operate its assets
and to carry on its business as now being conducted. The Reinsurer is also duly
licensed in each state in which it does business, and it has received no notice
of, or has any knowledge of, any fact or condition that may result in the
revocation, suspension, limitation, cancellation, condition, or non-renewal of
any of its licenses.
7.2 Authorization and Validity. The Reinsurer has all requisite power,
authority and legal right necessary to enter into this Agreement and to perform
all of its obligations hereunder. The execution and delivery by the Reinsurer of
this Agreement and the performance by the Reinsurer of its obligations
hereunder, have been duly authorized, and, assuming the duly authorized
execution and delivery of this Agreement by the Company, this Agreement is the
valid and binding agreement of the Reinsurer, enforceable against the Reinsurer
in accordance with its terms; provided, however, that the enforceability of the
rights and remedies provided in this Agreement against the Reinsurer is subject
to any applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting generally the enforcement of creditors' rights and to
general principles of equity.
7.3 Performance Under Selling Agreements. Reinsurer will perform all of the
obligations of the Company under the Selling Agreements which includes the
continued payment of services fees relating to the Policies in accordance with
contracts governing payment of such service fees.
ARTICLE 8
RECORDS
8.1 Records. Prior to the Service Transfer Date, the Company shall
deliver to the Reinsurer all reports, records, underwriting files, claim files
and information in any form relating to the Policies, all such reports, records,
underwriting files, claim files and information together with all reports,
records, files and information created and maintained by the Reinsurer in the
course of administering the Policies is hereinafter referred to collectively as
the "Records." All right, title and interest in all Records shall be vested in
the Reinsurer on and after the Service Transfer Date, provided, however, that
all right, title and interest in the Records shall automatically revert to the
Company upon the effective date of any recapture of the business reinsured
hereunder. Except as otherwise provided herein, the Reinsurer shall maintain
possession and control of such Records during the remaining term of the
Agreement; provided, however, that the Reinsurer (a) shall maintain the Records
in a manner consistent with regulatory and reporting requirements and good
business practices, (b) shall provide the Company access to, assistance with,
and at the Company's expense, copies of, all such Records necessary to permit
the Company to respond to or comply with any requests for information by
governmental authorities, insurance regulatory bodies, financial auditors or tax
auditors or to defend lawsuits or for any other valid business purpose, and (c)
shall retain all Records until such time as the Company gives written permission
for their destruction or seven (7) years after the expiration of all Policy
Liabilities, whichever is earlier; provided, however, that under no
circumstances shall the Reinsurer destroy any Records that must be maintained
pursuant to applicable law, rule or regulation. The Reinsurer shall promptly
return copies of all Records to the Company in the event that the Company
recaptures the business reinsured hereunder pursuant to Article XVI.
8.2 Audits. Upon fifteen (15) business days' prior notice, the Company
shall have the right, at its own expense, to audit the Records and all
procedures relating to the Policies.
8.3 Mailing Lists. From time to time, the Company may request the Reinsurer
to supply it with a current list of the names and addresses of all
Policyholders, and the Reinsurer shall provide the Company with such lists in a
format usable by the Company and at no cost to the Company. Use of the mailing
lists provided to the Company pursuant to this Section 8.3 shall be limited to
mailings which the Company is required to make by contract or under law or
regulation to policyholders of the
Policies.
ARTICLE 9
OVERSIGHTS, ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions made in connection with this
Agreement or any transaction hereunder shall not relieve either party from any
liability which would have attached had such delay, error or omission not
occurred, provided always that such error or omission is rectified as soon as
possible after discovery.
ARTICLE 10
CONDITION PRECEDENT
This Agreement shall not become effective unless and until (a) all state
insurance regulatory authorities whose approval is required shall have approved
this Agreement in writing and (b) all applicable waiting periods under any
federal or state statute or regulation shall have expired or been terminated.
ARTICLE 11 DUTY OF COOPERATION
Each party hereto shall cooperate fully with the other in all reasonable
respects in order to accomplish the objectives of this Agreement.
ARTICLE 12
DAC TAX
12.1 Reimbursement Payments. The Reinsurer shall pay the Company an
amount equal to any additional federal or state taxes paid by the Company, and
the Company shall pay the Reinsurer any federal or state tax savings realized by
the Company, due to the fact that the Company must capitalize specified policy
acquisition expenses and amortize those expenses under Section 848 of the
Internal Revenue Code. This amount shall include a gross-up so that the cost of
any additional federal or state taxes paid by the Company (or the benefit of any
federal or state tax savings realized by the Company), after taking into account
the gross-up, shall be as close to zero as reasonably possible.
12.2 Procedures. In accordance with Section 1.848-2(g)(8) of the Income Tax
Regulations, the Company and the Reinsurer hereby elect to determine specified
policy acquisition expenses with respect to this Agreement without regard to the
general deductions limitation of Section 848(c)(1)of the Code.
(a) As used herein, the term "party" means the Company or the Reinsurer, as
appropriate.
(b) Other terms used herein shall have the meanings set forth in the
regulations under Section 848 of the Code.
(c) The party with net positive consideration under this Agreement for each
taxable year shall capitalize specified policy acquisition expenses with respect
to this Agreement without regard to the general deductions limitation of Section
848(c)(1) of the Code.
(d) Both parties agree to exchange information pertaining to the amount of
net consideration under this Agreement each year to ensure consistency.
(e) The Reinsurer shall submit a schedule to the Company by March 1 of each
year of its calculation of the net consideration under this Agreement for the
preceding taxable year. This schedule of calculations shall be accompanied by a
statement signed by an authorized representative of the Reinsurer stating that
the Reinsurer shall report such net consideration in its federal income tax
return for the preceding taxable year.
(f) The Company may contest such calculation by providing an alternative
calculation to the Reinsurer in writing within thirty (30) days after the date
on which the Company receives the Reinsurer's calculation. If the Company does
not so notify the Reinsurer, the Company shall report the net consideration
under this Agreement as determined by the Reinsurer in the Company's federal
income tax return for the preceding taxable year.
(g) If the Company contests the Reinsurer's calculation of the net
consideration under this Agreement, the parties shall act in good faith to reach
an agreement as to the correct amount of net consideration within thirty (30)
days after the date on which the Company submits its alternative calculation. If
the Reinsurer and the Company reach agreement as to the amount of net
consideration under this Agreement, each party shall report such amount on its
federal income tax return for the preceding taxable year.
(h) This election shall be effective for 1997 and for all subsequent
taxable years for which this Agreement remains in effect.
(i) Both parties agree to attach a schedule to their respective federal
income tax returns for the first taxable year ending after the date on which
this election becomes effective which identifies this Agreement as a reinsurance
agreement for which an election has been made under Section 1.848-2(g)(8) of the
Income Tax Regulations.
ARTICLE 13
INDEMNIFICATION
13.1 Indemnification by the Company. From and after the Effective Date,
the Company shall reimburse the Reinsurer for, and shall indemnify and hold the
Reinsurer harmless and defend the Reinsurer from and against, all costs and
expenses (including interest, penalties, reasonable attorneys', accountants' and
actuaries' fees, and any other costs and expenses incident to any suit, action
or proceeding), damages, charges, losses, deficiencies, liabilities,
obligations, claims and judgments ("Loss" or "Losses") sustained or incurred by,
or asserted against, the Reinsurer which arise out of (a) the Company's material
breach of any representation or warranty under this Agreement, (b) any breach or
nonfulfillment by the Company of, or any failure by the Company to perform, any
of the covenants, terms or conditions of, or any of its duties or obligations
under, this Agreement and (c) any enforcement of this indemnity.
13.2 Indemnification by the Reinsurer. From and after the Effective
Date, the Reinsurer shall reimburse the Company for, and shall indemnify and
hold the Company harmless and defend the Company from and against all Losses
sustained or incurred by, or asserted against, the Company which arise out of
(a) the Reinsurer's material breach of any representation or warranty under this
Agreement, (b) any breach or nonfulfillment by the Reinsurer of, or any failure
by the Reinsurer to perform, any of the covenants, terms or conditions of, or
any of its duties or obligations under, this Agreement, (c) the Policy
Liabilities, and (d) any enforcement of this indemnity.
13.3 Notice of Claim. As soon as reasonably possible, but in no event
subsequent to thirty (30) calendar days after receipt by an indemnified party
hereunder of written notice of any demand, claim or circumstances which, upon
the lapse of time, would give rise to a claim or the commencement (or threatened
commencement) of any action, proceeding or investigation (a "Claim") that may
result in a Loss, such indemnified party shall give notice thereof ("Claims
Notice") to the indemnifying party. The Claims Notice shall describe the Claim
in reasonable detail, and shall indicate the amount (estimated, if necessary) of
the Loss that has been or may be suffered by such indemnified party. The failure
of the indemnified party to give the Claims Notice within the time provided for
herein shall not affect the indemnifying party's obligation under this Article
13, except if, and then only to the extent that, such failure materially
prejudices the indemnifying party or its ability to defend such Claim.
13.4 Opportunity to Defend. Within thirty (30) calendar days of receipt
of any Claims Notice given pursuant to Section 13.3, the indemnifying party
shall notify the indemnified party in writing of the acceptance of or objection
to the Claim and whether the indemnifying party will indemnify the indemnified
party and defend the same at the expense of the indemnifying party with counsel
selected by the indemnifying party (who shall be approved in writing by the
indemnified party, such approval not to be unreasonably withheld); provided,
however, that the indemnified party shall at all times have the right to engage
its own counsel and fully participate in the defense of the Claim at its own
expense or, as provided hereinbelow, at the expense of the indemnifying party.
Failure by the indemnifying party to object in writing within such thirty (30)
day period shall be deemed to be acceptance of the Claim by the indemnifying
party. In the event that the indemnifying part objects to a Claim within said
thirty (30) calendar days or does not object but fails to defend the Claim, the
indemnified party shall have the right, but not the obligation, to undertake the
defense, and to compromise and/or settle (in the exercise of reasonable business
judgment) the Claim, all at the risk and expense (including, without limitation,
reasonable attorneys' fees and expense) of the indemnifying party. Except as
provided in the preceding sentence, the indemnified party shall not compromise
and/or settle any Claim without the prior written consent of the indemnifying
party. If the Claim is one that cannot by its nature be defended solely by the
indemnifying party, the indemnified party shall make available all information
and assistance that the indemnifying party may reasonably request; provided,
however, that any associated expense shall be paid by the indemnifying party.
ARTICLE 14
DISPUTE RESOLUTION
14.1 Any Other Disputes over Calculations. Any dispute between the
parties with respect to the calculation of amounts which are to be calculated,
reported, or which may be audited pursuant to this Agreement, which cannot be
resolved by the parties within sixty (60) calendar days, shall be referred to an
independent certified public accounting firm mutually agreed by the parties. The
decision made by such firm with respect to the dispute referred to it shall be
final and binding on the parties. The Company and the Reinsurer shall each bear
fifty percent (50%) of the fees charged by the accounting firm to resolve the
dispute.
14.2 Arbitration. Other than disputes subject to resolution pursuant to
Section 14.1, any dispute arising out of the interpretation, performance or
breach of this Agreement or the Reinsurance Trust Agreement, or the propriety of
any action taken by either party pursuant to this Agreement or the Reinsurance
Trust Agreement, including the formation or validity thereof, shall be submitted
for decision to a panel of two arbitrators and an umpire. If a trustee,
receiver, rehabilitator, liquidator or conservator (including any insurance
regulatory agency or authority acting in such a capacity) is appointed for
either the Reinsurer or the Company, the parties shall continue to be obligated
to resolve any claim, dispute or cause of action subject to this Section 14.2 by
arbitration. With respect to a dispute subject to this Section 14.2 compliance
with this Section shall be a condition precedent to any right of action in any
court. Notices requesting arbitration and the appointment of an arbitrator will
be in writing as provided in Section 18.2.
The party to which the notice is sent shall respond thereto in writing
within thirty (30) calendar days of its receipt of such notice. In such
response, the party shall also assert any claim, defense and other dispute it
may have against the party initiating arbitration, and which arises out of or
relates in any way to this Agreement. One arbitrator shall be chosen by each
party and the two arbitrators shall, before instituting the hearing, choose an
impartial umpire who shall preside at the hearing. If either party fails to
appoint its arbitrator within thirty (30) calendar days after being requested in
writing to do so, the requesting party may appoint the second arbitrator if
after ten (10) calendar days' notice in writing to the other party of its
intention to do so, the other party fails to appoint an arbitrator.
If the two arbitrators are unable to agree upon the umpire within thirty
(30) calendar days of their appointment, the selection of the umpire shall be
made by the United States District Court for the District of Kansas or, if that
court lacks jurisdiction, the Circuit Court of Shawnee County, Kansas. The
judicial selection process shall commence with each arbitrator simultaneously
identifying three candidates for umpire. The list of six individuals, three
named by each arbitrator, shall be submitted to the court accompanied by a
written statement of the reasons supporting the arbitrators' nominations and his
or her objections, if any, to the nominations by the other arbitrator.
The arbitrators and the umpire shall be disinterested active or former
executive officers of life insurance or reinsurance companies.
Within thirty (30) calendar days after notice of appointment of the
panel, they shall meet and determine discovery procedures and schedules for
briefs and hearings.
The panel shall be relieved of all judicial formality and shall not be
bound by the strict rules of procedure and evidence. The arbitration shall take
place in Topeka, Kansas, unless the panel decides the venue has to be changed in
whole or in part for good cause shown.
The panel shall interpret this Agreement as an honorable engagement rather
than as merely a legal obligation and shall make its decision considering the
custom and practice of the applicable insurance and reinsurance business as
promptly as possible following the termination of the hearings. Insofar as the
panel looks to substantive law, it shall consider the law of the State of
Kansas. The decision of any two members of the panel, when rendered in writing,
shall be final and binding. The panel is empowered to grant interim relief as it
may deem appropriate. The arbitrators shall have the power to grant equitable or
injunctive relief, as well as money damages and interest. Judgment upon the
award may be entered in the United States District Court for the District of
Kansas or, if that court lacks jurisdiction, in the Circuit Court for Shawnee
County, Kansas.
Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the cost of the umpire. The remaining
costs of the arbitration shall be allocated by the panel. The panel may, at its
discretion, award such further costs and expenses as it considers appropriate,
including, but not limited to, attorneys' fees, to the extent permitted by law.
ARTICLE 15
INSOLVENCY
In the event of the insolvency of the Company, all coinsurance made,
ceded, renewed or otherwise becoming effective under this Agreement shall be
payable by the Reinsurer directly to the Company or to its liquidator, receiver
or statutory successor on the basis of the liability of the Company under the
Policies without diminution because of the insolvency of the Company. It is
understood, however, that in the event of the insolvency of the Company, the
liquidator or receiver or statutory successor of the Company shall give written
notice of the pendency of a claim against the Company on a Policy within a
reasonable period of time after such claim is filed in the insolvency
proceedings and that during the pendency of such claim the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses which it may deem
available to the Company or its liquidator or receiver or statutory successor.
It is further understood that the expense thus incurred by the Reinsurer shall
be chargeable, subject to court approval, against the Company as part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer.
ARTICLE 16
DURATION AND RECAPTURE
16.1 Duration. Except as otherwise provided herein, this Agreement is
unlimited in duration.
16.2 Reinsurer's Liability. The liability of the Reinsurer under this
Agreement with respect to any Policy will begin simultaneously with that of the
Company, but not prior to the Effective Date. The Reinsurer's liability with
respect to any Policy will terminate on the earliest of: (a) the date such
Policy is recaptured in accordance with Section 16.6; (b) the date the Company's
liability on such Policy is terminated in accordance with its terms; and (c) the
date this Agreement is terminated pursuant to Section 16.3. Termination of the
Reinsurer's liability under clauses (a), (b) and (c) herein is subject to the
Company's actual receipt of payments which discharge such liability in full in
accordance with the provisions of this Agreement. In no event shall the
interpretation of this Section 16.2 imply a unilateral right of the Reinsurer to
terminate this Agreement.
16.3 Termination for Nonpayment of Amounts Due. If the Company refuses to
pay any amounts due the Reinsurer pursuant to this Agreement within sixty (60)
calendar days after the date such payment is due, or after 30 calendar days
following an arbitration award if later, the Reinsurer may terminate this
Agreement, subject to thirty (30) calendar days' prior written notice to the
Company. If the Reinsurer refuses to pay any amount due the Company pursuant to
this Agreement within sixty (60) calendar days after the date such payment is
due, or after 30 calendar days following an arbitration award if later, the
Company may terminate this Agreement, subject to thirty (30) calendar days'
prior written notice to the Reinsurer. Upon termination of the Agreement
pursuant to this Section 16.3, the Company shall recapture all business
reinsured hereunder.
16.4 Recapture. Policies shall be eligible for recapture, at the sole
election of the Company, as provided below:
(a) Pursuant to mutual agreement in writing by the Company and the
Reinsurer; or
(b) Upon the filing of any petition for insolvency, rehabilitation,
conservation, supervision or similar proceeding by or against the Reinsurer or
its statutory representative; or
(c) Should the Reinsurer fail to maintain a ratio of (a) to (b) of at least two
hundred percent (200%) where (a) is Total Adjusted Capital as defined in the
Risk-Based Capital (RBC) Model Act or in the rules and procedures prescribed
from time to time by the National Association of Insurance Commissioners
("NAIC") with respect thereto and (b) is the Authorized Control Level RBC as
defined in the Risk-Based Capital (RBC) Model Act or in the rules and procedures
prescribed from time to time by the NAIC with respect thereto.
If the Company elects to recapture, then the Company must recapture all of
the Policies that are eligible for recapture. In no event may the Company
recapture anything other than one hundred percent (100%) of all Policies that
are eligible for recapture.
16.5 RBC Calculations. Each of the parties hereto shall provide the other
party with a calculation of the party's Total Adjusted Capital and Authorized
Control Level RBC as of the end of each calendar quarter within twenty (20)
calendar days of the end of such quarter. Each party shall have the right, at
its own expense, to audit the other party's books and records to confirm the
calculations provided.
16.6 Exercise of Recapture Rights. Any recapture effected or authorized
hereby shall not be deemed to have been consummated until (a) termination of the
Agreement pursuant to Section 16.3 or (b) the Company has given written notice
of recapture to the Reinsurer specifying the fact of recapture, the effective
date of the recapture and the grounds for recapture. On or before the effective
date of recapture, the Reinsurer shall return all Records to the Company.
Following the consummation of any recapture of business reinsured hereunder
pursuant to this Section 16.6, no additional premiums or business shall be ceded
by the Company to the Reinsurer. In the event of recapture by the Company,
Reinsurer will be entitled to withhold a recapture fee, as set out in Schedule
16.6 to this Agreement.
16.7 Survival. The terms and conditions of the following Sections and
Articles shall remain in full force and effect after the Termination Date:
Sections 3.11, 3.12, 4.8 and 5.4 and Articles 8 and 11 through 18, inclusive.
ARTICLE 17
PAYMENT UPON TERMINATION OR RECAPTURE
17.1 Terminal Accounting. In the event that this Agreement is terminated
and/or the reinsured business is recaptured pursuant to Article 16, the
Reinsurer shall provide the Company with a Terminal Accounting, no later than
the Termination Date or any other date mutually agreed to in writing. The
Terminal Accounting shall provide for the payment to the Company of an amount
equal to the amount of the Reserves (if any) as of the date immediately prior to
the date of the Terminal Accounting, net of reinsurance under the Third-Party
Reinsurance Agreements, and less the recapture fee specified in Schedule 16.6.
17.2 Settlement of Accounts. If the Terminal Accounting shows a balance
due the Company, the Reinsurer shall make a cash payment to the Company in the
amount (if any) of the difference between such balance and the amount of assets
available for withdrawal by the Company from the Security Trust. If the Terminal
Accounting shows a balance due the Reinsurer, the Company shall make a cash
payment to the Reinsurer in the amount (if any) of the difference between such
balance and the amount of the assets available for withdrawal by the Reinsurer
from the Security Trust. If any assets remain in the Security Trust after all
payments required pursuant to this Section 17.2 have been made, such remaining
assets shall be delivered to the Reinsurer, subject to the terms and conditions
of Section 5.4 and the Reinsurance Trust Agreement.
17.3 Supplementary Accounting and Settlement. In the event that subsequent
data or calculations require revision of the Terminal Accounting, the required
revision and any appropriate payments shall be made in cash by the parties five
(5) business days after the parties mutually agree as to the appropriate
revision.
ARTICLE 18
MISCELLANEOUS
18.1 Financial Statement Credit. Should the laws or regulations of any
jurisdiction applicable to the Company prevent the Company from taking financial
statement credit for the liabilities reinsured by the Reinsurer based on the
terms and conditions of this Agreement and the Reinsurance Trust Agreement, the
Reinsurer shall take such measures as may be necessary to enable the Company to
obtain such credit.
18.2 Admitted Assets: Should the Reinsurer be informed in writing by the
insurance regulatory authority of its domiciliary jurisdiction that the
Reinsurer may not treat the assets supporting the Policy Reserves as admitted
assets because of the existence of the Security Trust or any provision of the
Security Trust, Reinsurer will use its best efforts to promptly take measures
acceptable to the Company as may be necessary to enable the Reinsurer to treat
the assets supporting the Policy Reserves as admitted assets, and the Company
will use reasonable efforts to assist the Reinsurer in obtaining favorable
treatment of the assets supporting the Policy Reserves as admitted assets. If
the Reinsurer is unable to find and take such measures acceptable to the
Company, then the Reinsurer may substitute collateral in the form of a letter of
credit in place of the Security Trust and thereafter terminate the Security
Trust. The letter of credit shall be a clean, irrevocable and unconditional
letter of credit in favor of the Company, issued in a form acceptable to the
Company, in an amount at least equal to the Required Balance, and shall be
issued or confirmed by a bank that is a member of the Federal Reserve System.
The amount of the letter of credit may be adjusted at the same times and in the
same manner as provided for in Sections 5.2 and 3.9 for adjustment of the
balance of the Security Trust. The Company and Reinsurer agree that the letter
of credit delivered hereunder may be drawn upon by the Company or the Reinsurer,
as the case may be, only for the reasons and upon the same conditions as
provided for in Section 5.4 for permitted withdrawals from the Security Trust.
In the event that the letter of credit is substituted for the Security Trust as
provided for in this Section, then upon a Terminal Accounting the reference to
the Security Trust in Section 17.2 shall be deemed to refer to the letter of
credit.
18.3 Notices. Any and all notices and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given when (a) mailed by United States registered or certified mail,
return receipt requested, (b) mailed by overnight express mail, (c) sent by
facsimile or telecopy machine, followed by confirmation mailed by first-class
mail or overnight express mail, or (d) delivered in person to the parties at the
following addresses:
If to the Company, to:
Security Benefit Life Insurance Company
700 SW Harrison Street
Topeka, KS 66636-0001
Attention: General Counsel
Fax No.: (785) 431-3080
With a copy (which shall not constitute notice) to:
Security Benefit Life Insurance Company
700 SW Harrison Street
Topeka, KS 66636-0001
Attention: Chief Financial Officer
Fax No.: (785) 431-3223
If to the Reinsurer, to:
Kansas City Life Insurance Company
P.O. Box 419139
Kansas City, MO 64141-6139
Attention: General Counsel
Fax: (816) 931-4699
With a copy (which shall not constitute notice) to:
Kansas City Life Insurance Company
P.O. Box 419139
Kansas City, MO 64141-6139
Attention: Chief Actuary
Fax: (816) 561-2063
Either party may change the names or addresses where notice is to be given by
providing notice to the other party of such change in accordance with this
Section 18.2.
18.4 Confidentiality. Each of the parties shall maintain the
confidentiality of all information related to the Policies, other than the names
and addresses of policyholders of the Policies, provided to it in connection
with this Agreement and shall not disclose such information to any third parties
without prior written consent of the other party, except as may be required by
regulatory authorities, or pursuant to legal process. Reinsurer may use
information relating to the policyholders of the Policies as it may see fit, in
its discretion. The Company shall not make use of any list of policyholders of
the Policies except to effect mailings which are required to be made by the
Company by contract or by law or regulation.
18.5 Entire Agreement. This Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement, including the Schedules and Exhibits attached
hereto, contains the sole and entire agreement between the parties with respect
to the subject matter hereof.
18.6 Waivers and Amendments. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof. Such
waiver must be in writing and must be executed by an executive officer of such
party. A waiver on one occasion shall not be deemed to be a waiver of the same
or any other term or condition on a future occasion. This Agreement may be
modified or amended only by a writing duly executed by an executive officer of
the Company and the Reinsurer, respectively.
18.7 No Third Party Beneficiaries. This Agreement constitutes an indemnity
reinsurance agreement solely between the Company and the Reinsurer, and is
intended solely for the benefit of the parties hereto and their permitted
successors and assigns, and it is not the intention of the parties to confer any
rights as a third-party beneficiary to this Agreement upon any other Person.
18.8 Assignment. This Agreement shall not be assigned by either of the
parties hereto without the prior written approval of the other party.
18.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Kansas, without regard to its conflicts
of law doctrine.
18.10 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
18.11 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law or if
determined by a court of competent jurisdiction to be unenforceable, and if the
rights or obligations of the Company or the Reinsurer under this Agreement will
not be materially and adversely affected thereby, such provision shall be fully
severable, and this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part of this Agreement,
and the remaining provisions of this Agreement shall remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom.
18.12 Schedules, Exhibits and Paragraph Headings. Schedules and Exhibits
attached hereto are made a part of this Agreement. Paragraph headings are
provided for reference purposes only and are not made a part of this Agreement.
18.13 Expenses. Except as explicitly provided to the contrary herein, each
party shall be solely responsible for all expenses it incurs in connection with
this Agreement or in consummating the transactions contemplated hereby or
performing the obligations imposed hereby, including, without limitation, the
cost of its attorneys, accountants and other professional advisors.
18.14 Use of Name. Except as necessary to perform its obligations
hereunder. neither party shall use the name, trademark, service mark, logo or
identification of the other party without the other party's prior written
consent.
18.15 Preservation of Business. During the five (5) year period
beginning on the Closing Date and ending on the fifth anniversary thereof,
neither the Company its Affiliates nor their respective directors, officers,
employees, agents, representatives, successors or assigns shall replace, or
attempt to replace, any Policy with any life insurance policy or other insurance
policy or contract issued by any insurance provider other than the Reinsurer;
provided, however, that nothing in this Section 18.14 or any other provision of
this Agreement shall be construed as a prohibition against, or a restriction or
limitation upon the marketing of any annuity contract or product to any
Policyholder or to any insured or beneficiary under a Policy by the Company, any
of its Affiliates or their respective directors, officers, employees, agents,
representatives, successors or assigns, so long as any such sale does not
replace any Policy, and further provided that no such sale shall result from use
by the Company of information relating to policyholders of the Policies which is
prohibited by Section 18.4.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
effective this 4th day of September, 1997.
SECURITY BENEFIT LIFE INSURANCE COMPANY
/s/ D. J. Schepker
By:
Senior Vice President and CFO
Title:
KANSAS CITY LIFE INSURANCE COMPANY
/s/Richard L. Finn
By:
Senior Vice President, Finance
Title:
Schedule 1.14
IDENTIFICATION OF POLICIES
Schedule 1.15
BY-LAW PROVISIONS REGARDING FRATERNAL CERTIFICATES
Article VII - Fraternal Certificates.
1. The gross premium payable with respect to each fraternal certificate issued
by the corporation shall be the sum designated prior to transformation of the
corporation from a fraternal benefit society to a mutual life insurance company
as home office premium plus a collection charge equal to the sum paid prior to
such transformation as subordinate council dues or collection fee. Provided,
however, that the annual collection charge payable with respect to each
fraternal certificate shall not in any case exceed $2.40.
2. The gross premium for each fraternal certificate shall become due and
payable, without notice, on the first day of the calendar month following the
period for which prior payment has been made. The first calendar month following
the period for which payment has been made shall be allowed as a grace period
during which the certificate shall remain in full force and effect. If the gross
premium for any certificate is not paid when due or within the grace period,
such certificate shall be in default and all rights and benefits thereunder
shall be forfeited, without notice, except as may other-wise be provided by the
terms of such certificate.
3. Every fraternal certificate which shall become in default on account of
nonpayment of gross premiums may be reinstated at any time within sixty days
after the date of such default by payment in full of the gross premiums in
arrears, provided the insured under such certificate is in sound mental and
physical condition on the date of such payment. Any payment of gross premiums
made for the purpose of effecting reinstatement under the provisions of this
section shall constitute a representation by the insured making such payment
that he or she is in sound mental and physical condition; and the receipt and
retention of such payment shall not effect reinstatement of the certificate if
the insured is not in sound mental and physical condition.
4. Every fraternal certificate which shall become in default on
account of nonpayment of gross premiums, and which shall not have been
reinstate within sixty days after the date of such default, may be
reinstated only in accordance with and as permitted by the rules and
regulations for reinstatement prescribed by and the board of directors.
5. Any person or corporation may be appointed as a beneficiary in a
fraternal certificate, except as eligibility with respect to beneficiaries
may be restricted by the laws of the state in which the certificate was
first delivered to the insured.
6. The owner of a fraternal certificate in force may at any time change the
beneficiary by filing a satisfactory written notice therefor with the company at
its home office. The fraternal certificate need not be presented for endorsement
except upon written request of the company. A change of beneficiary shall not be
effective until it has been recorded by the company at its home office. After
such recordation, the change shall relate back to and take effect as of the date
the owner signed said written request, whether or not the insured be living at
the time of such recordation, but without prejudice to the company on account of
any payment made by it before receipt of such written request at its home
office. If there be more than one beneficiary, the interest of any deceased
beneficiary shall pass to the survivor or survivors, unless otherwise directed
by the owners and recorded at the home office. If no designated beneficiary
survives the insured, the amount payable under the certificate shall be paid in
a lump sum to the executors or administrators of the insured.
7. Whenever the age of an insured in a fraternal certificate has been
understated in his or her application for insurance,, and the correct age
was within the age limits of the corporation, the amount of the death
benefit payable under such certificate shall be such as the premiums paid
would have purchased at the correct age according to the corporation's
premium rates in force on the issue date of the certificate. If the correct
age of the insured was not within the age limits of the corporation, the
liability of the corporation under his or her certificate shall be the
premiums paid thereon. If the age has been overstated in the application,
no additional amount of insurance or other values shall be granted on
account of any excess premium paid, but such excess premium shall be
returned without interest.
8. That part of the gross premium designated prior to transformation
of the corporation as home office premium shall, with respect to fraternal
certificates issued on the pure assessment plan, be payable in accordance
with the following premium table:
PREMIUMS PER $1,000 OF INSURANCE
Age
16 $1.15 $13.25 49 $3.25 $37.45
17 1.20 13.50 50 3.40 39.25
18 1.20 13.80 51 3.60 41.10
19 1.20 14.10 52 3.75 43.10
20 1.25 14.40 53 3.95 45.30
21 1.30 14.75 54 4.15 47.55
22 1.30 15.10 55 4.35 50.00
23 1.35 15.45 56 4.60 52.65
24 1.40 15.80 57 4.85 55.45
25 1.40 16.20 58 5.10 58.45
26 1.45 16.65 59 5.40 61.65
27 1.50 17.10 60 5.70 65.05
28 1.50 17.55 61 6.00 67.25
29 1.55 18.05 62 6.40 71.10
30 1.60 18.55 63 6.80 75.30
31 1.65 19.10 64 7.20 79.85
32 1.70 19.70 65 7.65 84.70
33 1.75 20.30 66 8.15 89.95
34 1.80 20.95 67 8.65 95.60
35 1.90 21.65 68 9.25 101.70
36 1.95 22.40 69 9.85 108.30
37 2.00 23.15 70 10.55 115.45
38 2.10 24.00 71 11.30 123.15
39 2.15 24.85 72 12.15 131.55
40 2.25 25.80 73 13.00 140.60
41 2.30 26.80 74 14.00 150.50
42 2.40 27.85 75 15.10 161.20
43 2.50 28.95 76 16.25 172.85
44 2.60 30.15 77 17.55 185.55
45 2.70 31.45 78 19.00 199.35
46 2.85 32.80 79 20.60 214.45
47 2.95 34.25 80 and over22.35 230.90
48 3.10 35.90
The premium rates as stated in said table shall be based upon the
attained age nearest birthday of the insured as of July 1, 1935. Each
insured under a pure assessment fraternal certificate shall, after premiums
in accordance with the above table have been paid for three full years, be
entitled to the nonforfeiture options of extended term insurance, paid up
insurance or certificate loans to the extent of the tabular reserve to the
credit of such certificate.
9. Any insured under a pure assessment fraternal certificate may, in lieu of
making premium payments in accordance with the premium table specified in the
preceding section, elect to continue to make monthly payments upon his
certificate at the rate paid for the month of January, 1935. In the event of
such election, the certificate upon which such payment is made shall
automatically be reduced to such face amount of whole life insurance (with the
reserve thereon computed according to the American Experience Table of Mortality
with an interest assumption of 4%), as the payment actually made would purchase
at the rates specified in said premium table for the attained age nearest
birthday of the insured as of July 1, 1935. The payment by any insured for the
month of July, 1935, and subsequent months at the rate paid by such insured for
the month of January, 1935, shall be considered an election by such insured to
reduce the amount of his certificate and continue the same in force for such
reduced face amount. Each insured who elects to continue to make monthly
payments upon his certificate at the rate paid for the month of January, 1935
shall, after such payments have been made for three full years, be entitled to
the nonforfeiture options of extended term insurance, paid up insurance or
certificate loans to the extent of the tabular reserve to the credit of such
certificate.
10. Every fraternal certificate issued prior to January 1, 1938, which contains
nonforfeiture provisions is, with respect to such provisions, hereby amended as
follows:
In the event the owner does not within sixty days after the due date of
any premium in default elect in writing any of the other available nonforfeiture
options, the insurance will be automatically be continued in force as
nonparticipating extended term insurance in accordance with the extended term
insurance provision of the certificate: Provided, however, that the insurance
under a certificate which does not contain an extended term insurance provision
will be automatically continued in force as nonparticipating paid up insurance
in accordance with the paid up insurance provision of the certificate.
11. The owner of each fraternal certificate in good standing prior to the
transformation of the corporation from a fraternal benefit society to a mutual
life insurance company shall have the right after such transformation to
transfer the insurance evidenced by such certificate to the mutual life plan in
the manner provided by law. The company shall not have the right to levy an
assessment against the owner of such transferred insurance or impose a lien
against the reserve standing to the credit thereof.
12. The right and power heretofore existing in the corporation to levy
an assessment in addition to the gross premiums payable with respect to
each fraternal certificate is hereby irrevocably waived.
13. The term "fraternal certificate", wherever the same appears in
these bylaws, shall mean and apply to all beneficiary certificates issued
by the corporation prior to its transformation from a fraternal benefit
society to a mutual life insurance company.
Schedule 1.23
THIRD-PARTY REINSURANCE AGREEMENTS
Name of SBL Co # or Effective Reins Type
Reinsurer Reinsurer # Date
Reinsurer
American Home Life Insurance(KS Bar) 102 6/1/56 CO/I
American United Life Insurance 168 9/1/82 YRT/I
Business Men's Assurance 106 5/15/61 YRT/I
Connecticut General Life Insurance 100 6/1/86 YRT/I
Connecticut General Life 113 5/1/85 YRT/I
Connecticut General Life Insurance 166 6/1/86 YRT/I
Globe Life & Accident(KS Bar) 110 6/1/56 CO/I
Integrated Resources 189 7/1/86 YRT/I
Kansas City Life (KS Bar) 138 6/1/56 CO/I
Kansas Farm Bureau (KS Bar) 122 6/1/56 CO/I
Life Investors Insurance Company 143 11/1/65 CO/I
Life Reassurance (General Reassurance) 45 1/1/82 YRT/I
Life Reassurance (General Reassurance) 46 1/1/82 YRT/I
Life Reassurance (General Reassurance) 47 1/1/82 YRT/I
Life Reassurance (General Reassurance) 48 1/1/82 YRT/I
Life Reassurance (General Reassurance) 50 2/1/84 YRT/I
Life Reassurance (General Reassurance) 51 2/1/84 YRT/I
Life Reassurance (General Reassurance) 52 2/1/84 YRT/I
Life Reassurance (General Reassurance) 55 1/1/82 YRT/I
Life Reassurance (General Reassurance) 59 1/1/82 YRT/I
Life Reassurance (General Reassurance) 61 2/1/84 YRT/I
Life Reassurance (General Reassurance) 62 2/1/84 YRT/I
Life Reassurance (General Reassurance) 115 8/1/85 YRT/I
Life Reassurance (General Reassurance) 162 6/1/86 YRT/I
Lincoln National Life Insurance 20 1/1/81 OTH/G
Lincoln National Life Insurance 21 10/1/80 YRT/I
Lincoln National Life Insurance 22 10/1/80 YRT/I
Lincoln National Life Insurance 23 10/1/80 YRT/I
Lincoln National Life Insurance 24 10/1/80 YRT/I
Lincoln National Life Insurance 29 11/1/86 YRT/I
Lincoln National Life Insurance 30 10/1/80 YRT/I
Lincoln National Life Insurance 114 12/28/84 YRT/I
Lincoln National Life Insurance 128 4/22/53 YRT/I
Lincoln National Life Insurance 171 4/22/53 YRT/I
Metropolitan Life Insurance Company 134 1/1/55 YRT/I
Prudential Life Insurance 141 9/25/65 YRT/I
Security Life of Denver 11 8/1/82 YRT/I
Security Life of Denver 13 1/1/84 YRT/I
Security Life of Denver 14 5/1/84 YRT/I
Security Life of Denver 16 5/1/94 YRT/I
Special Pooled Risk Administrators 101 4/23/73 YRT/I
Swiss Re Life & Health America Inc. 2 1/1/92 YRT/I
Swiss Re Life & Health America Inc. 3 1/1/92 YRT/I
Transamerica Occidental 1 7/1/87 CO/I
Transamerica Occidental 137 8/1/82 YRT/I
Transamerica Occidental 195 11/1/71 YRT/I
Victory Life Insurance(KS Bar) 150 6/1/56 CO/I
Schedule 1.23
Schedule 3.1
FORM OF EFFECTIVE DATE ACCOUNTING
Schedule 3.7
INTERIM MONTHLY ACCOUNTING
Required Balance of the Security Trust
Exhibit 8 Reserve Summary
Exhibit 10 Reserve Summary
Premiums
Preliminary Premium Tax Calculation (Section 3.14)
Gross and Net Due and Deferred Premiums
Advance Premiums
Cost of Collection Liability
Change in Policy Loans
Change in Agent Debit Balances
Claims Paid
Commissions Paid
Surrenders Paid
Insurance Inforce Exhibit
Schedule 3.8
QUARTERLY ACCOUNTING
Required Balance of the Security Trust
Risk-Based Capital Calculation
Exhibit 8 Reserve Summary
Exhibit 10 Reserve Summary
Premiums By State
Preliminary Premium Tax Calculation (Section 3.14)
Gross and Net Due and Deferred Premiums
Advance Premiums
Cost of Collection Liability
Policy Loans
Claims Paid
Commissions Paid
Surrenders Paid
Insurance Inforce Exhibit
Additional Information At Year End:
Claims Paid by State
Surrenders Paid by State
Insurance Exhibit by State (number of policies and face amount) Exhibit 8
Reserves by Valuation Basis Applicable Exhibit 7 and Exhibit 10 Information
Schedule 4.11
CONVERSION PLANS
The following plans will remain available for conversion purposes:
Security 25/10
Security UL
Flex10 (used only for flex 10 conversion) DT to 100 (used only for Flex 10
conversions)
Schedule 6.4
DISCLOSURE OF LITIGATION AND COMPLAINTS
Schedule 16.6
RECAPTURE FEE
The recapture fee will be based on the same methodology and
assumptions as the Actuarial Appraisal of Traditional and Interest
Sensitive Life Insurance Business As of March 31, 1997 dated May 1997. The
Recapture Fee will be determined using the discount rate implicit in the
Ceding Commission set forth in Section 1.4 of this Coinsurance Agreement.
The Recapture Fee will be the amount calculated as described above less
$1,500,000.
