FORM 10-Q
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------- to ------------
COMMISSION FILE NUMBER 33-64820
AMERICO LIFE, INC.
(Exact name of registrant as specified in its charter)
MISSOURI
(State of other jurisdiction of incorporation or organization)
43-1627599
(I.R.S. Employer Identification No.)
1055 BROADWAY
KANSAS CITY, MISSOURI 64105
(Address of principal executive offices)
(816) 391-2000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class and Title of Shares Outstanding
Capital Stock as of August 12, 1996
------------- -----------------
Common Stock, $1.00 Par Value 10,000
</PAGE>
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands - unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
________ ___________
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(market: $ 796,167 and $832,417) $ 826,711 $ 808,909
Available for sale, at market
(amortized cost: $549,441 and $657,862) 539,447 673,949
Equity securities, at market (cost: $22,005
and $27,989) 33,299 36,805
Investment in equity subsidiaries 46,128 49,035
Mortgage loans on real estate, net 209,578 220,418
Investment real estate, net 4,266 4,292
Policy loans 208,181 210,926
Other invested assets 10,470 10,300
__________ _________
Total investments 1,878,080 2,014,634
Cash and cash equivalents 126,549 58,996
Accrued investment income 22,840 23,889
Amounts receivable from reinsurers 128,231 97,924
Other receivables 35,272 11,442
Deferred policy acquisition costs 67,731 56,568
Present value of future profits acquired 156,624 163,660
Amounts due from affiliates 1,443 7,041
Other assets 25,010 25,651
__________ __________
Total assets $2,441,780 $2,459,805
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Policyholder account balances $1,184,526 $1,140,535
Reserves for future policy benefits 675,925 683,899
Unearned policy revenues 29,821 26,875
Policy and contract claims 29,204 22,506
Other policyholder funds 85,783 92,707
Notes payable 133,322 133,451
Amounts payable to reinsurers 34,212 39,761
Deferred income taxes 37,855 43,033
Amounts due to affiliates 137 -
Due to brokers 2,965 44,998
Other liabilities 43,673 41,277
__________ __________
Total liabilities 2,257,423 2,269,042
Stockholder's equity:
Common stock ($1 par value; 30,000 shares authorized,
10,000 shares issued and outstanding) 10 10
Additional paid-in capital 3,745 3,745
Net unrealized investment gains 33,655 46,204
Retained earnings 146,947 140,804
__________ __________
Total stockholder's equity 184,357 190,763
__________ __________
Commitments and contingencies
Total liabilities and stockholder's equity $2,441,780 $2,459,805
========== ==========
See notes to consolidated financial statements
</PAGE>
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, except per share amounts - unaudited)
</TABLE>
<TABLE>
<CAPTION>
Three Months Six Months
ended June 30, ended June 30,
_____________ ______________
1996 1995 1996 1995
____ ____ ____ ____
<S> <C> <C> <C> <C>
INCOME
Premiums and policy revenues $ 39,163 $ 32,032 $ 80,355 $ 65,669
Net investment income 42,991 35,324 86,659 70,060
Net realized investment losses (494) (33) (1,259) (663)
Other income 304 23 449 130
_________ _________ _________ _________
Total income 81,964 67,346 166,204 135,196
_________ _________ _________ _________
BENEFITS AND EXPENSES
Policyholder benefits:
Death benefits 24,113 15,938 47,543 33,477
Interest credited on universal
life and annuity products 17,771 13,362 35,732 27,615
Other policyholder benefits 12,763 7,834 27,008 17,119
Change in reserves for
future policy benefits (4,613) (1,919) (8,088) (4,303)
Commissions 3,316 2,585 5,820 4,378
Amortization expense 6,484 5,846 13,352 12,039
Interest expense 3,014 2,313 6,048 4,626
Other operating expenses 14,518 11,035 27,989 22,740
_________ _________ _________ _________
Total benefits and expenses 77,366 56,994 155,404 117,691
_________ _________ _________ _________
Income before provision for
income taxes 4,598 10,352 10,800 17,505
Provision for income taxes 1,572 3,934 3,657 6,299
_________ _________ _________ _________
Net income $ 3,026 $ 6,418 $ 7,143 $ 11,206
========= ========= ========= =========
Net income per common share $ 302.60 $ 641.80 $ 714.30 $1,120.60
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
</PAGE>
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands - unaudited)
<TABLE>
<CAPTION>
Six months
ended June 30,
____________________
1996 1995
________ _________
<S> <C> <C>
Cash flows from operating activities
Net income $ 7,143 $ 11,206
________ ________
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 14,787 12,952
Deferred policy acquisition costs (9,659) (9,742)
Undistributed earnings of equity subsidiaries (3,068) (5,074)
Distribution of earnings from equity subsidiary 6,000 -
Amortization of unrealized gains (2,417) (4,694)
(Increase) decrease in assets:
Accrued investment income 1,048 (1,518)
Amounts receivable from reinsurers (30,307) (11,327)
Other receivables (23,830) (20,672)
Other assets, net of depreciation
and amortization 394 2,052
Increase (decrease) in liabilities:
Policyholder account balances (405) (7,554)
Reserves for future policy benefits
and unearned policy revenues (5,632) 17,626
Policy and contract claims 6,698 (1,520)
Other policyholder funds (6,924) (119)
Amounts payable to reinsurers (5,549) (1,025)
Federal income taxes payable - 800
Provision for deferred income taxes 1,860 2,217
Amounts due to affiliates 5,734 (598)
Other liabilities 2,397 (1,383)
Net realized losses on investments sold 1,259 663
Amortization on bonds and mortgage loans 135 439
Other changes (2,331) (1,220)
________ ________
Total adjustments (49,810) (29,697)
________ ________
Net cash used by operating activities (42,667) (18,491)
________ ________
Cash flows from investing activities
Purchases of fixed maturity investments (85,849) (79,331)
Purchases of other investments (9,233) (10,221)
Maturities or redemptions of fixed
maturity investments 12,807 36,529
Sales of fixed maturity investments:
Held to maturity - 5,915
Available for sale 160,582 30,501
Sales of other investments 16,302 536
Mortgage loans originated (337) (9,874)
Repayments from mortgage loans 12,110 10,555
Change in due to brokers (42,034) 963
Change in policy loans 2,745 (2,215)
________ ________
Net cash provided (used) by investing
activities 67,093 (16,642)
________ ________
(continued)
See notes to consolidated financial statements
</PAGE>
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT'D)
(In Thousands - unaudited)
</TABLE>
<TABLE>
<CAPTION>
Six months
ended June 30,
______________
1996 1995
____ ____
<S> <C> <C>
Cash flows from financing activities
Receipts on universal life-type and annuity
policies credited to policyholder
account balances $ 96,004 $ 81,576
Return of policyholder account balances on
universal life-type and annuity policies (51,608) (61,844)
Repayments of notes payable (269) (18)
Dividends paid (1,000) (1,000)
_________ __________
Net cash provided by financing activities 43,127 18,714
_________ __________
Net increase (decrease) in cash and
cash equivalents 67,553 (16,419)
Cash and cash equivalents at beginning
of period 58,996 110,766
_________ __________
Cash and cash equivalents at end of period $ 126,549 $ 94,347
========= ==========
</TABLE>
See notes to consolidated financial statements
</PAGE>
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Six Months Ended June 30, 1996 and 1995
(In Thousands, except per share amounts - unaudited)
The following notes should be read in conjunction with the notes to the
consolidated financial statements contained in the Americo Life, Inc. ("the
Company") December 31, 1995 Form 10-K as filed with the Securities and Exchange
Commission.
1. ACCOUNTING POLICIES
The unaudited consolidated financial statements as of June 30, 1996 and for
the three and six months ended June 30, 1996 reflect all adjustments,
consisting of normal recurring adjustments, which are necessary for a fair
statement of financial position and results of operations on a basis
consistent with accounting principles described fully in Note 1 of the
Company's December 31, 1995 consolidated financial statements. The results
of operations for the three and six months ended June 30, 1996 and 1995 are
not necessarily indicative of the results experienced for the full year 1995,
nor the results to be expected for the full year 1996.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Certain amounts were reclassified in the June 30, 1995 financial statements
to conform to the 1996 presentation.
On January 1, 1996, the Company implemented Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of" (SFAS No. 121). SFAS No. 121
establishes accounting standards for the impairment of long lived assets,
certain identifiable intangibles and goodwill related to the assets to be
held and used and for long lived assets and certain identifiable intangibles
to be disposed of. Implementation of this new accounting standard did not
have a material impact on the consolidated financial statements of the
Company.
2. STOCKHOLDER'S EQUITY
Following are the components of net unrealized investment gains:
<TABLE>
<CAPTION>
Change in
Six Months
Ended
June 30, December 31, June 30,
1996 1995 1996
_________ ____________ ________
<S> <C> <C> <C>
Investment securities:
Fixed maturities available for sale $ (9,994) $ 16,087 $ (26,081)
Fixed maturities reclassified from
available for sale to held to
maturity 57,065 59,485 (2,420)
Equity securities 11,294 8,816 2,478
________ _________ ________
58,365 84,388 (26,023)
Effect on other balance sheet
accounts:
Net effect on other balance sheet
accounts (7,978) (14,749) 6,771
Deferred income taxes (16,732) (23,435) 6,703
_________ _________ _________
Net unrealized investment gains $ 33,655 $ 46,204 $ (12,549)
========== ========== ===========
</TABLE>
</PAGE>
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Six Months Ended June 30, 1996 and 1995
(In Thousands, except per share amounts - unaudited)
Changes in unrealized gains or losses of investment securities reflect
changes in market conditions.
During the six months ended June 30, 1996, the Company paid dividends to
Financial Holding Corporation (FHC) totalling $1,000.
3. PRO FORMA FINANCIAL INFORMATION
The Company acquired all the outstanding common stock of The Victory Life
Insurance Company on July 10, 1995. The Company also acquired the insurance
business of The Kansas Life Insurance Company through assumption
reinsurance. The results of operations of the acquired business is
included in the Company's consolidated results of operations from the date
of the acquisition.
Summarized unaudited pro forma consolidated financial information of the
Company for the six months ended June 30, 1995, assuming the transactions
had occurred on January 1, 1995 is as follows:
Total revenue $ 149,867
Net income 11,280
Net income per common share $ 1,128.00
4. SUBSEQUENT EVENT
In February 1996, the Company entered into an agreement with Fremont
General Corporation to provide administrative services for certain life
insurance and annuity policies (28,000 at June 30, 1996) of Fremont Life
Insurance Company (Fremont Life). On July 2, 1996, the Company entered
into several agreements with Fremont Life and a third-party reinsurer ("the
Reinsurer"). One of the agreements resulted in Fremont Life reinsuring
certain of its insurance liabilities to the Reinsurer on a coinsurance
basis. Fremont Life transferred approximately $352,000 of insurance
liabilities and an equal amount of assets to the Reinsurer and received a
ceding commission of $36,870. The Reinsurer entered into a modified
coinsurance agreement to reinsure certain risks on the same insurance
policies to Great Southern Life Insurance Company (Great Southern). The
modified coinsurance agreement provides that the assets and insurance
liabilities related to the reinsured policies are to be retained by the
Reinsurer.
The Reinsurer will receive all statutory profits from the reinsured
policies until the Reinsurer has recovered the initial ceding commission.
Upon termination of the modified coinsurance agreement, Great Southern is
required to reimburse the Reinsurer for the amount of the unrecovered ceding
commission. The Company will account for its obligations under the
modified coinsurance agreement by recording a liability to the Reinsurer
for the present value of the payments projected to be paid to the
Reinsurer. The Company will record a receivable from the Reinsurer equal
to the statutory liabilities held by the Reinsurer. The Company will net
the receivable from the Reinsurer against its liability to the Reinsurer
and will present a net liability on its balance sheet. The Company will
record a present value of future profits acquired asset equal to its net
liability at the inception of the agreement.
Great Southern also entered into reinsurance agreements with Fremont Life
to reinsure certain of these insurance and annuity policies on an
assumption basis. The policies will be assumed by Great Southern subject
to the coinsurance agreement in place between Fremont Life and the
Reinsurer. Great Southern will record the direct insurance liabilities
and a related reinsurance recoverable from the Reinsurer upon completion
of the assumption reinsurance transaction. The Company expects to
complete the assumption of the policies, subject to necessary insurance
department and policyholder approvals and certain other conditions,
before the end of 1996.
</PAGE>
<PAGE>
AMERICO LIFE, INC AND SUBSIDIARIES
NOTES TO CONOLIDATED FINANCIAL STATEMENTS
For Six Months Ended June 30, 1996 and 1995
(In Thousands, except per share amounts - unaudited)
5. CONTINGENCIES
Great Southern is a defendant in a purported class action lawsuit brought
on May 13, 1996, in the 18th Judicial District Court (Parish of Pointe
Coupee) of the State of Louisiana, by two policyholders, Sharon K. Self and
Johnnie W. Self, claiming damages unspecified in amount, in connection with
the sales of certain life insurance policies. The Company intends to defend
the suit vigorously, and has removed the lawsuit to the United States
District Court for the Middle District of Louisiana, on the basis that a
co-defendant insurance agent was fraudulently joined for the purpose of
defeating federal jurisdiction. Plaintiffs have filed a motion to remand
the suit to Louisiana state court, alleging that the removal to federal
court was improper. This motion is pending at this time. The petition
alleges that plaintiffs and other Louisiana policyholders were promised
that policies would be completely paid-up within a certain number of
years or payments, and were misled by inaccurate illustrations and other
alledged misrepresentations and wrongful conduct. The plaintiffs seek
certification of a class of all Louisiana residents who purchased or were
named beneficiaries of the Company's whole and/or univeral life policies
subsequent to 1981. The Company denies the allegations, including the
existence of a legitimate class, and believes that the allegations are
without merit. The suit is in its early procedural stages.
The amount of any liability that may arise as a result of this suit, if any,
cannot be reasonably estimated and no provision for loss has been made in
the accompanying financial statements.
</PAGE>
<PAGE>
AMERICO LIFE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In 1995, the Company entered into two transactions which affect the
comparability of the Company's results of operations for the three and six
months ended June 30,1996 and 1995. In July 1995, the Company acquired all
the outstanding common stock of The Victory Life Insurance Company (Victory
Life). The Company also reinsured all the insurance business of The Kansas
Life Insurance Company (Kansas Life), the former parent of Victory Life.
The insurance business of Victory Life and Kansas Life is collectively
referred to as Victory Life in the following discussion. The results of
operations of this insurance business are included in the Company's results
of operations for the three and six months ended June 30, 1996.
In October 1995, in connection with administrative and marketing agreements
entered into with The Ohio Casualty Insurance Company and The Ohio Life
Insurance Company (Ohio Life), an unaffiliated company ("the Reinsurer")
reinsured 100% of the insurance business of Ohio Life on a coinsurance basis.
The Reinsurer reinsured certain risks on these same liabilities to Great
Southern Life Insurance Company (Great Southern), a wholly-owned subsidiary of
the Company, on a modified coinsurance basis. The invested assets related to
this business are owned by the Reinsurer. The Company has offset the receivable
from the Reinsurer against its libilities under the modified coinsurance
agreement in the Company's consolidated balance sheet. At June 30, 1996,
the insurance business of Ohio Life, consisting primarily of annuities and
universal life policies, had aggregate insurance liabilities of $314.6 million.
The effects of this modified coinsurance agreement are included in the Company's
results of operations for the three and six months ended June 30, 1996.
This business is referred to as the Ohio block in the following discussion.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Income before provision for income taxes for the first six months of 1996 was
$10.8 million compared to $17.5 million for the same period in 1995.
Although the above referenced transactions had a positive effect on income
before income taxes for the six months ended June 30, 1996, income before income
taxes decreased from the first six months of 1995 primarily due to (i) a
decrease in investment income (ii) an increase in death benefits (iii) an
increase in interest expense and (iv) an increase in other operating expenses.
These items and significant changes in individual income statement components
are discussed in more detail below.
PREMIUMS AND POLICY REVENUES
Premiums and policy revenues increased to $80.4 million for the six months ended
June 30, 1996 from $65.7 million for the six months ended June 30, 1995.
Victory life and the Ohio block contributed $16.7 million of premiums and policy
revenues for the six months ended June 30, 1996. Excluding Victory Life and the
Ohio block, premiums and policy revenues decreased $2.1 million. Traditional
premiums decreased $1.2 million from the six months ended June 30, 1995 to the
six months ended June 30, 1996. Traditional life premiums will continue to
decrease as the Company currently writes little new traditional business.
Additionally, policy revenues were $0.9 million lower in the six months ended
June 30, 1996 compared to the same period in 1995 due to lower surrender charge
income in 1996.
NET INVESTMENT INCOME
Net investment income increased $16.6 million for the six months ended June 30,
1996 from the six months ended June 30, 1995. Excluding $20.2 million of net
investment income from Victory Life and the Ohio block, net investment income
decreased $3.6 million from 1995 to 1996. The primary reasons for the decrease
in net investment income are i) a decrease in income on fixed maturity
securities due to changes in expected prepayment rates, and ii) a decrease in
income from equity subsidiaries of $1.9 million.
</PAGE>
<PAGE>
Management continually evaluates the expected prepayments of the mortgage-backed
securities ("MBS") portfolio to more accurately reflect expected paydowns on the
securities as market interest rates change. During the six months ended June 30,
1996, expected prepayments of the portfolio were slowed down as interest rates
increased. During the six months ended June 30, 1995, expected prepayments of
the portfolio were accelerated as interest rates had declined. As a result of
changes in expected prepayments, amortization of premiums and accretion of
discounts were reduced in 1996 and accelerated in 1995. These changes resulted
in a decrease in investment income of $0.5 million in 1996 and an increase in
investment income of $1.4 million in 1995.
POLICYHOLDER BENEFITS
Policyholder benefits, excluding $25.8 million of policyholder benefits of
Victory Life and the Ohio block, increased $2.5 million from the six months
ended June 30,1995 to the six months ended June 30, 1996. Death benefits,
excluding Victory Life and the Ohio block, were $6.6 million higher for the
six months ended June 30, 1996 compared to the same period in 1995. Death
benefits on universal life-type policies increased $6.8 million from 1995 to
1996. This increase was partially offset by a $0.2 million decrease in
traditional life death benefits.
OTHER OPERATING EXPENSES
Other operating expenses totalled $28.0 million for the six months ended June
30, 1996 compared to $22.7 million for the same period in 1995. The increase
in other operating expenses from 1995 to 1996 primarily resulted from expenses
associated with servicing the policies of Victory Life and the Ohio block in
1996. Other operating expenses also increased due to costs associated with the
Company's marketing efforts in markets new to the Company.
INTEREST EXPENSE
Interest expense totalled $6.0 million for the six months ended June 30, 1996
compared to $4.6 million for the same period in 1995. Average outstanding
indebtness was $133.4 million with an average cost of 9.10% for the six months
ended June 30, 1996 compared to an average outstanding balance of $100.7 million
with an average cost of 9.19% for the same period in 1995. The increase in
average outstanding indebtedness from 1995 to 1996 resulted from $32.8 million
of notes payable issued in connection with the acquisition of Victory Life in
July 1995. The remaining principal outstanding on these notes payable at June
30, 1996, was $32.7 million.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Income before provision for income taxes for the three months ended June 30,
1996 was $4.6 million compared to $10.3 million for the same period in 1995.
Although the Victory Life and Ohio block transactions had a positive effect on
income before income taxes for the three months ended June 30, 1996, income
before income taxes decreased from the three months ended June 30, 1995
primarily due to (i) a decrease in investment income (ii) an increase in
death benefits and (iii) an increase in interest expense and (iv) an increase
in other operating expenses. These items and significant changes in individual
income statement components are discussed in more detail below.
PREMIUMS AND POLICY REVENUES
Premiums and policy revenues increased to $39.1 million for the three months
ended June 30, 1996 from $32.0 million for the three months ended June 30,
1995. Victory Life and the Ohio block contributed $7.4 million of premiums
and policy revenues for the three months ended June 30, 1996. Excluding
Victory Life and the Ohio block, premiums and policy revenues decreased $0.3
million. Traditional premiums decreased $0.6 million from the three months
ended June 30, 1995 to the three months ended June 30, 1996. The decrease in
traditional premiums was offset however by an increase in policy revenues of
$0.3 million.
</PAGE>
<PAGE>
NET INVESTMENT INCOME
Net investment income increased $7.6 million for the three months ended June 30,
1996 from the three months ended June 30, 1995. Excluding $9.9 million of net
investment income from Victory Life and the Ohio block, net investment income
decreased $2.3 million from 1995 to 1996. The primary reasons for the decrease
in net investment income are (i) a decrease in income on fixed maturity
securities due to changes in expected prepayment rates, and (ii) a decrease
in income from equity subsidiaries of $0.8 million.
Consistent with the six months ended June 30, 1996 and 1995, changes in expected
prepayments rates of the MBS portfolio decreased investment income $0.5 million
for the three months ended June 30, 1996 and increased investment income $1.0
million for the three months ended June 30, 1995.
POLICYHOLDER BENEFITS
Policyholder benefits, excluding $12.2 million of policyholder benefits of
Victory Life and the Ohio block, increased $2.6 million from the three months
ended June 30, 1995 to the three months ended June 30, 1996. Death benefits,
excluding Victory Life and the Ohio block, were $4.2 million higher for the
three months ended June 30, 1996 compared to the same period in 1995. Death
benefits on universal life-type policies increased $5.2 million from 1995 to
1996, partially offset by a $1.0 million decrease in death benefits on
traditional policies.
OTHER OPERATING EXPENSES
Other operating expenses totalled $14.5 million for the three months ended June
30, 1996 compared to $11.0 million for the same period in 1995. The increase in
other operating expenses from 1995 to 1996 primarily resulted from expenses
associated with servicing the policies of Victory Life and the Ohio block in
1996. Other operating expenses also increased due to costs associated with the
Company's marketing efforts in markets new to the Company.
INTEREST EXPENSE
Interest expense totalled $3.0 million for the three months ended June 30, 1996
compared to $2.3 million for the same period in 1995. Average outstanding
indebtness was $133.4 million with an average cost of 9.04% for the three months
ended June 30, 1996 compared to an average outstanding balance of $100.7 million
with an average cost of 9.19% for the same period in 1995. The increase in
average outstanding indebtedness from 1995 to 1996 resulted from $32.8 million
of notes payable issued in connection with the acquisition of Victory Life in
July 1995.
FINANCIAL RESOURCES AND LIQUIDITY
The changes occurring in the Company's consolidated balance sheet from December
31, 1995 to June 30, 1996 primarily reflect the normal operations of the
Company's life insurance subsidiaries.
The quality of the Company's investment in fixed maturity investments at
June 30, 1996 remained consistent with December 31, 1995. Non-investment
grade securities totalled less than 2.0% of the Company's total fixed maturity
investments at June 30, 1996. The Company has not made any significant changes
to its investment philosophy during 1996. Cash and cash equivalents increased
from $59.0 million at December 31, 1995 to $126.5 million at June 30, 1996,
primarily resulting from the reinvestment of repayments from fixed maturity
securities into short-term investments.
In February 1996, GSSW Limited Partnership ("GSSW"), a 50%-owned subsidiary,
made a cash distribution of $6.0 million to Great Southern.
</PAGE>
<PAGE>
The Company had net unrealized investment losses of $12.5 million during the
first six months of 1996. The net unrealized investment losses during this
period resulted from increasing interest rates which decreased the market
values of fixed maturity investment securities. The components of the change
during the six months ended June 30, 1996 are (in millions):
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized investment gains $(26.0)
Effect on insurance assets and liabilities 6.8
Deferred income tax effect 6.7
_______
$(12.5)
=======
</TABLE>
Great Southern is a defendant in a purported class action lawsuit brought by
two policyholders claiming damages unspecified in amount, in connection with
the sales of certain life insurance policies. The petition alleges that
plaintiffs and other Louisiana policyholders were promised that policies would
be completely paid-up within a certain number of years or payments, and were
misled by inaccurate illustrations and other alleged misrepresentations and
wrongful conduct. For a further discussion of this matter, see Note 5 to the
June 30, 1996 consolidated financial statements contained elsewhere in this
Form 10-Q.
SUBSEQUENT EVENT
On July 2, 1996, the Company entered into several agreements under which the
Company will administer and assume certain risks of life insurance and annuity
policies of Fremont Life Insurance Company. The reinsurance and related
agreements are not expected to have a material impact on the Company's financial
resources or liquidity. See Note 4 to the June 30, 1996 consolidated financial
statements contained elsewhere in this Form 10-Q for a further discussion of
this transaction.
</PAGE>
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. Legal Proceedings
Great Southern is a defendant in a purported class action lawsuit brought on
May 13, 1996, in the 18th Judicial District Court (Parish of Pointe Coupee) of
the State of Louisiana, by two policyholders, Sharon K. Self and Johnnie W.
Self, claiming damages unspecified in amount, in connection with the sales
of certain life insurance policies. The Company intends to defend the suit
vigorously, and has removed the lawsuit to the United States District Court of
the Middle District of Louisiana, on the basis that a co-defendant insurance
agent was fraudulently joined for the purpose of defeating federal
jurisdiction. Plaintiffs have filed a motion to remand the suit to Louisiana
state court, alleging that the removal to federal court was improper. This
motion is pending at this time. The petition alleges that plaintiffs and other
Louisiana policyholders were promised that policies would be completely paid-up
within a certain number of years or payments, and were misled by inaccurate
illustrations and other alledged misrepresentations and wrongful conduct. The
plaintiffs seek certification of a class of all Louisiana residents who
purchased or were named beneficiaries of the Company's whole and/or universal
life policies subsequent to 1981. The Company denies the allegations, including
the existence of a legitimate class, and believes that the allegations are
without merit.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Incorporated by
reference from:
2.1(a) (2) Stock Purchase Agreement dated as of March 5, 1995 by
and among Victory Financial Group, Inc., its wholly-
owned subsidiary, The Kansas Life Insurance Company and
the Registrant.
2.1(b) (3) Letter Agreement dated July 10, 1995 among Registrant
and Victory Financial Group, Inc. respecting certain
provisions of the Stock Purchase Agreement.
2.1(c) (3) Pledge and Escrow Agreement dated July 10, 1995 among
the Registrant, Victory Financial Group, Inc. and
NationsBank of Texas, N.A.
2.1(d) (3) Indemnity Agreement Respecting Mortgages (and other
matters) dated July 10, 1995 between Victory Financial
Group, Inc. and Registrant.
2.1(e) (3) Letter Agreement dated as of July 7, 1995 among
Registrant, The Victory Life Insurance Company and
Victory Financial Group, Inc. regarding estimated
federal income tax deposits.
2.2 (3) Reinsurance, Transfer and Assumption Agreement dated as
of July 5, 1995, between Kansas Life Insurance Company
and National Farmers Union Life Insurance Company.
3.1 (1) Restated Articles of Incorporation, as amended, of the
Registrant.
3.2 (1) Bylaws, as amended, of the Registrant.
10.1(a) (4) Master Agreement dated February 26, 1996 among Fremont
Life Insurance Company, Fremont General Corp., the
Registrant and Great Southern Life Insurance Company.
10.1(b) First Amendment to Master Agreement dated as of July 1,
1996, among Fremont Life Insurance Company, Fremont
General Corp., Registrant and Great Southern Life
Insurance Company.
10.1(c) Letter Agreement dated as of July 1, 1996, among Fremont
General Corp., Fremont Life Insurance Company,
Registrant and Great Southern Life Insurance Company.
</PAGE>
<PAGE>
10.1(d) Services Agreement dated as of July 1, 1996, between
Registrant and Fremont Life Insurance Company.
10.1(e) Assumption Reinsurance and Coinsurance Agreement
(Universal Life) dated as of July 1, 1996, between
Fremont Life Insurance Company and Great Southern Life
Insurance Company.
10.1(f) Assumption Reinsurance and Coinsurance Agreement
(Annuities) dated as of July 1, 1996, between Fremont
Life Insurance Company and Great Southern Life Insurance
Company.
10.1(g) Assignment and Assumption Agreement dated as of July 1,
1996, between Fremont Life Insurance Company and Great
Southern Life Insurance Company.
10.1(h) Automatic Coinsurance Universal Life Reinsurance
Agreement dated as of December 31, 1995, between
Fremont Life Insurance Company and Employers
Reassurance Corporation.
10.1(i) Amendment No. 1 to the Automatic Coinsurance Universal
Life Reinsurance Agreement dated as of December 31,
1995, between Employers Reassurance Corporation and Fremont
Life Insurance Company.
10.1(j) Automatic Coinsurance Annuity Reinsurance Agreement dated
as of January 1 1996, between Employers Reassurance
Corporation and Fremont Life Insurance Company.
10.1(k) Amendment No. 1 to the Automatic Coinsurance Annuity
Reinsurance Agreement dated as of January 1, 1996,
between Employers Reassurance Corporation and Fremont
Life Insurance Company.
10.1(l) Escrow Agreement dated as of July 1, 1996, among
Commerce Bank, Employers Reassurance Corporation and
Great Southern Life Insurance Company.
10.1(m) Modified Coinsurance Annuity Retrocession Agreement
dated as of January 1, 1996, between Employers
Reassurance Corporation and Great Southern Life
Insurance Company.
10.1(n) Modified Coinsurance Universal Life and Annuity
Retrocession Agreement dated as of December 31, 1995,
between Employers Reassurance Corporation and Great
Southern Life Insurance Company.
10.1(o) Amendment No. 1 to the Investment Management Agreement
dated as of December 31, 1995, between Registrant and
Employers Reassurance Corporation.
27 Financial Data Schedule
______________________________
(1) Registrant's Form S-4 (File No. 33-64820) filed June 22, 1993.
(2) Registrant's March 31, 1995 Form 10-Q.
(3) Registrant's Form 8-K dated as of July 10, 1995.
(4) Registrant's March 31, 1996 Form 10-Q
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended June 30,
1996.
</PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICO LIFE, INC.
BY: /s/ Gary E. Jenkins
_______________________________
Name: Gary E. Jenkins
Title: Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Date: August 13, 1996
<PAGE>
SERVICES AGREEMENT
This Services Agreement (the "Agreement") is made this ___ day of July, 1996,
by and among AMERICO LIFE, INC., a Missouri Corporation ("ALI"), and
FREMONT LIFE INSURANCE COMPANY, a California corporation ("Fremont") to be
effective as of January 1, 1996, for Section 2, and as of the date hereof, for
all other provisions.
WHEREAS, Fremont issues and reinsures individual and group annuity and life
insurance; and
WHEREAS, ALI provides administrative services as described in this
Agreement to insurance companies and has, or can readily obtain, qualified
personnel, equipment and facilities to perform such administrative services for
Fremont; and
WHEREAS, Fremont desires to engage ALI to assist Fremont in certain of its
administrative functions as described in this Agreement, and ALI is willing to
accept such engagement pursuant to the terms and subject to the conditions of
this Agreement;
NOW, THEREFORE, for and in consideration of the foregoing recitals, which
are incorporated into the operative provisions of this Agreement, and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
1. ADMINISTRATIVE SERVICES.
(a) Fremont hereby engages and appoints ALI, and ALI hereby agrees,
to provide to, and perform for, Fremont all of the administrative services
reasonably necessary to process, administer and account for the insurance
business of Fremont described on the attached Schedule A (the "Reinsured Busi-
ness"), including (i) those services described on the attached Schedule B and
(ii) all of the administrative obligations undertaken by Fremont under the
Automatic Coinsurance Life Reinsurance Agreement and the Automatic Coinsurance
Annuity Reinsurance Agreement with Employers Reassurance Corporation (the
"Fremont Life-ERC Reinsurance Agreements" and "ERC", respectively), including
the reporting obligations described in Article VIII thereof and the claims
administration obligations described in Article IX thereof (collectively, the
"Services") but specifically excluding all accounting, statutory reporting,
regulatory filings, premium tax returns and other administrative functions
respecting Fremont as a corporation but not the Reinsured Business.
During the period from the effective date hereof until September 30, 1996,
Fremont shall make available to ALI such employees of Fremont Life that ALI
requests for the purpose of fulfilling its obligations under this Agreement.
ALI shall supervise any of such employees in the performance of such
obligations, and shall reimburse Fremont Life for that portion of such
employees' payroll costs attributable to work done for ALI.
(b) Fremont hereby authorizes ALI to open and administer a bank
account on Fremont's behalf for purposes of this Agreement. Fremont's Board of
Directors shall adopt (and has adopted prior to the date hereof) any bank
resolutions requested by ALI authorizing the opening of such account and naming
ALI's representatives as authorized signatories for such account and any
existing Fremont accounts that are necessary for ALI to perform the Services.
Fremont shall forward promptly to ALI for
<PAGE>
deposit into such account all premiums and other amounts received by Fremont
from or for the account of policyholders. ALI shall deposit into such account
all amounts received by ALI with respect to the Reinsured Business. ALI shall
make all necessary disbursements from such account in connection with the
Services.
(c) ALI may from time to time, within its sole discretion, set
crediting rates on interest sensitive business and change the rates for cost of
insurance.
(d) Fremont's Board of Directors shall elect (and has elected prior
to the date hereof) any ALI representatives designated by it to serve as
officers of Fremont for the limited purpose of dealing with the Reinsured
Business.
2. SERVICE FEE. As consideration for rendering and providing the
Services, ALI shall be entitled to receive a service fee from Fremont calculated
as provided in the attached Schedule C, adjusted for any per policy fee changes
made in the expense allowance calculation under the Fremont Life-ERC Reinsurance
Agreements (the "Service Fee"). The Service Fee includes any taxes or fees
imposed by any state or local authority, which shall be the sole responsibility
of ALI. The Service Fee shall be payable to ALI within 25 days after receipt of
invoice, and shall constitute full compensation to ALI for ALI's performance of
the Services. The Service Fee shall be paid by the disbursement of such amount
from the account described in Section 1(b).
ALI shall pay to Fremont an amount equal to the amount by which the total
expenses incurred by Fremont with respect to the administration of the Reinsured
Business during the months of January through June, 1996, exceeds the expense
allowance received by Fremont from ERC under the terms of the Fremont Life-ERC
Reinsurance Agreements for such months (calculated by pro rating the quarterly
allowance under such agreements). Such amount shall be payable by ALI to Fremont
as follows: (a) on the date hereof, ALI shall pay to Fremont an amount equal to
the sum of the Reimbursable Expenses (calculated as described below) for January
through May, 1996, and the estimated Reimbursable Expenses for June, 1996; and
(b) within 30 days after the date hereof, (i) ALI shall pay to Fremont an amount
equal to the amount, if any, by which the actual Reimbursable Expenses for June,
1996, exceed the estimated Reimbursable Expenses for June, 1996, and (ii)
Fremont shall pay to ALI an amount equal to the amount, if any, by which the
estimated Reimbursable Expenses for June, 1996, exceed the actual Reimbursable
Expenses for June, 1996.
"Reimbursable Expenses" for any month shall be calculated by subtracting from
the "total administrative expenses" incurred by Fremont during that month the
sum of (A) data processing expenses incurred during that month, (B) the expenses
attributable to Fremont's block of mortgage term insurance business commonly
referred to as Financial Services or AMPAC or any other retained business, (C)
the expenses attributable to Fremont's financial accounting operations, (D)
overhead attributed to data processing, AMPAC-related activities and financial
accounting operations, and (E) the expense allowance under the Fremont Life-ERC
Reinsurance Agreements for that month (calculated by pro rating the quarterly
allowance under such agreements). For purposes of the foregoing formula, "total
administrative expenses" shall mean those general insurance expenses that are
generally reported on lines 22 and 23 of Fremont's statutory statements plus
employer paid social security and unemployment taxes generally reported on
Exhibit 6, but shall exclude (i) any expenses paid in January or February, 1996,
and incurred prior to January 1, 1996, (ii) any expenses not incurred in the
ordinary course of business, and (iii) any intercompany expense allocations.
3. PERFORMANCE STANDARDS. ALI shall perform all Services hereunder in full
compliance with applicable federal, state and local laws. Additionally, ALI
shall perform all Services hereunder in accordance with standards prevailing in
the third party administrators' industry with respect to the performance of
similar services.
For purposes of its obligations hereunder with respect to monies of Fremont
on deposit with or under the control of ALI pursuant to this Agreement, ALI
shall act in a fiduciary capacity with respect to Fremont. ALI shall promptly
prepare and submit to Fremont such invoices as to services provided and costs
incurred as Fremont may reasonably request. ALI shall allow representatives of
Fremont and ERC to inspect and copy, at all reasonable times, ALI's financial
and other records pertaining to the performance by ALI of the Services.
ALI shall indemnify and hold harmless Fremont from, against and in respect
of any liabilities, losses, damages, expenses or deficiencies resulting from (a)
ALI's performance of the Services, (b) any amount paid or payable by Fremont for
punitive, exemplary or compensatory damages arising out of the conduct of ALI in
the investigation, trial or settlement of any claim or failure to pay or delay
in payment of any benefits under any policy, (c) any statutory penalty imposed
upon Fremont because of any unfair trade practice of ALI or any unfair claim
practice of ALI, (d) any costs and expenses reasonably incurred by Fremont
incident to any actions, suits, proceedings or judgments in respect of the fore-
going, including legal and accounting fees and expenses, and (e) guarantee fund
assessments incurred by Fremont on account of the Reinsured Business arising
from insolvencies occurring after the date hereof; provided, no such assessments
shall be reimbursed by ALI unless Fremont has consistently reported zero net
premiums with respect to the Reinsured Business in its statutory statements and
other filings with state insurance departments, and ALI shall have no liability
hereunder with respect to liabilities, losses, damages, expenses or deficiencies
resulting from matters described in Section 9.1 of the Master Agreement dated as
of February 26, 1996, as amended, among Fremont, ALI, Fremont General Corp. and
Great Southern. Fremont shall remain responsible for guarantee fund assessments
incurred by Fremont on account of the Reinsured Business arising from
insolvencies occurring before the date hereof.
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<PAGE>
4. THIRD-PARTY AGREEMENTS. Fremont acknowledges that ALI is currently
providing services to other entities similar to the Services being provided
pursuant to this Agreement and may, as a part of its normal business, perform
services and functions similar to the Services for other parties in the future,
and that ALI may utilize the same office space, equipment and personnel to
perform such services and functions for such other parties as it utilizes to
perform the Services for Fremont. Fremont and ALI may contract, at their
expense, with third parties as Fremont or ALI deem to be reasonably necessary
for the efficient performance of their obligations hereunder.
5. RESPONSIBLE OFFICERS. Fremont and ALI shall each designate an officer
who shall be authorized to represent such party in the performance of its
obligations hereunder.
6. TERM AND TERMINATION. This Agreement shall be for a term commencing
on January 1, 1996, and continuing for so long as any of the Reinsured Business
is coinsured by either ERC or Great Southern Life Insurance Company ("Great
Southern"), but terminating as to any of the Reinsured Business when and as it
is assumed by any of ALI's subsidiaries, unless earlier terminated as provided
herein.
(a) This Agreement may be terminated in the following manner:
(i) By the written consent of the parties hereto;
(ii) By ALI in the event of a material breach hereof by
Fremont, if such breach is not cured or eliminated within 90 days
after receipt of written notice thereof to Fremont from ALI; or
(iii) By Fremont (A) in the event of a material breach hereof
by ALI, if such breach is not cured or eliminated within 90 days after
receipt of written notice thereof to ALI from Fremont, or (B) if the
Fremont Life-ERC Reinsurance Agreement (Universal Life) terminates
(but only to the extent this Agreement pertains to the insurance
business reinsured thereunder), if the Fremont Life-ERC Reinsurance
Agreement (Annuities) is not executed and delivered or, if executed
and delivered, is subsequently terminated (but only to the extent this
Agreement pertains to the insurance business reinsured thereunder) or
if the Assumption Reinsurance Agreement between Fremont and Great
Southern Life Insurance Company terminate.
Termination in accordance with this Section shall not relieve a
breaching or defaulting party of liability arising from any breach or
default under this Agreement.
7. RELATIONSHIP OF PARTIES. In furnishing the Services to Fremont, ALI
shall be deemed to be acting as an independent contractor. ALI does not
undertake by this Agreement or otherwise to perform any obligation of Fremont,
whether regulatory or contractual or otherwise, except as provided herein. ALI
shall not be deemed to be a joint venturer with, or a partner of, Fremont; nor
shall ALI's employees be deemed to be employees of Fremont or Fremont's
employees be deemed to be employees of ALI.
8. FORCE MAJEURE. ALI and Fremont shall be excused from performance
hereunder (other than for payment of monies that are due and payable) for any
period when either
-3-
<PAGE>
is prevented from performing any services to be provided hereunder, in whole or
in part, as a result of an act of God, fire, war, civil disturbance, court
order, insurance department regulatory order (which, with respect to any party,
did not arise from the violation of any law or regulation by such party or any
of its affiliates), labor dispute or other cause beyond its reasonable control,
and such nonperformance shall not be a ground for termination hereof or
assertion of default hereunder. In the event ALI or Fremont shall be excused
from performance under this provision, ALI and Fremont shall each use their best
efforts to provide, directly or indirectly, alternative and, to the extent
practicable, equivalent fulfillment of their respective obligations hereunder.
9. SEVERABILITY. If any provision of this Agreement is declared or found
to be illegal, unenforceable or void by any administrative agency, regulatory
body or court of competent jurisdiction, such finding shall not affect the
remaining provisions of this Agreement, and all other provisions hereof shall
remain in full force and effect.
10. BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective permitted successors
and assigns.
11. GOVERNING LAW. This Agreement and all rights and obligations of the
parties hereunder shall be construed and interpreted under and pursuant to the
laws of the State of Missouri, excluding choice of law provisions.
12. HEADINGS. The headings to the Sections of this Agreement are for
convenience only and in no way define, limit or describe the scope or intent of
this Agreement or any party hereto, nor in any other way affect this Agreement
or any part hereof.
13. WAIVER. No delay or omission by any party hereto to exercise any
right or power arising upon any noncompliance or default by any other party with
respect to any of the terms of this Agreement shall cause any such right or
power to be construed as a waiver thereof. A waiver by any of the parties
hereto of the fulfillment of any of the covenants, conditions or agreements to
be performed by any other shall not be construed to be a waiver of any
succeeding breach thereof or of any other covenant, condition or agreement
contained herein. No waiver or compromise of any provision or condition hereof
shall be effective unless evidenced by a written instrument duly executed by the
party hereto to be charged with such waiver or compromise.
14. MISCELLANEOUS. This Agreement shall not be altered or amended except
pursuant to an instrument in writing signed by the parties hereto. All
schedules referred to herein and attached hereto are hereby incorporated herein
and made a part of this Agreement by this reference. Any changes regarding the
administration of the Reinsured Business required by ERC under the Fremont Life-
ERC Reinsurance Agreements shall be incorporated into this Agreement.
-4-
<PAGE>
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
16. CONFIDENTIALITY. ALI and Fremont acknowledge that each party may
obtain access to information that the other party considers proprietary and
confidential. In the event either party provides information to the other that
is considered confidential and proprietary, the disclosing party shall provide
written notification thereof to the other party, and such information shall be
retained in strict confidence and not used or disclosed to others.
17. NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally, by certified or
registered mail, with postage prepaid, or by facsimile, as follows:
(a) If to Fremont, to:
Fremont Life Insurance Company
Attn: Robert C. Pfeil, Jr.
790 The City Drive South, Suite 210
Orange, California 92668
FAX: (310) 315-5593
with a copy to:
Fremont General Corp.
Attn: Alan W. Faigin, Esq.
2020 Santa Monica Boulevard
Santa Monica, California 90404
FAX: (310) 315-5593
(b) If to ALI, to:
Americo Life, Inc.
Attn: Gary L. Muller, President and
Chief Executive Officer
300 W. 11th Street
Kansas City, MO 64105
FAX: (816) 391-2018
with a copy to:
Thomas M. Higgins, III, Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard, Suite 2800
Kansas City, MO 64108
FAX: (816) 292-2001
-5-
<PAGE>
and
Employers Reassurance Corporation
Attn: James D. Maughn
5200 Metcalf Avenue
Overland Park, Kansas 66201
FAX: (913) 676-5349
18. ENTIRETY OF AGREEMENT. This Agreement, including all schedules
attached hereto, constitutes the entire agreement between the parties pertaining
to the subject matter hereof, superseding any and all prior or contemporaneous
oral or prior written agreements, proposals, letter of intent and
understandings.
19. ASSIGNMENT. Except as provided in this Section, no portion of this
Agreement shall be assignable by any party hereto, including assignments by
operation of law pursuant to merger or other similar transactions, without the
express written agreement of the other party hereto in each instance. ALI may
transfer and assign any or all of its rights and obligations pursuant to this
Agreement (except its obligations relating to investment functions) to a wholly
owned subsidiary of ALI; upon such transfer and assignment, ALI shall be
relieved of all liability hereunder with respect to such transferred and as-
signed obligations.
20. ATTORNEYS' FEES. If the services of an attorney are required by any
party hereto to secure the performance of another party hereto or to defend
itself against alleged non performance in any court of law or other adjudicative
tribunal, then the prevailing party shall be entitled to recovery of all
reasonable attorneys' fees and related expenses.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers duly authorized by all requisite corporate
and other action and approval, on the day and year first above written.
AMERICO LIFE, INC.
By______________________________
Name _________________________
Title ________________________
FREMONT LIFE INSURANCE
COMPANY
By______________________________
Name _________________________
Title ________________________
-6-
<PAGE>
SCHEDULES
Schedule A Reinsured Business
Schedule B Description of Services
Schedule C Service Fee
-7-
<PAGE>
SCHEDULE A
Reinsured Business
The Reinsured Business includes all liabilities associated with all life
insurance and annuity policies issued or assumed by Fremont Life in force on
December 31, 1995 (with respect to universal life policies), and on January 1,
1996 (with respect to annuities and other insurance policies), or issued by
Fremont Life to become effective on or after such dates, respectively, including
all riders and contracts of reinsurance; provided, the Reinsured Business shall
not include Fremont Life's block of mortgage term insurance business commonly
referred to as Financial Services or AMPAC or the universal life policies of
Fremont Life described on the attached list.
-8-
<PAGE>
SCHEDULE B
Description of Services
General Corporate Work
1. Provide support and information necessary in connection with audits
and examinations.
2. Actuarial work, including statutorily required cash flow testing,
preparation of actuarial memoranda supporting cash flow testing and
the actuarial opinion.
3. Reinsurance administration.
Agency Department
1. Licensing, appointment and cancellation of agent contracts.
2. Initial computer set-up -- including commission codes and hierarchy.
3. Maintenance of physical agent file.
4. System maintenance (e.g., assignments, advance vs. as-earned,
hierarchy changes).
5. Processing of mailing of commission statements.
6. Handle all questions relating to commissions.
New Business
1. Process annuity applications.
2. Maintain permanent policy files.
3. Send letters of acceptance for 1035 exchanges.
4. Monitor the status of IRC Section 9024 rollovers and issue additional
letters of acceptance as required.
5. Physical issue and delivery of policy.
6. Process all incoming calls regarding status of annuity applications.
-9-
<PAGE>
7. Perform underwriting functions.
Premium Billings and Accounting
1. Generate periodic billings to policyholders, including nonforfeiture
options.
2. Process premiums received.
3. Deposit premium payments.
Policyowner Service
1. Process and update policy records for change of ownership,
beneficiary, address, conversions, contractual changes, etc.
2. Process applications for loans and verify compliance with IRC.
3. Process partial withdrawals and hardship withdrawals in compliance
with IRC.
4. Issue checks for loans and withdrawals.
5. Process loan repayments.
6. Process "not takens" and surrenders.
7. Provide quotes on payouts and annuitizations.
8. Handle inquiries from agents and policyholders.
9. Perform all tax reporting, including pension/annuity administration,
for all Reinsured Business in compliance with IRC; provided, Fremont
shall remain responsible for all premium tax reporting.
10. Process claims and annuitizations.
11. Generate and mail annual statements to policyholders in accordance
with current and future regulations.
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<PAGE>
SCHEDULE C
Service Fee
Universal Life Insurance Policies:
0.0625% per calendar quarter, calculated on the assets comprising the UL
Portfolio Segment (as such term is defined in the Fremont Life-ERC Reinsurance
Agreement applicable to the universal life policies) of the escrow account at
the beginning of each calendar quarter, which account is created under that
certain Escrow Agreement (Fremont Business) (the "Escrow Agreement") between
Commerce Bank of Kansas City, N.A. (as escrow agent), ERC and Great Southern
Life Insurance Company.
PLUS
$15.75 per policy in force at the beginning of each calendar quarter.
Annuities:
0.0625% per calendar quarter, calculated on the assets comprising the Annuity
Portfolio Segment (as such term is defined in the Fremont Life-ERC Reinsurance
Agreement applicable to the annuity policies) of the escrow account at the
beginning of each calendar quarter, which account is created under the Escrow
Agreement.
PLUS
$10.00 per policy in force at the beginning of each calendar quarter.
-11-
ASSUMPTION REINSURANCE AND COINSURANCE AGREEMENT
(ANNUITIES)
This Assumption Reinsurance and Coinsurance Agreement (the "Agreement") is
made this____ day of July, 1996 (the "Effective Date"), by and between FREMONT
LIFE INSURANCE COMPANY, a California stock life insurance company ("Ceding
Company"), and GREAT SOUTHERN LIFE INSURANCE COMPANY, a Texas stock life
insurance company ("Reinsurer").
WHEREAS, Ceding Company has ceded on a 100% coinsurance basis a certain
block of its annuity and other insurance business to Employers Reassurance
Corporation ("ERC") pursuant to an Automatic Coinsurance Annuity Reinsurance
Agreement (the "Fremont Life-ERC Reinsurance Agreement (Annuities)"); and
WHEREAS, ERC has ceded on a 100% coinsurance basis the aforesaid block of
business to Reinsurer pursuant to a Modified Coinsurance Life and Annuity
Retrocession Agreement (the "Retrocession Agreement"); and
WHEREAS, on the Assumption Date (as that term is defined herein), Ceding
Company desires to transfer all of the aforesaid block of business and such
other of its insurance business, which is more fully described on the attached
Schedule A, which is incorporated herein by this reference (the "Reinsured
Business"), to Reinsurer (a) on a coinsurance basis effective as of the
Effective Date and (b) on an assumption reinsurance basis effective as of the
Assumption Date (as such term is defined herein); and
WHEREAS, Reinsurer desires to assume all of the rights and obligations
related to the Reinsured Business on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
COINSURANCE
1.1. As of the Effective Date, Ceding Company shall cede and Reinsurer
shall reinsure all of the Reinsured Business on a 100% coinsurance basis
modified by the terms of this Agreement. All Nonassumed Business shall remain
reinsured on a 100% coinsurance basis by Reinsurer and shall remain subject to
Section 5.2 hereof, and after an Assumption Date, the reinsurance as to the
relevant portion of the Nonassumed Business shall be on an assumption basis as
provided for herein, the coinsurance provided for herein shall automatically
terminate and the assumed portion of the Nonassumed Business shall be deemed to
be Assumed Business for all purposes under this Agreement.
<PAGE>
1.2. As of the Effective Date, Reinsurer shall be responsible for all
(100%) of the obligations and liabilities under the Reinsured Business.
1.3. Reinsurer shall be entitled to receive the net cash flow with respect
to the Reinsured Business from and after the Effective Date. For the purposes
of this Agreement, the term "net cash flow" shall mean the sum of the following,
net of amounts due to or from reinsurers, (a) collected premiums, net of premium
refunds, less (b) commissions paid, less (c) benefits paid, less
(d) administration expenses, (including but not limited to premium taxes, agent
licensing fees and guaranty fund assessments) plus or minus, respectively,
(e) any decrease or increase in policy loans.
1.4. The coinsurance pursuant to Article I shall continue in perpetuity as
to that part of the Reinsured Business that has not been assumed pursuant to the
terms of this Agreement, until such time as it is assumed or the underlying
policies or contracts lapse or otherwise terminate.
1.5. The parties shall provide a quarterly accounting and cash settlement
to each other of the coinsurance transactions hereof, in such form and
containing such information as either party may reasonably request, but such
quarterly accounting and cash settlement shall terminate with respect to any
portion of the Reinsured Business that is eventually assumed hereunder.
1.6. From and after the Effective Date:
(a) Reinsurer shall maintain reserves with respect to the Reinsured
Business in accordance with all requirements of law and commonly accepted
actuarial principles applied in a manner consistent with their application
immediately prior to the transfer of the Reinsured Business pursuant to this
Agreement or, in the event of changes in such principles or applicable law
having the effect of requiring greater reserves, in accordance with such
changes;
(b) Reinsurer shall conduct the Reinsured Business in accordance
with generally accepted business practices for the reinsurance industry, all
applicable law and the requirements of the reinsured policies;
(c) Reinsurer shall maintain statutory capital and surplus
(consisting of cash and securities valued as determined in accordance with
principles and practices required by the Texas Department of Insurance) of not
less than the amount necessary to comply with the law of the State of Texas for
an insurance company writing the lines of business being written by Reinsurer;
(d) Reinsurer shall have the authority to take any and all action
with respect to, and shall assume the sole risk and liability for, any matter
relating to risk management and policy administration, to the extent such
authority may be granted by Ceding Company pursuant to applicable law, including
but not limited to policy changes, reinstatement standards, premium rate
changes, policy renewals, issuance of conversion policies, agents' commissions
and administrative methods and procedures;
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(e) Reinsurer shall bear all expenses arising after the Effective
Date including premium taxes and reasonable audit expenses incurred in
connection with the administration of the Reinsured Business;
(f) Reinsurer shall have authority and discretion with respect to
all matters relating to claim settlement and litigation concerning the Reinsured
Business, including, but not limited to, the selection of counsel; and
(g) Reinsurer shall bear all expenses incurred in connection with
settling claims and litigating claims relating to the Reinsured Business,
including, but not limited to, the cost of routine investigations, legal fees
and interest charges.
1.7. (a) Reinsurer shall indemnify, defend and hold harmless Ceding
Company against and in respect of any and all claims, demands, threats, losses,
costs, expenses, liabilities and damages, including interest, penalties,
attorneys' fees, court costs and amounts paid in settlement, that Ceding Company
shall incur or suffer, that arise, result from or relate to any failure by ERC
to perform its duties under the Fremont Life-ERC Reinsurance Agreement
(Annuities), subject to the following:
(i) Ceding Company shall assign to Reinsurer all of Ceding
Company's rights against ERC under the Fremont Life-ERC Reinsurance Agreement
(Annuities) with respect to such failure to perform by ERC. Ceding Company
shall fully cooperate with Reinsurer in any action by Reinsurer against ERC
regarding such failure to perform by ERC, and any action may be brought by
Reinsurer in Ceding Company's name.
(ii) If it is finally determined in any proceeding regarding
such failure to perform by ERC that ERC's failure to perform was justified in
whole or in part because of Ceding Company's breach of the Fremont Life-ERC
Reinsurance Agreement (Annuities), then Reinsurer's indemnification obligation
shall terminate and Ceding Company shall reimburse for any amounts Reinsurer
expended indemnifying Ceding Company with respect to ERC's failure to perform.
(b) Ceding Company shall promptly notify Reinsurer of the existence
of any claim, demand or other matter to which Reinsurer's indemnification obli-
gations under this Agreement would apply, and shall give Reinsurer a reasonable
opportunity to defend the same at its own expense and with counsel of its own
selection; provided, Ceding Company shall at all times also have the right to
fully participate in the defense at its own expense. If Reinsurer shall, within
a reasonable time after this notice, fail to defend, Ceding Company shall have
the right, but not the obligation, to undertake the defense of, and to com-
promise or settle, the claim or other matter on behalf, for the account, and at
the risk, of Reinsurer.
(c) This Section 1.7 shall terminate as of the Assumption Date;
provided, that it shall survive as to any matters as to which Ceding Company has
provided notice to Reinsurer prior to the Assumption Date.
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ARTICLE II
TRANSFER OF RESERVES
2.1. On the Effective Date, and in consideration of the coinsurance by
Reinsurer of the Reinsured Business, Ceding Company shall transfer, assign and
deliver to Reinsurer all of Ceding Company's right, title and interest in assets
that consist of (i) the policy loans, policy liens and due and deferred premiums
with respect to the Reinsured Business (collectively, the "Policyholder Assets")
and (ii) an amount of cash or securities equal to the sum of (A) the statutory
reserves and liabilities net of reinsurance ceded as of the Effective Date
required to be established in the manner prescribed for the preparation of
Ceding Company's annual statements in Exhibits 8, 9, 10 and 11 thereof, plus
(B) any other liabilities net of reinsurance ceded as of the Effective Date with
respect to the Reinsured Business required to be reflected on Page 3 thereof,
less (C) Policyholder Assets (the net amount resulting from the foregoing
calculation being the "Net Amount").
ARTICLE III
TRANSFER OF POLICY LIABILITIES
3.1. As of the Effective Date, Reinsurer shall become the successor to
Ceding Company and Reinsurer shall assume full and complete liability for:
(a) the payment of all claims for benefits incurred on or after the
Effective Date in connection with the Reinsured Business;
(b) the payment of all claims for benefits incurred prior to the
Effective Date in connection with the Reinsured Business, but not yet paid
(reported or not); and
(c) all other liabilities, claims and expenses of any kind or type
whatsoever arising on or after the Effective Date, including but not limited to
claims for damages or losses, including but not limited to punitive or extra
contractual damages, incurred in connection with the administration of the
Reinsured Business or in adjusting, denying, resisting or defending any claims
on and after the Effective Date.
3.2. Upon assumption of a policy or contract included in the Reinsured
Business, Reinsurer will be the primary insurer of the risks covered thereby,
completely replacing Ceding Company (such assumed policies and contracts being
referred to herein as the "Assumed Business"). It is the intention of the
parties to effect a complete novation from Ceding Company to Reinsurer in
respect of every policy and contract included in the Assumed Business as of the
Assumption Date, so that Ceding Company shall have no further obligations with
respect to such Assumed Business.
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3.3. Premiums due or paid with respect to the Reinsured Business on and
after the Effective Date, and any loan repayments (and interest payments
thereon) made on the Reinsured Business on and after the Effective Date, shall
be the sole property of Reinsurer. From and after the Effective Date, all
policyholders under the Reinsured Business shall pay all premiums and make any
loan repayments (and interest payments thereon) on their policies directly to
Reinsurer. All moneys, checks, drafts, orders or other instruments received by
Ceding Company after the Effective Date for premiums related to the Reinsured
Business shall be transferred and delivered to Reinsurer, and any such
instruments when so delivered shall bear all indorsements required to effect
such transfer and delivery. Reinsurer shall pay all premium taxes as may be
required by law on premiums related to the Reinsured Business received on or
after the Effective Date.
3.4. Reinsurer shall be authorized to make any defense at law or in
equity to any action or claim instituted or made under the Reinsured Business to
any action or claim instituted or made under the Reinsured Business that might
or could have been made by Ceding Company had this Agreement not been executed.
All of the provisions, conditions, limitations and exclusions contained in the
policies and contracts comprising the Reinsured Business shall remain in effect
notwithstanding the assumption of such policies and contracts by Reinsurer
hereunder.
ARTICLE IV
ASSUMPTION
4.1. On the Assumption Date, Ceding Company shall cede all of its right,
title and interest in and to the Reinsured Business to Reinsurer and Reinsurer
shall assume all (100%) of Ceding Company's obligations and liabilities under
the Reinsured Business, subject to the terms and conditions set forth herein.
4.2 All liabilities assumed by Reinsurer with respect to the Reinsured
Business are subject in all respects to the same terms, conditions,
interpretations, waivers, modifications, alterations and cancellations as the
policies issued with respect to the Reinsured Business. Reinsurer accepts and
assumes such liabilities subject to all defenses, set-offs and counterclaims to
which Ceding Company would be entitled with respect to the Reinsured Business.
On the assumption date, Reinsurer shall be the successor to Ceding Company
under the policies issued with respect to the Reinsured Business. Such policies
shall be the direct obligations of Reinsurer, and the Ceding Company shall have
no liabilities therefor. Reinsurer shall substitute itself in the place of
Ceding Company as if named in the place of Ceding Company. The Insureds (as
defined below) shall thereafter disregard Ceding Company as a party to such
policies. For the purposes of this Agreement, "Insured" or "Insureds" shall
mean any person or entity entitled to claim or receive benefits under any policy
issued with respect to the Reinsured Business. After the
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assumption date, the Insureds shall have (i) the right to file claims arising
under the Reinsured Business directly with Reinsurer and (ii) a direct right of
action against the Reinsurer and the Reinsurer hereby consents to be subject to
direct action taken by any Insured with respect to claims after the Assumption
Date. The rights of any Insured shall be limited and consist of those rights
set forth in the policies issued with respect to the Reinsured Business and
Insureds shall not have the right to receive a greater amount under such policy
than such Insured would have had in the absence of this Agreement.
ARTICLE V
ASSUMPTION DATE
5.1. The term "Assumption Date" as used herein shall mean that date on
which Reinsurer has obtained approval to assume all or part of the Reinsured
Business, which date shall not be later than June 30, 1997.
5.2. If any portion of the Reinsured Business has not been assumed by
Reinsurer as of the Assumption Date (all Reinsured Business hereunder being
referred to as the "Nonassumed Business" until such business has been assumed),
then (a) such portion of the Reinsured Business shall remain subject to
Article I hereof and (b) Reinsurer shall continue to use its best efforts to
effect an assumption thereof as quickly as possible. If, from time to time and
at any time after the Assumption Date, Reinsurer becomes capable of assuming all
or any portion of the Nonassumed Business, then Reinsurer shall effect the
assumption at the earliest possible date by giving Ceding Company written notice
thereof, and each such date also shall constitute an "Assumption Date" for
purposes of this Agreement.
ARTICLE VI
ASSUMPTION CERTIFICATES
6.1. As soon as possible after each Assumption Date and subject to
applicable regulatory approval, if any, and at the sole cost and expense of
Reinsurer, Reinsurer shall issue to each policyholder of the Assumed Business an
assumption certificate in the form set forth in the attached Schedule B, which
is incorporated herein by this reference (the "Assumption Certificate").
Notwithstanding the foregoing, (a) if the consent of the policyholders to the
assumption is required by applicable law or regulation, a notice of transfer
shall be first sent in the form set out in the attached Schedule C, which is
incorporated herein by this reference (the "Notice of Transfer"), and the
required consent obtained, and (b) the form of Assumption Certificate or Notice
of Transfer may be amended if such amendment is required to obtain required
regulatory approval or is otherwise appropriate under the circumstances.
Reinsurer and Ceding Company shall cooperate with one another in securing such
required regulatory approval and amending the Assumption Certificate or Notice
of Transfer, whichever the case may be.
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6.2. From time to time after any one or more Assumption Dates, without
further consideration, Reinsurer shall execute and deliver such other
instruments of assumption, conveyance, assignment, transfer and delivery, and
take such other action as Ceding Company reasonably requests, to more
effectively accomplish the assumption of the Reinsured Business contemplated
herein. Such instruments shall not impose upon Reinsurer any obligation,
liability or risk not contemplated by this Agreement.
ARTICLE VII
EFFECT ON EXISTING REINSURANCE
7.1. The attached Schedule D, which is incorporated herein by this
reference, contains a list of all reinsurance agreements in effect as of the
Effective Date between Ceding Company and any assuming or ceding reinsurer (the
"Reinsurance Agreements"). It is the intention of the parties that Reinsurer
shall be substituted for and succeed to all of the rights and liabilities of
Ceding Company under the Reinsurance Agreements as of the Assumption Date.
Reinsurer shall be wholly and solely responsible for effecting its substitution
under each Reinsurance Agreement and the continuation of each Reinsurance
Agreement after the Assumption Date. The collectibility of reinsurance under
the Reinsurance Agreements shall be at the sole risk and for the account of
Reinsurer at and after the Assumption Date.
7.2. As of the Assumption Date, Reinsurer shall be substituted for and
shall succeed to all of the rights and liabilities of Ceding Company under the
Fremont Life-ERC Reinsurance Agreement (Annuities) with respect to the Reinsured
Business. Reinsurer shall be wholly and solely responsible for effecting such
substitution under the Fremont Life-ERC Reinsurance Agreement (Annuities) and
for the continuation of the Fremont Life-ERC Reinsurance Agreement (Annuities)
after the Assumption Date. The collectibility of reinsurance under the Fremont
Life-ERC Reinsurance Agreement (Annuities) shall be at the sole risk and for the
account of Reinsurer at and after the Assumption Date.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1. At the Effective Date, Reinsurer represents and warrants to Ceding
Company as set forth in Article III of that certain Master Agreement dated as of
February 26, 1996, among Americo Life, Inc., Reinsurer, Fremont General Corp.
and Ceding Company (as amended or modified, the
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"Master Agreement"), to extent the representations and warranties set forth in
such Article III pertain to Reinsurer. Such representations and warranties,
together with the schedules attached to the Master Agreement that pertain
thereto, are hereby incorporated herein by this reference.
8.2. At the Effective Date, Ceding Company represents and warrants to
Reinsurer as set forth in Article II of the Master Agreement, to the extent the
representations and warranties set forth in such Article II pertain to Ceding
Company or the Reinsured Business. Such representations and warranties,
together with the schedules attached to the Master Agreement that pertain
thereto, are hereby incorporated herein by this reference.
ARTICLE IX
INSOLVENCY
9.1. The provisions of this Article IX apply to this entire Agreement,
including, without limitation, Article I of this Agreement. Reinsurer's
obligations under this Agreement shall be without diminution and in no way be
affected or diminished because of Ceding Company's insolvency. In the event of
such an insolvency and the appointment of a conservator, liquidator or statutory
successor of Ceding Company, the reinsurance payable by Reinsurer pursuant to
this Agreement shall be payable directly to such conservator, liquidator or
statutory successor immediately upon demand on the basis of claims allowed
against Ceding Company by any court of competent jurisdiction or by any
conservator, liquidator or statutory successor of Ceding Company having
authority to allow such claims, without diminution because of such insolvency or
because such conservator, liquidator or statutory successor has failed to pay
all or a portion of any claims. The conservator, liquidator or statutory
successor shall give Reinsurer written notice of the pendency of any claims
against Ceding Company with respect to the Reinsured Business within a
reasonable time after the claim is filed in an insolvency proceeding. Reinsurer
shall have the right, but at its own expense, to investigate the claim and
interpose in the name of Ceding Company, its conservator, liquidator or
statutory successor in the proceeding where the claim is to be adjudicated, any
defense or defenses that Reinsurer may deem to be available to Ceding Company or
its conservator, liquidator or statutory successor. The expense thus incurred
by Reinsurer shall be payable, subject to court approval, out of Ceding
Company's estate as part of the expense of conservation or liquidation to the
extent of a proportionate share of the benefit that may accrue to Ceding Company
in conservation or liquidation solely as a result of the defense undertaken by
Reinsurer.
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ARTICLE X
RECORDS AND ACCOUNTING; COMMUNICATION TO POLICYHOLDERS;
ANNUAL FINANCIAL STATEMENTS
10.1. As soon as practicable after the Effective Date, Ceding Company
shall transfer, convey, assign and deliver title and possession to Reinsurer of
all files, books and records related to the Reinsured Business. The parties
recognize that from time to time hereunder, each party will need access to
certain books and records in the custody of the other party for, without
limitation, financial reporting and tax return preparation purposes and that,
upon the reasonable request of a party, each party shall give to the requesting
party and its actuaries, agents, attorneys and accountants as promptly as
reasonably possible reasonable access to such books and records as the
requesting party may require for the stated purposes (including the right to
make copies).
10.2. Ceding Company shall deliver to Reinsurer as promptly as practicable
after the Effective Date a complete listing of all policies in force relating to
the Reinsured Business as of the Effective Date.
10.3. After the Effective Date, Reinsurer can communicate with the
policyholders comprising the Reinsured Business in the ordinary course of
business without the consent of Ceding Company.
10.4. Reinsurer agrees that, from the Effective Date until each Assumption
Date, Reinsurer will afford to Ceding Company such access upon reasonable notice
and during normal business hours to all of the books and records of Reinsurer
relating to the Nonassumed Business as Ceding Company may reasonably request.
10.5. (a) Until all Reinsured Business has been assumed by Reinsurer
hereunder, Reinsurer shall, as soon as they are available, but in any event not
later than 90 days after the end of such accounting year, provide Ceding Company
with Reinsurer's annual convention statements for the accounting year most
recently ended. In addition not later than 180 days after the end of each
accounting year Reinsurer will provide Ceding Company its audited financial
statements for the accounting year most recently ended, or in the event
Reinsurer does not have audited separate company financial statements, the
financial statements of Reinsurer for the accounting year most recently ended
certified by the chief financial officer of Reinsurer, that the financial
information contained in the foregoing annual convention statements and audited
financial statements fairly presents the assets, liabilities, financial
condition and results of operations of Reinsurer as of the dates thereof and for
the periods covered thereby in conformity with statutory accounting practices as
prescribed by Texas insurance regulatory authorities, except as stated therein
or in the notes thereto.
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(b) Upon delivery to Ceding Company, such financial statements shall
constitute Statutory Statements for all purposes of this Agreement, including
but not limited to Section 8.1.
10.6. Any debts or credits, matured or unmatured, liquidated or
unliquidated, regardless of when they arose or where incurred, in favor of or
against either Ceding Company or Reinsurer with respect to this Agreement are
deemed to be mutual debts or credits, as the case may be, and shall be set off,
and only the balance shall be allowed or paid.
ARTICLE XI
CONSENTS
11.01. Prior to each Assumption Date hereunder, Reinsurer shall use its
best efforts to obtain at the earliest practicable date all consents, approvals
and other authorizations required to be obtained by it for the consummation of
the transactions contemplated hereby including, without limitation, any consents
or approvals that might be required to be obtained from insurance regulatory
authorities with respect to this Agreement and the transactions contemplated
hereby, except that Ceding Company shall be responsible for obtaining any
approvals from the California Department of Insurance with respect to its
obligations under this Agreement. Ceding Company shall provide such information
and documents and otherwise cooperate as Reinsurer may reasonably request in
obtaining such consents, approvals or other authorizations.
ARTICLE XII
TERMINATION AND ABANDONMENT
12.1. This Agreement may be terminated and the transactions contemplated by
this Agreement may be abandoned prior to the first Assumption Date by mutual
written consent of Reinsurer and Ceding Company.
12.2. After the first Assumption Date:
(a) This Agreement may not be terminated with respect to any Assumed
Business, it being the intention of the parties to effect a complete novation
from Ceding Company to Reinsurer in respect of every policy and contract
included in the Assumed Business as of the relevant Assumption Date.
(b) This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned as to any Nonassumed Business
prior to any subsequent Assumption Date by mutual written consent of Reinsurer
and Ceding Company. In the event of such termination, the coinsurance of such
Nonassumed Business shall terminate and such Nonassumed Business shall be
recaptured by Ceding Company. On the effective date of termination, Reinsurer
shall transfer, convey, assign and deliver to Ceding Company assets satisfactory
to Ceding Company in an amount
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equal to the Net Amount, as such Net Amount would be calculated with respect to
the recaptured Nonassumed Business under Section 2.1(a) hereof.
ARTICLE XIII
ARBITRATION
13.1. (a) In the event of any difference arising hereafter between the
contracting parties with reference to any transaction under this Agreement, the
same shall be referred to three arbitrators who must be executive officers of
life insurance or life reinsurance companies other than the two parties to this
Agreement or their affiliates, each of the parties to appoint one of the
arbitrators and such two arbitrators to select the third. If either party
refuses or neglects to appoint an arbitrator within 30 days after receipt of the
written request for arbitration, the initiating party may appoint a second
arbitrator.
(b) If the two arbitrators fail to agree on the selection of a third
arbitrator within 30 days of their appointment, each of them shall name three
individuals, of whom the other shall decline two, and the decision shall be made
by drawing lots.
(c) The arbitrators shall consider this Agreement not merely as a
legal document but also as a gentlemen's agreement. They shall decide by a
majority vote of the arbitrators. There shall be no appeal from their written
decision, except as permitted by applicable law.
(d) Each party shall bear the expense of its own arbitration,
including its arbitrator and outside attorney fees, and shall jointly and
equally bear with the other party the expense of the third arbitrator. Any
remaining costs of the arbitration proceedings shall be apportioned by the three
arbitrators.
(e) The arbitration proceedings shall be conducted in accordance
with the rules of the American Arbitration Association except that the parties
shall be entitled to take discovery as provided under Federal Rules of Civil
Procedure Nos. 28 through 36 during a period of 60 days after the final
arbitrator is appointed and the arbitrators shall have the power to issue
subpoenas, compel discovery, award sanctions, and grant injunctive relief. The
arbitrators shall be entitled to retain a lawyer to advise them as to legal
matters, but such lawyer shall have none of the relationships to either of the
parties that are proscribed above for arbitrators. The arbitration hearings
shall commence no sooner than 90 days after the date the final arbitrator is
appointed and not later than 120 days after such date. The arbitration hearing
shall be conducted during normal working hours on business days without
interruption or adjournment of more than two days at any one time or six days in
the aggregate. The arbitrators shall deliver to the parties their decision in
writing within 10 days after the conclusion of the arbitration hearing.
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(f) Any arbitration instituted pursuant to this section shall be
held in Kansas City, Missouri, or such other place that is mutually agreeable to
the parties, with the precise location being as agreed upon by the parties or,
absent such agreement, at a location designated by the American Arbitration
Association resident manager in Kansas City, Missouri.
(g) Notwithstanding any other provision of this Section, nothing
contained in this Agreement shall require arbitration of any issue for which
injunctive relief is properly sought by either party to this Agreement.
(h) Notwithstanding any other provision of this Article XIII, if
Reinsurer seeks, consents to, or acquiesces in the appointment of or otherwise
becomes subject to any trustee, receiver, liquidator or conservator (including
any state insurance regulatory agency acting in such a capacity), Ceding Company
shall not be obligated to resolve any claim, dispute or cause of action under
this Agreement by arbitration and may elect to bring any action with respect to
such claim, dispute or cause of action in any court of competent jurisdiction.
ARTICLE XIV
INDEMNIFICATION
14.1. Reinsurer shall indemnify, defend, save and hold Ceding Company
harmless from and against any and all damage, liability, loss, expense,
assessment, judgment or deficiency of any nature whatsoever (including, without
limitation, reasonable attorneys' fees, costs of investigation and other costs
and expenses incident to any suit, action or proceeding) (together, "Losses")
incurred or sustained by Ceding Company that arise out of or result from any
breach of any agreement to be performed by Reinsurer under this Agreement
(regardless of when such agreements are to be performed). Additionally,
Reinsurer shall indemnify, defend, save and hold Ceding Company harmless from
and against any Losses that Ceding Company may incur with respect to the
Reinsured Business after the Effective Date, including, without limitation,
Losses arising in the ordinary course of business in the Reinsured Business
under any contractual or other obligation ceded to or accepted by Reinsurer
pursuant to this Agreement or arising out of Reinsurer's conduct with regard to
the Reinsured Business, including punitive damages as a result of such conduct,
but excluding any Losses related to matters described in Section 9.1 of the
Master Agreement.
14.2. Ceding Company shall indemnify, defend, save and hold Reinsurer
harmless from and against any and all Losses incurred or sustained by Reinsurer
that arise out of or result from any breach of any agreement to be performed by
Ceding Company under this Agreement (regardless of when such agreements are to
be performed).
14.3. Promptly after service of notice of any claim or of process by any
third person in any matter in respect of which indemnity may be sought from the
other party pursuant to this Agreement, the party so served shall notify the
indemnifying party of the receipt thereof. The indemnifying party shall have
the right to participate in or assume, each at its own expense, the defense of
any such claim or process or settlement thereof. After notice from the
indemnifying party of its election to assume the defense thereof, the
indemnifying party shall not be liable to the indemnified party for any legal or
other expense in connection with such defense. Such defense shall be conducted
expeditiously (but with due regard for obtaining the most favorable outcome
reasonably likely under the circumstances, taking into account costs and
expenditures) and the indemnified party shall be advised promptly of all
developments.
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Notwithstanding the foregoing, with respect to any matter that is the
subject of any such claim and as to which the indemnified party fails to give
the other party such notice as aforesaid, and such failure adversely affects the
ability of the indemnifying party to defend such claim or materially increases
the amount of indemnification that the indemnifying party is obligated to pay
under this Agreement, the amount of indemnification that the indemnified party
shall be entitled to receive shall be reduced to an amount that the indemnified
party would have been entitled to receive had such notice been timely given. No
settlement of any such claim as to which the indemnifying party has not elected
to assume the defense thereof shall be made without the prior written consent of
the indemnifying party, which consent shall not be unreasonably withheld or
delayed.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.2. Reinsurer and Ceding Company, by mutual consent, may amend, modify
or supplement this Agreement only by an instrument in writing signed on behalf
of each of the parties hereto.
15.3. Each party to this Agreement may, by written notice to the other
party specifically referring to this Agreement and to the provision being
waived, and only by such written notice, (a) waive any inaccuracies in the
representations or warranties of any other party contained in this Agreement or
in any document delivered pursuant to this Agreement and (b) waive compliance
with any of the covenants or any of the obligations of any other party. The
waiver by any party hereto to a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
15.4. All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been given
if delivered by hand or mailed, certified or registered mail with postage
prepaid:
(a) If to Ceding Company, to:
Fremont Life Insurance Company
Attn: Robert C. Pfeil, Jr.
790 The City Drive South, Suite 210
Orange, California 92668
FAX: (310) 315-5593
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with a copy to:
Fremont General Corp.
Attn: Alan W. Faigin, Esq.
2020 Santa Monica Boulevard
Santa Monica, California 90404
FAX: (310) 315-5593
(b) If to Reinsurer, to:
Great Southern Life Insurance Company
Attn: Mr. Gary L. Muller
300 West 11th Street
Kansas City, Missouri 64105
FAX: (816) 391-2018
with a copy to:
Thomas M. Higgins, III, Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard
Kansas City, MO 64108
FAX: (816) 292-2001
or to such other person or address as either party shall furnish the other party
in writing.
15.5. Whether or not the transfer is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
15.6. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The obligations of Reinsurer hereunder may not be
assigned without the prior written consent of Ceding Company; provided, subject
to all necessary regulatory approvals, Reinsurer may assign its rights and
obligations under this Agreement, as they pertain to Ceding Company's annuity
business generated by the agency known as Brokers International Limited or its
general agents or their agents, to any other life insurance company subsidiary
of Americo Life, Inc. and upon such assignment Reinsurer shall be released from
its obligations hereunder with respect to such annuity business.
15.7. This Agreement and the legal relations between the parties hereto
shall be governed by and construed in accordance with the substantive laws
(excluding provisions relating to choice of law) of the State of Missouri.
15.8. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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15.9. This Agreement, including the Schedules and Exhibits attached
hereto, embodies the entire agreement and understanding of the parties hereto in
respect of the subject matter hereof. There are no restrictions, promises,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
15.10. Nothing in this Agreement is intended for the benefit of any persons
other than the parties hereto, their successors and assigns and, if the
transactions contemplated under this Agreement are consummated, the holders and
beneficiaries under the policies which constitute the Reinsured Business.
15.11. Should Ceding Company fail to cede reinsurance that otherwise would
have been ceded in accordance with the provisions of this Agreement, or should
either Ceding Company or Reinsurer fail to comply with any of the other terms of
this Agreement, and if this is shown to be unintentional and the result of a
misunderstanding, oversight, or clerical error on the part of either, then this
Agreement shall not be deemed abrogated thereby, but both parties shall be
restored to the position they would have occupied had no such oversight,
misunderstanding, or clerical error occurred.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED
BY THE PARTIES.
CEDING COMPANY: FREMONT LIFE INSURANCE COMPANY
By ____________________________________
Name _______________________________
Title ______________________________
REINSURER: GREAT SOUTHERN LIFE INSURANCE
COMPANY
By ____________________________________
Name _______________________________
Title ______________________________
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SCHEDULE A
REINSURED BUSINESS
The Reinsured Business includes all liabilities associated with all annuity
policies issued or assumed by Fremont Life, in force on January 1, 1996 (with
respect to annuities and other insurance policies), or issued by Fremont Life to
become effective on or after such date including all riders and contracts of
reinsurance; provided, the Reinsured Business shall not include Fremont Life's
block of mortgage term insurance business commonly referred to as Financial
Services or AMPAC.
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SCHEDULE B
THE ASSUMPTION CERTIFICATE
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SCHEDULE C
NOTICE OF TRANSFER
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SCHEDULE D
THE REINSURANCE AGREEMENTS
Rob Pfeil is preparing
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ASSUMPTION REINSURANCE AND COINSURANCE AGREEMENT
(UNIVERSAL LIFE)
This Assumption Reinsurance and Coinsurance Agreement (the "Agreement") is
made this ____ day of July, 1996 (the "Effective Date"), by and between FREMONT
LIFE INSURANCE COMPANY, a California stock life insurance company ("Ceding
Company"), and GREAT SOUTHERN LIFE INSURANCE COMPANY, a Texas stock life
insurance company ("Reinsurer").
WHEREAS, Ceding Company has ceded on a 100% coinsurance basis a certain
block of its universal life insurance business to Employers Reassurance
Corporation ("ERC") pursuant to an Automatic Coinsurance Universal Life
Reinsurance Agreement (the "Fremont Life-ERC Reinsurance Agreement (Universal
Life)"); and
WHEREAS, ERC has ceded on a 100% coinsurance basis the aforesaid block of
business to Reinsurer pursuant to a Modified Coinsurance Life and Annuity
Retrocession Agreement (the "Retrocession Agreement"); and
WHEREAS, Ceding Company desires to transfer all of the aforesaid block of
business and such other of its insurance business, which is more fully described
on the attached Schedule A, which is incorporated herein by this reference (the
"Reinsured Business"), to Reinsurer on (a) 100% coinsurance basis on the
Effective Date, and (b) an assumption reinsurance basis on the Assumption Date
(as that term is defined herein); and
WHEREAS, Reinsurer desires to assume all of the rights and obligations
related to the Reinsured Business on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
COINSURANCE
1.1. As of the Effective Date, Ceding Company shall cede and Reinsurer
shall reinsure all of the Reinsured Business on a 100% coinsurance basis
modified by the terms of this Agreement. All Nonassumed Business shall remain
reinsured on a 100% coinsurance basis by Reinsurer and shall remain subject to
Section 5.2 hereof, and after an Assumption Date, the reinsurance as to the
relevant portion of the Nonassumed Business shall be on an assumption basis as
provided for herein, the coinsurance provided for herein shall automatically
terminate and the assumed portion of the Nonassumed Business shall be deemed to
be Assumed Business for all purposes under this Agreement.
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1.2. As of the Effective Date, Reinsurer shall be responsible for all
(100%) of the obligations and liabilities under the Reinsured Business.
1.3. Reinsurer shall be entitled to receive the net cash flow with respect
to the Reinsured Business from and after the Effective Date. For the purposes
of this Agreement, the term "net cash flow" shall mean the sum of the following,
net of amounts due to or from reinsurers, (a) collected premiums, net of premium
refunds, less (b) commissions paid, less (c) benefits paid, less
(d) administration expenses, (including but not limited to premium taxes, agent
licensing fees and guaranty fund assessments) plus or minus, respectively,
(e) any decrease or increase in policy loans.
1.4. The coinsurance pursuant to Article I shall continue in perpetuity as
to that part of the Reinsured Business that has not been assumed pursuant to the
terms of this Agreement, until such time as it is assumed or the underlying
policies or contracts lapse or otherwise terminate.
1.5. The parties shall provide a quarterly accounting and cash settlement
to each other of the coinsurance transactions hereof, in such form and
containing such information as either party may reasonably request, but such
quarterly accounting and cash settlement shall terminate with respect to any
portion of the Reinsured Business that is eventually assumed hereunder.
1.6. From and after the Effective Date:
(a) Reinsurer shall maintain reserves with respect to the Reinsured
Business in accordance with all requirements of law and commonly accepted
actuarial principles applied in a manner consistent with their application
immediately prior to the transfer of the Reinsured Business pursuant to this
Agreement or, in the event of changes in such principles or applicable law
having the effect of requiring greater reserves, in accordance with such
changes;
(b) Reinsurer shall conduct the Reinsured Business in accordance
with generally accepted business practices for the reinsurance industry, all
applicable law and the requirements of the reinsured policies;
(c) Reinsurer shall maintain statutory capital and surplus
(consisting of cash and securities valued as determined in accordance with
principles and practices required by the Texas Department of Insurance) of not
less than the amount necessary to comply with the law of the State of Texas for
an insurance company writing the lines of business being written by Reinsurer;
(d) Reinsurer shall have the authority to take any and all action
with respect to, and shall assume the sole risk and liability for, any matter
relating to risk management and policy administration, to the extent such
authority may be granted by Ceding Company pursuant to applicable law, including
but not limited to policy changes, reinstatement standards, premium rate
changes, policy renewals, issuance of conversion policies, agents' commissions
and administrative methods and procedures;
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(e) Reinsurer shall bear all expenses arising after the Effective
Date including premium taxes and reasonable audit expenses incurred in
connection with the administration of the Reinsured Business;
(f) Reinsurer shall have authority and discretion with respect to
all matters relating to claim settlement and litigation concerning the Reinsured
Business, including, but not limited to, the selection of counsel; and
(g) Reinsurer shall bear all expenses incurred in connection with
settling claims and litigating claims relating to the Reinsured Business,
including, but not limited to, the cost of routine investigations, legal fees
and interest charges.
1.7. (a) Reinsurer shall indemnify, defend and hold harmless Ceding
Company against and in respect of any and all claims, demands, threats, losses,
costs, expenses, liabilities and damages, including interest, penalties,
attorneys' fees, court costs and amounts paid in settlement, that Ceding Company
shall incur or suffer, that arise, result from or relate to any failure by ERC
to perform its duties under the Fremont Life-ERC Reinsurance Agreement
(Universal Life), subject to the following:
(i) Ceding Company shall assign to Reinsurer all of Ceding
Company's rights against ERC under the Fremont Life-ERC Reinsurance Agreement
(Universal Life) with respect to such failure to perform by ERC. Ceding Company
shall fully cooperate with Reinsurer in any action by Reinsurer against ERC
regarding such failure to perform by ERC, and any action may be brought by
Reinsurer in Ceding Company's name.
(ii) If it is finally determined in any proceeding regarding
such failure to perform by ERC that ERC's failure to perform was justified in
whole or in part because of Ceding Company's breach of the Fremont Life-ERC
Reinsurance Agreement (Universal Life), then Reinsurer's indemnification
obligation shall terminate and Ceding Company shall reimburse for any amounts
Reinsurer expended indemnifying Ceding Company with respect to ERC's failure to
perform.
(b) Ceding Company shall promptly notify Reinsurer of the existence
of any claim, demand or other matter to which Reinsurer's indemnification obli-
gations under this Agreement would apply, and shall give Reinsurer a reasonable
opportunity to defend the same at its own expense and with counsel of its own
selection; provided, Ceding Company shall at all times also have the right to
fully participate in the defense at its own expense. If Reinsurer shall, within
a reasonable time after this notice, fail to defend, Ceding Company shall have
the right, but not the obligation, to undertake the defense of, and to com-
promise or settle, the claim or other matter on behalf, for the account, and at
the risk, of Reinsurer.
(c) This Section 1.7 shall terminate as of the Assumption Date;
provided, that it shall survive as to any matters as to which Ceding Company has
provided notice to Reinsurer prior to the Assumption Date.
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ARTICLE II
TRANSFER OF RESERVES
2.1. On the Effective Date, and in consideration of the coinsurance by
Reinsurer of the Reinsured Business, Ceding Company shall transfer, assign and
deliver to Reinsurer all of Ceding Company's right, title and interest in assets
that consist of (i) the policy loans, policy liens and due and deferred premiums
with respect to the Reinsured Business (collectively, the "Policyholder Assets")
and (ii) an amount of cash or securities equal to the sum of (A) the statutory
reserves and liabilities net of reinsurance ceded as of the Effective Date
required to be established in the manner prescribed for the preparation of
Ceding Company's annual statements in Exhibits 8, 9, 10 and 11 thereof, plus
(B) any other liabilities net of reinsurance ceded as of the Effective Date with
respect to the Reinsured Business required to be reflected on Page 3 thereof,
less (C) Policyholder Assets (the net amount resulting from the foregoing
calculation being the "Net Amount").
ARTICLE III
TRANSFER OF POLICY LIABILITIES
3.1. As of the Effective Date, Reinsurer shall become the successor to
Ceding Company and Reinsurer shall assume full and complete liability for:
(a) the payment of all claims for benefits incurred on or after the
Effective Date in connection with the Reinsured Business;
(b) the payment of all claims for benefits incurred prior to the
Effective Date in connection with the Reinsured Business, but not yet paid
(reported or not); and
(c) all other liabilities, claims and expenses of any kind or type
whatsoever arising on or after the Effective Date, including but not limited to
claims for damages or losses, including but not limited to punitive or extra
contractual damages, incurred in connection with the administration of the
Reinsured Business or in adjusting, denying, resisting or defending any claims
on and after the Effective Date.
3.2. Upon assumption of a policy or contract included in the Reinsured
Business, Reinsurer will be the primary insurer of the risks covered thereby,
completely replacing Ceding Company (such assumed policies and contracts being
referred to herein as the "Assumed Business"). It is the intention of the
parties to effect a complete novation from Ceding Company to Reinsurer in
respect of every policy and contract included in the Assumed Business as of the
Assumption Date, so that Ceding Company shall have no further obligations with
respect to such Assumed Business.
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3.3. Premiums due or paid with respect to the Reinsured Business on and
after the Effective Date, and any loan repayments (and interest payments
thereon) made on the Reinsured Business on and after the Effective Date, shall
be the sole property of Reinsurer. From and after the Effective Date, all
policyholders under the Reinsured Business shall pay all premiums and make any
loan repayments (and interest payments thereon) on their policies directly to
Reinsurer. All moneys, checks, drafts, orders or other instruments received by
Ceding Company after the Effective Date for premiums related to the Reinsured
Business shall be transferred and delivered to Reinsurer, and any such
instruments when so delivered shall bear all indorsements required to effect
such transfer and delivery. Reinsurer shall pay all premium taxes as may be
required by law on premiums related to the Reinsured Business received on or
after the Effective Date.
3.4. Reinsurer shall be authorized to make any defense at law or in
equity to any action or claim instituted or made under the Reinsured Business to
any action or claim instituted or made under the Reinsured Business that might
or could have been made by Ceding Company had this Agreement not been executed.
All of the provisions, conditions, limitations and exclusions contained in the
policies and contracts comprising the Reinsured Business shall remain in effect
notwithstanding the assumption of such policies and contracts by Reinsurer
hereunder.
ARTICLE IV
ASSUMPTION
4.1. On the Assumption Date, Ceding Company shall cede all of its right,
title and interest in and to the Reinsured Business to Reinsurer and Reinsurer
shall assume all (100%) of Ceding Company's obligations and liabilities under
the Reinsured Business, subject to the terms and conditions set forth herein.
4.2 All liabilities assumed by Reinsurer with respect to the Reinsured
Business are subject in all respects to the same terms, conditions,
interpretations, waivers, modifications, alterations and cancellations as the
policies issued with respect to the Reinsured Business. Reinsurer accepts and
assumes such liabilities subject to all defenses, set-offs and counterclaims to
which Ceding Company would be entitled with respect to the Reinsured Business.
On the assumption date, Reinsurer shall be the successor to Ceding Company
under the policies issued with respect to the Reinsured Business. Such policies
shall be the direct obligations of Reinsurer, and the Ceding Company shall have
no liabilities therefor. Reinsurer shall substitute itself in the place of
Ceding Company as if named in the place of Ceding Company. The Insureds (as
defined below) shall thereafter disregard Ceding Company as a party to such
policies. For the purposes of this Agreement, "Insured" or "Insureds" shall
mean any person or entity entitled to claim or receive benefits under any policy
issued with respect to the Reinsured Business. After the
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assumption date, the Insureds shall have (i) the right to file claims arising
under the Reinsured Business directly with Reinsurer and (ii) a direct right of
action against the Reinsurer and the Reinsurer hereby consents to be subject to
direct action taken by any Insured with respect to claims after the Assumption
Date. The rights of any Insured shall be limited and consist of those rights
set forth in the policies issued with respect to the Reinsured Business and
Insureds shall not have the right to receive a greater amount under such policy
than such Insured would have had in the absence of this Agreement.
ARTICLE V
ASSUMPTION DATE
5.1. The term "Assumption Date" as used herein shall mean that date on
which Reinsurer has obtained approval to assume all or part of the Reinsured
Business, which date shall not be later than June 30, 1997.
5.2. If any portion of the Reinsured Business has not been assumed by
Reinsurer as of the Assumption Date (all Reinsured Business hereunder being
referred to as the "Nonassumed Business" until such business has been assumed),
then (a) such portion of the Reinsured Business shall remain subject to
Article I hereof and (b) Reinsurer shall continue to use its best efforts to
effect an assumption thereof as quickly as possible. If, from time to time and
at any time after the Assumption Date, Reinsurer becomes capable of assuming all
or any portion of the Nonassumed Business, then Reinsurer shall effect the
assumption at the earliest possible date by giving Ceding Company written notice
thereof, and each such date also shall constitute an "Assumption Date" for
purposes of this Agreement.
ARTICLE VI
ASSUMPTION CERTIFICATES
6.1. As soon as possible after each Assumption Date and subject to
applicable regulatory approval, if any, and at the sole cost and expense of
Reinsurer, Reinsurer shall issue to each policyholder of the Assumed Business an
assumption certificate in the form set forth in the attached Schedule B, which
is incorporated herein by this reference (the "Assumption Certificate").
Notwithstanding the foregoing, (a) if the consent of the policyholders to the
assumption is required by applicable law or regulation, a notice of transfer
shall be first sent in the form set out in the attached Schedule C, which is
incorporated herein by this reference (the "Notice of Transfer"), and the
required consent obtained, and (b) the form of Assumption Certificate or Notice
of Transfer may be amended if such amendment is required to obtain required
regulatory approval or is otherwise appropriate under the circumstances.
Reinsurer and Ceding Company shall cooperate with one another in securing such
required regulatory approval and amending the Assumption Certificate or Notice
of Transfer, whichever the case may be.
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6.2. From time to time after any one or more Assumption Dates, without
further consideration, Reinsurer shall execute and deliver such other
instruments of assumption, conveyance, assignment, transfer and delivery, and
take such other action as Ceding Company reasonably requests, to more
effectively accomplish the assumption of the Reinsured Business contemplated
herein. Such instruments shall not impose upon Reinsurer any obligation,
liability or risk not contemplated by this Agreement.
ARTICLE VII
EFFECT ON EXISTING REINSURANCE
7.1. The attached Schedule D, which is incorporated herein by this
reference, contains a list of all reinsurance agreements in effect as of the
Effective Date between Ceding Company and any assuming or ceding reinsurer (the
"Reinsurance Agreements"). It is the intention of the parties that Reinsurer
shall be substituted for and succeed to all of the rights and liabilities of
Ceding Company under the Reinsurance Agreements as of the Assumption Date.
Reinsurer shall be wholly and solely responsible for effecting its substitution
under each Reinsurance Agreement and the continuation of each Reinsurance
Agreement after the Assumption Date. The collectibility of reinsurance under
the Reinsurance Agreements shall be at the sole risk and for the account of
Reinsurer at and after the Assumption Date.
7.2. As of the Assumption Date, Reinsurer shall be substituted for and
shall succeed to all of the rights and liabilities of Ceding Company under the
Fremont Life-ERC Reinsurance Agreement (Universal Life) with respect to the
Reinsured Business. Reinsurer shall be wholly and solely responsible for
effecting such substitution under the Fremont Life-ERC Reinsurance Agreement
(Universal Life) and for the continuation of the Fremont Life-ERC Reinsurance
Agreement (Universal Life) after the Assumption Date. The collectibility of
reinsurance under the Fremont Life-ERC Reinsurance Agreement (Universal Life)
shall be at the sole risk and for the account of Reinsurer at and after the
Assumption Date.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1. At the Effective Date, Reinsurer represents and warrants to Ceding
Company as set forth in Article III of that certain Master Agreement dated as of
February 26, 1996, among Americo Life, Inc., Reinsurer, Fremont General Corp.
and Ceding Company (as amended or modified, the
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"Master Agreement"), to extent the representations and warranties set forth in
such Article III pertain to Reinsurer. Such representations and warranties,
together with the schedules attached to the Master Agreement that pertain
thereto, are hereby incorporated herein by this reference.
8.2. At the Effective Date, Ceding Company represents and warrants to
Reinsurer as set forth in Article II of the Master Agreement, to the extent the
representations and warranties set forth in such Article II pertain to Ceding
Company and the Reinsured Business. Such representations and warranties,
together with the schedules attached to the Master Agreement that pertain
thereto, are hereby incorporated herein by this reference.
ARTICLE IX
INSOLVENCY
9.1. The provisions of this Article IX apply to this entire Agreement,
including, without limitation, Article I of this Agreement. Reinsurer's
obligations under this Agreement shall be without diminution and in no way be
affected or diminished because of Ceding Company's insolvency. In the event of
such an insolvency and the appointment of a conservator, liquidator or statutory
successor of Ceding Company, the reinsurance payable by Reinsurer pursuant to
this Agreement shall be payable directly to such conservator, liquidator or
statutory successor immediately upon demand on the basis of claims allowed
against Ceding Company by any court of competent jurisdiction or by any
conservator, liquidator or statutory successor of Ceding Company having
authority to allow such claims, without diminution because of such insolvency or
because such conservator, liquidator or statutory successor has failed to pay
all or a portion of any claims. The conservator, liquidator or statutory
successor shall give Reinsurer written notice of the pendency of any claims
against Ceding Company with respect to the Reinsured Business within a
reasonable time after the claim is filed in an insolvency proceeding. Reinsurer
shall have the right, but at its own expense, to investigate the claim and
interpose in the name of Ceding Company, its conservator, liquidator or
statutory successor in the proceeding where the claim is to be adjudicated, any
defense or defenses that Reinsurer may deem to be available to Ceding Company or
its conservator, liquidator or statutory successor. The expense thus incurred
by Reinsurer shall be payable, subject to court approval, out of Ceding
Company's estate as part of the expense of conservation or liquidation to the
extent of a proportionate share of the benefit that may accrue to Ceding Company
in conservation or liquidation solely as a result of the defense undertaken by
Reinsurer.
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ARTICLE X
RECORDS AND ACCOUNTING; COMMUNICATION TO POLICYHOLDERS;
ANNUAL FINANCIAL STATEMENTS
10.1. As soon as practicable after the Effective Date, Ceding Company
shall transfer, convey, assign and deliver title and possession to Reinsurer of
all files, books and records related to the Reinsured Business. The parties
recognize that from time to time hereunder, each party will need access to
certain books and records in the custody of the other party for, without
limitation, financial reporting and tax return preparation purposes and that,
upon the reasonable request of a party, each party shall give to the requesting
party and its actuaries, agents, attorneys and accountants as promptly as
reasonably possible reasonable access to such books and records as the
requesting party may require for the stated purposes (including the right to
make copies).
10.2. Ceding Company shall deliver to Reinsurer as promptly as practicable
after the Effective Date a complete listing of all policies in force relating to
the Reinsured Business as of the Effective Date.
10.3. After the Effective Date, Reinsurer can communicate with the
policyholders comprising the Reinsured Business in the ordinary course of
business without the consent of Ceding Company.
10.4. Reinsurer agrees that, from the Effective Date until each Assumption
Date, Reinsurer will afford to Ceding Company such access upon reasonable notice
and during normal business hours to all of the books and records of Reinsurer
relating to the Nonassumed Business as Ceding Company may reasonably request.
10.5. (a) Until all Reinsured Business has been assumed by Reinsurer
hereunder, Reinsurer shall, as soon as they are available, but in any event not
later than 90 days after the end of such accounting year, provide Ceding Company
with Reinsurer's annual convention statements for the accounting year most
recently ended. In addition not later than 180 days after the end of each
accounting year Reinsurer will provide Ceding Company its audited financial
statements for the accounting year most recently ended, or in the event
Reinsurer does not have audited separate company financial statements, the
financial statements of Reinsurer for the accounting year most recently ended
certified by the chief financial officer of Reinsurer, that the financial
information contained in the foregoing annual convention statements and audited
financial statements fairly presents the assets, liabilities, financial
condition and results of operations of Reinsurer as of the dates thereof and for
the periods covered thereby in conformity with statutory accounting practices as
prescribed by Texas insurance regulatory authorities, except as stated therein
or in the notes thereto.
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(b) Upon delivery to Ceding Company, such financial statements shall
constitute Statutory Statements for all purposes of this Agreement, including
but not limited to Section 8.1.
10.6. Any debts or credits, matured or unmatured, liquidated or
unliquidated, regardless of when they arose or where incurred, in favor of or
against either Ceding Company or Reinsurer with respect to this Agreement are
deemed to be mutual debts or credits, as the case may be, and shall be set off,
and only the balance shall be allowed or paid.
ARTICLE XI
CONSENTS
11.01. Prior to each Assumption Date hereunder, Reinsurer shall use its
best efforts to obtain at the earliest practicable date all consents, approvals
and other authorizations required to be obtained by it for the consummation of
the transactions contemplated hereby including, without limitation, any consents
or approvals that might be required to be obtained from insurance regulatory
authorities with respect to this Agreement and the transactions contemplated
hereby, except that Ceding Company shall be responsible for obtaining any
approvals from the California Department of Insurance with respect to its
obligations under this Agreement. Ceding Company shall provide such information
and documents and otherwise cooperate as Reinsurer may reasonably request in
obtaining such consents, approvals or other authorizations.
ARTICLE XII
TERMINATION AND ABANDONMENT
12.1. This Agreement may be terminated and the transactions contemplated by
this Agreement may be abandoned prior to the first Assumption Date by mutual
written consent of Reinsurer and Ceding Company.
12.2. After the first Assumption Date:
(a) This Agreement may not be terminated with respect to any Assumed
Business, it being the intention of the parties to effect a complete novation
from Ceding Company to Reinsurer in respect of every policy and contract
included in the Assumed Business as of the relevant Assumption Date.
(b) This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned as to any Nonassumed Business
prior to any subsequent Assumption Date by mutual written consent of Reinsurer
and Ceding Company. In the event of such termination, the coinsurance of such
Nonassumed Business shall terminate and such Nonassumed Business shall be
recaptured by Ceding Company. On the effective date of termination, Reinsurer
shall transfer, convey, assign and deliver to Ceding Company assets satisfactory
to Ceding Company in an amount
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equal to the Net Amount, as such Net Amount would be calculated with respect to
the recaptured Nonassumed Business under Section 2.1(a) hereof.
ARTICLE XIII
ARBITRATION
13.1. (a) In the event of any difference arising hereafter between the
contracting parties with reference to any transaction under this Agreement, the
same shall be referred to three arbitrators who must be executive officers of
life insurance or life reinsurance companies other than the two parties to this
Agreement or their affiliates, each of the parties to appoint one of the
arbitrators and such two arbitrators to select the third. If either party
refuses or neglects to appoint an arbitrator within 30 days after receipt of the
written request for arbitration, the initiating party may appoint a second
arbitrator.
(b) If the two arbitrators fail to agree on the selection of a third
arbitrator within 30 days of their appointment, each of them shall name three
individuals, of whom the other shall decline two, and the decision shall be made
by drawing lots.
(c) The arbitrators shall consider this Agreement not merely as a
legal document but also as a gentlemen's agreement. They shall decide by a
majority vote of the arbitrators. There shall be no appeal from their written
decision, except as permitted by applicable law.
(d) Each party shall bear the expense of its own arbitration,
including its arbitrator and outside attorney fees, and shall jointly and
equally bear with the other party the expense of the third arbitrator. Any
remaining costs of the arbitration proceedings shall be apportioned by the three
arbitrators.
(e) The arbitration proceedings shall be conducted in accordance
with the rules of the American Arbitration Association except that the parties
shall be entitled to take discovery as provided under Federal Rules of Civil
Procedure Nos. 28 through 36 during a period of 60 days after the final
arbitrator is appointed and the arbitrators shall have the power to issue
subpoenas, compel discovery, award sanctions, and grant injunctive relief. The
arbitrators shall be entitled to retain a lawyer to advise them as to legal
matters, but such lawyer shall have none of the relationships to either of the
parties that are proscribed above for arbitrators. The arbitration hearings
shall commence no sooner than 90 days after the date the final arbitrator is
appointed and not later than 120 days after such date. The arbitration hearing
shall be conducted during normal working hours on business days without
interruption or adjournment of more than two days at any one time or six days in
the aggregate. The arbitrators shall deliver to the parties their decision in
writing within 10 days after the conclusion of the arbitration hearing.
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(f) Any arbitration instituted pursuant to this section shall be
held in Kansas City, Missouri, or such other place that is mutually agreeable to
the parties, with the precise location being as agreed upon by the parties or,
absent such agreement, at a location designated by the American Arbitration
Association resident manager in Kansas City, Missouri.
(g) Notwithstanding any other provision of this Section, nothing
contained in this Agreement shall require arbitration of any issue for which
injunctive relief is properly sought by either party to this Agreement.
(h) Notwithstanding any other provision of this Article XIII, if
Reinsurer seeks, consents to, or acquiesces in the appointment of or otherwise
becomes subject to any trustee, receiver, liquidator or conservator (including
any state insurance regulatory agency acting in such a capacity), Ceding Company
shall not be obligated to resolve any claim, dispute or cause of action under
this Agreement by arbitration and may elect to bring any action with respect to
such claim, dispute or cause of action in any court of competent jurisdiction.
ARTICLE XIV
INDEMNIFICATION
14.1. Reinsurer shall indemnify, defend, save and hold Ceding Company
harmless from and against any and all damage, liability, loss, expense,
assessment, judgment or deficiency of any nature whatsoever (including, without
limitation, reasonable attorneys' fees, costs of investigation and other costs
and expenses incident to any suit, action or proceeding) (together, "Losses")
incurred or sustained by Ceding Company that arise out of or result from any
breach of any agreement to be performed by Reinsurer under this Agreement
(regardless of when such agreements are to be performed). Additionally,
Reinsurer shall indemnify, defend, save and hold Ceding Company harmless from
and against any Losses that Ceding Company may incur with respect to the
Reinsured Business after the Effective Date, including, without limitation,
Losses arising in the ordinary course of business in the Reinsured Business
under any contractual or other obligation ceded to or accepted by Reinsurer
pursuant to this Agreement or arising out of Reinsurer's conduct with regard to
the Reinsured Business, including punitive damages as a result of such conduct,
but excluding any Losses related to matters described in Section 9.1 of the
Master Agreement.
14.2. Ceding Company shall indemnify, defend, save and hold Reinsurer
harmless from and against any and all Losses incurred or sustained by Reinsurer
that arise out of or result from any breach of any agreement to be performed by
Ceding Company under this Agreement (regardless of when such agreements are to
be performed).
14.3. Promptly after service of notice of any claim or of process by any
third person in any matter in respect of which indemnity may be sought from the
other party pursuant to this Agreement, the party so served shall notify the
indemnifying party of the receipt thereof. The indemnifying party shall have
the right to participate in or assume, each at its own expense, the defense of
any such claim or process or settlement thereof. After notice from the
indemnifying party of its election to assume the defense thereof, the
indemnifying party shall not be liable to the indemnified party for any legal or
other expense in connection with such defense. Such defense shall be conducted
expeditiously (but with due regard for obtaining the most favorable outcome
reasonably likely under the circumstances, taking into account costs and
expenditures) and the indemnified party shall be advised promptly of all
developments.
-12-
<PAGE>
Notwithstanding the foregoing, with respect to any matter that is the
subject of any such claim and as to which the indemnified party fails to give
the other party such notice as aforesaid, and such failure adversely affects the
ability of the indemnifying party to defend such claim or materially increases
the amount of indemnification that the indemnifying party is obligated to pay
under this Agreement, the amount of indemnification that the indemnified party
shall be entitled to receive shall be reduced to an amount that the indemnified
party would have been entitled to receive had such notice been timely given. No
settlement of any such claim as to which the indemnifying party has not elected
to assume the defense thereof shall be made without the prior written consent of
the indemnifying party, which consent shall not be unreasonably withheld or
delayed.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.2. Reinsurer and Ceding Company, by mutual consent, may amend, modify
or supplement this Agreement only by an instrument in writing signed on behalf
of each of the parties hereto.
15.3. Each party to this Agreement may, by written notice to the other
party specifically referring to this Agreement and to the provision being
waived, and only by such written notice, (a) waive any inaccuracies in the
representations or warranties of any other party contained in this Agreement or
in any document delivered pursuant to this Agreement and (b) waive compliance
with any of the covenants or any of the obligations of any other party. The
waiver by any party hereto to a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
15.4. All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been given
if delivered by hand or mailed, certified or registered mail with postage
prepaid:
(a) If to Ceding Company, to:
Fremont Life Insurance Company
Attn: Robert C. Pfeil, Jr.
790 The City Drive South, Suite 210
Orange, California 92668
FAX: (310) 315-5593
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<PAGE>
with a copy to:
Fremont General Corp.
Attn: Alan W. Faigin, Esq.
2020 Santa Monica Boulevard
Santa Monica, California 90404
FAX: (310) 315-5593
(b) If to Reinsurer, to:
Great Southern Life Insurance Company
Attn: Mr. Gary L. Muller
300 West 11th Street
Kansas City, Missouri 64105
FAX: (816) 391-2018
with a copy to:
Thomas M. Higgins, III, Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard
Kansas City, MO 64108
FAX: (816) 292-2001
or to such other person or address as either party shall furnish the other party
in writing.
15.5. Whether or not the transfer is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
15.6. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The obligations of Reinsurer hereunder may not be
assigned without the prior written consent of Ceding Company.
15.7. This Agreement and the legal relations between the parties hereto
shall be governed by and construed in accordance with the substantive laws
(excluding provisions relating to choice of law) of the State of Missouri.
15.8. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-14-
<PAGE>
15.9. This Agreement, including the Schedules and Exhibits attached
hereto, embodies the entire agreement and understanding of the parties hereto in
respect of the subject matter hereof. There are no restrictions, promises,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
15.10. Nothing in this Agreement is intended for the benefit of any persons
other than the parties hereto, their successors and assigns and, if the
transactions contemplated under this Agreement are consummated, the holders and
beneficiaries under the policies which constitute the Reinsured Business.
15.11. Should Ceding Company fail to cede reinsurance that otherwise would
have been ceded in accordance with the provisions of this Agreement, or should
either Ceding Company or Reinsurer fail to comply with any of the other terms of
this Agreement, and if this is shown to be unintentional and the result of a
misunderstanding, oversight, or clerical error on the part of either, then this
Agreement shall not be deemed abrogated thereby, but both parties shall be
restored to the position they would have occupied had no such oversight,
misunderstanding, or clerical error occurred.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED
BY THE PARTIES.
CEDING COMPANY: FREMONT LIFE INSURANCE COMPANY
By ____________________________________
Name _______________________________
Title ______________________________
REINSURER: GREAT SOUTHERN LIFE INSURANCE
COMPANY
By ____________________________________
Name _______________________________
Title ______________________________
-15-
<PAGE>
SCHEDULE A
REINSURED BUSINESS
The Reinsured Business includes all liabilities associated with all life
insurance policies issued or assumed by Fremont Life in force on December 31,
1995 (with respect to universal life policies), or issued by Fremont Life to
become effective on or after such date, including all riders and contracts of
reinsurance; provided, the Reinsured Business shall not include Fremont Life's
block of mortgage term insurance business commonly referred to as Financial
Services or AMPAC or the universal life policies of Fremont Life described on
the attached list.
-16-
<PAGE>
SCHEDULE B
THE ASSUMPTION CERTIFICATE
-17-
<PAGE>
SCHEDULE C
NOTICE OF TRANSFER
DANIEL E. LUNGREN
Attorney General
State of California
Department of Justice
[seal]
300 South Spring Street, Suite 5212
Los Angeles, CA 90013
(213) 297-2000
TELEPHONE NO.: (213) 897-2635
FACSIMILE NO.: (213) 897-4951
May 2, 1996
James L. Anderson, President
Fremont Life Insurance Company
P.O. Box 14172
790 The City Drive South (92668)
Orange, CA 92613-1572
RE: Investigation of The Advertising and Business Practices Related to Sales of
Living Trusts and Annuities by Alliance for Mature Americans, S. Fred
Adams, Victoria Adams, Herbert Rhodes, Carolyn Gordon Sosa, Catherine
Satek, Kevin J. Hopper, NALICO, Fremont Life Insurance Company, USG Annuity
& Life Company, Equitable Life Insurance Company of Iowa, and others
Dear Mr. Anderson:
The California Attorney General's Office and the State Bar of California
have investigated the advertising and business practices the above parties have
used in connection with their sale of living trusts and policies of annuities.
We believe that the above parties have assisted each other and have acted in
concert with each other and/or as agents of each other to violate Business and
Professions Code sections 6125, 17500 et seq. and 17200 et seq. These Business
and Professions Code sections prohibit the unauthorized practice of law, the use
of untrue or misleading statements in the solicitation of business, and the use
of unfair, unlawful or fraudulent business acts or practices.
In summary, the Alliance for Mature Americans and its representatives (AMA)
counsel and advise senior citizens to purchase living trusts, pour-over wills
and other estate planning services from AMA. AMA uses a variety of untrue and
misleading statements and unfair, unlawful or fraudulent acts to gain entrance
to the seniors' homes, to gain their trust and confidence, and to sell the
living trusts and related services. Several of the above parties associated
with AMA are licensed to practice law. Neither AMA, nor the representatives who
counsel and advise seniors on the purchase of AMA's trusts and wills, however,
are licensed to practice law.
AMA's representatives are also agents of NALICO, Fremont Life Insurance
Company, USG Annuity & Life Company, and/or Equitable Life Insurance Company of
Iowa (collectively, these insurance companies and their agents may be referred
to as "the
<PAGE>
James L. Anderson, President
May 2, 1996
Page 2
insurance companies"). AMA and the insurance companies use their fiduciary
relationship, the confidential financial information obtained during the sale of
the estate planning services, and the pretext of executing or reviewing the
living trust documents to sell annuities. AMA and the insurance companies use a
number of misrepresentations and unfair, unlawful or fraudulent acts to sell the
annuities, including misrepresentations regarding the advantages of annuities
and the disadvantages of other types of investments.
Despite the fiduciary relationship AMA has with its clients, AMA induces
its clients to sign numerous documents that purport to limit their rights and
relieve AMA of liability. AMA and/or the insurance companies also use various
unscrupulous means to induce seniors not to cancel the transactions We think
the above practices are especially insidious because they are aimed at senior
citizens.
It is the current intent of the Attorney General and the State Bar of
California to file a civil complaint against the above parties alleging
violations of the Business and Professions Code sections identified above and
seek an injunction, civil penalties, restitution and other equitable relief.
We have scheduled a meeting for 10:00 a.m. on May 17, 1996, at the Attorney
General's Office, 300 South Spring St., 5th Floor, Los Angeles, California to
afford you an opportunity to discuss this matter before a final determination
has been made. Please let Margaret Reiter know by May 10, 1996, if you would
like to attend. You may reach Margaret Reiter at the telephone number listed
above.
Sincerely,
DANIEL E. LUNGREN
Attorney General
MARGARET REITER
Deputy Attorney General
MARK TORRES-GIL
Assistant General Counsel
The State Bar of California
Employers Reassurance Corporation
5200 Metcalf
P.O. Box 2981
Overland Park, Kansas 66201-1381
(913) 676-5950 Facsimile (913) 676-5221
A. General Electric Capital Services Company
AMENDMENT NO. 1
The Automatic Coinsurance Universal Life Reinsurance Agreement of December 31,
1995, between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and
FREMONT LIFE INSURANCE COMPANY of Orange, California, is hereby amended as
follows:
Effective December 31, 1995:
A. Item 4 is deleted from the Schedule and the following Item 4 is
substituted therefor:
4. Transfer date: The closing date agreed to by the Reinsured and
the Retrocessionaire.
B. Item 10 is deleted from the Schedule and the following Item 10 is
substituted therefor:
10. Expense allowance: As respects each calendar quarter after the
transfer date, the sum of the following:
(i) $15.75 per policy in force at beginning of the
quarter;
(ii) The premium taxes paid by the Reinsured on the
policies' insurance premium collected during
the quarter.
C. The following exclusion is added to this agreement as the second
paragraph of Article 1:
This agreement does not apply to the insurance contracts described in
Attachment One to this amendment.
D. The Insolvency Clause is deleted and the Insolvency Clause attached to
this amendment is substituted therefor.
E. Exhibit A is deleted and the Exhibit A-1 attached to this amendment is
substituted therefor.
F. The following provision is added to Exhibit A-1:
The guidelines contained in this exhibit shall not be construed to
constituted a guarantee by the Reinsured of the future performance of the
business ceded under this agreement.
<PAGE>
G. The following provision is added to Exhibit B:
When credited interest rates are outside the defined working ranges of
target rates and a disagreement exists between the Corporation and the
Reinsured regarding whether, and how, such credited interest rates should
be adjusted, the decision of the Reinsured shall prevail.
In all other respects not inconsistent herewith, said agreement shall
remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in duplicate.
FREMONT LIFE INSURANCE EMPLOYERS REASSURANCE
COMPANY CORPORATION
By: /s/ By: /s/
Title: Assistant Treasurer Title: Vice-President
Date: June 17, 1996 Date: June 14, 1996
By: /s/ By: /s/
Title: Secretary and General Counsel Title: Assistant Gen. Counsel
Date: June 17, 1996 Date: June 14, 1996
-2-
<PAGE>
INSOLVENCY CLAUSE
The portion of any risk or obligation assumed by the reinsurer, when such
portion is ascertained, shall be payable on demand of the ceding insurer at the
same time as the ceding insurer shall pay its net retained portion of such risk
or obligation, with reasonable provision for verification before payment, and
the reinsurance shall be payable by the reinsurer, on the basis of the liability
of the ceding insurer under the contract or contracts reinsured without
diminution because of the insolvency of the ceding insurer. In the event of
insolvency and the appointment of a conservator, liquidator or statutory
successor of the ceding company, such portion shall be payable to such
conservator, liquidator or statutory successor immediately upon demand, with
reasonable provision for verification, on the basis of claims allowed against
the insolvent company by any court of competent jurisdiction or by any
conservator, liquidator, or statutory successor of the company having authority
to allow such claims, without diminution because of such insolvency or because
such conservator, liquidator or statutory successor has failed to pay all or a
portion of any claims. Payments by the reinsurer as above set forth shall be
made directly to the ceding insurer or to its conservator, liquidator or
statutory successor, except where the contract of insurance or reinsurance
specifically provides another payee of such reinsurance in the event of the
insolvency of the ceding insurer.
The conservator, liquidator or statutory successor of a ceding insurer
shall give written notice of the pendency of a claim against the ceding insurer
indicating the policy or bond reinsured, within a reasonable time after such
claim is filed and the reinsurer may 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 ceding company or its conservator, liquidator or
statutory successor. The expense thus incurred by the reinsurer shall be
payable subject to court approval out of the estate of the insolvent ceding
insurer as part of the expense of conservation or liquidation to the extent of a
proportionate share of the benefit which may accrue to the ceding insurer in
conservation or liquidation, solely as a result of the defense undertaken by the
reinsurer.
The original insured or policyholder shall not have any rights against the
reinsurer which are not specifically set forth in the contract of reinsurance,
or in a specific agreement between the reinsurer and the original insured or
policyholder.
-3-
<PAGE>
EXHIBIT A-1
AMERICO LIFE, INC.
INVESTMENT OBJECTIVES, STRATEGIES & GUIDELINES
FOR THE FREMONT LIFE INSURANCE BLOCK
FEBRUARY 29, 1996
INVESTMENT OBJECTIVES
The primary objectives are:
1. Preservation of principal (capital).
2. Maximize the potential value of the portfolio with a focus on maintaining
and increasing future investment income streams-
INVESTMENT CONSTRAINTS
1. Conservative and stable investment philosophy with primary emphasis on
balancing credit and interest rate risk.
2. Focus on well-structured securities (non-callable corporates CMO's with
stable average lives, current or discount coupon pass-throughs) to reduce
reinvestment risk and improve price performance. Investment in high risk or
volatile derivative securities (e.g. inverse floaters) are not considered part
of the overall investment strategy.
3. Investments are made with the intent of being held long term. The
portfolio will not be actively/aggressively managed based on anticipated
interest rate and/or spread changes. Any restructuring of the portfolio will be
performed in conjunction with the overall asset/liability management process.
4. The portfolio will be structured with the goal of matching the assets
with the expected liability cash flows. The structure of the assets will be
regularly monitored considering interest rate and expected prepayment rate
changes. Asset/liability studies are completed at least annually, or more
frequently if warranted. The results of these studies play an integral role in
the durational aspects of securities purchased.
5. Maintain a high quality/liquid investment portfolio to satisfy both
existing and prospective cash flow needs.
-4-
<PAGE>
INVESTMENT GUIDELINES AND LIMITATIONS
The following guidelines will be utilized in developing and managing the
portfolio:
1) Maturity Structure:
The targeted average life for the portfolio is a range of 6-13 years.
The maturity distribution of the portfolio will be a function of expected
liability cash flows, and the term structure of interest rates.
2) Sector Allocation:
Target
Expected Percentage
Sector Range Allocation
U.S. Governments: 0-25% .-%
Corporate Bonds: 45-85 55
Asset-Backed Securities (ABS): 5-20 20
Mortgage-Backed Securities (MBS): 15-45 25
Total 100
3) Ratings Guidelines:
a) Corporate Bonds:
Target
Expected Percentage
Rating Category Range of Corporates
AAA & AA 5-15 % 10%
A 40-75 65
BBB 15-25 25
100%
For any corporate bonds rated both Baa-3/BBB- by Moody's and Standard & Poor's
respectively, Employer's Re will be notified prior to their purchase.
Subsequent to the transaction, written approval will be obtained from Employer's
Re for all Baa-3/BBB- bonds acquired.
b) Mortgage-Backed Securities:
MBS holdings will generally involve government agency, government sponsored
agency (FNMA and FHLMC, or AAA rated collateral. No more than 20% of the total
portfolio will be backed by non-agency collateral.
-5-
<PAGE>
c) Below Investment Grade Securities (BIG):
BIG bonds are not considered part of the overall investment strategy. However,
any bond purchased as an investment grade security which is subsequently
downgraded to a BIG rating will be reevaluated at that time. If the risk of
default is considered low, the bond may be retained. Any BIG bonds retained
will be regularly monitored and reevaluated. The total amount of BIG bonds to
be retained cannot exceed 5% of total investments.
d) Asset-Backed Securities:
ABS investments should be rated AA or AAA by one of the major rating agencies.
No more than 20% of ABS holdings can be rated AA.
Expected Target
Range Allocation
AAA 80-100 % 100%
AA 0-20 -
4) Holding limitations:
a) Industry Concentration:
Corporate bond holdings are limited to no more than 20% in any one
industry.
b) Company Concentration:
The maximum amount to be invested in any one company or organization is as
follows:
Maximum Amount
Invested
Rating Category (In Millions)
AAA $15
AA 15
A 12
BBB 8
c) Individual MBS Concentration:
The maximum amount to be invested in any one agency collateral security is $25
million. For a non-agency collateral security, the maximum amount is $10
million (rated AAA).
-6-
<PAGE>
d) Individual ABS Concentration:
The maximum amount to be invested in any one ABS security is as
follows:
Maximum Amount
Invested
Rating Category (In Millions)
AAA $l0
AA 5
5) Any security which is outside the scope of these guidelines can be
invested in, if mutually agreed upon by both organizations.
-7-
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (the "Agreement") is dated this
___ day of July, 1996, by and between FREMONT LIFE INSURANCE COMPANY, a
California corporation ("Assignor"), and GREAT SOUTHERN LIFE INSURANCE COMPANY,
a Texas corporation ("Assignee").
WHEREAS, Assignor and Assignee are parties to a Master Agreement (herein as
amended, supplemented or otherwise modified, the "Master Agreement") dated as of
February 26, 1996, among Assignor, Assignee, Americo Life, Inc. (Assignee's
ultimate parent) and Fremont General Corp. (Assignor's parent), pursuant to
which Assignor agreed to cede certain insurance business to Assignee; and
WHEREAS, pursuant to Section 5.1 of the Master Agreement, Assignor agreed
to assign to Assignee, and Assignee has agreed to assume from Assignor, certain
of Assignor's rights and obligations under the contracts with insurance agents
listed on the attached Schedule A (the "Agent Contracts"); and
WHEREAS, accordingly, Assignor desires to assign, and Assignee desires to
assume, certain of Assignor's rights and obligations under the Agent Contracts,
on the terms stated herein;
NOW, THEREFORE, in accordance with the terms of the Master Agreement and in
consideration of the mutual agreements contained herein and in the Master
Agreement and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Assignor and Assignee hereby agree as follows:
1. ASSIGNMENT OF AGENT CONTRACTS. Assignor hereby assigns, transfers and
conveys to Assignee all of Assignor's rights and interest in, to and under the
Agent Contracts effective from and after the date hereof to the extent such
rights relate to the Reinsured Business (as defined in the Master Agreement) and
the period after the date hereof.
2. ASSUMPTION OF LIABILITIES. Assignee hereby assumes and agrees to pay
or perform when due all obligations of Assignor under the Agent Contracts to the
extent such obligations relate to the Reinsured Business and the period after
the date hereof.
3. MISCELLANEOUS. Each party to this Agreement shall execute and deliver
such instruments, documents and other written information and take such other
actions as the other party may reasonably require to carry out the intent of
this Agreement. This Agreement and all the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. This Agreement shall be governed by and construed in
accordance with Missouri law, excluding choice of law provisions.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Assignment and Assumption Agreement as of
the date first above written.
FREMONT LIFE INSURANCE COMPANY
By ___________________________________
Name ______________________________
Title _____________________________
GREAT SOUTHERN LIFE INSURANCE
COMPANY
By ___________________________________
Name ______________________________
Title _____________________________
-2-
<PAGE>
SCHEDULE A
Agent Contracts
Securplan Plus Agency Marketing Agreement dated January 1, 1993 and Addendum
thereto dated April 19, 1994 between Fremont Life (then known as Commercial
Bankers Life Insurance Company) and Brokers International, Ltd.
-3-
FIRST AMENDMENT TO MASTER AGREEMENT
This First Amendment to Master Agreement (the "Amendment") is made as of
the ___ day of July, 1996, by and among FREMONT LIFE INSURANCE COMPANY, a
California corporation ("Fremont Life"), FREMONT GENERAL CORP., a California
corporation ("Fremont General"), AMERICO LIFE, INC., a Missouri corporation
("ALI"), and GREAT SOUTHERN LIFE INSURANCE COMPANY, a Texas corporation ("Great
Southern"). Fremont General and Fremont Life are hereinafter referred to
collectively as "Fremont." ALI and Great Southern are hereinafter referred to
collectively as "Americo."
WHEREAS, Fremont and Americo are parties to that certain Master Agreement
dated as of February 26, 1996 (the "Master Agreement"); and
WHEREAS, the parties hereto wish to amend the Master Agreement in the
manner provided herein;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements contained in this Amendment, and for other consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Capitalized terms not otherwise defined herein shall
have the meaning set forth in the Master Agreement.
2. SUPPLEMENTAL FINANCIAL STATEMENTS. Subsection (a) of Section 4.5
of the Master Agreement is amended to read as follows:
[Para. 4.5(a)]
(a) Promptly after December 31, 1995, Fremont shall deliver to
Americo true and correct copies of the December 31, 1995 convention
statements of Fremont Indemnity Company (a wholly owned subsidiary of
Fremont General) and Fremont Life. Such statements shall thenceforth be
considered part of the "Fremont Convention Statements" and "Fremont
Statutory Statements" as defined in Section 2.5(b). At the time Fremont
General files its annual report on Form 10-K for December 31, 1995, with
the Securities and Exchange Commission (the "SEC"), Fremont General shall
send such report to Americo. The financial statements in such report
shall be considered part of the "Fremont GAAP Statements," as defined in
Section 2.5(a). At the time Fremont General files its quarterly report on
Form 10-Q for March 31, 1996, with the SEC, Fremont General shall send
such report to Americo. The financial statements in such reports shall be
considered part of the "Fremont GAAP Statements," as defined in Section
2.5(a).
3. ERC AGREEMENTS. Sections 7.5 and 8.5 of the Master Agreement are
amended to read as follows, respectively:
[Para. 7.5]
<PAGE>
7.5. ERC AGREEMENTS. ERC shall have entered into the Fremont
Life-ERC Reinsurance Agreement (Universal Life) and the Fremont Life-ERC
Reinsurance Agreement (Annuities) with Fremont Life substantially in the
forms attached hereto as Exhibits H and I, respectively. Great Southern
and ERC shall have entered into the Retrocession Agreement. ERC shall
have amended the Investment Management Agreement with ALI dated as of
October 2, 1995. ERC, Great Southern and Commerce Bank of Kansas City,
N.A. shall have entered into an escrow agreement acceptable to Great
Southern.
[Para. 8.5]
8.5. ERC AGREEMENTS. Fremont Life and ERC shall have entered into
the Fremont Life-ERC Reinsurance Agreement (Universal Life) substantially
in the form attached hereto as Exhibit H. Fremont Life shall have
transferred to ERC the amount of assets provided for in Article VII of the
Fremont Life-ERC Reinsurance Agreement (Universal Life). ERC shall have
entered into the Fremont Life-ERC Reinsurance Agreement (Annuities) with
Fremont Life substantially in the form attached hereto as Exhibit I.
Fremont Life shall have transferred to ERC the amount of assets provided
for in Article VII of the Fremont Life-ERC Reinsurance Agreement
(Annuities). ERC shall have entered into the Retrocession Agreement with
Great Southern. ERC shall have amended the Investment Management
Agreement with ALI dated as of October 2, 1995. ERC, Great Southern and
Commerce Bank of Kansas City, N.A. shall have entered into an escrow
agreement acceptable to Great Southern.
4. INDEMNIFICATION BY FREMONT. Section 9.1 of the Master Agreement is
amended by adding the following new subsection (d) after the existing
subsections (a), (b) and (c) (which are revised to read as shown below):
[Para. 9.1]
(a) any breach of, or failure by Fremont General or Fremont Life
to perform, any of their representations, warranties or agreements in this
Agreement, the Transaction Documents, the Fremont Life-ERC Reinsurance
Agreement (Universal Life) or the Fremont Life-ERC Reinsurance Agreement
(Annuities) or in any schedule, certificate, exhibit or other instrument
furnished by either of them under this Agreement;
(b) any claim paid subsequent to December 31, 1995 (with respect
to universal life policies), and January 1, 1996 (with respect to
annuities and other insurance business or otherwise), but incurred prior
to December 31, 1995, or January 1, 1996, whichever is appropriate, for
which the reserve established and disclosed on Schedule 2.10(c) is not
adequate;
(c) (i) the acts or omissions to act by any agent of Fremont (for
purposes of this provision (i), "agent" shall mean insurance agents or
brokers under any applicable law or regulation and any other party
involved in the selling of the policies included in the Reinsured
Business), or (ii) any obligations of Fremont under any contract between
Fremont Life or Fremont General and their respective agents or former
agents, including obligations arising before the Closing under the
contracts with Agents described in Article V; and
-2-
<PAGE>
(d) the acts or omissions to act by Fremont Life or any if its
directors, officers, employees (except, with respect to any employee, to
the extent such employee's acts or omissions were at ALI's or Great
Southern's direction) or agents prior to the Closing not otherwise covered
by the foregoing subsections (a), (b) and (c); provided, Fremont General
shall have no indemnification obligations under this subsection (d).
In addition, the first full paragraph following the foregoing new
subsection (d) is amended to read as follows:
Americo shall be entitled to indemnification under subsections (a) or
(c) above only if the amount of damages with respect to such indemnifiable
amounts individually or in the aggregate exceeds $25,000, in which event
the indemnity provided for in Section 9.1 hereof shall be effective with
respect to the entire amount of such damages.
5. 1996 ANNUITY POLICIES. Section 9.4 of the Master Agreement is
amended to read as follows:
[Para. 9.4]
9.4. 1996 ANNUITY POLICIES. Fremont Life will continue
to accept applications for new annuity business until December 31, 1996,
and will reinsure such business to ERC pursuant to the terms of the
Fremont Life-ERC Reinsurance Agreement (Annuities) and to Great Southern
under the terms of the Assumption Reinsurance Agreement (Annuities);
provided, such additional annuity business shall be on policy forms of
Fremont Life existing as of the Closing.
6. POST-CLOSING CEDING COMMISSION ADJUSTMENT. Section 9.6 of the
Master Agreement is deleted in its entirety.
[Para. 9.6]
7. INDEMNIFICATION BY AMERICO. The following new subsection (c)
is added after subsections (a) and (b) of Section 10.1 of the Master
Agreement:
[Para. 10.1]
(c) the acts or omissions to act by ALI or Great Southern or any
of their respective directors, officers, employees or agents after January
1, 1996, and the acts or omissions by any employee of Fremont Life during
the period from January 1, 1996, through the Closing, to the extent such
acts or omissions were directed by ALI or Great Southern.
In addition, the first full paragraph following the foregoing new
subsection (c) of Section 10.1 of the Master Agreement is amended to read as
follows:
Fremont shall be entitled to indemnification hereunder only if the
amount of damages with respect to such indemnifiable amounts individually
or in the aggregate exceeds $25,000, in which event the indemnity provided
for in Section 10.1 hereof shall be effective with respect to the entire
amount of such damages.
-3-
<PAGE>
8. REFUNDS TO ANNUITANTS. The following new Sections 10.5 and 10.6 are
added to the Master Agreement:
[Para. 10.5]
10.5. REFUND TO ANNUITANTS. Following the Closing and with
respect to any annuity issued prior to January 1, 1996, included in the
Reinsured Business:
(a) If, prior to the assumption of such annuity by Great Southern,
Fremont Life and/or ERC become subject to a judicial, governmental or
agency order to return to the annuitant all or any portion of the account
value respecting such annuity, then ERC shall remit to Fremont Life, upon
demand, the amount described in subsection (c) below for the purpose of
making such refund to the annuitant.
(b) If, following the assumption of such annuity by Great
Southern, Fremont Life, Great Southern and/or ERC become subject to a
judicial, governmental or agency order to return to the annuitant all or
any portion of the account value respecting such annuity, then Great
Southern or ERC, as the case may be (depending upon which party has the
assets for such annuity), shall remit to Fremont Life, upon demand, the
amount described in subsection (c) below for the purpose of making such
refund to the annuitant.
(c) The amount to be remitted under the foregoing subsections (a)
and (b) shall be equal to the amount of statutory reserves for such annuity
as of the date of remittance, less a pro rata portion of the ceding
commission (calculated as described in subsection (d) below).
(d) For purposes of the foregoing subsection (c), the "pro rata
portion of the ceding commission" shall be calculated by multiplying
$14,000,000 by the amount of the statutory reserves for such annuity, as of
January 1, 1996, and dividing such product by the total statutory reserves
for all the annuities, also as of January 1, 1996); provided, the aggregate
"pro rata portion of the ceding commission" for all annuity refunds shall
not exceed the amount set forth below opposite the particular 12-month
period in which Great Southern, Fremont Life or ERC, as the case may be,
first became subject to a judicial, governmental or agency order respecting
any such refund:
Maximum Aggregate "Pro Rata
12-Month Period Portion of the Ceding Commission"
1st 12-month period $7,500,000
2nd 12-month period 6,750,000
3rd 12-month period 6,000,000
4th 12-month period 5,250,000
5th 12-month period 4,500,000
6th 12-month period 3,750,000
7th 12-month period 3,000,000
-4-
<PAGE>
8th 12-month period 2,250,000
9th 12-month period 1,500,000
10th 12-month period 750,000
11th 12-month period and after 0
(e) In connection with any payment to Fremont Life by ERC or Great
Southern under subsections (a) or (b) above, Fremont Life shall (A) assume
(and release ERC and Great Southern with respect to) any and all
responsibility concerning such annuity, and (B) indemnify and defend ERC
and Great Southern from and against any claims concerning such annuity.
Following any such payment, Fremont Life shall make the appropriate refund
to the annuitant.
[Para. 10.6]
10.6. REFUND TO ANNUITANTS. Following the Closing and with
respect to any annuity issued after January 1, 1996, included in the
Reinsured Business:
(a) If, prior to the assumption of such annuity by Great Southern,
Fremont Life becomes subject to a judicial, governmental or agency order
to return to the annuitant all or any portion of the account value
respecting such annuity, then ERC shall remit to Fremont Life, upon
demand, the amount described in subsection (c) below for the purpose of
making such refund to the annuitant.
(b) If, following the assumption of such annuity by Great
Southern, Fremont Life becomes subject to a judicial, governmental or
agency order to return to the annuitant all or any portion of the account
value respecting such annuity, then Great Southern or ERC, as the case may
be (depending upon which party has the assets for such annuity), shall
remit to Fremont Life, upon demand, the amount described in subsection (c)
below for the purpose of making such refund to the annuitant.
(c) The amount to be remitted under the foregoing subsections (a)
and (b) shall be equal to the appropriate refund to be made to the
annuitant.
(d) In connection with any payment to Fremont Life by ERC or Great
Southern under subsections (a) or (b) above, Fremont Life shall (A)
assume (and release ERC and Great Southern with respect to) any and all
responsibility concerning such annuity, and (B) indemnify and defend ERC
and Great Southern from and against any claims concerning such annuity.
Following any such payment, Fremont Life shall make the appropriate refund
to the annuitant.
10. REINSURED BUSINESS. Exhibit A to the Master Agreement is amended
to read as set forth on the attached Exhibit A.
11. OTHER PROVISIONS. All references in the Master Agreement to the
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<PAGE>
"Agreement" shall be deemed to include this Amendment and the terms contained
herein. Except as amended herein, all terms and conditions of the Master
Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties to this Amendment have caused this
Amendment to be executed by their respective duly authorized officers as of the
date first above written.
FREMONT LIFE INSURANCE COMPANY
By ________________________________
Name ___________________________
Title __________________________
FREMONT GENERAL CORP.
By ________________________________
Name ___________________________
Title __________________________
AMERICO LIFE, INC.
By ________________________________
Name ___________________________
Title __________________________
GREAT SOUTHERN LIFE INSURANCE
COMPANY
By ________________________________
Name ___________________________
Title __________________________
-6-
<PAGE>
EXHIBIT A
REINSURED BUSINESS
The Reinsured Business includes all liabilities associated with all life
insurance and annuity policies issued or assumed by Fremont Life in force on
December 31, 1995 (with respect to universal life policies), and on January 1,
1996 (with respect to annuities and other insurance policies), or issued by
Fremont Life to become effective on or after such dates, respectively, including
all riders and contracts of reinsurance; provided, the Reinsured Business shall
not include Fremont Life's block of mortgage term insurance business commonly
referred to as Financial Services or AMPAC or the universal life policies of
Fremont Life described on the attached list.
L96-2228
EMPLOYERS REASSURANCE CORPORATION
5200 Metcalf P.O. Box 2981 - Overland Park, Kansas 66201-1381
(913) 676-5950 - Facsimile (913) 676-5221
A General Electric Capital Services Company
AMENDMENT NO. 1
The Automatic Coinsurance Annuity Reinsurance Agreement of January 1, 1996,
between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas and FREMONT
LIFE INSURANCE COMPANY of Orange, California, is hereby amended as follows:
Effective January 1, 1996:
A. Item 4 is deleted from the Schedule and the following Item 4 is
substituted therefor:
4. Transfer date: The closing date agreed to by the Reinsured and the
Retrocessionaire.
B. Item 8 is deleted from the Schedule and the following Item 8 is substituted
therefor:
8. Ceding commission: $5,000,000
C. Item 10 is deleted from the Schedule and the following Item 10 is
substituted therefor:
10. Expense allowance: As respects each calendar quarter after the
transfer date, the sum of the following:
(i) $1 per credit policy in force at
beginning of the quarter;
(ii) $1O per noncredit policy in force at
beginning of the quarter
(iii) $40 each new policy becoming effective
during the quarter;
(iv) The premium taxes paid by the
Reinsured on the policies' insurance
premium collected during the quarter.
D. The year "1995" specified in the definition of First Annuity Adjustment
contained in Article VI is corrected to read "1996".
E. The definition of Second Annuity Adjustment is deleted from Article VI.
F. Item 5 is deleted from subparagraph (a) of Section B of Article XII.
G. Item 8 is deleted from subparagraph (b) of Section B of Article XII.
<PAGE>
L960228
H. The Insolvency Clause is deleted and the Insolvency Clause attached to this
amendment is substituted therefor.
I. Exhibit A is deleted and the Exhibit A-I attached to this amendment is
substituted therefor.
J. The following provision is added to Exhibit A-1:
The guidelines contained in this exhibit shall not be construed
to constituted a guarantee by the Reinsured of the future
performance of the business ceded under this agreement.
K. The following provision is added to Exhibit B:
When credited interest rates are outside the defined working
ranges of target rates and a disagreement exists between the
Corporation and the Reinsured regarding whether, and how, such
credited interest rates should be adjusted, the decision of the
Reinsured shall prevail.
L. Exhibit C (regarding refunds to annuitants) attached to this amendment is
hereby made a part of this agreement.
In all other respects not inconsistent herewith, said agreement shall
remain unchanged.
IN WITNESS WHEREOF, me parties hereto have caused this amendment to be
executed in duplicate.
FREMONT LIFE INSURANCE EMPLOYERS REASSURANCE
COMPANY CORPORATION
By: /s/ By: /s/
Title: Assistant Treasurer Title: Vice President
Date: June 17, 1996 Date: June 14, 1996
By: /s/ By: /s/
Title: Secretary and General Counsel Title: Asst. Gen. Counsel
Date: June 17, 1996 Date: June 14, 1996
<PAGE>
L96-0509
INSOLVENCY CLAUSE
The portion of any risk or obligation assumed by the reinsurer when such portion
is ascertained, shall be payable on demand of the ceding insurer at the same
time as the ceding insurer shall pay its net retained portion of such risk or
obligation, with reasonable provision for verification before payment, and the
reinsurance shall be payable by the reinsurer, on the basis of the liability of
the ceding insurer under the contract or contracts reinsured without diminution
because of the insolvency of the ceding insurer. In the event of insolvency and
the appointment of a conservator, liquidator or statutory successor of the
ceding company, such portion shall be payable to such conservator, liquidator or
statutory successor immediately upon demand, with reasonable provision for
verification, on the basis of claims allowed against the insolvent company by
any court of competent jurisdiction or by any conservator, liquidator, or
statutory successor of the company having authority to allow such claims,
without diminution because of such insolvency or because such conservator,
liquidator or statutory successor has failed to pay all or a portion of any
claims. Payments by the reinsurer as above set forth shall be made directly to
the ceding insurer or to its conservator, liquidator or statutory successor,
except where the contract of insurance or reinsurance specifically provides
another payee of such reinsurance in the event of the insolvency of the ceding
insurer.
The conservator, liquidator or statutory successor of a ceding insurer shall
give written notice of the pendency of a claim against the ceding insurer
indicating the policy or bond reinsured, within a reasonable time after such
claim is filed and the reinsurer may 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 ceding company or its conservator, liquidator or
statutory successor. The expense thus incurred by the reinsurer shall be
payable subject to court approval out of the estate of the insolvent ceding
insurer as part of the expense of conservation or liquidation to the extent of a
proportionate share of the benefit which may accrue to the ceding insurer in
conservation or liquidation, solely as a result of the defense undertaken by the
reinsurer.
The original insured or policyholder shall not have any rights against the
reinsurer which are not specifically set forth in the contract of reinsurance,
or in a specific agreement between the reinsurer and the original insured or
policyholder.
<PAGE>
EXHIBIT A-1
AMERICO LIFE, INC.
INVESTMENT OBJECTIVES, STRATEGIES & GUIDELINES
FOR THE FREMONT LIFE INSURANCE BLOCK
FEBRUARY 29, 1996
INVESTMENT OBJECTIVES
The primary objectives are:
1) Preservation of principal (capital).
2) Maximize the potential value of the portfolio with a focus on maintaining
and increasing future investment income streams.
INVESTMENT CONSTRAINTS
1) Conservative and stable investment philosophy with primary emphasis on
balancing credit and interest rate risk.
2) Focus on well-structured securities (non-callable corporates, CMO's with
stable average lives, current or discount coupon, pass-throughs) to reduce
reinvestment risk and improve price performance. Investment in high risk
or volatile derivative securities (e.g. inverse floaters) are not
considered
part of the overall investment strategy.
3) Investments are made with the intent of being held long term. The
portfolio will not be actively/aggressively managed based on anticipated
interest rate and/or spread changes. Any restructuring of the portfolio
will be performed in conjunction with the overall asset/liability
management process.
4) The portfolio will be structured with the goal of matching the assets with
the expected liability cash flows. The structure of the assets will be
regularly monitored considering interest rate and expected prepayment rate
changes. Asset/liability studies are completed at least annually, or more
frequently if warranted. The results of these studies play an integral
role in the durational aspects of securities purchased.
5) Maintain a high quality/liquid investment portfolio to satisfy both
existing and prospective cash flow needs.
<PAGE>
INVESTMENT GUIDELINES AND LIMITATIONS
The following guidelines will be utilized in developing and managing the
portfolio:
1) Maturity Structure:
The targeted average life for the The maturity distribution of
portfolio is a range of 6-13 years. the portfolio will be a function
of expected liability cash flows,
and the term structure of
interest rates.
2) Sector Allocation:
Target
Expected Percentage
Sector Range Allocation
U.S. Governments: 0-25 % - %
Corporate Bonds: 45-85 55
Asset-Backed Securities (ABS): 5-20 20
Mortgage-Backed Securities (MBS): 15-45 25
-----
Total 100%
3) Ratings Guidelines,
a) Corporate Bonds:
Expected
Expected Percentage
Rating Category Range of Corporates
AAA & AA 5-15 % 10%
A 40-75 65
BBB 15-25 25
-----
100%
For any corporate bonds rated both Baa-3/BBB- by Moody's and Standard &
Poor's respectively, Employer's Re will be notified prior to their
purchase. Subsequent to the transaction, written approval will be obtained
from Employer's Re for all Baa-3/BBB- bonds acquired.
<PAGE>
b) Mortgage-Backed Securities:
MBS holdings will generally involve government agency, government
sponsored agency (FNMA and FHLMC), or AAA rated collateral. No more
than 20% of the total portfolio will be backed by non-agency
collateral.
c) Below Investment Grade Securities (BIG):
BIG bonds are not considered part of the overall investment strategy.
However, any bond purchased as an investment grade security which is
subsequently downgraded to a BIG rating will be reevaluated at that
time. If the risk of default is considered low, the bond may be
retained. Any BIG bonds retained will be regularly monitored and
reevaluated. The total amount of BIG bonds to be retained cannot
exceed 5% of total investments.
d) Asset-Backed Securities:
ABS investments should be rated AA or AAA by one of the major rating
agencies. No more than 20% of ABS holdings can be rated AA.
Expected Target
Range Allocation
AAA 80-100 % 100%
AA 0-20 -
4) Holding limitations:
a) Industry Concentration:
Corporate bond holdings are limited to no more than 20% in any one
industry.
b) Company Concentration:
The maximum amount to be invested in any one company or organization
is as follows:
Maximum Amount
Invested
Rating Category (In Millions)
AAA $15
AA 15
A 12
BBB 8
<PAGE>
c) Individual MBS Concentration:
The maximum amount to be invested in any one agency collateral
security is $25 million. For a non-agency collateral security, the
maximum amount is $10 million (rated AAA).
d) Individual ABS Concentration:
The maximum amount to be invested in any one ABS security is as
follows:
Maximum Amount
Invested
Rating Category (In Millions)
AAA $10
AA 5
5) Any security which is outside the scope of these guidelines can be
invested in, if mutually agreed upon by both organizations.
<PAGE>
EXHIBIT C
REFUNDS TO ANNUITANTS
1. REFUND TO ANNUITANTS. Following the Closing and with respect to any
annuity issued prior to January 1, 1996, included in the Reinsured Business:
(a) If, prior to the assumption of such annuity by Great Southern
Life Insurance Company ("Great Southern"), the Reinsured and/or the
Corporation become subject to a judicial, governmental or agency order to
return to the annuitant all or any portion of the account value respecting
such annuity, then the Corporation shall remit to the Reinsured, upon
demand, the amount described in subsection (c) below for the purpose of
making such refund to the annuitant.
(b) If, following the assumption of such annuity by Great Southern,
the Reinsured, Great Southern and/or the Corporation become subject to
a judicial, governmental or agency order to return to the annuitant all or
any portion of the account value respecting such annuity, then Great
Southern or the Corporation, as the case may be (depending upon which party
has the assets for such annuity), shall remit to the Reinsured, upon
demand, the amount described in subsection (c) below for the purpose of
making such refund to the annuitant.
(c) The amount to be remitted under the foregoing subsections (a)
and (b) shall be equal to the amount of statutory reserves for such annuity
as of the day of remittance, less a pro rata portion of the ceding
commission (calculated as described in subsection (d) below).
(d) For purposes of the foregoing subsection (c), the "pro rata
portion of the ceding commission" shall be calculated by multiplying
$14,000,000 by the amount of the statutory reserves for such annuity, as of
January 1, 1996, and dividing such product by the total statutory reserves
for all the annuities, also as of January 1, 1996); provided, the aggregate
"pro rata portion of the ceding commission" for all annuity refunds shall
not exceed the amount set forth below opposite the particular 12-month
period in which Great Southern, the Reinsured or the Corporation, as the
case may be, first became subject to a judicial, governmental or agency
order respecting any such refund:
Maximum Aggregate "Pro Rata
12-Month Period Portion of the Ceding Commission"
1st 12-month period $7,500,000
2nd 12-month period 6,750,000
3rd 12-month period 6,000,000
4th 12-month period 5,250,000
5th 12-month period 4,500,000
6th 12-month period 3,750,000
7th 12-month period 3,000,000
<PAGE>
8th 12-month period 2,250,000
9th 12-month period 1,500,000
10th 12-month period 750,000
11th 12-month period and after 0
(e) In connection with any payment to the Reinsured by the
Corporation or Great Southern under subsections (a) or (b) above, the
Reinsured shall (A) assume (and release the Corporation and Great Southern
with respect to) any and all responsibility concerning such annuity, and
(B) indemnify and defend the Corporation and Great Southern from and
against any claims concerning such annuity. Following any such payment,
the Reinsured shall make the appropriate refund to the annuitant.
2. REFUND TO ANNUITANTS. Following the Closing and with respect to any
annuity issued after January 1, 1996, included in the Reinsured Business:
(a) If, prior to the assumption of such annuity by Great Southern,
the Reinsured becomes subject to a judicial, governmental or agency order
to return to the annuitant all or any portion of the account value
respecting such annuity, then the Corporation shall remit to the Reinsured,
upon demand, the amount described in subsection (c) below for the purpose
of making such refund to the annuitant.
(b) If, following the assumption of such annuity by Great Southern,
the Reinsured becomes subject to a judicial, governmental or agency order
to return to the annuitant all or any portion of the account value
respecting such annuity, then Great Southern or the Corporation, as the
case may be (depending upon which party has the assets for such annuity),
shall remit to the Reinsured, upon demand, the amount described in
subsection (c) below for the purpose of making such refund to the
annuitant.
(c) The amount to be remitted under the foregoing subsections (a)
and (b) shall be equal to the appropriate refund to be made to the
annuitant.
(d) In connection with any payment to the Reinsured by the
Corporation or Great Southern under subsections (a) or (b) above, the
Reinsured shall (A) assume (and release the Corporation and Great Southern
with respect to) any and all responsibility concerning such annuity, and
(B) indemnify and defend the Corporation and Great Southern from and
against any claims concerning such annuity. Following any such payment,
the Reinsured shall make the appropriate refund to the annuitant.
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<PAGE>
ESCROW AGREEMENT
(Fremont Business)
July 1, 1996
COMMERCE BANK OF KANSAS CITY, N.A.
GREAT SOUTHERN LIFE INSURANCE COMPANY
Kansas City, Missouri
ESCROW AGREEMENT
(Fremont Business)
Entered into between
COMMERCE BANK OF KANSAS CITY, N.A.
of
Kansas City, Missouri
(hereinafter to referred to as the Bank)
and
EMPLOYERS REASSURANCE CORPORATION
of
Overland Park, Kansas
(hereinafter called the Corporation)
and
GREAT SOUTHERN LIFE INSURANCE COMPANY
a Texas corporation with executive offices in
Kansas City, Missouri
(hereinafter referred to as the Company)
EFFECTIVE DATE: July 1, 1996
In consideration of the mutual covenants hereinafter contained, the parties
hereto do hereby agree as follows:
SECTION I
SUBJECT AGREEMENTS. This agreement pertains to the Coinsurance Universal Life
Reinsurance Agreement of December 31, 1995 between the Corporation and Fremont
Life Insurance Company (hereinafter called the UL Treaty) and to the Coinsurance
Annuity Reinsurance Agreement of January 1, 1996 between the Corporation and
Fremont Life Insurance Company (hereinafter called the Annuity Treaty) and to
the Modified Coinsurance Universal Life and Annuity Retrocession Agreement
(Fremont Business) of December 31, 1995 between the Company and the Corporation
and the Modified Coinsurance Annuity Retrocession Agreement (Fremont Business)
of January 1, 1996 between the Company and the Corporation (hereinafter called
the Mod-Co Contracts).
<PAGE>
A copy of the UL Treaty is attached to and made a part of this agreement as
Exhibit A. A copy of the Annuity Treaty is attached to and made a part of this
agreement as Exhibit B. A copy of each of the Mod-Co Contracts is attached to
and made a part of this agreement as Exhibit C-I and C-2.
SECTION 2
DEPOSITS AND WITHDRAWALS. The first deposit in the amount indicated in Article
VII of the UL Treaty will be made by Fremont Life Insurance Company as soon as
practicable after the transfer date of the UL Treaty. The second deposit in the
amount indicated in Article VII of the Annuity Treaty will be made by Fremont
Life Insurance Company as soon as practicable after the transfer date of the
Annuity Treaty. Thereafter, all deposits and withdrawals from this account
shall be made by the Corporation in accordance with Article VIII of the Mod-Co
Contracts, but the Bank shall have no responsibility for deciding when the
deposits or withdrawals are to be made or for determining the required amounts
thereof or for determining whether the assets are of a type which are acceptable
to the Corporation.
All deposits made with respect to this agreement shall be held by the Bank for
the account of the Corporation. Except as permitted by the following paragraph,
all withdrawals from this account must be approved by the Corporation.
During each calendar quarter, Americo may, without specific consent from the
Corporation, withdraw from this escrow, for the purpose of administering the
business covered by the UL Treaty, the Annuity Treaty and the Mod-Co Contracts,
not more than $5,000,000 as a dual advance against the net balance due Fremont
Life at the end of the same quarter under Article XII(C) of the UL Treaty and
under XII(C) of the Annuity Treaty and the balance due the Corporation at the
end of the same quarter under Article XIII(C) of the Mod-Co Contracts.
SECTION 3
REPORTS. The Bank shall furnish to the Corporation, the Company and to Americo
Life, Inc., 1055 Broadway, Kansas City, Missouri 64105 (herein called Americo)
monthly reports of the assets held by the Bank with respect to this agreement
(hereinafter called assets). Each report shall show all deposits, withdrawals,
substitutions and a listing of assets as of the end of the month.
SECTION 4
CHARGES. All fees charged by the Bank for the services provided with respect to
this agreement shall be deducted from the assets' earnings, provided that, if
the earnings of the assets are insufficient, the Company shall be obligated for
the fees charged by the Bank with respect to this agreement.
-2-
<PAGE>
SECTION 5
OWNERSHIP. The assets shall remain the property of the Corporation until
released to the Company in accordance with Section 6.
SECTION 6
RELEASE OF ASSETS. On termination of this agreement, the Bank shall transfer to
the Company all of the assets held by the Bank with respect to this agreement.
SECTION 7
INVESTMENT DIRECTION. The Bank shall accept instructions from Americo regarding
investment of the assets, including sale of those assets deposited by the
Corporation and purchase of others. The Bank may, without the consent of
Americo, but with written notice to Americo, upon the call or maturity of any
asset, withdraw it, as long as the proceeds thereof are deposited back to the
Corporation's account pertaining to this agreement.
SECTION 8
INSPECTION. After giving the Bank at least three business days advance written
notice, the Corporation or the Company shall have the right to inspect the
assets during the business hours of the Bank.
SECTION 9
ASSIGNMENT. It is understood and agreed that none of the parties to this
agreement will assign or attempt to assign their interest herein or any part of
it.
SECTION 10
BANK DUTIES, (a) Acceptance of Assets. The Bank shall not accept any asset for
deposit (other than cash) unless the asset is issued or registered in such form
that it is readily negotiable to the Bank - i.e., the assets shall be either
issued in "bearer" form, issued or registered in the name of the Bank or its
nominee for the benefit of the Corporation. All securities, other than cash,
deposited by the Corporation shall:
1) be free and clear of all encumbrances; and
2) be fully negotiable or in such form that the Bank may sell,
transfer or otherwise deposit the same without any additional
signature or agreement from the Corporation.
-3-
<PAGE>
(b) Collection of Interest and Dividends: Voting Rights. The Bank is
hereby authorized, without prior notice to the Corporation or
Americo, to demand payment of and collect all interest or dividends
on the assets and the Bank shall deposit all of such interest or
dividends collected to the principal of the Corporation's account
pertaining to this agreement. The Bank shall have the full and
unqualified right to vote and execute consents with respect to any
shares of stock comprising the assets.
(c) Obligations. The Bank agrees to hold and disburse the various
assets in accordance with the provisions expressed herein.
(d) Responsibilities. The Bank shall be liable as a depository only
with its duties being only those specifically provided herein and
which are ministerial in nature and not discretionary. The Bank
shall not be liable for any mistake of fact or error in judgment,
or for any act or failure to act of any kind taken in good faith
and believed by it to be authorized or within the rights or powers
conferred by this agreement, unless there be shown willful
misconduct or gross negligence.
The Bank shall not be responsible for the sufficiency or accuracy
of the form, execution or validity of the documents or items
deposited hereunder, nor for any description of property or other
matter noted therein. It shall not be liable for default by any
party hereto because of such party's failure to perform, and shall
have no responsibility to seek performance by any party; nor shall
it be liable for the outlawing of any rights under any statutes of
limitation in respect to any documents or items deposited.
The Bank shall not be liable for collection items until the
proceeds of the same in actual cash have been received. The Bank
shall not be liable for interest on any deposit of money. The Bank
shall not be liable in any respect on account of identity,
authority or rights of persons executing or delivering, or
purporting to execute or deliver, any document or item, and may
rely absolutely and be fully protected in acting upon any item,
document or other writing believed by it to be authentic in
performing its duties hereunder. The Bank may, as a condition to
the disbursement of money or property, require from the payee or
recipient a receipt therefor, and, upon final payment or
distribution, require a release from any liability arising out of
its execution or performance of this agreement.
The Bank shall be entitled to consult with and engage the services
of legal counsel of its choice with respect to any matter
pertaining to this agreement and shall be entitled to reimbursement
for the reasonable costs and expenses of such legal counsel. The
Bank shall be entitled to compensation in accordance with Exhibit D
attached to and made a part of this agreement.
-4-
<PAGE>
In accepting any funds, securities or documents delivered
hereunder, it is agreed and understood that, in the event of
disagreement between the parties to this agreement, or persons
claiming under them, or any of them, the Bank reserves the right to
hold all money, securities and property in its possession, and all
papers in connection with or concerning this agreement, until a
mutual agreement has been reached between all of said parties, or
until delivery is made to court in any interpleader action, or
until as otherwise authorized by final judgment or decree.
The Bank, in the administration of this agreement, is to be bound
solely by the express provisions herein, and such further written
and signed directions, including facsimile instructions, as Americo
or the appropriate party or parties may, under the conditions
herein provided, deliver to the Bank.
(e) Resignation or Removal. The Bank may at any time resign from, and
terminate its capacity hereunder by delivery of written notice or
resignation, effective not less than thirty (30) days after receipt
by both the Corporation and the Company. The Bank may be removed
by the Corporation by delivery to the Bank and the Company of a
written notice of removal, effective not less than thirty (30) days
after receipt by the Bank and the Company of the notice. However,
no such resignation by the Bank shall be effective until a
successor to the Bank shall have been duly appointed as provided in
this agreement and all the assets have been duly transferred to
the successor. The Bank, upon receipt of such notice, shall
undertake to obtain the agreement of a qualified successor
depository, agreeable to the Company. Upon the Bank's delivery of
the assets to the qualified successor depository, along with a
closing statement showing all activities from the last report, the
Bank shall be discharged of further responsibilities hereunder.
(f) Release of Information. The Bank shall respond to any and all
reasonable requests for information concerning the assets by either
of the other parties to this agreement or from Americo.
SECTION 11
TERMINATION. Unless sooner terminated by mutual consent of the Corporation and
the Company (in which case the stipulation of termination shall specify whether
the Corporation or the Company is to receive the assets), this agreement shall
remain in force until the Corporation shall have no liability under the UL
Treaty and the Annuity Treaty (either to Fremont Life Insurance Company or to
the Company as assignee of Fremont Life pursuant to subparagraph 2 of Article
XVIII of the UL Treaty and the Annuity Treaty).
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
-5-
<PAGE>
in triplicate.
COMMERCE BANK OF KANSAS CITY, N.A. EMPLOYERS REASSURANCE CORPORATION
By: /s/ By: /s/
Title: Vice President Title: Vice President
Date: June 28, 1996 Date: June 28, 1996
By: /s/
Title: Asst. General Counsel
Date: June 25, 1996
GREAT SOUTHERN LIFE INSURANCE
COMPANY
By: /s/
Title: Senior Vice President and CFO
Date: June 26, 1996
By: /s/
Title: Senior Vice--Investments
Date: June 26, 1996
July 1, 1996
Fremont Life Insurance Company
Attn: Robert C. Pfeil, Jr.
790 The City Drive South, Suite 210
Orange, California 92668
Fremont General Corp.
Attn: Alan & Faigin, Esq.
2020 Santa Monica Boulevard
Santa Monica, California 90404
Re: Letter Agreement among Fremont General Corp. ("Fremont
General"), Fremont Life Insurance Company ("Fremont
Life"), Americo Life, Inc. ("ALI") and Great Southern
Life Insurance Company ("Great Southern")
Dear Mr. Pfeil and Mr. Faigin:
This Letter Agreement sets forth certain agreements among Fremont General,
Fremont Life, ALI and Great Southern respecting the transactions contemplated by
the Master Agreement and Transaction Documents, which agreements are, among
other items, intended to protect ALI and Great Southern from certain risks
related to the agency known as "the Alliance for Mature Americans"("AMA") and to
induce ALI and Great Southern to consummate the transactions contemplated by the
Master Agreement and the Transaction Documents. In consideration of the
foregoing and the mutual agreements set forth below, the parties agree as
follow.
1. INDEMNIFICATION BY FREMONT. In addition to the indemnifications
provided in the Master Agreement and Transaction Documents, Fremont General and
Fremont Life shall, jointly and severally, indemnify, defend and hold harmless
ALI and Great Southern against and in respect of any and all claims, demands,
threats, losses, costs, expenses, liabilities and damages, including interest,
penalties, attorneys' fees, court costs and amounts paid in settlement, that ALI
or Great Southern shall incur or suffer, that arise, result from or relate to
the alleged advertising and business practices of Fremont Life and/or AMA and
their respective affiliates, described in the attached letter dated May 2, 1996,
from Margaret Reiter, Deputy Attorney General of the State of California, and
Mark Torres-Gil, Assistant General Counsel of The State Bar of California, to
James L. Anderson, President of Fremont Life or any similar program:
(a) whether a civil or criminal action and whether instituted and
pursued by a governmental entity, The State Bar of California, any
individual or otherwise;
<PAGE>
(b) whether based on allegations of the unauthorized practice of
law; the use of unfair, unlawful or fraudulent business acts or practices,
the use of untrue or misleading statements in the solicitation of business,
the breach of a fiduciary duty, the misuse of confidential financial
information, the use of unscrupulous means or any other tort, claim or
cause of action, or otherwise, or based on allegations that any party has
conspired with, assisted and acted in concert with, or aided and abetted
another party in any of the foregoing; and
(c) whether seeking compensatory or other damages of any nature or
kind whatsoever, injunctive or other equitable relief, civil penalties or
otherwise; provided any order of restitution to annuitants shall be
addressed as set forth in the Master Agreement.
2. ASSUMPTION REINSURANCE BY GREAT SOUTHERN. Under Para. 5.1 of the
Assumption Reinsurance and Coinsurance Agreement (Annuities) (the "Assumption
Agreement") dated as of the date hereof between Fremont Life, as ceding insurer,
and Great Southern, as reinsurers, Great Southern is obligated to assume certain
annuity policies of Fremont Life on or before June 30, 1997. Should Great
Southern not consummate assumption of annuity policies until the AMA matter
described in paragraph 1 above has been fully resolved to Great Southern's
satisfaction, such deferral of assumption is not a breach of the existing
agreements and such policies remain subject to Article I of the Assumption
Agreement, as stated in the Assumption Agreement.
3. ASSIGNMENT AND ASSUMPTION OF AMA AGENCY MARKETING AGREEMENT. Under
Para. 2.8(c)(iii) of the Master Agreement, Great Southern is obligated to
assume, as of the Closing, Fremont Life's Agency Marketing Agreement with
AMA. As Fremont has terminated the Agency Marketing Agreement with AMA,
Great Southern has not assumed such agreement. Great Southern's failure to
assume the AMA Agency Marketing Agreement is not considered by Fremont to be
a breach by Great Southern of its obligations under the Master Agreement.
4. CLAIM NOTICE. ALI or Great Southern shall promptly notify Fremont
of the existence of any claim, demand or other matter to which Fremont's
indemnification obligations under paragraph 1 above and paragraph 6 below would
apply, and shall give Fremont a reasonable opportunity to defend the same at its
own expense and with counsel of its own selection; provided, ALI or Great
Southern shall at all times also have the right to fully participate in the
defense at its own expense. If Fremont shall, within a reasonable time after
this notice fail to defend, ALI and Great Southern shall have the right, but not
the obligation, to undertake the defense of, and to compromise or settle, the
claim or other matter on behalf, for the account, and at the risk, of Fremont.
5. GOVERNING LAW. This Letter Agreement shall be construed and
interpreted under and pursuant to the laws of the State of Missouri, excluding
choice of
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<PAGE>
law provisions.
6. AMA AGENCY MARKETING AGREEMENT. Fremont General and Fremont Life
have advised ALI and Great Southern that Fremont Life has terminated its Agency
Marketing Agreement with AMA. Fremont General and Fremont Life, both acknowledge
that such action was taken solely at the discretion of Fremont Life and that no
action or omission by ALI or Great Southern, by any employee of AU or Great
Southern, or by any employee of Fremont directed by ALI or Great Southern led to
such action.
ALI and Great Southern agree to waive the breach of the Master Agreement
Caused by Fremont Life's termination of its Agency Marketing Agreement with
AMA.In consideration of such Waiver, Fremont General and Fremont Life jointly
and severally agree to indemnify, defend and hold harmless ALI and Great
Southern against and for any claim, loss or damages arising out of such
termination.
If the Letter Agreement is acceptable to Fremont General and Fremont Life,
please execute the enclosed copy and return it to ALI and Great Southern.
Very truly yours,
AMERICO LIFE, INC.
By: /s/
Name: Gary L. Muller,
President and Chief Executive Officer
GREAT SOUTHERN LIFE INSURANCE COMPANY
By: /s/
Name: Gary L. Muller,
President and Chief Executive Officer
Accepted and agreed to this 1st day of July, 1996.
FREMONT LIFE INSURANCE COMPANY
By: /s/
Name: Alan W. Faigin
Title: Secretary & General Counsel
FREMONT GENERAL CORP.
By: /s/
Name: Wayne R. Bailey
Title: Executive Vice President, Treasurer &
Chief Financial Officer
Attachment
-3-
<PAGE>
Employers Reassurance Corporation
5200 Metcalf
P.O. Box 2981
Overland Park, Kansas 66201-1381
(913) 676-5950
Facsimile (913) 676-5221
A General Electric Capital Services Company
AMENDMENT NO. 1
The Investment Management Agreement of October 2, 1995, between AMERICO LIFE,
INC. of Kansas City, Missouri and EMPLOYERS REASSURANCE CORPORATION of Overland
Park, Kansas, is hereby amended as follows:
Effective December 31, 1995:
A. The following assets are added to Exhibit A:
The assets pertaining to the Automatic Coinsurance Universal Life
Reinsurance Agreement of December 31, 1995 between the Client and the
Fremont Life Insurance Company, as amended by Amendment No. 1.
The assets pertaining to the Coinsurance Annuity Reinsurance Agreement of
January 1, 1996 between the Client and Fremont Life Insurance Company, as
amended by Amendment No. 1.
The assets pertaining to the Modified Coinsurance Universal Life and
Annuity Retrocession Agreement (Fremont Business) of December 31, 1995
between Great Southern Life Insurance Company and the Client.
The assets pertaining to the Modified Coinsurance Annuity Retrocession
Agreement (Fremont Business) of January 1, 1996 between Great Southern Life
Insurance Company and the Client.
B. The second sentence is deleted from numbered paragraph 4 (Term of
Agreement)
and the following sentence is substituted therefor:
If not sooner terminated by mutual consent of the parties hereto, this
agreement shall remain in force until there exists no further liability
under any of the retrocession agreements named in Exhibit A, as amended by
Part A of this amendment
In all other respects not inconsistent herewith, said agreement shall
remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
executed in duplicate.
<PAGE>
EMPLOYERS REASSURANCE CORPORATION AMERICO LIFE, INC.
By: /s/ By: /s/
Title: Executive Vice President Title: President & CEO
Date: July 1, 1996 Date: July 1, 1996
By: /s/ By: /s/
Title: Assistant Vice President Title: Senior Vice Pres. & CFO
Date: July 1, 1996 Date: July 1, 1996
96-4004
MODIFIED COINSURANCE ANNUITY
RETROCESSION AGREEMENT
(Fremont Business)
January 1, 1996
GREAT SOUTHERN LIFE INSURANCE COMPANY
Kansas City, Missouri
<PAGE>
MODIFIED COINSURANCE ANNUITY
RETROCESSION AGREEMENT
(Fremont Business)
Entered into between
GREAT SOUTHERN LIFE INSURANCE COMPANY
a Texas corporation with executive offices in
Kansas City, Missouri
(hereinafter called the Company)
and
EMPLOYERS REASSURANCE CORPORATION
of
Overland Park, Kansas
(hereinafter called the Corporation)
EFFECTIVE DATE: January 1, 1996
In consideration of the mutual covenants hereinafter contained, the parties
hereto do hereby agree as follows:
ARTICLE 1
APPLICATION OF AGREEMENT. This agreement applies to the reinsurance agreement
described below (hereinafter referred to as the Treaty), but only with respect
to the business reinsured by the Treaty which is produced by Brokers
International Limited, and all references herein to the Treaty shall be
references to only that portion of the business under the Treaty to which this
agreement applies.
Automatic Coinsurance Annuity Reinsurance Agreement of January 1, 1996
between the Corporation and Fremont Life Insurance Company
Except where otherwise indicated herein, the words and terms in this agreement
shall have the same meaning as given in the Treaty.
<PAGE>
L96-1004
ARTICLE II
RETROCESSION. As hereinafter more specifically indicated, the Corporation will
cede and the Company shall accept 100% of certain of the Corporation's interests
and liabilities under the Treaty.
ARTICLE III
LOSS AND MISCELLANEOUS OBLIGATIONS. The Company is obligated to the Corporation
for all loss paid by the Corporation under the Treaty. The Company is also
obligated to the Corporation for the miscellaneous obligation payments made by
the Corporation under the Treaty.
ARTICLE IV
PRODUCER COMMISSIONS. The Company is obligated to the Corporation for the
producer commissions paid by the Corporation under the Treaty.
ARTICLE V
POLICY LOANS. The Company is obligated to the Corporation for the policy loan
increases. The Corporation is obligated to the Company for the policy loan
decreases.
ARTICLE VI
INITIAL CONSIDERATION. The Corporation is obligated to the Company for the
initial consideration under the Treaty. The Company is obligated to the
Corporation for the ceding commission under the Treaty, as changed by the First
Annuity Adjustment.
ARTICLE VII
RETROCESSION PREMIUM. The Corporation is obligated to the Company for the
reinsurance premium under the Treaty. The Company is obligated to the
Corporation for the sum of the expense allowance and the expense commission
under the Treaty.
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<PAGE>
L964004
ARTICLE VIII
ESCROW. The Escrow Account defined in Article VI of the Treaty is referred to
in this agreement as the Escrow. Ownership of all Escrow assets shall remain
with the Corporation. The Corporation will deposit to the Escrow all payments
pertaining to the Treaty received by the Corporation from the original ceding
insurer. The Corporation will also deposit to Escrow all payments pertaining to
this agreement received by the Corporation from the Company. The Corporation
will withdraw from Escrow all payments pertaining to the Treaty made by the
Corporation to the original ceding insurer. The Corporation will also withdraw
from Escrow all payments pertaining to this agreement made by the Corporation to
the Company.
As of the transfer date, Escrow assets shall be valued in accordance with
statutory accounting practices which have been prescribed or are permitted by
the National Association of Insurance Commissioners. After the transfer date,
no change will be made to the asset valuation practices unless required by
Kansas law, Kansas insurance regulation or by the Kansas Insurance Department.
ARTICLE IX
RESERVE TRANSFER. The Company shall be obligated to the Corporation as
indicated below Ar the following items applicable to the Treaty as of the
effective date of this agreement:
1. the policy reserves; plus
2. miscellaneous reserves and liabilities; minus
3. miscellaneous assets; and minus
4. the ceding commission under the Treaty, as changed by the First Annuity
Adjustment; Plus
5. the policy loans.
At the end of each calendar quarter after the transfer date, the Company shall
owe the Corporation the increase during the quarter or the Corporation shall owe
the Company the decrease during the quarter in the sum of the policy reserves,
policy loans and miscellaneous reserves, minus the due and deferred premium
asset.
ARTICLE X
INTEREST. Before January 17, 1996, the Corporation shall owe the Company simple
interest at 6% per annum on the average policy reserves, plus the average
miscellaneous reserves and liabilities, minus the average miscellaneous assets,
all with respect to the period from the effective date until January 17, 1996.
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<PAGE>
L96-4004
At the end of each calendar quarter after January 17, 1996, the Corporation
shall owe the Company simple interest, at the rate earned by the Escrow, on the
average policy reserves, plus the average miscellaneous reserves and
liabilities, minus the average miscellaneous assets, all pertaining to the
quarter.
"Average" means the amount of the identified item at me beginning of the period
involved, plus the amount of the identified item at the end of the same period,
divided by 2.
Before January 17, 1996, the Corporation shall owe the Company simple interest
at 6% per annum on the average policy loans for the period from the effective
date until January 17, 1996.
At the end of each calendar quarter after January 17, 1996, the Corporation
shall owe the Company the interest on the policy loans for the quarter.
ARTICLE XI
RISK ALLOWANCE. The Company shall pay to the Corporation a quarterly risk
allowance pertaining to the Treaty in an amount equal to one-fourth of 1.37% of
the amount at the beginning of each calendar quarter by which "X" exceeds the
Escrow value, where:
X = the policy reserves, plus the miscellaneous reserves and
liabilities, minus the miscellaneous eases, and minus the
policy loans.
If the risk allowance is more than the excess of Article XII Credits over
Article X11 Charges, the risk allowance will be reduced to the amount of such
excess The risk allowance is not payable with respect to any quarter for which
Article XII Charges exceed Article XII Credits.
ARTICLE XII
EXPERIENCE REFUND. At the end of each accounting period, the Company shall be
obligated to the Corporation for an experience refund equal to the percentage
hereinafter indicated of the amount, if any by which the sum of the following
Credits for the period exceeds the sum of the following Charges for the period.
Credits
1. This agreement's retrocession premium for the period.
2. The policy loans at the beginning of the period.
3. The miscellaneous assets at the end of the period
4. The policy reserves and the miscellaneous reserves and liabilities
at the beginning of the period.
5. Interest per Article X for the period.
-4-
<PAGE>
L96-1004
Charges
1. Producer commission for the period.
2. Expense commission plus expense allowance for the period.
3. Policy loss incurred during the period.
4. Miscellaneous obligation payments made during the period.
5. Policy loans at the end of the period.
6. The miscellaneous assets at the beginning of the period.
7. Policy reserves and the miscellaneous reserves and liabilities at
the end of the period.
8. The deficit, if any, at the end of the preceding period, including
interest thereon.
The first accounting period shall commence on the effective date and end on the
transfer date. Thereafter, "accounting period" means each calendar quarter.
As respects each accounting period, "deficit" means the excess of the preceding
Charges over the preceding Credits.
The percentage referred to in the first paragraph of this article shall be 1 00%
for each accounting period prior to and including the one in which the Escrow
Value exceeds "X" (as defined in Article XI), and shall be 5% thereafter.
ARTICLE XIII
REPORTING, ACCOUNTING AND SETTLEMENTS. Within 25 days after the Corporation
receives the original ceding insurer's report Or each accounting period, the
Corporation shall furnish to the Company a report (in a form satisfactory to the
Company) showing the following information for the same period:
A. The following amounts due the Company:
1. Initial consideration (first period only);
2. Retrocession premium;
3. Policy loan decrease;
4. Reserve transfer decrease;
5. Interest per Article X;
-5-
<PAGE>
L96-4004
B. The Allowing amounts due the Corporation:
1. Initial reserve transfer;
2. Reinsurance losses paid;
3. Producer commission;
4. Expense commission plus expense allowance;
5. Policy loan increase;
6. Experience refund;
7. Risk allowance;
8. Miscellaneous obligation payments;
9. Reserve transfer increase;
C. Balance due Company or Corporation.
D. The change in the policy reserves and miscellaneous reserves and
liabilities.
E. The change in miscellaneous assets.
If the amount shown in subparagraph C is due the Company, the Corporation's
payment thereof shall accompany the report. If the amount shown in subparagraph
C is due the Corporation, the Company shall make its payment thereof to the
Corporation within 25 days after receiving the report.
The Company and the Corporation each agree to pay the other simple interest, at
the rate earned by the Escrow, on all amounts due and not remitted within 60
days after the end of any accounting period.
The report for the third calendar quarter of each calendar year shall include
the information pertaining to the policies which is necessary for preparing the
Company's Annual Statement. The report for the fourth calendar quarter of each
calendar year shall include the original ceding insurer's cash flow analysis of
the policies which is sufficient for the Company's use in preparing its
actuarial opinion.
ARTICLE XIV
CLAIMS. The Company will abide by the claim handling decisions of the original
ceding insurer.
ARTICLE XV
INSPECTION OF RECORDS. The Company may inspect the records of the Corporation
pertaining to the Treaty.
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<PAGE>
L96-4004
ARTICLE XVI
INSOLVENCY CLAUSE. The Insolvency Clause attached to this agreement is hereby
made a part of this agreement.
ARTICLE XVII
ASSIGNMENTS AND CHANGES OF INTEREST. No assignment or change of the
Corporation's interest hereunder, whether voluntary or involuntary and whether
by merger or reinsurance of its entire business with another insurer or
otherwise, shall be binding upon the Company
Effective January 1, 1998, or at the beginning of any calendar quarter
thereafter, the Company shall have the right, by giving to the Corporation at
least 45 days advance notice, to extinguish all of the Company's obligations
under this agreement. In order to extinguish all of its obligations under this
agreement, the Company hall pay to the Corporation the amount by which "X" as
defined in Article XI) as of the date involved exceeds the Escrow balance, as
increased/decreased in accordance with Article VIII, as of the same date.
The right afforded by the preceding paragraph will be available only when the
Corporation has no liability under the Treaty or the UL Treaty.
The Corporation hereby provides its advance consent that it will, at the request
of the Company, enter into a novation effective on or after January 1, 1997
whereby THE COLLEGE LIFE INSURANCE COMPANY OF AMERICA an Indiana corporation
with executive offices in Kansas City, Missouri will assume all of the Company's
interests and liabilities under this agreement.
ARTICLE XVIII
OFFSET. The Corporation or the Company may offset any balance, whether on
account of premiums, commissions, loss or claim expenses due from one party to
the other under this agreement or under any other reinsurance agreement
heretofore or hereafter entered into between the Corporation and the Company,
whether acting as ceding company or assuming reinsurers.
ARTICLE XIX
ENTIRE AGREEMENT. This agreement shall constitute the entire agreement between
the parties with respect to the business being reinsured hereunder. There are
no other understandings between the parties other than as expressed in this
agreement. Any change or modification to this agreement shall be null and void
unless made by amendment to this agreement and signed by both parties.
-7-
<PAGE>
L96-1004
ARTICLE XX
RECAPTURE. The Company has no obligation to allow the Corporation to recapture
the policies.
ARTIClE XXI
TERMINATION. Either party shall have the right to terminate this agreement with
respect to new business by giving to the other party not less than 90 days
advance notice, by registered mail or express delivery service, stating the
first day of any calendar quarter which shall be the termination date.
This agreement does not apply to policies issued to become effective on or after
the termination date.
If the Company does not permit recapture, the retrocession afforded by this
agreement applicable to each policy issued by the original ceding insurer to
become effective prior to the termination date of this agreement shall continue
to apply thereto until the policy naturally expires.
IN WITNESS WHEREOF, the parties hereto have caused AN agreement to be executed
in duplicate.
EMPLOYERS REASSURANCE CORPORATION GREAT SOUTHERN LIFE INSURANCE COMPANY
By: /s/ By: /s/
Title: Executive VP and Actuary Title: President and CEO
Date: July 1, 1996 Date: July 1, 1996
By: /s/ By: /s/
Title: Assistant Vice President Title: Senior VP and CFO
Date: July 1, 1996 Date: July 1, 1996
<PAGE>
INSOLVENCY CLAUSE
The ceding insurer and the reinsurer agree that, in the event of the in-
solvency of the ceding insurer, as to all reinsurance made, ceded, renewed or
otherwise becoming effective after the effective date of this agreement, the
reinsurance shall be payable by the reinsurer on the basis of the amount of
liability of the ceding insurer under the contract or contracts reinsured,
without diminution because of the insolvency of the ceding insurer; furthermore,
that such amount shall be paid directly to the ceding insurer or its liquidator,
receiver or other statutory successor.
It is understood and agreed, however, that the obligations of the ceding
company as set forth in the reinsurance contract, including, among others, the
duty to investigate, settle and defend all claims arising under policies with
respect to which reinsurance is afforded by this agreement, shall remain
unimpaired and unaffected by the insolvency of the ceding insurer and shall be
assumed by the liquidator, receiver or statutory successor of the ceding insurer
in the liquidation or receivership proceeding and that such liquidator, receiver
or statutory successor shall give written notice to the reinsurer of the
pendency of a claim against the ceding insurer on the policy reinsured within a
reasonable time after such claim is filed in the insolvency proceeding 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 ceding
insurer, its liquidator, receiver or statutory successor. The expense thus
incurred by the reinsurer shall be chargeable, subject to court approval,
against the insolvent ceding insurer as part of the expense of liquidation to
the extent of a proportionate share of the benefit which may accrue to the
ceding insurer solely as the result of the defense undertaken or asserted by the
reinsurers.
Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose a defense to such claim, the expense shall be
apportioned in accordance with the terms of this reinsurance agreement as though
such expense had been incurred by the ceding insurer.
Nothing hereinabove set forth in this insolvency clause shall in anywise
change the relationship or status of the parties hereto, to wit, that of ceding
insurer and reinsurers nor enlarge the obligations of either party to each
other, except as specifically hereinabove provided, to wit, to pay the statutory
successor on the basis of the amount of liability of the ceding insurer under
the contract or contracts reinsured, rather than on the basis of the actual
amount of loss (dividends) paid by the liquidator, receiver or statutory
successor to allowed claimants, nor shall anything in this insolvency clause in
any manner create any obligations or establish any rights against the reinsurer
in favor of any third parties or any persons not parties to this reinsurance
contract.
LIFE (8/88)
MODIFIED COINSURANCE UNIVERSAL LIFE AND ANNUITY
RETROCESSION AGREEMENT
(Fremont Business)
December 31, 1995
GREAT SOUTHERN LIFE INSURANCE COMPANY
Kansas City, Missouri
<PAGE>
MODIFIED COINSURANCE UNIVERSAL LIFE AND ANNUITY
RETROCESSION AGREEMENT
(Fremont Business)
Entered into between
GREAT SOUTHERN LIFE INSURANCE COMPANY
a Texas corporation with executive offices in
Kansas City, Missouri
(hereinafter called the Company)
and
EMPLOYERS REASSURANCE CORPORATION
of
Overland Park, Kansas
(hereinafter called the Corporation)
EFFECTIVE DATE: December 3l, 1995
In consideration of the mutual covenants hereinafter contained, the parties
hereto do hereby agree as follows:
ARTICLE I
APPLICATION OF AGREEMENT. This agreement applies to the reinsurance agreements
described in the following Schedule (hereinafter referred to as Treaties or
Treaty), exclusive of the business reinsured by the Annuity Treaty which is
produced by Brokers International Limited, and all references herein to the
Treaties or Treaty shall be references to only that portion of the business
under the Treaties or Treaty to which this agreement applies.
Treaty Schedule
Automatic Coinsurance Universal Life Reinsurance
Agreement of December 31, 1995 between the Corpora-
tion and Fremont Life Insurance Company (the UL
Treaty).
Automatic Coinsurance Annuity Reinsurance Agreement
of January 1, 1996 between the Corporation and Fremont
Life Insurance Company (the Annuity Treaty).
Except where otherwise indicated herein, the words and terms in this agreement
shall have the same meaning as given in the Treaties.
-2-
<PAGE>
ARTICLE II
RETROCESSION. As hereinafter more specifically indicated, the Corporation will
cede and the Company shall accept 100% of certain of the Corporation's interests
and liabilities under the Treaties.
ARTICLE III
LOSS AND MISCELLANEOUS OBLIGATIONS. The Company is obligated to the Corporation
for all loss paid by the Corporation under the Treaties. The Company is also
obligated to the Corporation for the miscellaneous obligation payments made by
the Corporation under the Annuity Treaty.
ARTICLE lV
PRODUCER COMMISSIONS. The Company is obligated to the Corporation for the
producer commissions paid by the Corporation under the Treaties.
ARTICLE V
POLICY LOANS. The Company is obligated to the Corporation for the policy loan
increases. The Corporation is obligated to the Company for the policy loan
decreases.
ARTICLE VI
INITIAL CONSIDERATION. The Corporation is obligated to the Company for the
initial consideration under the Treaties. The Company is obligated to the
Corporation for the ceding commission under the UL Treaty, as changed by the UL
Adjustment. The Company is obligated to the Corporation for the ceding
commission under the Annuity Treaty, as changed by the First Annuity Adjustment.
ARTICLE VII
RETROCESSION PREMIUM. The Corporation is obligated to the Company for the
reinsurance premium under the Treaties. The Company is obligated to the
Corporation for the sum of the expense allowance and the expense commission
under the Treaties.
-2-
<PAGE>
ARTICLE VIII
ESCROW. The Escrow Account defined in Article VI of the Treaties is referred to
in this agreement as the Escrow. Ownership of all Escrow assets shall remain
with the Corporation. The Corporation will deposit to the Escrow all payments
pertaining to the Treaties received by the Corporation from the original ceding
insurer. The Corporation will also deposit to Escrow all payments pertaining to
this agreement received by the Corporation from the Company. The Corporation
will withdraw from Escrow all payments pertaining to the Treaties made by the
Corporation to the original ceding insurer. The Corporation will also withdraw
from Escrow all payments pertaining to this agreement made by the Corporation to
the Company.
As of the transfer date, Escrow assets shall be valued in accordance with
statutory accounting practices which have been prescribed or are permitted by
the National Association of Insurance Commissioners. After the transfer date,
no change will be made to the asset valuation practices unless required by
Kansas law, Kansas insurance regulation or by the Kansas Insurance Department.
ARTICLE IX
RESERVE TRANSFER. The Company shall be obligated to the Corporation as
indicated below for the following items applicable to the Treaties as of the
effective date of this agreement:
1. the policy reserves; plus
2. miscellaneous reserves and liabilities; minus
3. miscellaneous assets; and minus
4. the ceding commission under the UL Treaty, as changed by the UL
adjustment; and minus
5. Be ceding commission under the Annuity Treaty, as changed by the First
Annuity Adjustment; plus
6. the policy loans.
At the end of each calendar quarter after the transfer date, the Company shall
owe the Corporation the increase during the quarter or the Corporation shall owe
the Company the decrease during the quarter in the sum of the policy reserves,
policy loans and miscellaneous reserves, minus the due and deferred premium
asset.
-3-
<PAGE>
ARTICLE X
INTEREST. Before January 17, 1996, the Corporation shall owe the Company simple
interest at 6% per annum on the average policy reserves, plus the average
miscellaneous reserves and liabilities, minus the average miscellaneous assets,
all with respect to the period from the effective date until January 17, 1996.
At the end of each calendar quarter after January 17, 1996, the Corporation
shall owe the Company simple interest, at the rate earned by the Escrow, on the
average policy reserves, plus the average miscellaneous reserves and
liabilities, minus the average miscellaneous assets, all pertaining to the
quarter.
"Average" means the amount of the identified item at the beginning of the period
involved, plus me amount of the identified item at the end of the same period,
divided by 2.
Before January 17, 1996, the Corporation shall owe the Company simple interest
at 6% per annum on the average policy loans Ar the period from me effective date
until January 17, 1996.
At the end of each calendar quarter after January 17, 1996, the Corporation
shall owe the Company the interest on the policy loans for the quarter.
ARTICLE XI
RISK ALLOWANCE. The Company shall pay to the Corporation a quarterly risk
allowance pertaining to the Treaties in an amount equal to one-fourth of 1.55%
of the amount at the beginning of each calendar quarter by which "X" exceeds the
Escrow value, where:
X = the policy reserves, plus the miscellaneous reserves
and liabilities, minus the miscellaneous assets, and
minus the policy loans.
If the risk allowance is more than the excess of Article XII Credits over
Article XII Charges, the risk allowance will be reduced to the amount of such
excess. The risk allowance is not payable with respect to any quarter for which
Article XII Charges exceed Article XII Credits.
ARTICLE XII
EXPERIENCE REFUND. At the end of each accounting period, the Company shall be
obligated to the Corporation for an experience refund equal to the percentage
hereinafter indicated of the amount, if any by which the sum of the following
Credits for the period exceeds the sum of the following Charges Or the period.
-4-
<PAGE>
CREDITS
1. This agreement's retrocession premium for the period.
2. The policy loans at the beginning of the period.
3. The miscellaneous assets at me end of me period.
4. The policy reserves and the miscellaneous reserves and liabilities at
the beginning of the period.
5. Interest per Article X for the period.
CHARGES
1. Producer commission for the period.
2. Expense commission plus expense allowance for the period.
3. Policy loss incurred during the period.
4. Miscellaneous obligation payments made during the period.
5. Policy loans at the end of the period.
6. The miscellaneous assets at the beginning of the period.
7. Policy reserves and the miscellaneous reserves and liabilities at the end
of the period.
8. The deficit, if any, at the end of the preceding period, including
interest thereon.
The first accounting period shall commence on the effective date and end on the
transfer date. Thereafter, "accounting period" means each calendar quarter.
As respects each accounting period, "deficit" means the excess of the preceding
Charges over the preceding Credits.
The percentage referred to in the first paragraph of this article shall be 100%
for each accounting period prior to mid including the one in which the Escrow
Value exceeds "X" (as defined in Article XI), and shall be 5% thereafter.
ARTICLE XIII
REPORTING, ACCOUNTING AND SETTLEMENTS. Within 25 days after the Corporation
receives the original ceding insurer's report for each accounting period, the
Corporation shall furnish to the Company a report (in a form satisfactory to the
Company) showing the following information for the same period:
-5-
<PAGE>
A. The following amounts due the Company:
1. Initial consideration (first period only);
2. Retrocession premium;
3. Policy loan decrease;
4. Reserve transfer decrease;
5. Interest per Article X;
B. The following amounts due the Corporation:
1. Initial reserve transfer;
2. Reinsurance losses paid;
3. Producer commission;
4. Expense commission plus expense allowance;
5. Policy loan increase;
6. Experience refund;
7. Risk allowance;
8. Miscellaneous obligation payments;
9. Reserve transfer increase;
C. Balance due Company or Corporation.
D. The change in the policy reserves and miscellaneous reserves and
liabilities.
E. The change in miscellaneous assets.
If the amount shown in subparagraph C is due the Company, the Corporation's
payment thereof shall accompany the report. If the amount shown in subparagraph
C is due the Corporation, the Company shall make its payment thereof to the
Corporation within 25 days after receiving the report.
The Company and the Corporation each agree to pay the other simple interest, at
the rate earned by the Escrow, on all amounts due and not remitted within 60
days after the end of any accounting period.
The report for the third calendar quarter of each calendar year shall include
the information pertaining to the policies which is necessary for preparing the
Company's Annual Statement. The report for the fourth calendar quarter of each
calendar year shall include the original ceding insurer's cash flow analysis of
the policies which is sufficient for the Company's use in preparing its
actuarial opinion.
ARTICLE XIV
CLAIMS. The Company will abide by the claim handling decisions of the original
ceding insurer.
-6-
<PAGE>
ARTICLE XV
INSPECTION OF RECORDS. The Company may inspect the records of the Corporation
pertaining to the Treaties.
ARTICLE XVI
INSOLVENCY CLAUSE. The Insolvency Clause attached to this agreement is hereby
made a part of this agreement.
ARTICLE XVII
ASSIGNMENTS AND CHANGES OF INTEREST. No assignment or change of the
Corporation's interest hereunder, whether voluntary or involuntary and whether
by merger or reinsurance of its entire business with another insurer or
otherwise, shall be binding upon the Company.
Effective January L1998, or at the beginning of any calendar quarter thereafter,
the Company shall have the right, by giving to the Corporation at least 45 days
advance notice, to extinguish all of the Company's obligations under this
agreement. In order to extinguish all of its obligations under this agreement,
the Company shall pay to the Corporation the amount by which "X" (as defined in
Article XI) as of the date involved exceeds the Escrow balance, as
increased/decreased in accordance with Article VIII, as of the same date.
The right afforded by the preceding paragraph will be available only when the
Corporation no liability under the UL Treaty or the Annuity Treaty.
ARTICLE XVIII
OFFSET. The Corporation or the Company may offset any balance, whether on
account of premiums, commissions, loss or claim expenses due from one party to
the other under this agreement or under any other reinsurance agreement
heretofore or hereafter entered into between the Corporation and the Company,
whether acting as ceding company or assuming reinsurer.
ARTICLE XIX
ENTIRE AGREEMENT. This agreement shall constitute die entire agreement between
the parties with respect to the business being reinsured hereunder. There are
no other understandings between the parties other than as expressed in this
agreement. Any change or modification to this agreement shall be null and void
unless made by amendment to this agreement and signed by both parties.
-7-
<PAGE>
ARTICLE XX
RECAPTURE. The Company has no obligation to allow the Corporation to recapture
the policies.
ARTICLE XXI
TERMINATION. Either party shall have the right to terminate this agreement with
respect to new business by giving to the other party not less than 90 days
advance notice, by registered mail or express delivery service, stating the
first day of any calendar quarter which shall be the termination date.
This agreement does not apply to policies issued to become effective on or after
the termination date.
If the Company does not permit recapture, the retrocession afforded by this
agreement applicable to each policy issued by the original ceding insurer to
become effective prior to the termination date of this agreement shall continue
to apply thereto until the policy naturally expires.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
in duplicate.
EMPLOYERS REASSURANCE CORPORATION GREAT SOUTHERN LIFE INSURANCE COMPANY
By: /s/ By: /s/
Title: Executive VP and Actuary Title: President and CEO
Date: July 1, 1996 Date: July 1, 1996
By: /s/ By: /s/
Title: Assistant Vice President Title: Senior VP and CFO
Date: July 1, 1996 Date: July 1, 1996
<PAGE>
INSOLVENCY CLAUSE
The ceding insurer and the reinsurer agree that, in the event of the
insolvency of the ceding insurer, as to all reinsurance made, ceded, renewed or
otherwise becoming effective after the effective date of this agreement, the
reinsurance shall be payable by the reinsurer on the basis of the amount of
liability of the ceding insurer under the contract or contracts reinsured,
without diminution because of the insolvency of the ceding insurer; furthermore,
that such amount shall be paid directly to the ceding insurer or its liquidator,
receiver or other statutory successor.
It is understood and agreed, however, that the obligations of the ceding
company as set forth in the reinsurance contract, including, among others, the
duty to investigate, settle and defend all claims arising under policies with
respect to which reinsurance is afforded by this agreement, shall remain
unimpaired and unaffected by the insolvency of the ceding insurer and shall be
assumed by the liquidator, receiver or statutory successor of the ceding insurer
in the liquidation or receivership proceeding and that such liquidator, receiver
or statutory successor shall give written notice to the reinsurer of the
pendency of a claim against the ceding insurer on the policy reinsured within a
reasonable time after such claim is filed in the insolvency proceeding 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 ceding
insurer, its liquidator, receiver or statutory successor. The expense thus
incurred by the reinsurer shall be chargeable, subject to court approval,
against the insolvent ceding insurer as part of the expense of liquidation to
the extent of a proportionate share of the benefit which may accrue to the
ceding insurer solely as the result of the defense undertaken or asserted by the
reinsurer.
Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose a defense to such claim, the expense shall be
apportioned in accordance with the terms of this reinsurance agreement as though
such expense had been incurred by the ceding insurer.
Nothing hereinabove set forth in this insolvency clause shall in anywise
change the relationship or status of the parties hereto, to wit, that of ceding
insurer and reinsurers nor enlarge the obligations of either party to each
other, except as specifically hereinabove provided, to wit, to pay the statutory
successor on the basis of the amount of liability of the ceding insurer under
the contract or contracts reinsured, rather than on the basis of the actual
amount of loss (dividends) paid by the liquidator, receiver or statutory
successor to allowed claimants, nor shall anything in this insolvency clause in
any manner create any obligations or establish any rights against the reinsurer
in favor of any third parties or any persons not parties to this reinsurance
contract.
LIFE (8/88)
<PAGE>
-18-
<PAGE>
SCHEDULE D
THE REINSURANCE AGREEMENTS
-19-
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